Logistics Management

Dr. Akshay Joshi

Introduction
 Logistics is one of the most important segment of Supply
Chain Operations & Marketing in business.
 In business a trader gets order for supply of goods or services
through marketing activities & to execute the orders the
supplier company prepares logistics.
 Procures the product or services, puts labels on them or give
some identification trademark name, makes necessary
packing & packaging to prevent any damage during loading,
unloading, handling, transportation etc. till it is supplied to
the end customer.
 Definition
 Logistics derived from ‘Loger’: means art of war
pertaining to movement & supplies of armies.

Logistics = Inbound logistics + Materials

Management + Physical Distribution/Outbound
Logistics
1. Inbound logistics means movement of materials
received from suppliers.
2. Materials Management means the movement of
materials & components inside a firm.
3. Physical distribution refers to movement of goods
outwards from the end of assembly line to customer.
Definition
“ Logistics is the process of planning, implementing and
controlling the efficient, effective flow & storage of goods,
services & related information from the point of origin to
the point of consumption for the purpose of conforming
the customer requirement”.
- Council of Logistics
Management
 Logistics management includes the design & administration
of systems to control the flow of material, work in process, &
finished inventory to support business unit strategy.
 Concepts
 Logistics is that part of supply chain process that plans, implements &
controls the effective forward and reverse flow and storage of goods,
services, & related information between the point of origin and the point
of consumption, in order to meet the customer’s requirements.
Logistics Activities:
1.Customer Service.
2. Demand forecasting.
3. Distribution communication.
4. Inventory Control.
5. Material Handling.
6. Order processing.
7. Part & Service support.
8. Plant & warehouse site selection.
9. Procurement.
10. Packaging
11. Return goods handling.
12. Salvage & scrap disposal.
13. Traffic & Transportation.
14. Warehousing & storage.

 Logistics is concerned with getting products & services whenever they are
needed whenever they are required.
 Operational Objectives
1. Rapid Response:
 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 & then
accomplish rapid delivery of required inventory.
 The result is elimination of excessive inventories traditionally
stocked in anticipation of customer requirements.
 Rapid response capabilities shifts operational emphasis from an
anticipatory posture based on forecasting & inventory stocking
to responding to customer requirements on a shipment to
shipment basis.
2. Minimum Variance:
 Variance is an unexpected event that disrupts performance of
the system.
 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.
 Potential reduction in variance relates to both internal &
external operations.
 Operating areas of a logistical system are subject to potential
variance.
 The traditional solution to accommodate variance was to
establish safety stock inventory or use high cost premium
transportation.
 As variance are minimized, logistical productivity improves
as a result of economical operations.
3. Minimum Inventory:

 The aim of minimum variance involves assets, commitment

& relative turn velocity.
 Total commitment is the financial value of inventory usage
over a period of time.
 Turn velocity involves the rate of inventory usage over a
period of time.
 High turn rates, coupled with inventory availability, means
that assets devoted to inventory are being utilized effectively.
 The aim is to reduce inventory deployment to the least level
consistent with customer service goals to achieve the least
overall total logistics cost.
 Inventories can provided improved return on investment
when they result in economies of scale in manufacturing or
procurement.
4. Consolidated Movement:
 The most important logistical costs is transportation.
Transportation cost is directly proportional to the type of
product, size of shipment, & distance.
 Logistical systems that feature premium service depend on
high speed, small shipment transportation.
 Premium transportation is high cost.
 To decrease transportation cost it is desirable to achieve
movement consolidation.
 The larger the overall shipment & the longer the distance it is
transported, the lower is the transportation cost per unit.
 To achieve this, it requires innovative programmes to group
small shipments for consolidate movement.
5.Improvement in Quality:
 Continuous improvement in quality is a logistical aim. TQM
has become a major commitment in all departments of the
industry.
 In case a product becomes defective or if services promises are
not kept, value is added by the logistics.
 Logistical costs, once increased, cannot be reversed.
 When quality fails, the logistical performance typically needs
to be reverse & then repeated.
 Logistics itself must perform to the required quality standards.

 Zero defect logistical performance is achieved by logistical
operations performed across a wide geographical area at all
times of the day & night
 Reworking a customer’s order due to incorrect shipment or
due to in- transit damage is more costly than performing it
right the 1st time.
 Logistics is a main part of developing & maintaining
continuous TQM improvement.
6. Life – cycle support:
 Life cycle support is the final logistical aim. Very few items are
sold without some guarantee that the product will perform as
advertised.
 The normal value added inventory flow toward customers must
be reversed.
 Product recall is an important competency results from
increasing rigid quality standards, product expiration dating &
responsibility for hazardous consequences.
 Return logistics requirement also result from increasing number
of laws prohibiting disposal & encouraging recycling of beverage
containers & packaging materials.
 The most important aspect of reverse logistical operations is
the need for maximum control when a potential health
liability exists.
 A recall programme is similar to a strategy of maximum
customer service that must be executed regardless of cost.
 A sound logistical strategy cannot be formulated without
careful review of reverse logistical requirements.
 Work of Logistics
Work of Logistics involves five areas:
1. Order Processing.
2. Inventory.
3. Transportation.
4. Warehousing, Material Handling, Packaging.
5. Facility Network.
Logistical Operations:
Logistical operations include two interrelated flows:
Inventory & Information
 Inventory Flow:
 The logistical operations management is concerned with
movement & storage of inventory in the form of materials;
work-in-process, & finished products.
 These operations start with initial shipment of a material or
component part from a supplier & are finalized when a
manufactured or processed product is delivered to a customer.
 From the initial purchase of material or component, the
logistical process adds value by moving inventory when & where
needed.
 To support manufacturing, work-in –process inventory must be
properly positioned. The cost of each component & its
movement becomes part of the value-added processes.
 Logistical operations can be divided into three areas:

 Customer Accommodation: Activities related to providing

customer service.
 Requires performing order receipt & processing, deploying
inventories, storage & handling, & outbound transportation
within a supply chain.
 Includes the responsibility to coordinate with marketing
planning in areas such as pricing, promotion, customer service
levels, credit delivery standards, handling return merchandise &
life cycle support, primary market distribution objective is to
assist in revenue generation by providing strategically desired
customer service delivery levels at the lowest total cost.
 Manufacturing Support: Activates related to planning,
scheduling, & supporting manufacturing operations.
 Requires master schedule planning & performing work-in-
process storage, handling, transportation & sortation, kilting,
sequencing & time phasing of components.
 Includes the responsibility for storage of inventory at
manufacturing sites & maximum flexibility in the coordination
of geographic & assembly postponement between
manufacturing & customer accommodation operations.
• Procurement: Activities related to obtaining products &
materials from outside suppliers.
• Requires performing resource planning, supply sourcing,
negotiation, order placement, inbound transportation, receiving
& inspection, storage & handling & quality assurance.
• Includes the responsibility to coordinate with suppliers in such
areas as scheduling, supply continuity, hedging & speculation, as
well as research leading to new sources or programs.
• The primary procurement objectives is to support
manufacturing or resale organizations by providing timely
purchasing at the lowest total cost.
 RELATIONSHIPSHIP OF LOGISTICS TO
MARKETING & PRODUCTION
KEY OPERATIONS ACTIVITES:
• Quality Control.
• Detailed production scheduling.
• Equipment maintenance.
• Capacity planning.
• Work measurement & standards.
KEY LOGISTICS ACTIVITIES:
 Transport
 Inventory
 Order Processing.
 Materials handling.
PRODUCTION-LOGISTICS INTERFACE:
 Product scheduling.
 Plant location.
 Purchasing .

MARKETING ACTIVITIES:
• Promotion
• Market research
• Product mix
• Sales force management.
MARKETING – LOGISTICS INTERFACE:
 Customer Service standards.
 Pricing
 Packaging
 Retail location

The production logistics interface & marketing logistics

interface constitute the Internal Supply Chain.
Logistics is a link between the manufacturing & selling
process that leads to the creation of place & time
utility.
 Four Logistics concepts
The systems concept:
 Based on all functions of organization working together to
maximize benefits.
 This concept sometimes requires certain components of the
organization to operate sub-optimally in order to achieve
maximum goals of the system.
The total cost concept:
 The total cost concept is based on the system concept;
goal achievement is measured in terms of cost.

The after tax concept:

 A variation of the total cost concept is the after tax
concept.
 The goal of this concept is after tax profit.
 The trade off concept:
 The trade off concept links the system together in a way
that is very efficient, but can have trade offs that might be
inefficient.
 The advantage of such efficiency of such high efficiency
must be weighed against risk involved.