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Introduction To

Logistics Management

Logistics : An Introduction
The term Logistics is based on the physical
movement of goods.
The word "logistics" is derived from the Greek
adjective logistikos meaning "skilled in
calculating".
The modern interpretation of the term
logistics has its origins in the military.
The Websters New Encyclopedia (1993)
defined logistics as
the branch of military science having to do
with procuring, maintaining, and
transporting material, personnel, and
facilities

Logistics : An Introduction
Logistics is considered to have originated in the military's
need to supply themselves with resources (arms,
ammunition and rations) as they moved from their base
to a forward position.
In ancient Greek, Roman and Byzantine empires, military
officers with the title Logistikas were responsible for
financial and supply distribution matters.
In military science, maintaining one's supply lines while
disrupting those of the enemy is a crucialsome would
say the most crucialelement of military strategy,
since an armed force without resources and
transportation is defenseless.

Logistics management has many


names.
Business logistics
Channel

management
Distribution
Industrial
distribution
Industrial logistics
Materials
management

Physical distribution

Logistical

management
Logistics
Quick-response
systems
Supply chain
management

Logistics : Definition
Benson (1994) defined logistics
as the art of maintaining control over worldwide supply-chains by a combination of
transport, warehousing skills, distribution
management and information technology.
Transport bridges the geographical gaps in

the complex pattern of manufacturing


centers, sources of raw material supplies,
depot locations and marketing outlets.

Definitio
n

Council of Logistics Management :


Logistics is that part of the supply
chain process that plans, implements,
and controls the efficient, effective
forward and reverse flow and storage
of goods, services, and related
information between the point of origin
and the point of consumption in order
to meet customers requirements.

Logistics
Logistics is the task of managing two key

flows
Material flow of the physical goods from

suppliers through the distribution centers to


store
Information flow of demand data from the endcustomer back to purchasing and to suppliers,
and supply data from suppliers to the retailer,
so that material flow can be accurately planned
and controlled

Logistic
s

From cow to customer

Logistics and Types of


Organizations
Is logistics relevant to all types of

Organizations?
manufacturing entities such as automobiles,

computers, cosmetics, aircraft and food items


Service sector such as government
organizations, hospitals, banks, universities,
retailers and wholesellers

Business logistics include all the


activities related to the physical
movement of goods (upstream and
downstream) and related paperwork.
Upstream

Near the source

Downstream

those near the end-customer

Supply network
Source: After Slack et al., 1997

In the early days, logisticians were


concerned about making sure that the
goods arrived in good condition and at the
lowest possible cost.
The advent of containers in ocean trades
(mostly 1960s and 1970s) lowered transit
times substantially.
International air shipments became an
increasing percentage of all shipments in
the 1980s

In the 1980s, with very high interest rates,


companies shifted their emphasis to
inventory reductions.
Logisticians became ever more focused on
transit times in order to minimize inventory
costs, raising the expectations of
customers.
Fast delivery times facilitated the adoption
of different inventory management
techniques:
Just-In-Time
MRP
MRP II

Just-In-Time
A management philosophy that consists of planning the
manufacturing and shipment of goods in such a way
that they are produced and delivered just before they
are needed in the next step of the assembly process. In
the US, JIT is often accomplished with the adoption of
MRP and MRP II systems.

Materials Requirement Planning (MRP)


A computer-based management tool that allows a
manufacturing firm to determine what to produce, and
in which quantity, in function of what it sells to its
customers.

Manufacturing Resources Planning (MRP


II)
A computer-based management tool that uses MRP at
its core, and that includes other functions in the firm,
such as finance and marketing.

Logistics and Supply Chain


Management
The terms Logistics and
supply chain management are
often used interchangeably,
logistics is actually a subset of
supply change management

Logistics and Supply Chain


Management

Supply Chain Management


Encompasses the planning and management
of all activities involved in sourcing and
procurement, conversion, and all Logistics
Management activities.
Importantly, it also includes coordination and
collaboration with channel partners, which
can be suppliers, intermediaries, third-party
service providers, and customers.
In essence, Supply Chain Management
integrates supply and demand management
within and across companies.

Logistics and Supply Chain


Management

Three views on the relationship between logistics and SCM

Logistics and Supply Chain


Management

Supply Chain Management includes more


activities than Logistics Management: the
Inclusionist viewpoint prevails.

In 2004, the Council of Logistics Management


changed its name to the Council of Supply
Chain Management Professionals (CSCMP) to
reflect what was perceived as the broader
nature of the field

Supply Chain Management


Definition by the Council of Supply Chain
Management Professionals (CSCMP)
Supply Chain Management encompasses the
planning and management of all activities
involved in sourcing and procurement,
conversion, and all Logistics Management
activities. Importantly, it is also includes
coordination and collaboration with channel
partners,
which
can
be
suppliers,
intermediaries, third-party service providers,
and customers. In essence, Supply Chain
Management integrates supply and demand
management within and across companies.

Components of Logistics
Management
Inputs into
logistics
Natural
resources

Management actions
Planning Implementation Control
Logistics
management

Human
Raw
In-process Finished
Suppliers
resources
materialsinventory goods
Financial
resources
Information
resources

Logistics activities

Customers

Outputs of
logistics
Competitive
advantage
Time and
place utility
Efficient
movement
to customer

Customer service
Plant & warehouse site selection Proprietary
Demand forecasting
Procurement
asset
Inventory management
Packaging
Logistics communications
Reverse logistics
Material handling
Copyright 2001 by The
Traffic and transportation
McGraw-Hill Companies,
Order processing
Warehousing and storage
Inc. All rights reserved.
Parts and service support

A Significance of Definition
Suppose one organization defined logistics as

transportation and inventory management


and another organization as transportation,
inventory management and warehousing
Whose total cost of logistics would be higher?

Output of Logistics
Competitive Advantage
Logistics leads to Competitive Advantage
A company has CA whenever it has an edge over
rivals in attracting customers and defending
against competitive forces (Thompson & Strickland,
2003)
Read K-Mart vs. Wal-Marts case
Two retail merchandise chains sold the same products,
sought the same customers
K-Mart focused on marketing and merchandising
Wal-Mart invested on computer system linking cash
register to HQ, trucks and modern distribution centers

Output of Logistics
Logistics contributes to time and place utility
Place utility
Refers to having products available where they are
needed by customers
Products are moved from points of lesser value to
points of greater value

Time Utility
Refers to having products available when they are
needed by customers
Different products have different sensitivities to time,
e.g three-day late delivery of perishable items likely has
more serious consequences than three-day late
delivery of nonperishable items

Output of Logistics
Efficient movement to customer
Effective and efficient performance of 13
logistics activities
Proprietary asset
Possession utility

refers to the value or usefulness that comes from a


customer being able to take possession of a product

Strategies for Increasing


Profitability
Profit squeeze
Generate additional sales volume through
increased marketing effort

Difficult - Saturated market, highly competitive


market or low growth

Increase the price of the firms product


Depend on the demand elasticity may not have the
desired impact on sales
Reducing the firms costs of doing business

Logistics is one of the most promising areas where


significant cost savings can be achieved

Major Costs of Doing


Business

Key Logistics Activities


Customer service
Demand

forecasting
Inventory
management
Logistics
communications
Material handling
Order processing
Packaging

Parts and
service support
Plant and
warehouse site
selection
Procurement
Reverse
logistics
Traffic and
transportation
Warehousing
and storage

Customer service
Five rights of a logistics systems
Each component of the logistics system can
affect whether a customer receives the right
product, at the right place, in the right
condition, for the right cost, at the right
time.
Thus, customer service involves successful
implementation of the integrated logistics
management concept in order to provide the
necessary level of customer satisfaction at the
lowest possible total cost

Demand forecasting
Demand forecasting involves determining the

amount of product and accompanying service


that customers will require at some point in
the future
Determine how much of each item produced
by the company must be transported to the
various markets the firm serves
Sophisticated computer models, trend
analysis, sales force estimates, or other
methods can help in demand forecasting

Inventory management
The inventory control activity is critical

because of the financial necessity of


maintaining a sufficient supply of product to
meet both customers needs and
manufacturing requirements
Inventory management involves trading off
the level of inventory held to achieve high
customer service levels, with the cost of
holding inventory, including capital tied up in
inventory, warehousing costs, and
obsolescence

Logistics communications
Success in today business requires the management

of a complex communication system


Effective communication must take place among
The organization, its suppliers, and its customers
The major functions within organization, such as

logistics, engineering, accounting, marketing, and


production
The 13 various logistics activities listed above

A firms communications system may be as

sophisticated as a computerized management


information system (MIS) or a simple word-of-mouth
communication between individuals

Material handling
Materials handling is concerned with every aspect of

the movement or flow of raw materials, in-process


inventory, and finished goods within a plant or
warehouse
The objectives of materials handling are to
Eliminate handling whenever possible
Minimize travel distance
Minimize work-in-process
Provide uniform flow free of bottlenecks
Minimize losses from waste, breakage, spoilage, and

theft

A firm incurs cost every time an item is handled

Order processing
A customers order triggers the logistics

process and directs the actions to be taken in


satisfying order demand
The component of order processing
Operational elements
Communication elements
Credit and collection elements

Computers and electronic commerce can help

reduce the time between order placement and


product shipment

Packaging
Packaging performs two basic function
Marketing

Package acts as form of promotion or advertising size, weight, color and printed information

Logistics

Package protects the product from damage while


being stored or transported
Proper packaging can make it easier to store and
move products, thereby reducing materials handling
costs

Parts and service support


Logistics deal with after sale service repair

and servicing of products,


Adequate supply of spare and replacement

parts

Logistics is responsible for making sure those

parts are available when and where the


customer needs them

Plant and warehouse site


selection
The strategic placement of plants and warehouses

can assist firms in improving customer service


levels
Considerations in site selection
Location of firm targets markets
Location of raw materials, component parts
Labor rates
Transportation services
Security
Land cost
Availability of utilities

Procurement
Procurement
The process of acquiring materials and services
to ensure the operating effectiveness of the
firms manufacturing and logistics processes
Organizations form long-term relationships with
fewer key suppliers

Reverse logistics
The handling of return goods, as well as

salvage and scrap disposal (waste materials)


Buyer may return items to the seller due to
product defects, overages, shipping errors
Customers return products for warranty
repair, replacement, remanufacturing, or
recycling,
Reverse logistics are high relative to forward
logistics costs some as much as five to nine
times more than moving the same product
from producer to consumer

Traffic and transportation


Selecting the method of shipment (air, rail,

water, pipeline, truck, intermodal)


Choosing the specific path (routing)
Complying with various state, countries
transportation regulations
Transportation is often the single largest cost
in the logistics process

Warehousing and storage


Products must be stored at the plant or in the field for later

sale and consumption unless customers need them the


instant they are produced.
Generally, the greater the time lag between production
and consumption, the larger the level or amount of
inventory required
Warehousing and storage activities involve the
management of the space needed to hold or maintain
inventories
Specific storage activities include decisions as to whether
the storage facility should be owned, leased, or rented;
layout and design of storage facilities; product mix
considerations