CHAPTER 1AN

OVERVIEW OF
LOGISTICS
 Learning Objectives

To define what logistics is

To analyze the increased importance of logistics
To discuss the systems and total cost approaches to
logistics
To expose you to logistical relationships within the
firm
To provide a brief overview of activities in the
logistics channel
To familiarize you with logistics careers
 Logistics: What it is (p.20)

Logistics management is 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.
Council of Supply Chain Management Professionals
The difference is that when something is effective it produces a result even if it takes some
unnecessary resources to do so. When something is efficient, not only does it produce a result,
but it does so in a quick or simple way using as little material, time, effort, or energy as
possible. The following example sentences show how the two words are used.
 Supply Chain Management

A Supply chain
Different customers
have
different logistical
needs and wants!

(p.21)
 Mass vs Tailored Logistics
Mass Logistics Every customer gets the same
type and level of logistics service.

Tailored Logistics is when companies use

various logistics approaches to target various
groups of their customers.
 Economic Utilities

Economic utilities: the value or usefulness of a

product in fulfilling customer needs and wants.

Types of Economic Utility:

Possession utility
Form utility
Place utility
Time utility
 Economic Utilities

Possession utility
The value or usefulness that comes
from a customer being able to take
possession of a product.
 Economic Utilities

Form utility
refers to a product’s being in a form that
- can be used by the customer and
- is of value to the customer.
 Economic Utilities

Place utility
refers to having products available where they
are needed by customers.
 Economic Utilities

Time utility
refers to having products available when they
are needed by customers
The Increased Importance of Logistics

1. Changes in Consumer Behavior

Customized customer (Mass Customization) p.22
Changing family roles (p.23)
Rising customer expectations (p.23)
The Increased Importance of Logistics

1. Changes in Consumer Behavior

Changing family roles: (P.23)

Trends Logistical implications

Home delivery —> Scheduling to guarantee that purchaser is at

home
Stores open 24 hrs —> Optimal time for replenishing shelves
 Changes in Consumer Behavior

Rising customer expectations:

(p.23)
People constantly want more!
The Increased Importance of Logistics

2. The Growing Power of Retailers: (p.24)

Big box retailers (Walmart)

Trend setters.
Walmart & Warner-Lambert.
 The Systems and Total Cost Approaches to
Logistics (P. 25)

Systems Approach: Interdependence of major functional areas to

achieve company’s goals and objectives

Implications of systems approach on logistics:

Goals of functional areas should be compatible with the
company’s goals and objectives.
Therefore one Logistics system does not fit all companies

One functional area should consider the effects of its decisions on

other functional areas.
Ex: The marketing concept and Stock-keeping units (SKUs)
Systems approach is a management perspective which advocates
that any business problem should be seen as system as a whole
which is made up of an hierarchy of sub-systems. So rather than
seeing the problem in parts it should be seen as whole. Systems
approach can be applied to all the business domains like
administration, insurance, banking, hospitality
SKU, in full stock keeping unit, a code number, typically
used as a machine-readable bar code, assigned to a single
item of inventory. As part of a system for inventory
control, the SKU represents the smallest unit of a product
that can be sold from inventory, purchased, or added to
inventory.
Total cost-logistic The total cost approach is generated the idea that
all activities that are found within the moving and storing of goods
and products need to be thought of as a whole, their total cost. It uses
cost trade- offs, when logistics expenses may increase in one area
while decreasing in others.
 The Systems and Total Cost Approaches to
Logistics

Logistics is divided into:

Materials Management: Movement and storage
of materials and components into a firm.
Physical Distribution: Storage of finished product
and movement to the customer. Intrafunctional
logistics – the interdependence between various
logistical activities.
 The Systems and Total Cost
Approaches to Logistics
Intrafunctional logistics coordinates
materials management and physical
distribution in a cost efficient
manner.
Ex: Use same truck to deliver raw
materials and pick-up finished goods.
The Systems and Total Cost Approaches to
Logistics

Total Cost Approach (p. 26)

All activities in moving and storing
products should be considered as a whole (i.e.,
Total Cost), not individually.
 The Systems and Total Cost Approaches to
Logistics

Example:

A fast transportation method as air

freight:
Increases transportation costs.
Leads to a faster order cycle, therefore
reduces both inventory carrying costs
and warehousing costs.

Therefore, all relevant logistical cost items are

The Systems and Total Cost Approaches to
Logistics

Total Cost Approach

The objective is to find the approach
with the lowest total cost that supports the
organization’s customer service
requirements.
Logistical Relationships within the Firm

Finance (P.27)
Capital budgeting decisions
Measuring Inventory (Value Vs. Units)

Production (P.27)
Length of production runs
Excess inventory
Postponement concept: delay of value added activities

(Ex: packing & labeling)

Logistical Relationships within the Firm

Marketing (P.28)
places an emphasis on consumer satisfaction, and
logistics strategies can facilitate customer satisfaction
through:

reducing the cost of products, which can translate into lower

prices
bringing a broader variety of choices closer to where the
customer wishes to buy or use the product.

Logistics can be used to differentiate the company from other

companies.
 Marketing (4 Ps)

Place Decisions (p.28)

An effective logistics system enables the firm to
attract the most effective channel members.

Price Decisions (p.29)

How a product’s transportation costs should be
reflected in its selling price?
Landed costs: Price at source + transportation
costs.
Product pricing:
Trade-offs between costs and customer service
 Marketing

Product Decisions (P.29)

More Product offerings —> more identification, storage and
tracking.
Fear of Stockouts—> store higher quantities—> more storage
space and inventory carrying costs inc.
Product design.

Promotion Decisions (P.30)

Highly advertised products —> Pdct must be available!
Promotion of a new product —> Pdct must be availabe!
Activities in the Logistical Channel
Customer service Demand
Facility location forecasting
decisions International
Inventory logistics
management Materials handling
Order management Packaging
Procurement
Reverse logistics
Transportation
management Warehousing
management
Activities in the Logistical Channel
Customer service (p. 32)
“Keep existing customers happy”

Demand Forecasting (p. 33)

Estimate product demand in a future time
period
Activities in the Logistical Channel
Facility location decisions (p. 33)
Success depends on Location of warehousing
& production facilities.
Transportation cost, time saving, target
markets, suppliers,etc.

International Logistics (p. 33)

Logistics activities associated with goods that
are sold across national boundaries.
Activities in the Logistical Channel
Inventory management (p. 33)
To meet customers’ needs and manufacturing
requirements
Activities in the Logistical Channel
Materials handling: (p. 33)
Short distance movement of pdcts in a facility.

Adds costs rather than value.

Minimize handling and moving.

Equipment selection.
Activities in the Logistical Channel
Order management: (p. 33)
Speed and accuracy

Packaging: (p. 33)

Marketing:
Consumer packaging
Logistics:
Industrial packaging (protection)
Facilitates storage and transit
Activities in the Logistical Channel
Procurement: (p. 33)
Buying raw materials, components parts and
supplies

Reverse logistics (p. 34)

Product defects, product recalls, pdct damage,
recycling, repair, customer dissatisfaction….
Difficult and costly compared to forward flow
Activities in the Logistical Channel

Transportation Management
Transportation: Actual physical movement
Selecting the mode of shipment & choosing the route.
Most costly logistics activity in many organizations.

Warehousing Management
Management of space needed
to hold inventory
Location, ownership, design
 Logistics Careers
Logisticians need to be both a generalist and a
specialist
As a generalist, the logistician must understand the
relationship between logistics and other corporate
functions, both within and outside the firm.

As a specialist, the logistician must understand the

relationships between various logistics activities and
must have some technical knowledge for various
activities.