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Logistics is concerned with getting the products and services where they are needed and

when they are desired. It is difficult to accomplish any marketing or manufacturing without
logistical support. It involves the integration of information, transportation, inventory,
warehousing, material handling, and packaging.

The operating responsibility of logistics is the geographical repositioning of raw materials,
work in process, and finished inventories where required at the lowest cost possible.
The formal definition of the word ‗logistics‘ as per the perception of Council of Logistics
Management is the process of planning, implementing and controlling the efficient, effective
flow and storage of goods, services and related information from the point of origin to the
point of consumption for the purpose of conforming to customer requirements.

Mission of logistics is providing a means by which customer satisfaction is achieved. Art of
moving, lodging and supplying troops, supplies and equipment is logistics. Concept of
logistics has moved into business to move, lodge and supply inputs and outputs.
Logistics is practiced for ages since organized activity began. Without logistics support no
activity can be performed to meet defined goal. The current challenge is to perform logistics
scientifically in order to optimize benefits to the organization.

Logistics is a planning function of management. Logistics function is concerned with taking
products and services where they are needed and when they are needed.
Logistics ensures that the required inputs [what] to a value adding process are made
available, where they are needed, when they are needed and in the quantities [how much]
they are needed. It also ensures that the outputs of the value adding process are made
available where they are needed when they are needed and in the quantities [how much?]
they are needed.

There are many ways of defining logistics but the underlying concept might be defined as
follows: ‗Logistics is the process of strategically managing the procurement, movement and
storage of materials, parts and finished inventory through the organization and its marketing
channels in such a way that current and future profitability are maximized through the cost-
effective fulfillment of orders.‘


According to the Council of Logistics Management (CLM) ―Logistics is the process of
planning, implementing and controlling the efficient and effective flow of goods, services and
related information from point of origin to point of consumption in order to meet customer

Logistics has gained importance due to the following trends:
• Raise in transportation cost.
• Production efficiency is reaching a peak
• Fundamental change in inventory philosophy
• Product line proliferated
• Computer technology
• Increased use or computers
• Reduction in economic regulation
• Growing power of retailers
• Globalization


1. Logistics is the bed rock of trade and business.
 Without selling and or buying there can be no trade and business. Buying and or
selling takes place only when goods are physically moved into and or away from the
 Take away logistical support trade and business will collapse
2. Leads to customer satisfaction through superior customer service.
Organizational objectives of P [Productivity],Q [Quality],C [Cost],D [Delivery],E [Employee
Morale],F [Flexibility],S [Safety],H [Health],E [Environment] are set to meet customer
expectations of Q,C,D.
Q, C, S, H, E are parts of must be quality that a customer expects. Logistics addresses
D, F objectives which lead to customer satisfaction through superior customer service
3. Integrates logistical activities
In conventional management environment, various activities of logistics work in isolation
under different management functions. Each pocket trying to sub optimizes its objectives
at the cost of overall organizational objectives. Purchasing trying to purchase at minimum
price at the cost of what is needed by operations. Operations produce large quantities at
minimum production cost ignoring demand leading to doom inventory. Logistics function
of management brings all such functions under one umbrella pulling down inter
departmental barriers.
4. Competitive edge: In the fiercely competitive environment logistics provides the edge.
Due to technological revolution most of the products are moving into commodity markets.
In a commodity market where price is controlled by competition, where there is no
product differentiation in terms of quality parameters like performance & reliability, where
brands are almost irrelevant, competitive edge is that of availability of product and
service in terms of time, place and quantity.

5. Logistics wins or loses wars
 British lost American war of independence due to poor logistics
 Rommel was beaten in the desert by superior logistics of Allies
6. Supports critical functions like operations and marketing
Strong logistics support enables a company to move towards JUST IN TIME production
system for survival in a highly competitive market
a) Interface with marketing
These days marketing a product is increasingly on the strength of availability and
flexibility as we discussed earlier. Stronger emphasis is on the last of four Ps of
marketing [product, price, promotion and place]. Logistics provides the interface between
production function and marketing function. Marketing is trying to sell the product in the
market place. Logistics makes the product accessible to marketing by acting as interface
between the function that produces it and the function that makes the consumer buy it.
This interface is gaining importance due to following changes that are sweeping the
market making many companies adopt JUST IN TIME production system.
a. Change in the customer: demanding, knowledgeable, conscious of rights, lacking in
brand loyalty, changes preferences very fast, expects very high degree of service
b. Many products are moving towards commodities market: product differentiation in
terms of quality of performance is vanishing and brands are losing their magic.
c. As a result of above we find that availability is an important determinant of
purchasing decision.
7. Logistical costs: For individual businesses logistics expenditures are 5% to 35% of sales
depending on type of business, geographical areas of operation, weight/value ratios of
products and materials. This is an expensive operation. Improvement in the efficiency of
logistics function yields savings as well as customer satisfaction


1. Rapid Response: Rapid response is concerned with a firm‘s ability to satisfy customer‘s
requirement in a timely manner. Instead of stocking the goods and supplying on demand,
orders are executed on shipment-to-shipment basis. Here IT helps to postpone the logistical
operations to the latest possible time and then execute rapid delivery as when needed by

2. Minimum Variance: Variance is any unexpected event that disrupts system. Logistical
operations are disrupted by events like delays in order receipt, disruption in manufacturing,
goods damaged at customer‘s location and delivery to an incorrect location etc. Traditional
solution to deal with variance was to keep safety stock or use high cost transportation. Such
practices were expensive and risky and thus have been replaced by information technology
to achieve positive logistics control.

3. Minimum Inventory: The objective of minimum inventory involves asset commitment and
inventory turnover. Asset commitment is the financial value of inventory developed
throughout the logical system and inventory turnover is the rate of inventory usage over
time. The objective is to reduce the inventory without sacrificing customer satisfaction.

4. Movement Consolidation: One of the most significant logistical costs is transportation.
Transportation cost depends on type of product, size of shipment and distance. Movement
consolidation means grouping small shipments together in order to reduce transportation

5. Quality Improvement: Logistics is a prime part of developing and maintaining continuous
TQM improvement. If the quality of product fails, logistics will have to ship the product out of
customer‘s premises and repeat the logistical function again. This adds to cost and
customer dissatisfaction.

6. Life-Cycle Support: Life cycle support is also called cradle-to-cradle logistical support. It
means going beyond reverse logistics and recycling to include the possibility of after sale
services, product recalls and product disposal. This means that firms must consider how to
make a product and its package (cradle) and the how to remake and reuse them (to cradle).
E.g. Cold drink industries use their glass bottle again and again whereas the cans are
reused in making puff paper dishes.


1. Reverse Logistics

Reverse logistics is also known as Product Recall. It may be defined as a process of moving
goods from their place of use, back to their place of manufacture for re-processing, refilling,
repair, and recycling or waste disposal.
Reasons for Reverse Logistics

1. Rigid quality standards- it is critical in case of contaminated products, which can cause
environmental hazard.
2. Rigid laws prohibiting unscientific disposal of items
3. Rigid laws making recycling mandatory
4. Transit damage – e.g. leaking containers containing hazardous material.
5. Product expiration.
6. Erroneous order processing by supplier
7. Exchange of new product for the old ones.
8. Return for repair or refill.

Drivers in Reverse Logistics
The success of reverse logistics depends upon the efficiency of following subsystems:
1. Product Location: For product recall it is necessary to identify the product location in the
physical distribution system of the firm. It is difficult in case of consumer goods but easier in
case of industrial goods.

2. Product Collection System: After the product location is identified, product collection is to
be done through company‘s field force or third party.

3. Recycling / Disposal Centers: This may be company‘s plant, warehouse or any other
location. Called back products must be inspected before recycling or disposal etc.

4. Documentation System: Proper documents should be maintained at each level, this would
help in tracing the product location.

2. Inbound Logistics

 All the activities related to the material movement till the dispatch of the products out
of the factory gate are called as inbound logistics activities.
 Creation of value in the products depends upon availability of inputs on time. Making
available these inputs on time at minimum cost is the essence of Inbound Logistics.
 Activities of a procurement performance cycle come under the scope of Inbound
Logistics. They are transportation during procurement operation, storage, handling
and overall management of inventory of inputs.

3. Outbound Logistics
 All the activities in which the value added goods are to be made available in the
market for customers are called as outbound logistics activities.
 Success of the firm depends upon the supply of products to the customer on time.
Supplying the products of firm at marketplace at minimum cost is the essence of
Outbound Logistics.
 Activities of distribution performance cycle come under the scope of Outbound
Logistics. They are order management, transportation, warehousing, packaging,
handling etc.

4. Third-Party Logistics (3PL)
In order to keep the costs of inbound and outbound logistics activities under control, an
outside agency appointed to perform these logistics functions is called ―Third Party
5. Forth-Party Logistics (4PL)
Forth Party Logistics is a complete outsourcing of manufacturing and logistics functions
including selection of Third Party service provider.
Need for 4PL:

1. Ever-increasing customer requirements.
2. Competitive and complex market scenario
3. Rising globalisation, liberalization and privatisation.
4. Rising accessibility of supply chain technology.
5. Inclination of companies to enter into higher margin business.

Services provided by 4PL

1. Procurement and storage of materials.
2. Manufacturing of products.
3. Selection of 3PL companies
4. Transportation and warehousing management
5. Collection of payment and cash flow management
6. Risk management and insurance.
7. Sharing of information, IT solution.

Material Requirement Planning is an integrated approach to the inventory management,
taking into the account purchase and production programme. This is software that converts
the Master Schedule to the requirement of raw material, components, subassemblies, etc.
Structure of MRP1
- Three types of information are fed to the computer.
1. Master Schedule – This is made up from sales forecast by marketing department and the
actual orders already received by the company. It indicates which product is required to be
delivered to the customer and when.
2. Bill of Material – This is prepared from product design documents
3. Inventory details – of each item

- The MRP software processes the data and releases the output for ready use of the
management in the following way:
1. For purchase components it releases Purchase Request, Purchase Order etc in the form of
soft copy
2. For in-house manufactured components it releases Production Order
3. It prepares different types of reports for the use of management as required

Benefits of MRP1

1. All the documents like purchase order, production order get ready as per required time.
2. All information is ready on the screen at any time, which is duly updated.
3. Making changes manually in Master Schedule is difficult task; this is done by MRP easily
and accurately.
4. It prepares the reports related to inventory status, production outputs, latest sales figures.
5. MRP calculates and maintains an optimum-manufacturing plan, which will reduce cash flow
and increase profitability.
6. Reduced inventory levels
7. Reduced shortage of components
8. Reduced overtime on shop floor and offices
9. Improved shipping schedule
10. Improved production schedule
11. Improved calculation of material requirements
12. Better manpower planning on shop floor
13. Reduction in lead time
14. Less scrap and rework

Closed-Loop MRP: When MRP extended to include feedback from vendors and production
operations it is called Closed-loop MRP

MRP II (Manufacturing Resource Planning): When closed-loop MRP extended to include
financial accounting, personnel, engineering and marketing information, it is called MRP II

Distribution Resource Planning is concerned with the distribution of material, warehouses,
and transport arrangements. It is logically evolved from MRP and hence it is more recent
concept. DRP needs demand forecasts for each warehouse and their current inventory
level. MRP is concerned with inbound logistics whereas DRP is concerned with outbound
logistics activities.
Benefits of DRP
1. Reduce distribution center freight costs resulting from coordinated shipments.
2. Reduce inventory level.
3. Coordinate inventory with organisational functions.
4. Decrease warehouse space requirements because of inventory reduction.
5. Improve service level by on time deliveries.

Guided by production schedules

Guided by customer demand
Under control of the firm

Not under control of the firm
Operates in dependant demand situation

Operates in independent demand situation
Coordinates scheduling and integration of
materials into finished goods
Coordinates demand between outlets and
supply sources
Controls inventory until manufacturing and
assembly is complete.
Controls inventory after manufacturing and
assembly of finished goods

 Global supply chain management is directly linked to the rise of globalization.
Pinpointing an exact date in history as the advent of global supply chain
management isn't possible because its origin varies by company.
 As companies began looking overseas for inexpensive parts and labor, managers
were hired to orchestrate these complex operations.
 Global supply chain management trend is evolving as new technologies emerge.
Instead of vendors mailing their products and assuring its delivery, companies are
now able to track the product's exact location through GPS tracking devices. These
devices are imperative for global supply chains. The farther the goods are from the
final destination, the riskier its arrival. Before RFID scans, supply chain managers
took inventory weekly or monthly to track sales and supplies.
 Now, many companies like Wal-Mart track their products with RFID technology. The
moment a product is purchased; inventory levels are updated to reflect the sale. A
third trend affecting global supply chain management is the lowered barriers of
economic trade. The General Agreement on Tariffs and Trade (GATT) enabled
companies to buy products from other countries for lower costs.

Definitions of global supply chain management:

Any company that uses parts and services from another factory overseas faces issues with
global supply chain management. Douglas C. Long "International Logistics: Global Supply
Chain Management" when he explains every business operation incorporates logistics from
shipping food to assembling cars. As such, he explains that logistics affects everyone and in
his words, can be a matter of life and death.

The facilities, functions, and activities involved in producing and delivering a product or
service, from suppliers to customers.
 A global supply chain is made up of the interrelated organizations, resources, and
processes that create and deliver products and services to end customers. In the
instance of global supply chains, it is extended around the world.


– Foreign competition in local markets
– Growth in foreign demand
– Global presence as a defensive tool
– Companies forced to develop and enhance leading-edge technologies and
– Knowledge diffusion across national boundaries, hence need for technology
sharing to be competitive
– Global location of R&D facilities
• Close to production (as product cycles get shorter)
• Close to expertise (Indian programmers?)
– Availability of skilled/unskilled labor at lower cost
– Integrated supplier infrastructure (as suppliers become more involved in
– Capital intensive facilities like tax breaks, price breaks etc.
– Trade protection mechanisms:
• Tariffs, Quotas, Voluntary export restrictions, Local content
requirements, Environmental regulations, Government procurement
policies (discount for local)
– Exchange rate fluctuations and operating flexibility
Global Supply Chain System Components:

 International distribution systems :
- Manufacturing(domestically), Distribution (overseas)
 International suppliers :
- Raw materials and Components(foreign suppliers), Final assembly/
 Offshore manufacturing :
- Product is sourced & manufactured in a single foreign location,
- Shipped back to domestic warehouses for sale and distribution.

 Fully integrated global supply chain :
- Products are supplied, manufactured and distributed from factories
located throughout the world
- In a truly global supply chain, it may appear that the supply chain was
designed without regard to national boundaries.
- The true value of a global supply chain is realized by taking advantage
of these national boundaries

GSCM Factors
 Costs
o Local labor rates / International freight tariffs
o Currency exchange rates
 Customs Duty
o Duty rates differ by commodity and level of assembly
o Impact of GATT/WTO: Changes over time
 Export Regulations & Local Content
o Denied parties list / Export licenses
o Local content requirement for government purchases
 Time
o Lead time /Cycle time /Transit time /Customs clearance
 Taxes on Corporate Income
o Tax havens and not havens
o Make vs. buy effect

International manufacturing sources—whether company-owned or external suppliers—have
in recent years been sought out by managers because of reduced cost, increased
revenues, and improved reliability. Manufacturers typically set up foreign factories to benefit
from tariff and trade concessions, low cost direct labor, capital subsidies, and reduced
logistics costs in foreign markets (Ferdows, 1997).

 The main reason for any business to exist is to increase sales and profits.
 When you go global, then the likelihood of increasing sales goes up as you open up
your market to consumers all over the world.
 This allows businesses to reduce dependence on their local and national
 The potential for expansion for businesses increase as they enter into more markets.
 Diversified business and trading
 Lower supply chain costs
 Reduced cycle time
 Competitive advantage
 The biggest disadvantage of global supply chain management is the heavy
investment of time, money, and resources needed to implement and overlook the
supply chain.
 The decision to outsource a production facility or call center lowers the cost of doing
business for a company using global supply chain management, but the decision to
outsource or not can lead to consumer backlash.
 Inefficient and undersized transportation and distribution systems
 Market instability
 Integrating the supply chain and choosing the correct suppliers is much more difficult
than one can imagine.
 Not only do companies have to strongly consider price and quality, but they also
have to make sure that all the organizations are willing to cooperate to benefit the
Benefits of Global Supply Chain:
1. As opposed to a poorly organized supply chain a global supply is extremely
competitive and so you can obtain a really good price for supplies that will all be
produced to excellent standards, without even having to search widely. Excellent
products completed to the highest standard of quality controls can be sourced
quickly and efficiently.

2. A global supply chain therefore brings with it benefits in terms of companies who are
involved in a global supply chain being able to shave their costs right down and
therefore ensure the economic viability of their business. Global supply chains are
often one of the first methods used for Supply chain cost reduction activities

3. If you have sufficient contacts and suppliers internationally, then you can really
reduce the amount of stock that you have to retain, which means that you will save
costs in terms of storage/thefts/transporting goods etc. These costs can add up, so
this certainly helps sharpen the competitive edge that comes with a global supply