LOGISTICS ACTIVITIES (LOGA 302)

LO1: Introduction
Logistics is the management of the flow of goods, information and resources between the point
of origin and the point of consumption.

Logistics can be defined as “having the right item in the right place, at the right time, in the
right quantity, at the right price and in the right condition, for the right customer”.

Logistics activities / Functions of logistics in an organization

Order processing
The Logistics activities start from the order processing which might be the work of the
commercial department in an organization. The commercial department is the one who ensures
that the payment terms and the delivery terms have been met and then processes the order from
within the company.

Materials handling
Material handling is the movement of goods within the warehouse. It involves handling the
material in such a way that the warehouse is able to process orders efficiently. Although it may
sound a mundane task, it is an important one and an ongoing activity in any warehouse.

Warehousing
The important point in warehousing is that the warehouse should be nearby to the dealer or
the distributors’ place and it should facilitate the easy delivery of goods.

Inventory control
Inventory management is one of the most important functions of logistics especially after the
adoption of various production techniques such as Just in time manufacturing, lean

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manufacturing or other manufacturing processes where the cost of inventory management is
brought down.

Transportation
Transportation involves the physical delivery of goods from the company to the distributor or
dealer and from the dealer to the end customer. Generally, companies are involved only till the
point delivery happens to the distributor or the dealer. The distributor is then responsible for
the delivery to the end customer.

Packaging
There are two types of packaging – One which the customer sees on the shelf of supermarkets
or hypermarkets where the package appears attractive and makes the customer buy the
packages. The other is transport packaging where the products are packed in bulk so as to avoid
any breakage or spillage and yet allow them to transfer huge volumes of the product safely from
one place to another.

Logistics system

A logistics system is made up of a set of “facilities” linked by “transportation services”, where:

Facilities are sites where materials are processed (produced, stored, sold, consumed. . . ); they
include manufacturing centres, warehouses, distribution centres (DC), transportation terminals.
..;

Transportation services denote the movement of materials between facilities (using vehicles
and equipment), and they are usually depicted as directed arcs.

Degree of vertical integration and third-party logistics

In the first case: vertically integrated: in this case all the supply chain components belong to a
single firm (quite rare); supply chains are operated by several independent companies (more
frequent).

In the second case, the relationship among companies can be:

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 a) transaction based and function specific;
b) strategic alliance; examples are given by:
 third-party logistics (3PL): an outside company performs all or part of a product
distribution;
 vendor-managed resupply.

Decisions in logistics systems

Several decisions have to be taken in logistics systems, both at the design and at the operating
level. Examples are:

 Location problems: should new facilities be opened? What are their best
configuration, size and location?
 Production problems: how should production be planned?
 Inventory problems: when and how should each stocking point be resupplied?
 Transportation problems: what is the best fleet size? how should vehicles be routed?

Logistics decisions

Logistics decisions are traditionally classified as follows, according to the considered planning
horizon:

Strategic decisions: they have long-lasting effects (many years), and include logistics system
design and acquisition of costly resources (facility location, capacity sizing, plant layout, fleet
sizing); they often use forecasts based on aggregate data;

Tactical decisions: these decisions are made on a medium-term basis (e.g. monthly); they
include production and distribution planning, inventory management, storage allocation,
transportation mode selection; they often use forecasts based on disaggregate data;

Operational decisions: in this case, decisions are made on a daily basis or in real time; they
include shipment and vehicle dispatching, vehicle routing and scheduling, and are based on
very detailed data.

Logistics managerial issues

When devising a logistics strategy and taking decisions, managers typically try to achieve a
compromise among three main objectives:

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 a) Capital reduction: to reduce as much as possible the level of investment in the logistics
system (logistics network, equipment);
b) Cost reduction: to minimize the total cost associated with operating the supply chain
(inventory management, transportation);
c) Service level improvement: this is also a relevant objective, since the level of logistics
service influences customer satisfaction, which in turn has impact on revenues; often it
is expressed via the order-cycle-time, i.e. the elapsed time between the instant an order
(or a service request) is issued and the instant foods are received (or service is
provided).

Methods of making decisions in logistics

Benchmarking: this method is helpful when a logistics system already exists, and one wants to
compare its performance to a “best practice” standard, i.e. the one of an industry leader in
logistics operations;

Simulation: this methodology is helpful to answer a number of “what-if” questions regarding

different alternatives to the existing system, by considering the dynamics of the system (e.g.
what is the average order retrieval time if we use a certain policy storage rather than the
existing one); however, this approach may be time consuming and heavy in case of a large
number of alternatives.