Procurement

& Logistics
Functions of A Logistics Department

LESSON 5
Content

• Logistics Departments
• Logistics Department Structures
• Centralize, Decentralized and Hybrid Logistics Departments
• Logistics Department Tasks
• Challenges Faced by Logistics Departments
• Ways to Overcome Logistics Department Challenges

• 3PL Case study

Logistics Departments

• The function of a Logistics Department feature transportation / delivery, storage,

packaging, cargo handling, distribution processing, and information processing.

• There is hardly any manufacturing or marketing activity that can be achieved

without the support of an effective Logistics Department.

• As previously learnt Logistics is considered to be the complete process involving

planning, managing and controlling the flow of goods and services, information, real-time
data and human resources from the point of origin to the point of destination.
Logistics Departments

• The primary duty of an effective Logistics Department is to ensure geographical

repositioning of unfinished goods, and it is also concerned with the finished inventories
of the organization being at the required place at the lowest possible cost.
Logistics Departments

• Logistics Departments are entrusted with the responsibilities of ensuring that the entire
process of logistics is maintained and developed in accordance with the goals of
the business at an economical cost.

• This includes storage, distribution, warehousing, movement of goods from one

place to another (internally or externally), tracking and delivery of goods. It includes
a complete process of planning, managing, controlling and coordination to make sure that
the goods reach the right place, at the right time, for the right cost and in a right condition.
The various tasks performed by the department may be summarized as follows:
Logistics Department Structures

• Logistics Departments can have many organization structures, but the most typical
logistics organizational structure should consist of a
• logistics manager,
• Customs supervisor,
• Merchandiser supervisor,
• Materials manager,
• Purchasing manager,
• Warehouse manager,
• Distribution manager,
• Shipping specialist,
• Warehouse staff.
Logistics Department Organization Chart
Logistics Department Structures

• For any business organization logistics includes primarily a distribution, an order

processing, a product management, a purchasing, and storage and thus logistics is
inherently contained in almost every organizational structure in the form of either a
separate section or department of logistics or logistics processes are assigned to one of
the other sections.
Logistics Department Structures

• The Relationship of Procurement / Purchasing and logistics takes many forms. There are
four basic systems linking procurement and logistics in organizational structures mainly
manufacturing companies and related modifications.

• The organizational structure below is a classic functional organization structure, in

which major segments are a production, purchase, sales, human resources, and finance.

• Logistics is not centrally managed; logistics processes are controlled by single

major sections. All input logistics (ordering, shipping, warehousing of components and
input material) is controlled by purchase as shown in diagram below and this type of
organizational structure can be found in some traditional industrial companies primarily in
engineering:
Functionally Oriented Matrix Arrangement of Procurement
and Logistics

• A Functionally Oriented Matrix Arrangement of Procurement and Logistics is not very

common, it is the opposite of a classic functional organization structure.

• Here the Logistics department is placed in the main section of the frontline under
the direct leadership, and a purchase is incorporated in logistics.
Centralize and Decentralized Logistics Departments

Centralized Logistics Departments:

Centralized distribution is the traditional network that most businesses are familiar with. In
the centralized distribution model, operations are typically limited to a “central” location.
If there is more than one hub, the locations may be geographically spaced to handle East
and West coast time zones or area-specific product lines.
Centralize and Decentralized Logistics Departments

Centralization Positives

• Fewer locations make the standardization of systems and processes through the
business easier. Company culture is easier to foster and maintain in a single location.

• Management has the ability to have eyes on a product within moments if there is a
concern since everything is often located in the same building.
Centralize and Decentralized Logistics Departments

Centralization Negatives

• Ownership of cost and staffing for all areas of business including systems, security,
recruiting and training can be very costly.
• Businesses can be locked into a multi-year contract for a specific building or geographic
area regardless of growth or opportunity in the market. These leases often have penalties
for early termination.
• Cross-country customers who have an urgent need may be charged steep shipping fees.
In a market dominated with free 2nd-day delivery, this could force them to look elsewhere
for fulfillment.
Centralize and Decentralized Logistics Departments

Decentralized Supply Chain

When a business moves into a decentralized distribution model, the product moves further
away from the key stakeholders at the “central” corporate office and closer to the end
customer.

While this can be accomplished through self-owned warehouse and logistics, a managed
decentralized logistics network is far more responsive than its counterpart.
Centralize and Decentralized Logistics Departments

Decentralized Positives

• Each node of the supply chain can be tuned to that specific area's demand to best serve
the customer base. Product levels can be distributed to locations across the country
based on the volume of orders in that area.
• Customers with critical need may have the option of will call or same-day delivery with
moderate cost. For example, a customer may be able to order an item and pick it up in
the same day.
• The ability to test systems, products, markets, and suppliers on a small scale before
rolling out to the entire organization can lead to better data-driven decisions.
• Local addresses on shipping labels increase trust in customers.
Centralize and Decentralized Logistics Departments

Decentralized Negatives

• Shipping to multiple distribution locations may affect bargaining power with suppliers
wanting to ship in bulk to a single location.

• Control of operations and culture can be diluted through the nodes of the supply chain,
which may not be relevant for outsourced decentralized supply chains.
Hybrid Logistics Department

By blending centralized and decentralized supply chain methodologies, a business can

enjoy some of the advantages of each while mitigating the negatives.

While this is not as advantageous as a decentralized supply chain, it can be an easier sell
the idea of a hybrid supply chain to a leadership team that may favor a centralized logistics
solution.
Hybrid Logistics Department

Hybrid Positives

• Standardization of systems and processes are easier. Company culture can be fostered
and maintained in a single location.
• Leadership has the ability to locate products quickly if there are concerns about inventory
status or reliability.
• The additional locations can be stocked to that specific area's demand in order to better
serve customers. Products can be distributed to locations across the US based on the
volume of orders.
• Customers with critical needs may have the option of will call or same-day delivery with
moderate cost.
Hybrid Logistics Department

Hybrid Negatives

• Maintaining large central distribution centers still carries the cost of staffing and inventory.
• Businesses may still find themselves tied to a long lease or geolocation.
To Centralize or Not to Centralize Logistics Departments

• A decision to centralize requires a YES to at least one of the three fundamental questions
below:

 Is it mandated?

 Does it add significant value?

 Are the risks low?

To Centralize or Not to Centralize Logistics Departments

• The questions set a high bar for centralization, they do not produce formulaic answers;
considerable judgment is still required.

• These questions benefit business organizations by allowing advocates and opponents of

centralization to conduct a debate in a way that helps Management, and their senior
teams make wiser choices.

• Any centralization proposal that does not survive at least one of our three questions
should be abandoned or redesigned.
To Centralize or Not to Centralize Logistics Departments
To Centralize or Not to Centralize Logistics Departments

Is centralization of the logistics department mandated?

• The first step is to ask whether the business organization has a choice. A business
organization’s annual report and consolidated accounts, for example, are required by law
and must be signed by the Managing Director (MD) or Chief Executive Officer (CEO), so it
is impossible to delegate this task to the business divisions. In this case, the answer is
YES to centralization.

• By contrast, centralization is not essential for compliance with health and safety laws;
each division can manage its own compliance. So a proposal to appoint a head of group
health and safety would get a NO for this question and would need a YES from question
two or three.
To Centralize or Not to Centralize Logistics Departments

Does centralization add significant value —10 percent?

• If centralization is not mandated, it should be adopted only if it adds significant

value.

• The problem, however, as illustrated by the product-management example, is how to

judge whether it will do so. This point is particularly difficult because business
organization strategies rarely provide clarity about the major sources of additional value
that underpin the argument for bringing different business activities together in a group.

• The most common solution is to set a hurdle high enough so that the benefits of
centralization will probably far outweigh the disadvantages, making the risks worth taking.
To Centralize or Not to Centralize Logistics Departments

• Specifically, the business organization should ask:

“Does the proposed initiative add 10 percent to the market capitalization or profits of the
corporation?”

• This hurdle is sufficiently high to make it difficult for advocates of centralization to “game”
the analysis, and thus saves the top managements time by quickly eliminating small
opportunities from discussion.

• It is best to start by considering whether the activity meets the 10 percent hurdle on its
own. If not, which is most often the case, you should assess whether it is a necessary part
of some larger initiative that will meet the 10 percent hurdle. In practice, the answer to the
10 percent question does not require fine-grained calculations. What is required are
judgments about the significance of the activity, either on its own or as part of a larger
initiative.
To Centralize or Not to Centralize Logistics Departments

Are the risks low?

• Most centralization of Logistics Department proposals will not pass either of the
two previous hurdles: they will not be mandated and will not represent major
sources of additional value.

• More often, the prize will be smaller improvements in costs or quality. In these cases, the
risks associated with centralization—business rigidity, reduced motivation, bureaucracy,
and distraction—are often greater than the value created. Hence, the proposals should go
forward only if the risks of these negative side effects are low.
To Centralize or Not to Centralize Logistics Departments

• Any initiative to centralize Payroll on the other hand is likely to get a yes on this hurdle.
Costs can clearly be saved through economies of scale, and the risks of negative side
effects are low.

• Payroll operations are not important to the commercial flexibility of individual business
units, nor are their managers likely to feel less motivated by losing control of payroll.
Moreover, the risks of bureaucratic inefficiency and distraction can be reduced to a
minimum if the payroll unit is led by a competent expert who reports to the head of shared
services and doesn’t take up the time of finance or HR leaders.
3PL

• Businesses nowadays prefer outsourcing to handle all operations in-house. This decision
definitely contributes to enhancing productivity and efficiency. Such growth is possible
with the use of 3PL, i.e. third-party logistics services, and you can focus on customer
satisfaction as well as marketing more aggressively.
• The whole purpose of 3PL facilitation is to store your business inventory and be a link
between customers and manufacturing units.

• 3PL service is quite necessary to act as a fulfillment company for your business.
3PL

• Drive Cost Savings - Your company’s supply chain functions will surely be lesser
extensive than those of specialized logistics firms. You can save a lot on drive costs as a
benefit of their exclusive relationships within the logistics arena.

• Expert Fulfillment - Supply chain logistics is not that simple and can be an overwhelming
task without the help of experts. The shipping, warehousing, and fulfillment by experts are
something you cannot skimp on. This is what 3PL logistics service provides you while
streamlining the whole process.

• Shorter Delivery Time - 3PL service providers will surely have specialization in shipping
services. Their significant delivery fleets will speed up the entire delivery process and
provide same-day delivery to your customers.
4PL

Benefits of 4PL:

• 4PL fourth-party logistics service is an addition to the existing 3PL logistics services.

• In this operational model, not just 3PL services are provided, but another supply chain
facilitation is also given.

• There is a management of resources, infrastructure, technology, and other concerning aspects

of a particular business.

• 4PL logistics comprises one partner (company) who takes care of all the outsourced logistics
along with accessing, building running, and designing the supply chain solutions.
4PL

• The 4PL providers get into a long-term commitment to the clients. This association is a
valued partnership that is quite effective to achieve the common goal for the business.

• The fourth-party logistics are quite responsive in terms of customer connectivity and make
use of the online interface to fulfill the modern demands of the customers.

• The main idea of this logistics service is to eliminate inefficiency and streamline the work
for the business.
Logistics Department Tasks

The various tasks performed by the Logistics department may be summarized as follows:

• To ensure all the requirements of the customers are met on time in an efficient and safe
manner.

• To coordinate with third party logistics (3PLs).

• To ensure that there is a safe and timely dispatch of goods.

• To draft plans, policies and procedures for successful implementation of logistics system.

• To ensure that the business goals of the organization are in synchronization with the
logistics system..
Logistics Department Tasks

• To create and maintain customer support.

• To maintain coordination with vendors, service providers and transport carriers.

• To ensure that no fraud is committed.

• To ensure timely supply and payment for goods and reduce inventories.
Challenges Faced by Logistics Departments

• In present-day global economics, Logistics Departments play a crucial role in facilitating

trade and ensuring the success of the business’s operations and due to COVID-19,
Logistics Departments have seen increasing challenges in creating and
maintaining efficient and effective logistics and supply chain.

• The challenges that Logistics Departments face existed before the COVID-19 pandemic
but are even more critical due to the pandemic’s effects.
Challenges Faced by Logistics Departments

Customer Service
• Logistics is about providing the right product in the right quantity to the right place
at the right time. One of the significant challenges in the logistics industry is that
customers want full transparency into where their delivery is at every point in
transit.

• A customer's shipment location is currently as interconnected as your social network. As

customer expectations have increased, their willingness to pay for fast shipping has
decreased, with about 64 percent of consumers unwilling to pay anything extra for less
than two-day shipping.
Challenges Faced by Logistics Departments

Transportation Cost Control

• Another significant logistics challenge for Logistics Departments is controlling
costs in their transportation budget. Fuel prices are among the highest,
contributing factors to transportation budget concerns.

• This year, higher fuel prices will likely see further increases in transportation costs for
shippers by pushing fuel surcharges. Additionally, rising diesel fuel prices are fuel
surcharges added to freight rates, reversing a two-year trend that cut into the revenue and
earnings of truckers as fuel prices plummeted.
Challenges Faced by Logistics Departments

Planning & Risk Management

• To stay as efficient and effective as possible, periodic assessments and optimizations of
each business sector are necessary. The adjustments put in place in response to
changes in the market, such as new product launches, global sourcing, credit availability,
and the protection of intellectual property.

• Logistics Departments must identify and quantify these risks to control and moderate
them.
Challenges Faced by Logistics Departments

Supplier / Partner Relationships

• It’s critical for suppliers and partners to create, understand, and follow mutual agreed-
upon standards to understand current performance and opportunities for improvement
better.

• When a supplier and partner have different communication measures, it leads to an

insufficient supply chain and wasted time.
Challenges Faced by Logistics Departments

Government and Environmental Regulations

• Carriers face significant compliance laws and or regulations imposed by governments
globally.

• As well as international laws, environmental issues such as the anti-idling and other
emission reduction regulations created governments globally have created
concern that the compliance costs could exceed their benefits.
Ways to Overcome Logistics Department Challenges

Effective Communication

• Communication in any logistics department is essential, especially when a challenge is on the

horizon. Optimization and planning are crucial to mitigating risks when facing future industry
challenges. Looking ahead toward the future rather than focusing on the current market is
better.

• To have an effective communication strategy, you should look inside the business
organization and understand its goals and objectives. Then, with the interior features,
you can develop a communication plan that stands with your company and speaks to
your customers.

• The COVID-19 pandemic has altered many business organization's’ communication tactics, so
it's vital to rebuild supply chain connections by focusing on your own company. In addition,
concentrating on your teams and network will allow you to build up your communication since
it's essential for an Effective Logistics Department.
Ways to Overcome Logistics Department Challenges

Reduce Carrier Costs

• Logistics Costs is a significant factor for many business. For some, the perspective on
price has changed due to the ongoing COVID-19 pandemic.

• The key to cutting costs is consolidating shipments and making the most of the space
when transporting items. Communicating with carriers is essential in this situation
because they can help manage the best way to be cost-efficient.

• Failure to reduce costs results in an increase in expenses and, ultimately, losses for the
business.
Ways to Overcome Logistics Department Challenges

Enhancing Business Procedures

Keeping up with new advances in business procedures is critical for the Logistics
Department.

As new opportunities arise, it is in their best interest to adapt and adopt these changes to
improve service and operational efficiency.
Ways to Overcome Logistics Department Challenges

Looking And Planning Ahead

• There are many solutions to the challenges Logistics Departments face.

• However, if the Logistics Department focus on their own business organization by

constantly looking and planning ahead, communicating well, the department will be able
to defeat the logistics challenges and build itself to be effective.
Case Study 1
Alibaba Group

Case Study: Alibaba 3PL System

The Alibaba Group was launched in the year 1999 by 18 people. The leadership for the Group
establishment was Jack Ma, from the Hangzhou province of China. The core mission of the
Insert text
Alibaba group was to bring renovation in the online and mobile commerce in the Chinese
Market. The renovation that Alibaba attempted to bring was in the underlying logistics
that small and medium scale local businesses needed to propagate their business.
Case Study 1

Demand for an Efficient Logistics System-The beginning of Alibaba 3PL

The Chinese domestic e-commerce boomed in the mid 2000's. Small and medium sized local
Insert text
companies in the market were facing stiff competition towards trading their products online
because of the aggressive and smart marketing tactics that were used by big players. Offline
retail trade was lagging, while online retailers who were able to efficiently market their
products started facing much competition from international retailers.

It was in this context that the a need for an E-commerce services system in China that could
handle all the underlying businesses logistics and leave companies more freedom towards
making and marketing their products. Alibaba was formed because there was a rising demand
for an efficient logistics system. Online retailers needed Business to consumer services and
so did traditional offline retailers. Offline retailers furthermore trying to enter online retail and
here some of the more small and medium scale retailers needed help with the logistics. In the
marketplace, businesses also collaborated with one another, and hence there were business
to business services and consumer to consumer service needs.
Case Study 1

In 2003, the beginning for a third party logistics providers successful entry into the Chinese
market was established with Alipay. Alipay services fell under the business to consumer
services. It was a service that an online retailer would be able to provide to their client so that
their clients could pay for the products. With text Chinese internet industry’s growth it was
Insertthe
necessary that the consumers pay services become as flexible as most of the existing 3PL
service providers like that of PayPal. This formed the opportunity for Alipay. This was in
essence Alibaba's version of PayPal. It provided secure online payment service.

3PL System Modules of Alibaba:

The service provisions of Alibaba are based on multiple needs for the companies. It helps the
small enterprises to present their products competitively. It also helps the Chinese
manufacturers and exporters to present their business in international economies. The 3PL
services that are provided include the following:
Case Study 1

• Retail online marketplace services enabling consumers to view the product to the final
placement of delivery. Services here include inventory management updates to show the
product is available with a certain business, the real time price updates and the needed
secure payment services. Insert text

• Provides advertising and marketing services for Internet-based businesses. Some of its
websites helps increase awareness of product offerings of businesses.

• It offers electronic payment services, and online virtual cash services

• It offers end to end network services and also cloud-based computing services.

• Alibaba Group has tied up with some of the most prominent mobile service providers in the
market and hence works to provide mobile solutions for businesses.
Q&A Session