St.

Rita’s College of Balingasag

Balingasag, Misamis Oriental
HIGHER EDUCATION DEPARTMENT
MODULE 1

Subject Code: HRE 13

Course Title: LOGISTICS MANAGEMENT
Credit Units: 3 units
Course Description: Logistics Management is the part of supply chain
management 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. This
course provides a practical, management perspective of the following areas of logistics:
distribution, transportation, international logistics, inventory control, sustainable
logistics practices, key performance indicators, supply chain finance, leadership in a
supply chain role, and an introduction to logistics technology including RFID and ERP
systems. The course is designed for students who have had little or no previous
coursework or professional experience in logistics.
Course Outcomes:
CO 1- Analyze how logistical decisions (e.g., facilities, inventory, and transportation)
impact the performance of the firm as well as the entire supply chain.
CO 2- Develop the strategies that can be taken to find the best paths to route vehicles to
deliver and collect goods at multiple stops.
CO 3- Develop the strategies that can be taken to manage inventories, including
deciding the timing and quantity for replenishments without hurting the level of
product availability.
CO 4- Know basic characteristics and costs of warehousing and materials handling
activities.

Course Outline:
Unit 1: Basic of Logistics Management
Unit 2: Materials Management
Unit 3: Logistics Customer Service
Unit 4: International Distribution and the Role of Logistics
Unit 5: Role of Third-Party Logistics (3PL) Service Providers
Unit 6: Development of Warehouse resources: Location Strategies
Unit 7: Distribution System and Logistics

Topic
Basic of Logistics Management
Learning Objectives
At the end of this module, the students are expected to:
1. Understand inbound and outbound logistics.
2. Explain the general principles of logistics management.
3. Describe logistics as part of SCM.
4. Explain the classifications of transportation.
5. Define the process of warehousing management.
Introduction
Managing the flow of material goods between people and places is known as logistics
management. This type of process is prevalent in large organizations, especially those
that interact with other companies to buy their supplies. Any company that requires
the movement or transfer of material to complete a business task uses this
management
processes. There are many fields that deal with logistics management. These include
the areas of retail, manufacturing, and general warehousing. The logistic manager is
responsible for coordinating the movement of material goods from one location to
another. This typically requires the management of personnel and processes to
deliver products in an efficient manner.
Time Allotment: 9 hours (1 week)
 Core/Related Values and Biblical Passage
Core/Related Value: Excellence, Service

Biblical Passage: Psalms 139:14

“I praise you because I am fearfully and wonderfully made; your works are
wonderful, I know that full well.”
Learning Content
BASICS OF LOGISTICS MANAGEMENT

1.1 LOGISTICS: CONCEPT

There are two main phases that are important in the movement of materials: material
management and physical distribution; Materials management is the timely
movement of raw materials, parts, and supplies. The physical distribution is the
movement of the firm's finished products to the customers. Both phases involve every
stage of the process including storage. The ultimate goal of logistics is: "To coordinate
all efforts of the company to maintain a cost-effective flow of goods."

Keyword Material Management. 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.

Word, 'Logistics' is derived from French word 'logger', which means art of war
pertaining to movement and supply of armies.

Inbound logistics + Material Management + Physical Distribution = Logistics. where,

Inbound logistics covers the movement of materials received from suppliers.

Material management describes the movements of material and components within a

firm.

Physical distribution refers to movement of goods outward from the end of the
assembly line to the costumer.

Supply chain management is somewhat larger than logistics and it links logistics
more directly within the user's total communication network and with the firm
engineering staff. It includes manufacturer and suppliers but also transporters,
warehouses, retailers and customers themselves.

1.1.1 Logistics as a Process

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.

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.
According to Council of logistics management: "Logistics is the process of planning,
implementing and controlling the efficient, effective flow and storage of goods,
services and related information from point of origin to point of consumption for the
purpose of conforming the customer requirement". Logistical management includes
the design and administration of systems to controls the flow of material, work in
process, and finished inventory to support business unit strategy. Logistics is the
designing and managing of a system in order to control the flow of material
throughout a corporation. This is a very important part of an international company
because of geographical barriers. Logistics of an international company includes
movement of raw materials, coordinating flows into and out of different countries
choices of transportation, and cost of the transportation, packaging the product for
shipment, storing the product, and managing the entire process (See Figure).

1.1.2 The Objectives of Logistics

Operating Objectives
In terms of logistical system design and administration, each firm must
simultaneously achieve at least six different operational objectives. These operational
objectives, which are the primary determinants of logistical performance, include
rapid response, minimum variance, minimum inventory, movement consolidation,
quality, and life-cycle support.

Rapid Response
Rapid response is concerned with a firm's ability to satisfy customer service
requirements in a timely manner. Information technology has increased the capability
to postpone logistical operations to the latest possible time and then accomplish rapid
delivery of required inventory. The result is elimination of excessive inventories
traditionally stocked in anticipation of customer requirements. Rapid response
capability shifts operational emphasis from an anticipatory posture based on
forecasting and inventory stocking to responding to customer requirements on a
shipment-to-shipment basis. Because inventory is typically not moved in a time-based
system until customer requirements are known and performance is committed, little
tolerance exists for operational deficiencies.

Minimum Variance
Variance is any unexpected event that disrupts system performance. Variance may
result from any aspect of logistical operations. Delays in expected time of customer
order receipt, an unexpected disruption in manufacturing, goods arriving damaged at
a customer's location, or delivery to an incorrect location- all result in a time
disruption in operations that must be resolved. Potential reduction of variance' relates
to both internal and external operations. Operating areas of a logistical system are
subject to potential variance. The traditional solution to accommodating variance was
to establish safety stock inventory or use high-cost premium transportation. Such
practices, given their expense and associated risk, have been replaced by using
information technology to achieve positive logistics control. To the extent that
variances are minimized logistical productivity improves as a result of economical
operations. Thus, a basic objective of overall logistical performance is to minimize
variance.

Minimum Inventory
The objective of minimum variance involves ass's commitment and relative tum
velocity. Total commitment is the financial value of inventory deployed throughout
the logistical system. Turn velocity involves the rate of inventory usage over time.
High turn rates, coupled with inventory availability, means that assets devoted to
inventory are being effectively utilized. The objective is to reduce inventory
deployment to the lowest level consistent with customer service goals to achieve the
lowest overall total logistics cost. Concepts like zero inventories have become
increasingly as managers seek to reduce inventory deployment. The reality of
reengineering a system is that operational defects do not become apparent until
inventories are reduced to their lowest possible level. While the goal of eliminating all
inventories is attractive, it is important to remember that inventory can and does
facilitate some important benefits in a logistical system. Inventories can provide
improved return on investment when they result in economies of scale in
manufacturing or procurement. The objective is to reduce and manage inventory to
the lowest possible level while simultaneously achieving desired operating objectives.
To achieve the objective of minimum inventory, the logistical system design must
control commitment and turn velocity for the entire firm, not merely for each
business location.

Keyword Total Logistics Cost: It is the expenses associated with transportation,

materials handling and warehousing, inventory, stock outs (being out in inventory),
order processing, and return goods handling.

Movement Consolidation
One of the most significant logistical costs is transportation. Transportation cost is
directly related to the type of product, size of shipment, and distance. Many
Logistical systems that feature premium service depend on high- speed, small-
shipment transportation. Premium transportation is typically high cost. To reduce
transportation cost, it is desirable to achieve movement consolidation. As a general
rule, the larger the overall shipment and the longer the distance it is transported, the
lower the transportation cost per unit. This requires innovative programs to group
small shipments for consolidated movement. Such programs must be facilitated by
working arrangements that transcend the overall supply chain.

Quality Improvement
A fifth logistical objective is to seek continuous quality improvement. Total quality
management (TQM) has become a major commitment throughout all facets of
industry. Overall commitment to TQM is one of the major forces contributing to the
logistical renaissance. If a product becomes defective or if service promises are not
kept, little, if any, value is added by the logistics. Logistical costs, once expended,
cannot be reversed. In fact, when quality fails, the logistical performance typically
needs to be reversed and then repeated. Logistics itself must perform to demanding
quality standards. The management challenge of achieving zero defect logistical
performance is magnified by the fact that logistical operations typically must be
performed across a vast geographical area at all times of the day and night. The
quality challenge is magnified by the fact that most logistical work is performed out
of a supervisor's vision. Reworking a customer's order as a result of incorrect
shipment or in-transit damage is far more costly than performing it right the first
time. Logistics is a prime part of developing and maintaining continuous TQM
improvement.

Keyword Total Quality Management: It consists of organization-wide efforts

to install and make permanent climate in which an organization continuously
improves its ability to deliver high-quality products and services to customers.
Life-Cycle Support
The final logistical design objective is life-cycle support. Few items are sold without
some guarantee that the product will perform as advertised over a specified period.
In some situations, the normal value-added inventory flow toward customers must
be reversed. Product recall is a critical competency resulting from increasingly rigid
quality standards, product expiration dating and responsibility for hazardous
consequences. Return logistics requirements also result from the increasing number
of laws prohibiting disposal and encouraging recycling of beverage containers and
packaging materials. The most significant aspect of reverse logistical operations is the
need for maximum control when a potential health liability exists (1.e... a
contaminated product). In this sense, are call program is similar to a strategy of
maximum customer service that must be executed regardless of cost. Johnson and
Johnson's classical response to the Tylenol crisis is an example of turning adversity
into advantage. The operational requirements of reverse logistics range from lowest
total cost, such as returning bottles for recycling, to maximum performance solutions
for critical recalls. The important point is that sound logistical strategy cannot be
formulated without careful review of reverse logistical requirements. Some products,
such as copying equipment, derive their primary profit from selling supplies and
providing aftermarket. The importance of service support logistics varies directly
with the product and buyer. For firms marketing consumer durables or industrial
equipment, the commitment to life-cycle support constitutes a versatile and
demanding operational requirement as well as one of the largest costs of logistical
operations. The life-cycle support capabilities of a logistical system must be carefully
designed. As noted earlier, reverse logistical competency, as a result of worldwide
attention to environmental concerns, requires the capacity to recycle ingredients and
packaging materials. Life-cycle support, in modern terms, means cradle-to-cradle
logistical support.

Elements of Logistics System

 Transportation
 Warehousing
 Inventory Management
 Packing and Utilization and
 Information and Communication

Logistic Element
Facility Location Determining location, number and size of facilities
needed, Allocation demand to facilities
Transportation Mode and service selection
Carrier routing Vehicle scheduling
Inventories Finished goods stocking policies
Record keeping
Supply scheduling
Short term sales forecasting
Customer Service Cooperate with marketing in: determining customer needs
and wants for service determining customer response to
service
Order Processing and Sales order procedure
Information
Information collection, storage and manipulation
Flows Data Analysis
Warehousing and Space determination
Material Handling Stock layout
Material handling equipment selection
Stock storage and retrieval
Equipment replacement policies
Protection Packaging Design for: handling, storage, protection
 Product Scheduling Co-operate with production in: specifying aggregate
production quantities sequencing and timing of
production

1.2 LOGISTICS ACTIVITIES

Logistics is comprised of five interdependent activities:
 Customer response
 Inventory planning and management
 Supply
 Transportation
 Warehousing

Customer Response
Customer response links logistics externally to the customer base and internally to
sales and marketing. Customer response is optimized when the customer service
policy (CSP) yielding the lowest cost of lost sales, inventory carrying, and distribution
is identified and executed.

The logistics of customer response includes the activities of:

 Developing and maintaining a customer service policy
 Monitoring customer satisfaction
 Order Entry (OE)
 Order Processing (OP)
 Invoicing and collections

Inventory Planning and Management

The objective of inventory planning and management (IP&M) is to determine and
maintain the lowest inventory levels possible that will meet the customer service
policy requirements stipulated in the customer service policy. The logistics of
inventory planning and management includes:
 Forecasting
 Order quantity engineering
 Service level optimization
 Replenishment planning
 Inventory deployment

Supply
Supply is the process of building inventory (through manufacturing and/or
procurement) to the targets established in inventory planning. The objective of supply
management is to minimize the total acquisition cost (TAC) while meeting the
availability, response time, and quality requirements stipulated in the customer
service policy and the inventory master plan. The logistics of supply includes:
 Developing and maintaining a supplier service policy (SSP)
 Sourcing
 Supplier integration
 Purchase order processing
 Buying and payment

Keyword Total Acquisition Cost (TAC): It is the sum of all costs incurred in
ordering and carrying (holding) and including stockout (shortage) costs.

Transportation
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.
We reserve transportation for the fourth spot in the logistics activity list because the
deliver-to points and response time requirements determined in the customer service
policy and the pick-up points determined in the supply plan must be in place before a
transportation scheme can be developed.

The objective of transportation is to link all pick-up and deliver-to points within the
response time requirements of the customer's service policy and the limitations of the
transportations infrastructure at the lowest possible cost. The logistics if
transportations include:
 Network design and optimization.
 Shipment management.
 Fleet and container management.
 Carrier management.
 Freight management.

Warehousing
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.

The objective of warehousing is to minimize the cost of labor, space, and equipment,
in the warehouse while meeting the cycle time and shipping accuracy requirements of
the customers service policy and the storage capacity requirements of the inventory
play. The logistics of warehousing includes:
 Receiving
 Put away
 Storage
 Order picking
 Shipping

1.2.1 Development of Logistics

Logistic activity is literally thousands of years old, dating back to the earliest form of
organized trade. As this area of study however it first began to gain attention in the
early 1990s. More emphasis has been given to logistics after the Gulf war in 1990-91
when the efficient and effective distribution of store supplies and person were the key
factors for success. With rising interest rates and increasing energy cost logistics
received more attention as a major cost driver. Logistics cost became a more critical
issue for many organizations because of globalization of industry. This has affected
logistics in two primary ways. First, the growth of world-class competitors from other
nations has caused organization to look for new way to differentiate their
organizations and product offerings. Second, as organizations increasingly buy and
sell offshore, the supply chain between the organizations becomes longer, more costly
and more complex. Excellent logistics management is needed to fully leverage global
opportunities. Information technology input has given a next boom to logistics
management. This gave organization the ability to better monitor transaction
intensive activities such as ordering movement and storage of goods and materials.
Combine with the availability of computerized quantitative models; this information
increased the ability to manage flows and to optimize inventory levels and movement
Other factor contributing to the growing interest in logistics include advances in
information technology, increased emphasis on customer service, growing
reorganization of the system approach and total cost concept. The profit leverage
from logistics and realization is that logistics can be used as a strategic weapon in
competing the market place. The system approach is a critical concept in logistics.
Logistics is in itself a system. It is a network of related activities with the purpose of
managing the orderly flow of material and personal within the logistic channel. The
system approach simply states that all functions or activities need to be understood in
terms of how they effect and are affected by other elements and activities with which
they interact. The idea is that if one looks at action in isolation, he or she will not
understand the big picture or how such action affects or are affected by other
activities. In essence the sum or outcome of a series of activities is greater than its
individual parts.

1.2.2 The Role of Logistics in the Economy

Logistics play a key role in the economy in two significant ways. First, logistics is of
the major expenditures for business. Logistics expenditure accounts for around15-
20% of gross domestic product (GDP). Thus, by improving the efficiency, logistics
make an important contribution to the economy as a whole second, logistics support
the movement and flow of many economic transactions; it is an important activity in
facilitating the sale of virtually all goods and services. To understand this role from a
system perspective, consider that if goods do not arrive on time, customer cannot buy
them. If goods do not arrive at the proper place or in the proper condition, no sale can
be made. Thus, all economic activities throughout the supply chain will suffer. One of
the fundamental ways that logistics add value is by creating utility. From an
economic standpoint utility represent the value or usefulness that an item or service
has in fulfilling a want or need. There are four types of utilities namely:
 Form
 Possession
 Time
 Place

Keyword Gross Domestic Product (GDP): 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.”

Form utility is the process of creating the good or service or putting them in proper
form for the customer to use. Possession utility is value added to a product or service
because the customer is able to take actual possession like credit arrangement and
loans. These two utilities are not directly related to logistics, but these are not possible
without getting the right item needed for consumption or production to the right
place at the right time and in the right condition at the right cost. The time and place
utility are directly related to logistics. Time utility is the value added by having an
item when it is needed. Place utility is the item or service available where it is needed.
The five rights of logistics are the essence of the two utilities provided by logistics
time and place utility.

1.2.3 The Role of Logistics in an Organization

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.

The role of inventory in organization includes:

 Reduction of inventory: Inventory is one of the key factors, which can affect the
profit of an enterprise to a great extent. In the traditional system, firms had to
carry lot of inventory for satisfying the customer and to ensure excellent
customer service. But, when funds are blocked in inventory, they cannot be
used for other productive purposes. These costs will drain the enterprise's
profit. Logistics helps in maintaining inventory at the lowest level, and thus
achieving the customer goal. This is done through small, but frequent supplies.
 Economy of freight: Freight is a major source of cost in logistics. This can be
reduced by following measures like selecting the proper mode of transport,
consolidation of freight, route planning, long distance shipments etc.
 Reliability and consistency in delivery performance: Material required by the
customer must be delivered on time, not ahead of the schedule or behind the
schedule. Proper planning of the transportation modes with availability of
inventory will ensure this.
  Minimum damage to products: Sometimes products may be damaged due to
improper packing, frequent handling of consignment, and other reasons. The
use of proper logistical packaging, mechanized material handling equipment,
etc. will reduce this damage.
 Quicker and faster response: A firm must have the capability to extend service to
the customer in the shortest time frame. By utilizing the latest technologies in
processing information and communication will improve the decision making,
and thus enable the enterprise to be flexible enough so that the firm can fulfill
customer requirements, in the shortest possible time frame.

Logistics as a Function in a Company

Logistics can be classified into various positions depending on how it is viewed as a
function in a company. If logistics plays a critical role in a company's success, it
makes sense to position it in the functional organization beside the basic functions of
finance, production or human resources. Another option could be further
centralization of logistics. But it is debatable whether this serves the cross-sectional
function of logistics.

Logistics as an Operational Function

The functional organization is based on the classification criterion of operations and is
frequently used in small and mid-sized companies. Logistics can be included
centrally or de centrally in the current organizational structure as an additional
operation. As a result, it is put on the same level as other fundamental operational
functions such as production, sales and procurement. The basic condition for this is
that logistics is considered an operational function.

Logistics in a Functional Organization

Broad centralization can be achieved if logistics is placed directly under the
managerial level. However, the functional organization opens up wide design
possibilities as there are various types of this organizational form this depends on the
degree of centralization, the hierarchical classification and the functional place of
logistics tasks in the present organizational units. Despite the possibility of creating a
comprehensive centralization, it must be stressed that a functional classification does
not reflect the cross-sectional character of logistics

1.2.4 Logistics and Competitive Performance

Today logistics department appears on the organization charts of many large
organizations. Linking logistics activities directly to organization strategic plan can
work effectively to support their organization for achieving competitive advantage.
Porter user a tool called the value chain as shown in the Figure to separate buyers,
supplier and a firm into the discrete but interrelated activities from which value
stems. The value chain concept may be used to identify and understand the specific
source of competitive advantage and how they related to buyer value. Value is the
amount a customer is willing to pay for the products, services provided by an
organization. Value added is the difference between what the customer pays and the
cost to the organization in providing that product or service. Porter defines the five
categories of primary activity involved in competing in any industry.
 Inbound logistics: Activities associated with receiving, storing and
disseminating input to the product (See Figure).
Objectives of Inbound Logistics

The objectives of inbound logistics are described as:

1. Ensure that material received, and related information are processed and made
available promptly to production, store and other department.
2. Completely and accurately document goods received, and goods returned.
3. Accept only items that were properly ordered.
4. Accept only materials that meet purchase order specification
5. Safeguard goods received.
6. Ensure that vendor, inventory and purchase order information is accurately
updated to reflect receipt.
7. Return rejected items promptly.
8. Completely and accurately document all transfer to and from storage.
9. Properly transfer all materials requisitioned.
10. Maintain safe working conditions and storage of hazardous materials product
form.
 Operation: Activity associated with transforming input into the final
 Outbound Logistics: Activity associated with collecting storing and physical
distribution of the product to buyers (See Figure).

1.2.5 Eight-Step Process for Improving Logistics Activities

Step 1: Define Logistics Activity Interrelationships

Developing an interrelationship diagram can be as simple as showing all of the
associated on a chart and drawing in lines to represent the flow of functional or
information interactions. Interrelationship diagrams are used to define the roles
among activities.

Defining an activity's "as is" and proposed "to be" interrelationships serves as a
precursor to activity design or redesign. If the activity is already in operation, this will
simply require mapping the known relationships. If the activity is not in operation, a
knowledgeable, cross-functional team should draft and troubleshoot a few options to
ensure material, function, and information dynamics are addressed.

Once interrelationships are laid out, the analysts can review the relationships to better
understand the activity's role and its inputs and outputs--whether physical or
informational. This review may help identify opportunities to eliminate unnecessary
redundancies, or it may illustrate opportunities to combine functions within
activities. At a minimum, analysts will better understand the environment in which
the activity functions.

Step 2: Conduct a Logistics Audit

A 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. The audit should answer the following questions: What
resources are available, such as storage, production, and throughput capacities;
buildings by size; number of personnel by type; materials-handling equipment by
type; conveying systems; and budgeted capital expenditures? What constraints does
the activity face, such as building layouts, storage capacities, time allotted for given
production requirements, use of certain automation systems, regulatory compliance
requirements, surge requirements, and capital expenditure budget? What processes
does the activity use, and what are the current standards governing those processes?

Ideally, an activity should use flow charts to demonstrate the processes used to
perform tasks, the performance standards required for those processes, and the
metrics employed to monitor success. If flow charts are not used, the processes must
be documented to ensure that tasks are being performed consistently. The logistics
audit provides a foundation for understanding an activity, analyzing feasible
solutions, and measuring the value of implemented solutions.

Quality engineers in organizations uses the DMAIC (define, measure, analyze,

improve, and control) model to document processes before beginning process
improvement. If processes are documented, another series of logical questions apply:
Are the processes being followed? Are they within acceptable control and
performance parameters? Are they outdated? Can they be improved?

It is important to note that processes being performed consistently and within

statistical control still may be well outside required performance standards. Processes
that appear to be outside the tolerance of established performance parameters must
be analyzed for the factors that contribute to inconsistencies. This may be a result of
process deviations or inconsistencies in process measurement. Each process analyzed
must have a process owner who must be able to demonstrate the performance data
that validate process control. Controlling processes within pre-established
performance parameters should be part of the activity's ongoing quality control.

Once processes are documented, analysts can diagram process and system
relationships in order to investigate task relationships within processes and process
relationships within systems. This approach is called network diagramming.
Although network diagramming is most commonly used in the construction industry
for project management, the concept also can be helpful in designing a logistics
activity. Network diagramming is useful for determining a comprehensive cycle time
of more than one task, process, or activity.

The boxes used in network diagramming typically show the task to be performed, the
task duration, early and late starts, and early and late finishes. Determining float time
requires two passes through the network, one forward and one backward. Once
complete, subtracting the late start and finish times from the early start and finish
times will show the amount of float time (See Figure). With network diagramming,
each task node box shows the starting point, ending point, and duration.
Step 3: Define Desired Operational Baselines
This step builds on step 2 when a performance change is determined to be necessary.
The change may be an increase in production requirements, a reduction in time to
perform a chain of activities, or a reduction of defect variation within existing
operations.

To complete this step, analysts must work with the activity's managers to determine
the desired activity performance benchmarks. Performance standards generally
reflect cumulative amounts of process or system cycle times. Any task, relationship,
or resource modification to a given process usually results in the requirement to
modify the performance standard for that process or system.

Several ideas have been written on benchmarking organizational performance.

Therefore, the complexity of this step should not be underestimated. Analyzing the
difference between the "as is" performance of an existing activity (step 2) and defining
its operational requirements (step 3) is also known as "gap analysis." The gap must be
identified in order to investigate feasible solutions.

Step 4: Analyze Systems and Determine Options

The resources and constraints identified in step 2 will directly affect this step of the
analysis. Although many methods are available for determining feasible options,
simulation technology is often used because of its unquestionable value in identifying
or validating potential solution sets. Simulating the interrelationships of an activity's
current systems can identify functional bottlenecks. These bottlenecks are the areas
that will require the most focus if the intent is to increase production capability.
Simulations may use queuing theory and portray the impact of materials or products
that converge at system points for necessary process tasks to be performed.

Step 5: Define Required Decision Criteria

Military decision makers use both screening and decision criteria. Screening criteria
allow decision makers to identify solutions that are impracticable or too costly.
Screening criteria should be applied in step 4 to avoid wasting time designing
solution sets that hinge on unreasonable interventions. For example, an intervention
that requires resources that the organization cannot obtain may not be feasible. Legal,
physical, cultural, or sociological constraints may also make an intervention
unfeasible.

Applying decision criteria allows decision makers to categorize various interventions.

For example, if the capital investment plan targets a high return on investment before
an intervention's implementation, analysts should associate interventions with a net
initial investment. Additionally, a summary of each net initial investment
computation should be documented to ensure that stakeholders understand the
computation. For public sector organizations, these values often are determined by
cost avoidance. To determine the cash flows associated with cost avoidance, analysts
should be able to demonstrate the amount of time or money saved the increase in
production, or the decrease in errors resulting from the intervention. This allows a
value to be associated with each improvement.

Interventions may need to be divided into categories if all are not given equal
consideration. Depending on the organization, use of other financial measures, such
as the internal rate of return, profitability index, or net present value, may improve
the analysis. All recommendations in the example were provided to enhance a
Government warehousing operation. The analysis was conducted in conjunction with
computer simulation technology.

Step 6: Decide Which Interventions to Implement

The complexity of this step is determined by the criteria defined and the
documentation of interventions after completing analyses of feasible solutions. Once
decision makers receive the analysis results, they must apply relevant qualitative
information to make final decisions for intervention programming.

Step 7: Identify Owners and Make Plans

For interventions to be successful they must have upper management's support, and
someone must "own" the implementation plan. When implementation strategies are
personnel intensive, organizational change management considerations should be
addressed before the intervention begins. The value of creating personal buy-in and a
sense of urgency, establishing ownership, and generating early success should not be
underestimated.

Step 8: Implement and Monitor

Once implementation of the solution is underway, interventions should be monitored
to validate their success. Measuring implementation progress against the
implementation plan will provide the organization with valuable knowledge for
future process improvements.

Change is a constant in all organizations. Conceptual models can provide a valuable

roadmap to those charged with designing or reengineering an activity. The eight-step
methodology described here is one such roadmap that, when followed, will produce
pleasing results. An infinite number of management systems and tools can be used
with this conceptual model, depending on the specific nature of the problem being
addressed.

1.3 TRANSPORTATION
The key element in a logistics chain is transportation system, which joints the
separated activities. Transportation occupies one-third of the amount in the logistics
costs and transportation systems influence the performance of logistics system
hugely. Transporting is required in the whole production procedures, from
manufacturing to delivery to the final consumers and returns. Only a good
coordination between each component would bring the benefits to a maximum.

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. Transportation essentially concerns the
spatial dimension of the business firm. “The spatial dimension refers to geographical
relationships and reflects the combination of firms with respect to their materials
sources, markets, and competitors, plus the spatial relations of the latter to their
sources and markets.” The purpose or function of transportation is to serve as a
connecting link between the spatially separated units within a firm’s own
organization (such as between plants and warehouses) and between units of the firm
and units of other firms and individuals (such as suppliers and customers). Good
transportation has the effect of holding to a minimum the time and cost involved in
the spatial relationships of the firm.

1.3.1 Transportation Utility

In economic theory terms, transportation's function is to create place utility for the
goods produced or distributed by the firm. The word "utility" means usefulness or
ability to give satisfaction. Place utility exists when goods the place where they can be
consumed. Goods that are not in the place where they are needed have less than full
value and so transportation creates value by creating place utility. Along with the
necessity to have goods in the right place, the goods must be there at the right time
(time utility) and in the right form (form utility) and in the possession or ownership
of the person(s) who wants to consume them (possession utility). Whether it is
delivering goods to a warehouse to serve markets, moving goods into storage for
future use, or forming an integral part of a Just-In-Time system and delivering goods
at the exact point in time they are needed.
Our current consumer driven economy is driven by our ability to offer a wide choice
of competing products with wide scale or "intensive" distribution Without place,
time, form, and possession utility, goods have no value to the customer. In abroad
sense, the production process is really not complete until all four utilities have been
created because until then goods are not capable of giving satisfaction and would not
prompt a customer to exchange something of value for something with no value.
Thus, transportation is an essential part of the total production process that cannot be
overlooked.

1.3.2 Transportation in Production and Marketing

In production, transportation function is looked after by executives of materials
management department or general administration department or general
department. Undoubtedly a part of the transportation function can be tagged on to
purchase of materials, but the total transportation planning concept requires higher
in-depth skills and expertise than are contributed by a purchase executive who is
even otherwise preoccupied with the responsibilities of his complex purchase
function, Bogged down in routine procedures of purchase, he is unable to plan
adequately for transportation of various types of materials, plants and machinery in
such a way as to optimize the expenditure of his own efforts and monetary resources.
Transport of the finished product is often left the marketing manager.

However, a marketing manager is oriented more towards marketing of the product

and development of market than towards optimization of transportation cost, time or
effort. The responsibility for estimates of arrival times at loading and unloading
points of machinery, raw materials, etc., is often entrusted to those executives who
have no personal knowledge of the subject, but who collect second-hand information
on it from different sources. Moreover, while construction of a plant may be assigned
considerable importance, movement of the finished product, raw materials and
project materials may not be adequately provided for in a project report.

1.3.3 The Effects of Transportation on Logistics Activities

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. It is
the planning of all these functions and sub-functions into a system of goods
movement in order to minimize cost maximize service to the customers that
constitutes the concept of business logistics. The system, once put in place, must be
effectively managed.

Traditionally these steps involved separate companies for production, storage,

transportation, wholesaling, and retail sale, however basically,
production/manufacturing plants, warehousing services, merchandising
establishments are all about doing transportation. Production or manufacturing
plants required the assembly of materials, components, and supplies, with or without
storage, processing and material handling within the plant and plant inventory.

Warehousing services between plants and marketing outlets involved separate

transport. Merchandising establishments completed the chain with delivery to the
consumers. The manufacturers limited themselves to the production of goods, leaving
marketing and distribution to other firms. Warehousing and storage can be
considered in terms of services for the production process and for product
distribution. There have been major changes in the number and location of facilities
with the closure of many single- user warehouses and an expansion of consolidation
facilities and distribution centers. These developments reflect factors such as better
transport services and pressures to improve logistics performance.

1.3.4 The Role of Transportation in Service

The role that transportation plays in logistics system is more complex than carrying
goods for the proprietors. Its complexity can take effect only through highly quality
management. By means of well-handled transport system, goods could be sent to the
right place at right time in order to satisfy customers' demands. It brings efficacy, and
also it builds a bridge between producers and consumers. Therefore, transportation is
the base of efficiency and economy in business logistics and expands other functions
of logistics system. In addition, a good transport system performing in logistics
activities brings benefits not only to service quality but also to company
competitiveness.

1.3.5 Modal Characteristics

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. Each
mode is discussed with respect to these measures.

1.4 WAREHOUSING MANAGEMENT

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.
Warehousing, storage, and material-handling activities, which are often referred to as
"transportation at zero miles per hour," take around 20% of total logistics distribution
costs; therefore, they compel logistics executives to give them serious consideration.

Because demand for products cannot be predicted with certainty and they cannot be
supplied immediately, storing inventories is inevitable. Companies store inventories
to reduce their total logistics costs and to reach higher levels of customer service
through better coordination between supply and demand. Therefore, warehousing
has become an important part of companies' logistics systems, which stores goods at
and between the origin and destination points and provides the management with
information about the status, disposition, and condition of inventories. These
inventories may belong to different phases of the logistics process and can be
categorized into three groups.
 Physical supply (raw materials, components, and parts)
 Physical distribution (finished goods)
 Goods in process (constitute small portion of total inventories)

It is intended to provide a concise introduction to some of the basic warehousing

functions. It continues with a brief discussion about packaging and unit loads, as well
as the handling systems.

Warehousing Functions
Warehousing plays a critical role in logistics systems, providing the desired customer-
service levels in combination with other logistics activities. A wide variety of
operations and tasks are performed in warehousing; these can be categorized under
three basic functions:

1. Movement (material handling)

2. Storage (inventory holding)
3. Information transfer

Traditionally, the storage function was considered as the primary role of warehouses
because they were perceived as places for long-term storage of products. However,
today’s organization try to improve their inventory turns and move orders more
quickly through supply-chain networks; therefore, nowadays, long-term storage role
of warehouses has diminished, and their movement function has received more
attention.

Movement
The movement or material-handling function is represented by four primary
activities:
 Receiving and put away: This activity includes unloading goods from the
transportation equipment as well as verifying their count and specifications
against order records, inspecting them for damage, and updating warehouse
inventory records. Receiving also includes sorting and classification of
products and prepackaging bulk shipments into smaller ones before moving
them to their warehouse storage location. Finally, the physical movements of
products to storage areas, locations for specialized services (such as
consolidation areas), and outbound shipment places are referred to as pass
away activities.
 Order filling or order picking: This is a fundamental movement activity in
warehousing and involves identifying and retrieving products from storage
areas according to customer orders. Order filling also includes accumulating,
regrouping, and packaging the products into customers' desired assortments.
Moreover, generating packing slips or delivery lists may also take place at this
point. Order picking activities are time consuming and labor intensive. A
study revealed that around 63% of warehouse operating costs are the result of
order picking.
 Cross docking: In this process, receiving products from one source are
occasionally consolidated with products from other sources with the same
destination and immediately sent to customers, without moving to long-term
storage. A pure cross-docking operation only organizes the transfer of
materials from inbound receiving dock to the outbound dock, eliminating non
value adding activities such as put away, storage, and order filling. In practice,
however, there might be some delay, and the items may remain in the facility
between 1 and 3 days.
 Shipping: This activity involves physically moving and loading assembled
orders onto transportation carriers, checking the content and sequence of
orders, and updating inventory records. It may also include sorting and
packaging the products for specific customers or bracing and packing the items
to prevent them from damage.

1.4.1 Types of Warehouse

Private Warehouse
These are the warehouse owned by the company for their exclusive use of storing the
goods manufactured or traded by them for onward selling in the market.

Advantages:
 Better control over storage and movement of goods
 Less chance of errors in handling the goods
 Customized design and flexibility in operations
 Cost effective and economic

Disadvantages:
 Lack of geographical flexibility
 Requires stable demand and high product throughput
 Requires initial larger financial investment
 Has permanent liability

Public Warehouses
These are the warehouses hired from other agencies for storing the goods for a
specific period of time by paying agreed rent. For example, Central Warehousing
Corporation (CWC).
Advantages:
 Generally located near ports and marketplace and thus has fixed periodic
operating cost
 Great flexibility in location changeover
 No permanent liability
 Adjustments as per season are possible

Disadvantages:
 Lack of flexibility in operations
 Not suitable for specialized services

Contact Warehouses
It is a specialized form of public warehouses managed by third party logistics
companies for providing total warehousing services by paying the agreed charges.

Advantages:
 Great flexibility in location changeover
 No permanent liability
 Adjustments as per season are possible
 Availability of expert manpower and dedicated resources

Disadvantages:
 Less control on operations
 Performance of organization depends on the performance on third party

1.4.2 Third-Party and Fourth-Party Logistics

Third-party logistics is the outsourcing of the logistics function to external
organizations. For example, a business that has its own warehousing facilities may
use a third-party logistics provider for transportation. Fourth-party logistics
companies, on the other hand, design and implement a comprehensive supply-chain
solution for an organization that typically includes the use of a number of different
third-party logistics providers. While a third-party logistics organization performs a
specific logistics function, a fourth-party logistics company uses its resources and
capabilities to manage the entire logistics process for clients.

1.4.3 Information Monitoring

The physical distribution managers continuously need up-to-date information about
inventory, transportation and warehousing. For example, in respect on inventory,
information about present stock position at each location, future commitment and
replenishment capabilities are constantly required. Similarly, before choosing a
carrier, information about the availability of various modes of transport, their costs,
services and suitability for a particular product is needed. About warehousing,
information with respect to space utilization, work schedules, unit load performance,
etc., is required. In order to receive all the information stated, an efficient
management information system would be of immense use in controlling costs,
improving services and determining the overall effectiveness of distribution. Of
course, it is difficult to correctly assess the cost of physical distribution operations.
But if correct information is available it can be analyzed systematically, and a great
deal of saving can be ensured (See Figure).
1.5 FUTURE PROSPECTS OF LOGISTICS
Facing the worldwide competition, the improvement of logistics system should be
advanced by both private companies and government. There are three revolutions in
business that have substantial impacts on the purchasing and supply strategies of the
manufacturing sectors. These three revolutions are:
 the globalization of trade
 the coming of the information era
 more demanding consumers and continuously changing consumer preferences

The main characteristics of future logistics development are:

 Government Role: To keep competitiveness of industries, the government has
to lead the way to assist the logistics industries. For instance, the idea of freight
village of city logistics provides the environment to promote logistics efficiency
and to reduce operation costs. However, it involves large of investments and
some problems relating laws and national policies. Without the lead and
support of government, achieving the plan is difficult.
 Growth of International Goods Transport: The up-growth of international
freight transport is contributed by several factors. Firstly, the blossoming of E-
commerce pushes ahead the international business activities. Secondly, the
change of production strategy needs international cooperation, for example,
importing the semi-finished products from countries with cheaper human
resources to those with higher technology to assemble the final goods. Thirdly,
the pressure of globalized market, such as World Trade Organization (WTO),
pushes local industries to promote they to reach an international standard and
face the worldwide competition.
 Improvement of Services: Providing a good customer service becomes a
necessary requirement of business operation with the intense competition of
global market. The quality of services is the main factor to affect consuming
behavior among the enterprises with high similarity. The service systems
involve several developed techniques now, such as Efficient Consumer
Response (ECR) and Quick Response (QR). In the near future, more new
techniques would be applied in providing better services for customers.
 Revolution of Logistics Operation: IT techniques and its products bring
efficiency and fluency to the logistics systems. Radio Frequency ID (RFID) is
one of these techniques. The main difference between the bar-code system and
RFID is that RFID does not need the action of scanning the barcode on goods.
RFID could save manual operation time dramatically. RFID systems could
sense the amount of goods input in the tags automatically and immediately
when the costumers push their trolley through the exit.
 Shorter Product Life Cycle: With the current trend, the merchandise design is
changing day by day, and therefore, the product life cycle is shorter and
shorter, especially in computer science. To confront the impacts, logistics
 system must improve its efficiency and reliability of goods delivery. Otherwise
an inappropriate logistics system would hinder the competitiveness of new
products and the business profits.
 Improvement of Logistics Facilities: The advancement and development of
logistics are based on several techniques and complete theories. High-tech
facilities and systems, for example, ITS, could bring more possibilities and
advantages to logistics. For example, the improvement of related facilities, e.g.
Forklift Trucks, is necessary for transport efficiency. In the future, factory
automation is the main target for the whole supply-chain procedures. It could
help to improve efficiency and also reduce the operation costs.
 Channel Cooperation Between Companies: In order to save the logistics costs,
a key concept is to maximize the usage of available transport capacity.
Integrating the logistics demands between numerous departments helps
achieve this purpose. In practice, a conglomerate could develop its own
logistics service for the branches. For some medium size companies, they could
co-operate transport channels with others.
 Specialized Logistics Delivery: One of the notable trends of logistics industries
is specialized delivery service. For instance, delivering fresh food from the
place of origin needs low-temperature containers. Computer chips, gases and
petroleum need particular conveyances to carry. These demands are rising
since the products became more and more delicate.
 Logistics Centers: 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. Governments can propose special areas for storehouses and logistics
to reduce land acquisition The future logistics will co-operate e-commerce, the
Internet and the newly door-to-door service to create new business prospects.
 Freight Transport: 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.

Reference:
3GLearning (2016). Logistics Management. UAE. 3GLearning FZ LLC.
www.3gelearning.com

Learning Evaluation
MME 2A MODULE 1 Teaching – Learning Activities
Instructions: Please answer every Learning Activity in a separate paper. Put your
name, course and year, and class period. Submission of these learning activities is in
every week after distribution.

TLA 1: Explain the inbound and outbound logistics.

TLA 2: Discuss the general principles of logistics management.

TLA 3: Describe logistics as part of SCM.

TLA 4: Explain the classifications of transportation.

TLA 5: Define the process of warehousing management.

Assessment
Reflection Paper
Direction: Read this article. Then make a reaction on digitizing the freight logistics
industry.

Nuvocargo raises $12M to digitized freight logistics industry

(https://techcrunch.com/2021/04/07/nuvocargo-raises-12m-to-digitize-the-freight-
logistics-industry/)

Despite hundreds of billions of dollars’ worth of goods flowing across the U.S.-
Mexican border each year, the freight industry has remained analog — each side of
the border offering up its own maze of bureaucracy.

Nuvocargo, a digital logistics platform for cross-border trade, is trying to modernize

the process. The company offers an all-in-one service that rolls freight forwarding,
customs brokerage, cargo insurance and even trade financing into one UI-friendly
software and app. Housing all of these services under one app makes it easier for
companies to track their supply chain and gives customs and logistics teams access to
more centralized information, according to Nuvocargo CEO Deepak Chhugani.

“And you just have one single audit trail in case something goes wrong,” Chhugani
told TechCrunch, adding that the process helps reduce or eliminate the extra costs
that come with a high administrative overhead. It also lets customers take a high-level
look at their operations from within a single interface, he said.

Chhugani likened the experience to something like Uber Eats, which offers customers
the ability to easily track food orders from restaurant to home.

“Just imagine, because you are dealing with so many different parties, you lose
visibility on what’s going on. If you want a snapshot of — what did I spend end-to-
end? — you actually have to go through all these email chains or faxes or texts with
different providers,” Chhugani explained. “Some of them might be in another
country. So [Nuvocargo] just creates more visibility throughout the process, from
where the goods literally are to visibility around your finances.”

But Nuvocargo is thinking beyond the actual movement of goods. The company is
also starting to offer customs brokerage, comprehensive cross-border cargo insurance
and factoring, or short-term account receivable finance. The last of these solves an
especially difficult pain point for trucking companies, which sometimes must wait up
to net-90 days to be paid.
The approach has caught investors’ eyes: Nearly one year after announcing it had
raised a $5.3 million seed round, the company has closed on a $12 million Series A
funding led by QED Investors and with injections from David Velez, Michael Ronen,
Raymond Tonsing, FJ Labs and Clocktower. Investors NFX and ALLVP, which
participated in the previous round, also participated.
The “holy grail” of their new offerings, as Chhugani called it, is trade financing.
Because Nuvocargo will already have a relationship with companies, including an
understanding of credit and fraud risk, its hope is that it can offer financial products
at a competitive rate.

This is what attracted QED Investors, a firm that typically focuses on financial
technology rather than logistics and trucking.

“After speaking with [Deepak] and seeing the connection points and parallels
between what we were looking at in e-commerce and the challenges of actually
getting goods across border, the fintech spark went off in my own head,” Lauren
Connolley Morton, a partner at QED, said in an interview with TechCrunch. “The
opportunities for factoring, for lending, for insuring goods are all very much right up
our alley.”

Although Chhugani declined to disclose Nuvocargo’s valuation after this most recent
round of funding, it’s clear there is plenty of room to grow into the logistics
industry’s huge and seemingly disaggregated value chain.

Rubrics
REFLECTIVE WRITING RUBRICS
SKILLS 5 4 3 2 1
Depth of Demonstrate a Demonstrate a Demonstrate a Demonstrate a Demonstrate
Reflection conscious and thoughtful basic limited little or no
thorough understanding understanding of understanding understanding
understanding of the writing the writing of the writing of writing
of the writing prompt and the prompt and the prompt and prompt and
prompt and the subject matter. subject matter. subject matter. subject matter.
subject matter. This reflection This reflection
This reflection needs revision. needs revision.
can be used as
an example for
other students
Use of textual Use specific Use relevant Use examples Use incomplete No examples
evidence and and convincing examples from from the text to or vaguely from the text are
historical examples from the texts support most developed used and claims
context the texts studied to claims in your examples to made in your
studied to support claims writing with support claims own writing are
support claims in your own some only partially supported and
in your own writing, connections with no irrelevant to the
writing, making made between connections topic at hand.
making applicable texts. made between
insightful and connections texts.
applicable between texts.
connections
between texts.
Language use Use Use language Use basic but Use language Use language
stylistically that is fluent appropriate that is vague or that is
sophisticated and original, language, with a imprecise for unsuitable for
language that is with evident a basic sense of the audience or the audience and
precise and sense of voice, voice, some purpose, with purpose, with
engaging, with awareness of awareness of little sense of little or no
notable sense audience and audience and voice, and a awareness of
of voice, purpose, and purpose and limited sentence
awareness of the ability to some attempt to awareness of structure.
audience and vary sentence vary sentence how to vary
purpose, and structure. structure. sentence
varied sentence structure.
structure.
Conventions Demonstrate Demonstrate Demonstrate Demonstrate Demonstrate
control of the control of the partial control of limited control little or no
conventions conventions, the conventions, of the control of the
with essentially exhibiting exhibiting conventions, conventions,
no errors, even occasional occasional errors exhibiting making
with errors only that do not frequent errors comprehension
sophisticated when using hinder that make almost
 language. sophisticated comprehension. comprehension impossible.
language. difficult.
References
3GLearning (2016). Logistics Management. UAE. 3GLearning FZ LLC.
www.3gelearning.com
Alamalhodaei, Aria (2021). Nuvocargo raises $12M to digitized freight logistics
industry. Retrieved from https://techcrunch.com/2021/04/07/nuvocargo-raises-
12m-to-digitize-the-freight-logistics-industry/ . Access on April 8, 2021