Chapter-1

Basics of Logistics Management

Learning Objectives

After reading and working the problems for Chapter 1 in the textbook and in this Workbook, you
should be able to:
 Explain the concept of logistics
 Describe the logistics as a process
 Define the objectives of logistics
 Discuss the total acquisition cost
 Explain the logistics activities
 Define the development of logistics
 Describe the role of logistics in the economy
 Explain the gross domestic product
 Describe the role of logistics in an organization
 Explain the logistics and competitive performance
 Define the eight-step process for improving logistics activities
 Define the transportation in production and marketing
 Explain the transportation
 Discuss about the effects of transportation on logistics activities
 Describe the role of transportation in service quality
 Define the modal characteristics
 Describe the information monitoring
 Define the third-party and fourth-party logistics
 Discuss the successful sales ingredients model
 Explain the future prospects of logistics
Essential Concepts
1. 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.
2. 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.
3. Total logistics cost is the expenses associated with transportation, materials handling and
warehousing, inventory, stock outs (being out of inventory), order processing, and return
goods handling.
4. Total Quality Management (TQM)) consists of organization-wide efforts to install and make
permanent a climate in which an organization continuously improves its ability to deliver
high-quality products and services to customers.
5. Supple is the process of building inventory (through manufacturing and/or procurement) to
the targets established in inventory planning.
6. Transportation physically links the sources of supply chosen in sourcing with the customers
we have decided to serve chosen as a part of the customer service policy.
7. Warehousing is described as the last of the five logistics activities because good planning in
the other four activities may eliminate the need of warehousing or may suggest the
warehousing activity be outsourced. In addition, a good warehouse plan incorporates
ultimately portrays the efficiency or inefficiency of the entire supply chain.
8. Gross domestic product (GDP) is defined as "an aggregate measure of production equal to
the sum of the gross values added of all resident institutional units engaged in production."
9. Logistics in an organization are considered as a continuation of marketing. Logistics play a
critical role in each of the three critical elements of the marketing concept (customer
satisfaction, integrated effort/systems approach and corporate profit) in several ways.
10. The functional organization is based on the classification criterion of operations, and is
frequently used in small and mid-sized companies.
11. Logistics activities are searching constantly for ways to improve process capabilities, shorten
throughput times, improve quality, and cut costs.
12. Logistics audit is a crucial prerequisite to task, process, or system modification. The logistics
audit will determine or validate the “as is” baselines by which intervention successes are
measured.
13. The military decision makers use both screening and decision criteria. Screening criteria
allow decision makers to identify solutions that are impracticable or too costly.
14. Transportation is one of the most visible elements of logistics operations. The role of
transport in national economy is very crucial. Every business firm, regardless of what it
produces or distributes, requires the movement of goods from one point to another and,
therefore, is involved in transportation.
15. Transportation plays a connective role among the several steps that result in the conversion
of resources into useful goods in the name of the ultimate consumer.
16. Modes of transportation used in national and international logistics and supply chain
management can be grouped under five models. They are rail, highway, water, pipeline, and
air. The relative importance of each mode can be measured in terms of system mileage,
traffic volume, revenue, and the nature of traffic composition.
17. The event organization has the creative skills to successfully design and manage all aspects of
the strategic planning for organization’s events. Production designers consider every detail
from lighting to flower arrangements, floor plans to menus.
18. The important logistics functional area, which is strongly related to physical flow, is
warehousing. In contrast to transportation, which primarily takes place on network arcs,
warehousing and product storage mainly take place at nodal points.
19. The physical distribution managers continuously need up-to-date information about
inventory, transportation and warehousing.
20. The alliance between middle-small size delivery companies is an important trend in the
future. The strategy could help to expand service areas and increase service quality, and
meanwhile raise the loads of single trips to reduce delivery costs.
21. The development of logistics centers is good for industry promotion and the development
of national economic system. Logistics centers could successfully shorten the distance
between production and marketing vertically and also integrate various industries
horizontally, and thus decrease the costs.
22. Providing a good customer service becomes a necessary requirement of business operation
with the intense competition of global market.
Matching Definitions
Finance Freight
Gross domestic product Logistics
Material management Strategic sourcing
Supple Total acquisition cost
Total logistics cost Total quality management

1. ……………………….It can deal with campus planning and building design for the
movement of materials, or with logistics that deal with the tangible components of a supply
chain.
2. ………………………It is the expenses associated with transportation, materials handling
and warehousing, inventory, stock outs (being out of inventory), order processing, and
return goods handling.
3. …………………………..It consists of organization-wide efforts to install and make
permanent a climate in which an organization continuously improves its ability to deliver
high-quality products and services to customers.
4. …………………..It is the sum of all costs incurred in ordering and carrying (holding), and
including stock out (shortage) costs
5. ……………………..It is defined as "an aggregate measure of production equal to the sum
of the gross values added of all resident institutional units engaged in production.
6. …………………It is concerned with getting the products and services where they are
needed and when they are desired.
7. …………….It is the process of building inventory (through manufacturing and/or
procurement) to the targets established in inventory planning.
8. ………………..It is goods or produce transported, generally for commercial gain, by ship or
aircraft, although the term is now extended to intermodal train, van or truck.
9. …………….It is a field that deals with the allocation of assets and liabilities over time under
conditions of certainty and uncertainty.
10. ………………………..is an institutional procurement process that continuously improves
and re-evaluates the purchasing activities of a company.
Multiple Choices /True-False
1. Logistics covers all of the functions below except
a. Inventory management
b. Warehousing
c. Transportation
d. All of the above are elements of logistics.

2. A warehouse that takes large bulk shipments from a single source and allocates them into smaller
shipments for delivery to customers is known as a ……………
a. Break-bulk warehouse
b. Consolidation warehouse
c. Cross-dock
d. Postponement warehouse

3. A warehouse that pulls together several small shipments and combines them into one large
shipment is called a …………………..
a. Postponement warehouse
b. Consolidation warehouse
c. Break-bulk warehouse
d. Cross-dock

4. A warehouse that combines the traditional warehousing function with light manufacturing or
packaging capabilities is a …………….
a. Hub-and-spoke warehouse
b. Break-bulk warehouse
c. Postponement warehouse
d. Consolidation warehouse
5. A firm emphasizing product mix flexibility as a means to differentiate itself is most likely to use
what form of transportation?
a. Air
b. Water
c. Pipeline
d. Highway

6. A firm emphasizing time-based competition as a means to differentiate itself from its competition
is most likely to use what form of transportation?
a. Rail
b. Water
c. Pipeline
d. Air

7. A firm emphasizing low cost as a means for competition in the market is most likely to use what
form of transportation?
a. Highway
b. Rail
c. Water
d. Pipeline

8. An optimization model that finds the optimal way to use limited capacity to meet demand at
various points is called ………………..
a. Objective function
b. Constraint
c. Assignment problem
d. Decision variable

9. ……………….places limits on output which our optimization model must not break in order to
be feasible.
a. Assignment problem
b. Constraint
 c. Decision variable
d. Objective function

10. …………….help managers monitor the logistics system and identify problems before they get
out of hand.
a. Planning systems
b. Material handling and packaging
c. Decision support tools
d. Execution systems

11. A supply chain is a sequence of firms that perform activities required:

a. to find products that are similar
b. to facilitate wholesalers inventory selections
c. to create synergy in their training programs
d. to create and deliver goods to consumers

12. An important feature of supply chain management is its application of electronic commerce
technology that allows companies to share and operate systems for:
a. Order processing, transportation scheduling, and inventory management.
b. cost-effective flowing of raw materials
c. future purchasing of computer systems
d. future merger opportunities

13. A supply chain is essentially a sequence of linked:

a. customer and prospects
b. supplier and manufacturer
c. suppliers and customers
d. warehousing and wholesaling units
14. In the automotive industry, the person who is responsible for translating customer requirements
into actual orders and arranges delivery dates is the car maker:
a. supply manager
b. purchasing manager
c. production manager
d. supply chain manager

15. It is estimated that the logistics costs of a new car are about:
a. 10-20%
b. 20-25%
c. 25-30%
d. 30-40%

16. Poor supply chain management practices can an otherwise excellent marketing
strategy.
a. seriously damage
b. make SWOT analysis difficult for
c. keep people employed on
d. mean quarterly lessons for

17. The physical characteristics of a product will often dictate what:

a. types of sales can be made
b. forms of sales promotion to be used
c. geographic regions will be included
d. kinds of transportation can be used

18. Pricing interacts with a supply chain in many ways. For instance, transportation rate structures
are adjusted by the carrier based on:
a. cost to unload
b. the size of the shipment
c. local currency rates
d. the logistics costs concept
19. The total logistics cost includes expenses associated with transportation, materials handling and:
a. customer complaints, cost of food and highway usage taxes
b. warehousing, inventory, stock outs and order processing
c. inventory control with sales forecasting
d. stock outage control with sales forecasting

20. The total logistics cost factors need to be balanced against the:
a. supply chain managers total experience
b. total expected transportation needs
c. customer service factors
d. lead time expectations

21. Lead time and order cycle time is the same as:
a. customer service time
b. supply chain flow
c. logistical clock age
d. replenishment time

22. The inventory management systems designed to reduce the retailer's lead time for receiving
merchandise is called:
a. Efficient consumer response delivery system.
b. Effective response.
c. On-time market delivery system.
d. Efficient logistical response.

23. Examples of third-party logistics providers are:

a. FedEx and Rosenau Transport
b. Sentinel Self-Storage and UPS
c. FedEx and UPS
d. UPS and Metro Van Lines
 Answers
Matching Definitions
1. Material management
2. Total logistics cost
3. Total quality management
4. Total acquisition cost
5. Gross domestic product
6. Logistics
7. Supple
8. Freight
9. Finance
10. Strategic sourcing

Multiple Choices /True-False

1. d
2. a
3. b
4. c
5. d
6. d
7. b
8. c
9. b
10. d
11. d
12. a
13. c
14. d
15. d
16. a
17. d
18. b
19. b
20. c
21. d
22. a
23. c

Homework Exercise
1. What is the logistics as a process?
2. Discuss the gross domestic product.
3. Explain the gross domestic product.
4. What is the transportation?
5. What is different the logistics activities and transportation?