Procurement

& Logistics
Fundamentals of Logistics

LESSON 3
Content

• Logistics In Simple Words

• Types of Logistics
• The Roles of Logistics
• The Key Components of Logistics
• The 5 P’s of Logistics
• The 7 R’s of Logistics
• The Logistics System of Services
Logistics In Simple Words

• Logistics is the process of planning and executing the efficient transportation and
storage of goods from the point of origin to the point of consumption. The goal of
logistics is to meet customer requirements in a timely, cost-effective manner.

• The art and science of obtaining, producing, and distributing material and product in the
proper place and proper quantities.
Types of Logistics

• Logistics can be split into five types by field: procurement logistics, production logistics,
sales logistics, recovery logistics, and recycling logistics.
Types of Logistics

• When referring to logistics flows, we are talking about the movement and direction of
certain goods, parcels, packages, items, or information within a supply chain network.
More specifically, between the point at which the products or information originated and
the final consumption point.

• Three main directions correspond with the three logistical processes.

 Inbound Logistics
 Outbound Logistics
 Reverse logistics.
Types of Logistics

Inbound Logistics:

Inbound logistics refers to the movement of goods from suppliers to production. This
includes storage and transportation of various products and information from the suppliers
through the warehouse and further through production facilities of manufacturers for
processing and production.
Types of Logistics

Outbound Logistics:

Outbound logistics is the movement of finished products from production facilities to

the next supply chain link. These goods move through warehouses, further to the point of
consumption (in the hands of end-users). This is often referred to as the order fulfillment
process.
Types of Logistics

Reverse logistics:
Reverse logistics refers to moving items or goods from the end-users back through the
supply chain to the appropriate party concerned.

This occurs in the event of returns or with products that may need servicing or repairs,
refurbishing, resale, recycling, recovering, or proper disposal (in the fact a product cannot
be recycled due to certain elements and must be broken down safely and appropriately).
The Roles of Logistics

• Logistics has many roles. The most well-known role of logistics is sales logistics that
moves products from the producer to the consumer. In addition to sales logistics,
logistics can also be split into four other roles depending on the field. These are
procurement logistics, production logistics, recovery logistics, and recycling
logistics.

• The roles of logistics feature transportation/delivery, storage, packaging, cargo

handling, distribution processing, and information processing, and many systems
have been put in place to deliver products from the production location or factory to the
consumer quickly and on time.
The Roles of Logistics

• At its core, procurement logistics is the sourcing of materials needed to manufacture

products. In other words, this part of the supply chain focuses on purchasing raw
materials, replacement parts, auxiliary supplies, operating supplies and other items
needed for the manufacturing process to work.
• Production logistics is the flow of goods that includes the management of procured
parts and materials, distribution inside a factory, product management, packaging,
and shipping to warehouse.
• Reverse logistics is the set of activities that is conducted after the sale of a product
to recapture value and end the product's lifecycle. It typically involves returning a
product to the manufacturer or distributor or forwarding it on for servicing, refurbishment
or recycling.
The Roles of Logistics

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The Components of Logistics

• The components of Logistics are complex and fundamental for business’s in managing
their supply chain.

• The key components create and enforce consistency in the movement of goods from
manufacturer to distributor or consumer. It defines the logistics activities within the supply
chain.
The Key Components of Logistics

• The Key Components of Logistics are:

• Planning: storage, warehousing, and materials handling

• Packaging and utilization
• Inventory control
• Transportation
• Information and control
The Key Components of Logistics

Planning: storage, warehousing, and materials handling

• Today’s market is unpredictable and highly susceptible to the imbalances between supply
and demand. Supply can be steady, but the demand for goods from consumers is not. It is
directly affected by different factors, making it unpredictable.

• Logistics plays a key role in ensuring a constant and continuous supply of goods from the
manufacturer to the consumer. Effective planning becomes essential to maintain a healthy
supply chain.

• Planning is one of the most important components of Logistics. It is essential to

assuring all elements of the process are coordinated and implemented
successfully. It creates systems and processes to achieve timely delivery of
products.
The Key Components of Logistics

Planning: Storage, Warehousing, and Materials Handling

• During the instability of supply and demand, there can be an insufficient supply of
goods, or a surplus of goods produced. In such cases, storage units and
warehouses become part of the process.

• Proper logistics planning provides organization and synergy and becomes essential to
ensure proper maintenance and handling of the goods.
The Key Components of Logistics

Packaging and Utilization

• Care and conditioning of the products and goods are essential in the supply chain. Proper
handling and storing of products is key in logistics management.

• The packaging of the products takes a lot of research. Analyzing the way, the goods are
stored to keep them at their best quality and planning how the package itself can be
handled and processed is part of the research and strategy. In addition, the colors and
branding play a big part to ensure the consumer gets a positive experience.

• The design, the shape, the material, and even the colors of the packaging are thought out in
order to successfully get the product to the right hands in the best condition possible.
Packaging protects a product as it is being transported from the manufacturer to the hands of
the consumer or distributor.
The Key Components of Logistics

• When supply and demand fluctuate, that package might need to sit in a warehouse in the
process. That goes into the packaging strategy as well. It must maintain and condition the
product in such scenarios, without jeopardizing the quality.

• Unitization assists in the storage and transportation of goods and products.

Essentially, it is a “grouped or bundled cargo, wrapped into packages and loaded onto or
inside a bigger unit”.

• The end goal is to fit products and goods in a cube, the easiest shape to transport and
store. Packaging and unitization work together on packing all different shapes and sizes
of products and goods into a cuboid shape.
The Key Components of Logistics

Inventory control

• Inventory is closely related to storage and warehousing and is important to ensure

consumer requirements are met. It is about controlling the flow of goods and products
going in and out of the warehouses. It determines how much stock to hold, where to store,
and how much is to be stored.

• Inventory control is about predicting the demand of goods by consumers with the
help of sales data, mathematical and statistical tools. As previously mentioned, the
market varies and can sometimes be unpredictable.
The Key Components of Logistics

• Inventory control is by no means an exact science, but it is an important logistics

element to helping manage the flow of goods through the supply chain.

• A healthy inventory balance is detrimental to the supply chain and business margins.
The Key Components of Logistics

Transportation

• Transportation is a complex and costly part of logistics. It can represent 50 percent

of the logistics budget, putting pressure on companies to find the fastest and cost-
effective way to get products and goods to the consumers and distributors.
Transportation includes various platforms, such as road vehicles, cargo trains,
freight shipping, and air transport.

• Perishables do not travel far, but many other goods travel from all over the world, adding
complexity to the process such as tax codes, customs clearance, and payment
methods. All of which must be cleared before the products even leave the warehouse.
The Key Components of Logistics

• Transportation plays a key role in the fast-growing industry of e-commerce. The consumer
has high expectations for fast and proper delivery of goods, and even the return of such.
When partnering with a 3PL, it is important to work with a company that provides reliable
and transparent logistic services to ensure quality and efficiency.
The Key Components of Logistics
Information and Control

• Data-driven logistics drive the future of the industry. The flow of information throughout the
logistics process is vital to providing fast and accurate service to the consumer and
manufacturers.

• From inventory flow to warehouses and transportation, information improves the efficiency and
performance of activities in a supply chain.

• Information and control improve business efficiency helping in the traditional

management processes, but also supporting as a modern tool in achieving a
business’s strategic goals.

• Analyzing and understanding the five components of logics thoroughly is a constructive

business practice as advances continue to shape the components of logistics management,
change the industry, and improve the technologies.
The 5 P’s of Logistics

• The 5 P’s of Logistics listed below are important otherwise a business may be unable to
provide good customer service, resulting in dissatisfied customers or a loss of sales:

 Product
 Price
 Promotion
 People
 Place
The 5 P’s of Logistics

Product: The product is the physical product or service offered to the consumer. In the case
of physical products, it also refers to any services or conveniences that are part of the
offering. Product decisions include aspects such as function, appearance, packaging,
service, warranty, etc. The right product can be produced by using best collaboration
between marketing and logistics. So that the packing and size of the product should be
feasible.

Price: Pricing decisions should consider profit margins and the probable pricing response of
competitors. Pricing includes not only the list price, but also discounts, financing, and other
options such as leasing. The right produced product can be made more competitive by
using more competitive and effective logistics.
The 5 P’s of Logistics

Promotion: Promotion decisions are those related to communicating and selling to potential
consumers. Since these costs can be large in proportion to the product price, a break-even
analysis should be performed when making promotion decisions. It is useful to know the
value of a customer in order to determine whether additional customers are worth the cost
of acquiring them. Promotion decisions involve advertising, public relations, media types,
etc.

People: People decisions are those related to customer service. The function of people to
present an appearance, an attitude, etc.
The 5 P’s of Logistics

Place: Place (or placement) decisions are those associated with channels of distribution
that serve as the means for getting the product to the target customers.

The distribution system performs transactional, logistical, and facilitating functions.

Distribution decisions include market coverage, channel member selection, logistics, and
levels of service.
The 7 R’s of Logistics

• The concept of 7 R’s of logistics is one of the most important and famous concepts
used in logistics, which is very briefly putting the foundations by which to achieve
the smooth operations, from shipping logistics to purchasing goods for customers.

• Logistics requires the best planning in order for business to be able to face the
complexities of shipping effectively, as well as trying to reduce costs as much as possible.

• The significance of the 7 R’s of logistics lies in the fact that it explains the function of
logistics services, and the manner in which items can be moved simultaneously that
meets specific criteria, such as time, quantity, price, and others.

• This in the end will help in controlling the flow of products, as well as effective planning
and efficient management in storing goods and information, which leads to meeting
customer needs, reducing costs and increasing profits as well.
The 7 R’s

1. Right Product

• Any business that provides a service must clearly specify the type of products that it will
deal with and which it is ready to transfer and knowing the product you want to deal in will
help you save a lot of time and resources, and even manage it with proper guidance.
The 7 R’s

2. Right Customer
• One of the most important steps is to determine the segment of customers you deal with,
and thus direct the appropriate service to the right customer, and this will require you to
first determine the target market to provide attractive service to customers, which must
actually meet their needs.
The 7 R’s

3. Right Condition
• In order to be able to maintain the condition of your products or your items well, you need
effective storage, as each product is stored with reference to its specifications and placed
on the appropriate facilities to maintain its condition and quality, and thus deliver them in a
right condition.
The 7 R’s

4. Right Place

• Service providers will need to have drivers who are fully familiar with delivery options,
along with the importance of providing tracking systems, which must be provided to the
service owner and the customer himself, and thus provide the ability to track the location
and thus ensure that all products are delivered in their correct place.
The 7 R’s

5. Right Time

• When talking about logistical services, we find that time is one of the most important
elements, especially since all customers pay great attention to the delivery time, and the
presence of any delay or defect in it may cost you the loss of customers.

• These calls for service providers to know what are the appropriate times to provide
products in an efficient and timely manner as well. Delivery control systems can be used
to verify their arrival at the agreed time.
The 7 R’s

6. Right Cost

• The process of pricing services is a very important thing, as each service must have an
appropriate price that covers costs while achieving a profit margin, even if it is simple, and
good storage systems and continuous updating of prices will help you gradually increase
your profit margins.
The 7 R’s

7. Right Quantity

• Determining and knowing the correct quantity is one of the most important things in
logistics services, as most service providers are a third party.

• Consequently, all companies that deal with them must verify that the appropriate
quantities of products to be delivered are sent.

• With the tremendous technological development, there are modern systems that enable
you to manage all quantities of goods suitable for shipping and delivery.
The Logistics System of Services

The logistical system of services features a wide range of system components, which are
illustrated in the diagram below:
The Logistics System of Services
The Logistics System of Services

• The core services of logistics, such as order processing, storage and transport, are
directly supported by the logistical information services and the additional services
necessary for the logistics process. In practice, the element of transshipment is rarely
dealt with separately since it is usually closely connected to storage and transport.

• The core element of order processing is some-what virtual in nature but constitutes
an indispensable element for the initiation and monitoring of logistics processes. It
is the order processing which gives logistics its dynamic character. Order processing
comprises the processing and monitoring of the order data from the time of order until the
arrival of the goods at the customer’s site and of the return of the shipment documents. In
many cases this includes the initiation of invoicing processes. Example: By
simultaneously delivering the invoice together with the goods.
The Logistics System of Services

• The core element of storage denotes the warehousing of goods, which have mostly been
produced for an anonymous market to offset the quantitative and chronological
divergence of production (supply) and sales (demand).

• It has to be noted at this point that the functions of picking and packing, which are
closely connected to the core element of storage, fall into the category of additional
services. Picking means the compilation of sellable articles according to individual
customer orders to form package and shipping units.
The Logistics System of Services

• Finally, the core function of transport bridges the spatial distance from the site of
production to the storage location to the delivery location at the customer’s site. Thus, it
offsets the spatial divergence of supply and demand.

• Again, it needs to be pointed out that both storage and transport include the
function of transshipment. Logistical information services produce and utilize data
about the goods being transported within the logistics system.

• This data includes information about the forwarder, the recipient, the type of goods, order
number, quantity, weight, volume etc. The logistical information is the key to planning,
monitoring and supervising the provision of the actual logistics service. A data-driven
logistical activity closely connected to the core service of storage is the inventory
management.
Q&A Session