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Chapter (2)
Logistics and supply cain

1- Did it surprise you that logistics can be such an

important component in a country’s economic
system? Why or why not?
It didn’t surprise me that logistics can be an important component in a
country’s economic system; logistics tends to have significant
economic impacts.
 From a macroeconomic perspective there’s a relation between
logistics costs and GDP.
Although there’s absolute and relative logistics costs in relation
to GDP vary from country to country.
Logistics is most definitely an important component in any
country’s economy.
 Logistics can also play an important role in a nation’s economic
growth and development. Logistics, particularly improvements
in transportation efficiency, played a key role in the explosive
growth of Ireland’s economy in the mid- and late 1990s.

2- Distinguish between possession, form, time, and

place utility.
Economic utility: is the value or usefulness of a product in
fulfilling customer needs or wants.
the four general types of economic utility are possession, form,
time and place.
1-possession utility refers to the value or usefulness that comes
from a customer being able to take possession of a product.
It can be influenced by the payment terms associated with a
product.
Example credit and debit cards( facilitate possession utility by
allowing the customer to purchase products without having to
produce cash.
2-form utility refers to product’s being in a form that can be used
by the customer and is value to the customer. it’s associated with
production and manufacturing.
Example a soft drink company may produce thousands of cases of
a certain type of soft drink( diet cola).
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3-place utility refers to having products available where they are

needed by customers.
Example place utility is increased by moving the soda from a point
of lesser value(stored cola in a warehouse) to a point of greater
value(on a supermarket shelf).
4-time utility refers to having products available when they are
needed by customers.
it’s important to recognize that different products have different
sensitivities to time.

According to CSCMP, Logistics is that (1) part of supply

chain management that (2) plans, implements and controls the
(3)efficient, effective forward and reverse flow and storage of
goods, services and(4) related information between the point of
origin and the point of consumption in order(5)to meet customers’
requirements.

Q3: How can a particular logistics system be effective

but not efficient?
The logistics system can be effective but not efficient when company
want to achieve what it promises even it’ll cost here more costs. For
example when Amazon company want to deliver a book on a specific
time and the book what the customer need (effective) but the cost to
deliver the book to the customer was high to the company(not
efficient) all what the company want is to deliver the book what the
customer need and on time whatever it’ll cost the company more
money.

Q4: Explain the significance of the fact that the

purpose of logistics is to meet customer requirements.
The purpose of logistics is “to meet customer requirement”, it’s
v.important for 2 reasons:-
1- Logistics strategies and activities should be based on customer
wants and needs rather than the wants, needs and capabilities of
other parties. Although a customer focus might seem like the
proverbial no-brainer, one implication of such a focus is that
companies actually have to communicate with their customers to
learn about their needs and wants.
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2- The notion that because different customers have different

logistical needs and wants a one size fits all logistics approach
(mass logistics)- in which every customer gets the same type and
levels of logistics service- will result in some customers being over
served while others are underserved.
Also companies should consider (tailored logistics approach) in
which groups of customers with similar logistical needs and wants
are provided with logistics service appropriate to these needs and
wants.

5- Discuss three reasons for why logistics has

become more important since 1980.
1- A reduction in economic regulation.
2- Changes in consumer behavior.
3- Technological advances.
4- The growing power of retailers.
5- Globalization of trade.

1- A reduction in economic regulation:

The government controls of carriers rates & fares, entry& exit,
mergers & acquisitions was very tuff in U.S. in the transportation
industry the price competition was nonexistent and customers
were much forced to accept any service the carriers choose to
provide, this meant that logistics managers had little control over
one of the important components in logistics system which is
transportation cost.
The reduction in economic regulation in U.S. allowed individual
carriers flexibility in pricing and service.
This flexibility was very important to logistics for two
reasons:
First: the companies could specify different service levels and
prices could be adjusted accordingly (tailored logistics approach).
Second: the increased pricing flexibility allowed large buyers of
transportation services to reduce their transportation costs by
leveraging large amounts of freight with limited number of carriers.
* The reduction in economic regulation of transportation is a primary
Reason for reduction in the cost of freight transportation.
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2- Changes in consumer behavior:

There are many examples of it as:
 Market demassification: there’s one way to address it
through mass customization (refers to the ability of the
company to deliver highly customized products and
services that are designed to meet the needs and wants
of individual segments or customers.
 Changing family rules: as extended store hours, home
delivery of purchased items and ready to eat –ready to
cook foods.
 Rising customer expectations: means that a
satisfactory level of performance in the past might not be
considered as so today.

3- Technological advances:
From logistics perspective the most important technological
advances have involved computer hardware and software in the
management of logistics. It allowed logistics to make faster, more
informed and more accurate decisions with customer service,
transportation, inventory management.
Although internet can be used for many logistical activities,
research suggests the heaviest use of the internet involves
purchasing of procurement and transportation.

4- The growing power of retailers:

“Power retailers” are characterized by large market share and low
prices, such as Wal- Mart.

5- Globalization of trade:
There’s many factors have affected on the growth of global trade
such as rising standards of living. We should recognize that the
international logistics is mush more challenging and costly than
domestic logistics.
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6- Distinguish between inbound logistics, materials

management and physical distribution.
 Inbound logistics: movement and storage of materials into
a firm.
 Materials management: movement and storage of
materials and components within a firm.
 Physical distribution: storage of finished product and
movement to the customer.
Note:
 Logistics managers use the total cost approach to
coordinate inbound logistics, materials management and
physical distribution in a cost- efficient manner.

7- What is the system approach to problem solving? How

is this concept applicable to logistics management?
the system approach: indicates that the company’s objectives
can be realized by recognizing the mutual interdependence of the
major functional areas of the firm( marketing, production, finance
and logistics).
First implication of the systems approach is that the goals and
objectives of the major functional areas (marketing, production,
finance and logistics) should be compatible with the company’s
goals and objectives. This means that one logistics system doesn’t
fit all companies because goals and objectives vary from company
to another.
Second implication is that decisions made by one functional area
should consider the potential implications on other functional
areas.

8- What is meant by a cost trade- off, do you believe that

this concept is workable? Why or why not?
Changes to one logistics activity cause some costs to increase
and others to decrease.
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9- What are several areas in which finance and logistics

might interface?
 The finance staff, which is concerned with predicting future
cash flows, is dependent on logistics for information
concerning the status of finished products.
 The finance department is useful in approving capital
budgeting decisions that affect logistics, such as the
acquisition of materials handling equipment and packaging
equipment.
 Inventory is another area of interest for finance managers,
because in financial terms inventory is recorded as an asset.

10- Discuss each of the four basic aspects (4Ps) of

the marketing mix and how each interface with
logistics?
1-place: is the most important component of marketing mix.
 Logistics decisions concern the most effective way to move
and store the product from where it’s produced to where it’s
sold.
 From marketing prospective, it’s involving new strategies to
get new customers. There’s a concept called co- branding,
which refers to one location where customers can purchase
products from two or more name- brand retailer.
2-price: logistics managers play an important role in product
pricing. They must be consulted to determine the trade-offs
between costs and customer service. They can also help formulate
the firm’s quantity discount pricing policies.
3-product: product design has important implications for logistical
effectiveness and efficiency.
It’s interface with logistics in:
 The marked increase in product offerings, which allows for
more customer choice, creates logistical challenges in terms
of identifications, storage and tracking.
 The amount of particular SKUs to hold.
4-promotion:
One important situation is when a company is running pricing
campaigns that lower the price of certain items.
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**The interface activities between logistics & marketing:

 Customer service standards.
 Pricing.
 Packaging.
 Retail location.

11-why do marketers tend to prefer FOB destination pricing

rather than FOB origin pricing?
There are two methods to control the transportation costs:-
 FOB destination pricing: the seller tell the purchaser
a price that includes both the price of the product and the
transportation cost to the purchaser’s receiving dock.
# Marketers prefers this method because of three
reasons:
1-it enables a company to expand the geographic area to
which its product is sold.
2-each purchaser has the same landed costs, it’s much
easier for a company to apply a uniform retail price on a
regional or national basis.
3-product distribution is managed by the seller, who can
control the logistics network.
 FOB origin pricing: doesn’t include any transportation costs
to the purchaser.
# Marketers doesn’t prefer this method because it’s very
difficult to adopt uniform retail prices on a regional or
national basis.

12-what are several ways in which logistics and

production might interface?
The most common interface between them involves the length of
production runs (the production people favor long production runs
of individual products because it allows the relevant fixed costs to
be spread over more units).
Interface activities:
 Product scheduling.
 Plant location.
 Purchasing.
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13-activities in the logistical activities:-

 Customer service: it means keeping customers happy.
customer service involves making sure that the right person
receives the right product at the right place at the right time at the
right cost.
 Facility location decision: the success of retail store depends
on main factor which is location. And it can say that the
success of logistics system depend on location of
warehousing and production facilities.
 Industrial packaging: marketing(consumer packaging) and
logistics(industrial packaging- that refers to prepares the
product for storage and transit).
 Inventory management: when managing the inventory, the
logisticians need to consider three relevant costs:-
1- The cost of carrying the product.
2- The cost of ordering product.
3- The cost of being out the stock.
 Order management: refers to management of activities that
take place between the time a customer make an order and
the time he received the product.
 Procurement: refers to raw materials, component parts and
supplies bought from outside the company to support
a company operation.
 Warehousing management: refers to places where inventory
can be stored for a specific period of time.

Marketing channels:
1- The ownership channel: covers movement of the title
to the goods.
2- The negotiations channel: is the one which buy and
sell agreements are reached.
3- The financing channel: handles payment for goods.
4- The promotions channel: is concerned with
promoting a new or an existing product.