UNIT 1:

FUNDAMENTALS
OF LOGISTICS
AND
SUPPLY CHAIN
MANAGEMENT

CHAPTER 1 : LOGISTICS
FUNDAMENTALS

POSTGRADUATE DIPLOMA IN LOGISTICS AND SUPPLY CHAIN MANAGEMENT

Self Introduction
Logistician, Educator &Student…
EXPERIENCE & EDUCATION
CURRENT POSITIONS
Lecturer in Logistics @ Dhofar University COUNTRY REPRESENTATIVE
LEAD TRAINER
Mohammad Nazmuzzaman Hye CMILT
17Y Exp. in Supply Chain and Logistics Management
Leading Logistics and Supply Chain
Management Education
implementations Locally and globally
LEAD TRAINER
Learning
Objectives

• Synchronizing supply chain

functions
• Exposure to different elements of
logistics system.
• Assist to understand the objectives
of logistics management & its role in
supply chain.
• Understanding to know third party
logistics.

POSTGRADUATE DIPLOMA IN LOGISTICS AND SUPPLY CHAIN MANAGEMENT 3

SYNCHRONIZING SUPPLY CHAIN FUNCTIONS
Supply chain management can also be described as
integrating three of the functions inside an
organization: purchasing, logistics, and
operations.

Each of these functions is critical in any company, and

each of them has its own metrics. But these
functions are interdependent (see Figure), so
making good decisions in any of these areas
requires coordination with the other two.
— The purchasing, logistics, and operations teams often have conflicting goals without realizing it. Managing these functions
independently leads to poor overall performance for your company. Supply chain managers need to make sure that the
objectives of these groups are aligned in order for the company to meet its top-level goals.
— The simplest top-level goal for many supply chain decisions is return on investment.
— Focusing on this one objective can often help everyone see the big picture and look beyond the functional supply chain
metrics such as capacity utilization or transportation cost..
PURCHASING
— Purchasing (or procurement) is the function that buys the materials and services that a company uses to produce its
own products and services.
— The basic goal of the purchasing function is to get the stuff that the company needs at the lowest cost possible; the
purchasing department is always looking for ways to get a better deal from suppliers.
— Some of the most common cost reduction strategies for a purchasing manager are:
o Negotiating with a supplier to reduce the supplier’s profit margin .
o Buying in larger quantities to get a volume discount
o Switching to a supplier that charges less for the same product
o Switching to a lower-quality product that’s less expensive
— On the surface, any of these four options looks like a simple, effective way to reduce costs and therefore increase
profitability. But each of these options can have negative long-term effects, too. For example, driving a supplier’s
profit margin too low could make it hard for them to pay their bills — or even force them out of business.
While you might save money in the short term, you may have to end up spending even more time and money to find a
new supplier in the future.

In other words, it would actually increase your total cost. Many purchasing decisions can also have direct effects on
the costs for other functions within your company.

For example, sourcing lower-quality raw materials might lead to higher costs for quality assurance. Buying in larger
quantities might lead to an increase in inventory costs.

Your total costs include all of the investments and expenses that are required to deliver a product or service to your
customer.
ORIGIN OF LOGISTICS
— The term “logistics” originates from the ancient Greek word “logos”
meaning ratio, word, calculation, reason, speech, oration, and such the
word logistics itself originates from the military discipline.
— There were divisions in the military who were responsible for the
supply of necessary arms, ammunition and rations as and when they
were needed, for example when they had to move from their own base
to a forward position. In that situation the logistics division would
provide all the necessary support to move the arms, ammunitions,
tents, foods etc. In the ancient Greek, Roman and Byzantine empires,
there were military officers with the title ‘Logistikas’ who were
responsible for financial, supply and distribution matters.
— Not surprisingly the Oxford English dictionary defines logistics as“ The
branch of military science having to do with procuring, maintaining and
transporting material, personnel and facilities.” Another dictionary
defines logistics as “ The time related positioning of resources.”
— Logistics covers everything related to moving and storing products.
— Logistics management activities typically include inbound and Inbound logistics refers to the products that
outbound transportation management, warehousing, materials
handling, order fulfilment, logistics network design, inventory
are being shipped to your company by your
management, supply/demand planning, and management of third-party suppliers.
logistics (3PL) service providers. To varying degrees, the logistics Outbound logistics refers to the products
function also includes sourcing and procurement, production planning that you ship to your customers.
and scheduling, packaging and assembly, and customer service.

Logistics = supply of raw materials + materials management in a factory + distribution to customers

Logistics Defined

• The Council of Supply Chain Management

Professionals (CSCMP) in the United States defines
logistics management as (2016):
• … that 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.

POSTGRADUATE DIPLOMA IN LOGISTICS AND SUPPLY CHAIN MANAGEMENT 7

LOGISTICS

Logistics covers everything related to moving and storing products. This

function can go by different names, such as physical distribution,
warehousing, transportation, or traffic.

Inbound logistics refers to the products that are being shipped to your
company by your suppliers.

Outbound logistics refers to the products that you ship to your

customers.
LOGISTICS
—Logistics adds value because it gets a product where a customer needs it when the customer wants it.
—Logistics costs money, too. Transporting products on ships, trucks, trains, and airplanes has a price tag.
—Also, whether a product is sitting on a truck or gathering dust in a distribution center, the product is an
asset that ties up working capital and probably depreciates quickly.
— The goals of the logistics function are to move things faster, reduce transportation costs, and decrease
inventory.
—Following are some ways that a logistics department might try to achieve these goals:
o Consolidating many small shipments into one large shipment to lower shipping costs
o Breaking large shipments into smaller ones to increase velocity
o Switching from one mode of transportation to another, either to lower costs or increase velocity
o Increasing or decreasing the number of distribution centers to increase velocity or lower costs
o Outsourcing logistics services to a third-party logistics (3PL) company
— You can see an example of the conflicts that can occur between logistics and purchasing: Logistics
wants to decrease inventory, which may mean ordering in smaller quantities, but purchasing wants to
lower the price of the purchased materials, which may mean buying in larger quantities.
— Unless purchasing and logistics coordinate their decision-making and align their goals with what is best
for the bottom line, the two functions often end up working against each other and against the best
interests of your company, your customers, and your suppliers.
OPERATIONS
—The third function that is key to supply chain management is operations.
—Operations is in charge of the processes that your company focuses on to create value. Here are some
examples:
o In a manufacturing company, operations manages the production processes.
o In a retailing company, operations focuses on managing stores.
o In an e-commerce company or a 3PL, the operations team may also be the logistics team.
— Operations managers usually focus on capacity utilization, which means asking “How much can we do
with the resources we have?”
— Resources can be human resources (people) or land and equipment (capital).
— The operations department is measured by how effectively (কার্যকরীভাবে) and efficiently (দক্ষতার সাবে) it
uses available capacity to produce the products and services that your customers buy.
— Some common goals for operations teams include
o Reducing the amount of capacity wasted (অপেযয়িত/নষ্ট) due to changeovers and maintenance
o Reducing shutdowns for any reason, including those caused by running out of raw materials
o Aligning production schedules and orders for raw materials with forecasts received from customers
— Although increasing operations efficiency (দক্ষতা) sounds like a great idea, sometimes it actually creates
supply chain problems and does more harm than good. Companies may invest in increasing their
capacity only to find out that their suppliers or logistics infrastructure can’t support the higher
production levels.
 Dabbawalas of
Mumbai
• Dabbawalas of Mumbai offer a reliable
fool proof logistics system of delivering
lunch boxes to over 200,000 office
employee every day without mix up of
having the wrong tiffin going to the wrong
office or arriving late, irrespective of
conditions such as rains, strikes, and
scorching heat.

• A team of around 5000 men and women,

mostly illiterate, operate in assigned areas
in Mumbai, each handling 25-30 dabbas,
which is the optimum lot size as more
could create confusion and affect
promptness, which will lead to customer
dissatisfaction.

POSTGRADUATE DIPLOMA IN LOGISTICS AND SUPPLY CHAIN MANAGEMENT 11

 Dabbawalas of
Mumbai
• The dabbas are collected from the houses
and put in tiffing racks at a network of 96
railway stations all over Mumbai to load into
the train for further movement toward delivery
points. They use a colour code system on the
dabbas to identify the collection and delivery
points.

• After the lunch hour, the system operates in

reverse direction, again displaying accuracy
with collection and quality of delivery closer to
Six Sigma.

• This system gives a much cheaper alternative

to office workers than having their food in
restaurants and food joints.

• With this logistics system, 400,000

transactions are done daily with the precision
of Six Sigma accuracy.

POSTGRADUATE DIPLOMA IN LOGISTICS AND SUPPLY CHAIN MANAGEMENT 12

 Economic Impacts of
Logistics
▪ Macrolevel economic impacts logistics is most definitely an important
component in any country’s economy. (The Cost of the Business
Logistics System in Relation to a Country’s Gross Domestic Product)
▪ The economic impacts of logistics can affect individual consumers such
as you These impacts can be illustrated through the concept of
economic utility
o Economic Utility which is the value or usefulness of a product in fulfilling
customer needs or wants. The four general types of economic utility are
possession, form, time, and place; logistics clearly contributes to time and
place utilities.
− Possession Utility refers to the value or usefulness that comes
from a customer being able to take possession of a product.
− Form Utility refers to a product’s being in a form that (1) can be
used by the customer and (2) is of value to the customer.
− Place Utility , refers to having products available where they are
needed by customers; products are moved from points of lesser
value to points of greater value.
− Time Utility, which refers to having products available when they are
needed by customers.

POSTGRADUATE DIPLOMA IN LOGISTICS AND SUPPLY CHAIN MANAGEMENT 13

(1) Information Flow
- Order Registration
- Order Checking and
Editing
- Order Processing
- Coordination
(3) Inventory Control
- Material Requirement Planning
- Inventory Level Decisions for
Customer Service
objectives
(5) Transportation
- Route Planning
- Mode Selection
- Vehicle Scheduling
POSTGRADUATE DIPLOMA IN LOGISTICS AND SUPPLY CHAIN MANAGEMENT
(2) Warehousing
- Material Storage Logistics Mix
- Load Unitizing and Material
Handling
- Site Selection and Network
Planning The functional areas of
- Order Picking and Filling logistics, termed "Logistics Mix"
- Dispatch Documentation by Martin Christopher, consist
(4) Packaging of: Information Flow,
- For Handling and Damage Warehousing , Inventory
Prevention Control , Packaging and
- For Communication
Transportation.
- For Inter Modal Transportation
14
The objective of logistics

The objective of logistics is to facilitate the flow of material across the

supply chain of an enterprise so as to cost effectively make available
the right product at the right place at the right time.

Logistics has to achieve the two polemic goals of customer satisfaction

and least cost. This is possible only when all the logistics functions are
working as a unified system to achieve the common goal.

POSTGRADUATE DIPLOMA IN LOGISTICS AND SUPPLY CHAIN MANAGEMENT 15

Marketing Channels
▪ Marketing channels, which refer to “a set of institutions necessary to transfer the title to goods and to
move goods from the point of production to the point of consumption and, as such, which consists of all
the institutions and all the marketing activities in the marketing process.”
▪ The principal traditional institutions in the marketing channel are the manufacturer, the wholesaler,
and the retailer.
▪ These channel members work together in several different channel arrangements—ownership
channel, negotiation channel, financing channel, promotions channel, and logistics channel—and
we’ll look more closely at how manufacturers, wholesalers, and retailers interact in these five
channels.

POSTGRADUATE DIPLOMA IN LOGISTICS AND SUPPLY CHAIN MANAGEMENT 16

 Marketing Channel
• The ownership channel covers movement of the title to the goods, and
the goods themselves might not be physically present or even exist.
• The negotiations channel is the one in which buy and sell agreements
are reached.
• The financing channel handles payments for goods
• The promotions channel is concerned with promoting a new or an
existing product, and it can be related to the financing channel because
monetary allowances are often part of the promotion effort.
• The most significant contribution that the logistics channel makes to the
overall channel process is the sorting function, which bridges “the
discrepancy between the assortment of goods and services generated
by the producer and the assortment demanded by the consumer.”
Moving and storing product throughout the channel

POSTGRADUATE DIPLOMA IN LOGISTICS AND SUPPLY CHAIN MANAGEMENT 17

Sorting Functions

▪ The sorting function has four steps, which are

important to understanding the concept of
goods flowing through the logistics channel:
o Sorting out is sorting a heterogeneous
supply of products into stocks that are
homogeneous.
o Accumulating is bringing together
similar stocks from different sources.
o Allocating is breaking a homogeneous
supply into smaller lots.
o Assorting is building up assortments of
goods for resale, usually to retail
customers.

▪ These steps take place between the

manufacturer and the consumer, which means
Source: Dibb,S,Simkin, Pride, Ferrell (2001) marketing concepts & strategies 4 th ed, USA; Houghton Mifflin
that they are performed by the wholesaler, the
retailer, or specialist intermediaries.

POSTGRADUATE DIPLOMA IN LOGISTICS AND SUPPLY CHAIN MANAGEMENT 18

Activities in the Logistical Channel
Customer service
Facility location decisions
Inventory management
Order management
Procurement
Transportation management
Demand forecasting
International logistics
Materials handling
Packaging
Reverse logistics
Warehousing management
Responsibilities of Logistics Managers

A specialist A generalist
oFreight rates oUnderstands functional
oWarehouse layouts relationships
oInventory analysis oRelates logistics to other
oProduction firm operations,
suppliers, customers
oPurchasing
oControls large
oTransportation law
expenditures
Logistics Professionalism

Professional Organizations Dedicated to Advancing the Professional Knowledge of

their members:
▪ APICS – The Association for Operations Management (www.apics.org)
▪ American Society of Transportation and Logistics (AST&L) (www.astl.org)
▪ Council of Supply Chain Management Professionals (www.cscmp.org)
▪ Delta Nu Alpha (DNA) (www.deltanualpha.org)
▪ International Society of Logistics (SOLE) (www.sole.org)
▪ Supply Chain & Logistics Association Canada (SCL) (www.sclcanada.org)
▪ The Chartered Institute of Logistics and Transport in the UK – CILT (UK)
(www.ciltuk.org.uk)
▪ Warehousing Education and Research Council (WERC) (www.werc.org)
 Logistics
Functions

▪ Logistics is a process of movement of

goods across the supply chain of a
company. However, this process consists
of various functions that must be properly
managed to bring effectiveness and
efficiency to the supply chain of the
organization. Activities that are logistics
related include, but are not limited to, the
following:
≡ Order Management
≡ Inventory Management
≡ Warehousing Management
≡ Transportation Management
≡ Packing
≡ Information flow

POSTGRADUATE DIPLOMA IN LOGISTICS AND SUPPLY CHAIN MANAGEMENT 22

 Order Management

▪ Order management refers to management of the activities that

take place between the time a customer places an order and
the time it is received by the customer. As such, order
management is a logistics activity with a high degree of
visibility to customers.
▪ The order processing activity consists of the following steps:
o Order checking for any deviations in agreed-upon or
negotiated terms
o Prices, payment, and delivery terms
o Checking the availability of materials in stocks
o Production and material scheduling for shortage
o Acknowledging the order indicating deviations, if any

POSTGRADUATE DIPLOMA IN LOGISTICS AND SUPPLY CHAIN MANAGEMENT 23

Inventory Management

▪ Inventory refers to stocks of goods that

are maintained for a variety of purposes,
such as for resale to others, as well as to
support manufacturing or assembling
processes.

▪ When managing inventory, logisticians

need to simultaneously consider three
relevant costs—the cost of carrying
(holding) product, the cost of ordering
product, and the cost of being out of
stock.

▪ Inventory management is to keep enough

inventory stocks to meet customer
requirements, and simultaneously its
carrying cost should be the lowest. It is
basically an exercise of striking a balance
between the customer service for not
losing market opportunity and the cost to
meet the same.

POSTGRADUATE DIPLOMA IN LOGISTICS AND SUPPLY CHAIN

MANAGEMENT 24
Warehousing Management

▪ Warehousing refers to places where

inventory can be stored for a particular
period of time. In other words,
warehousing is the storing of finished
goods until they are sold.

▪ Warehouse is the key decision area in

logistics. The major decisions in
warehousing are:
o Number of warehouses
o Size of the Warehouse
o Warehouse layout
o Design of the building
o Ownership of the warehouse

▪ Warehousing is an important component

of logistics as it is directly linked to the
ability of a firm to deliver the desired level
of customer service.

25
 Transportation Management
▪ Transportation can be defined as the actual physical movement of
goods or people from one place to another, whereas transportation
management refers to the management of transportation activities by a
particular organization.
▪ For movement of goods from the supplier to the buyer, transportation is
the most fundamental and important component of logistics.
▪ When an order is placed, the transaction is not complete till the goods
are physically moved to the customer's place.
▪ The physical movement of goods is through various transportation
modes.
▪ For low unit value products, the transportation cost component is 20
percent of the product cost. In logistics costs, its share varies from 65 to
70 percent in the case of mass-consumed, very low unit-priced products.

POSTGRADUATE DIPLOMA IN LOGISTICS AND SUPPLY CHAIN MANAGEMENT 26

 • Packaging can have both a marketing (consumer packaging)
and logistical (industrial packaging) dimension. Industrial
(protective) packaging refers to packaging that prepares a
Packing product for storage and transit (e.g., boxes, crates).
• Packaging has important interfaces with the materials handling
and warehousing activities.

POSTGRADUATE DIPLOMA IN LOGISTICS AND SUPPLY CHAIN MANAGEMENT 27

Information Flow

Logistics is basically an
information-based activity of
inventory movement across a
supply chain. Hence, an
information system plays a vital
role in delivering a superior
service to the customers.

Use of IT tools for information

identification, access, storage,
analysis, retrieval, and decision
support in logistics is helping
business firms to enhance their
competitiveness.

POSTGRADUATE DIPLOMA IN LOGISTICS AND SUPPLY CHAIN MANAGEMENT 28

 Role of Logistics in the
Supply Chain
▪ It’s often useful to think about your supply chain as a network. Networks are
made up of nodes and links. As Figure shows, every stop that a product
makes between raw materials and a customer is a node of the network. A
factory is a node; so is a warehouse, a distribution center, and a retail store.
▪ Nodes are connected by links. Generally speaking, links are forms of
transportation, such as a ship, a railroad, a truck, or a drone. Products move
through a supply chain, flowing through links and stopping at nodes.
▪ Logistics basically connects the source of supply with the sources of demand.
It bridges the gaps between market demand and the capabilities of supply
sources.
▪ However, when these gaps tend to be larger and the risk of dilution of service
level is high, an integrated system is needed to make the operation seamless
for product and information flow. SCM is a process of integration to bridge the
gap between supply and demand.
▪ SCM helps to close this gap by enhancing and then aligning the capabilities
through enablers such as technology, collaboration and human resources
skills.

POSTGRADUATE DIPLOMA IN LOGISTICS AND SUPPLY CHAIN MANAGEMENT 29

Third Party Logistics

▪ A third-party logistics provider (abbreviated

3PL, or sometimes TPL) is a firm that provides
service to its customers of outsourced (or
"third party") logistics services for part, or all of
their supply chain management functions.

▪ Third party logistics providers typically

specialize in integrated operation, warehousing
and transportation services that can be scaled
and customized to customers needs based on
market conditions and the demands and
delivery service requirements for their
products and materials.

▪ Often, these services go beyond logistics and

included value-added services related to the
production or procurement of goods, i.e.,
services that integrate parts of the supply
chain. Then the provider is called third-party
supply chain management provider (3PSCM)
or supply chain management service provider
(SCMSP).

POSTGRADUATE DIPLOMA IN LOGISTICS AND SUPPLY CHAIN MANAGEMENT 30

 According to the Council of Supply
Chain Management Professionals, 3PL
is defined as "a firm that provides multiple
logistics services for use by customers.
Third Party Preferably, these services are integrated,
Logistics or bundled together, by the provider.
Among the services 3PLs provide are
transportation, warehousing, cross-
docking, inventory management,
packaging, and freight forwarding."

POSTGRADUATE DIPLOMA IN LOGISTICS AND SUPPLY CHAIN MANAGEMENT 31

 ▪ Standard 3PL Provider: This is the most basic form of a 3PL
provider. They would perform activities such as pick and pack,
warehousing and distribution (business) the most basic functions
of logistics. For a majority of these firms, the 3PL function is not
their main activity.
▪ Service Developer: This type of 3PL provider will offer their
customers advanced value-added services such as: tracking and
tracing, cross-docking, specific packaging, or providing a unique
security system. A solid IT foundation and a focus on economies
of scale and scope will enable this type of 3PL provider to perform
Types of 3PL these types of tasks.
▪ The Customer Adapter: This type of 3PL provider comes in at the
Providers request of the customer and essentially takes over complete
control of the company's logistics activities. The 3PL provider
improves the logistics dramatically, but do not develop a new
service. The customer base for this type of 3PL provider is
typically quite small.
▪ The Customer Developer: This is the highest level that a 3PL
provider can attain with respect to its processes and activities.
This occurs when the 3PL provider integrates itself with the
customer and takes over their entire logistics function. These
providers will have few customers but will perform extensive and
detailed tasks for them.

POSTGRADUATE DIPLOMA IN LOGISTICS AND SUPPLY CHAIN MANAGEMENT 32

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