Fundamentals of

Logistics Management

LSCM 2051

Zelalem Bayisa (PhD)

Addis Ababa University, School of
Commerce, Department of Logistics
and Supply Chain Management
Addis Ababa, Ethiopia

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Chapter Objectives
• Basic concepts' of logistics Management
• Historical Development of logistics
Management
• The difference between Logistics versus
supply chain management
• Objectives of (Business) Logistics
Management
• Economic Impacts of Logistics Management
• The main functions of Logistics Management

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1.1. Basics of Logistics and
Logistics Management

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Reflection points
•Brief introduction session?
•What is an organization for you?
•Can you give us some examples of
organizations?
•How can we differentiate between
organizations?

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Basis of classification of organizations
• Ownership (private, public, NGOs, etc.),
• Objective/mission (Manufacturing versus
services or profit-making versus non-profit
making),
• Size (small, medium, large),
• geographic boundary (local, international,
multinational, etc.)

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Introduction to Organization
• Organization defined -
• A group of two or more people working together to achieve
some common objectives.
• Two or more people
• Common objective
• Organizations can be
• Profit making
• Private companies
• Public enterprises
• Share companies
• Non profit making
• Non Governmental organizations-NGO
• Civil service organizations

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Organization– Defined
• Common Objectives
• Activities
• Resources
• Human
• Capital
• Information
• Physical resources
• Scarcity of resources?
• Then we need management
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What is Management then?
• Classically it is defined as
• a process of planning, organizing, directing, and controlling for
efficient and effective use of scarce resources to achieve
organizational objectives.
• Functions of Management are, therefore,
• Planning
• Organizing
• Staffing
• Directing
• Controlling
• Why do we need management? To bring about Efficiency
and Effectiveness
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Functions of Management
• Planning
• Set Objectives
• List the activities to be performed to achieve
objectives
• List resources to undertake each activity
• Organizing/Staffing
• Group similar activities together
• Establish relationship b/n group of activities
• Organizational Structure
• Allocate resources including human resources
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Functions of Management – Defined
• Directing
• Leading …..influencing the others
• Motivation …encouraging the employees
• Communication
• Controlling
• Set performance standard
• Measure the actual performance
• Compare the actual and planed performance
• Take action
• Corrective
• Reward
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1.1. Conceptualizing logistics
and logistics management

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Basic terminologies
• Conventionally the term Logistics has been called by many
names
• Business logistics
• Channel management
• Distribution
• Industrial logistics
• Logistical management
• Materials management
• Physical distribution
• Quick-response systems
• Supply chain management
• Supply management
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Logistics defined
➢The frequently mentioned ‘logistics’
originated from the word ‘logistique’ or
‘loger’ in French which mean storage.
➢Logistics in English refers to a system that
transports goods, information and resources
from a place of origin to a destination
according to customer’s needs.
➢Logistics involves information,
transportation, stock management, raw
material management and packing.
➢Logistics is a part of the supply chain which
utilises space and time to add value to
goods.

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Logistics Defined…

• Logistics defined as
• the process of planning, implementing and
controlling the efficient, effective flow and
storage of goods, services, and related
information from point of origin to point of
consumption/destination for the purpose of
conforming to customer requirements

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Logistics Defined…

• Logistics defined (cont’d)

• the positioning of resources at the right time, in the
right place, at the right cost, at the right quality
(rights of logistics)
• is seen as a system (the logistics system),
• which includes not only all the functional activities
determining the flow of materials and information, but
also the infrastructures, means, equipment and
resources that are indispensable to the execution of
these activities.

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Logistics Defined…
➢Simply speaking, logistics is a process of
transferring, storing and distributing goods,
services or information from its place of origin to a
location where there is a demand.
➢This is done through a holistic process focusing on
effectiveness and efficiency aiming at a timely
delivery and reducing cost while also increases
customer satisfaction and adds value to goods and
services.
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Scope of Application of the discipline

•Logistics is not confined to manufacturing

operations alone.
• It is relevant to all enterprises, including
• government institutions such as hospitals and
schools, and
• service organizations such as retailers, banks,
and financial service organizations
• Manufacturing sector
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Logistics system vis –a-vis body system

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Logistics system- Components
• A logistics system is made up of facilities, where one or more
functional activities are carried out
• that logistics is dependent upon natural, human, financial, and
information resources for inputs
• Management actions provide the framework for logistics activities
through the process of planning, implementation, and control
• The outputs of the logistics system are
• competitive advantage,
• time and place utility,
• efficient movement of goods to the customer’s vicinity, and
• providing a logistics service mix such that logistics becomes a proprietary
asset of the organization
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Logistics system- Components
• Internal Logistics functions/activities
• Receiving and storing materials,
• Picking them up from the warehouse to feed the
production lines and
• Successively moving the semi-finished goods (work-
in-progress) up to packaging and storing the
finished product
• External Logistics Functions/Activities
• Supply (Input) logistics and
• Distribution (output) logistics
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Logistics system- Components
• Who performs logistics activities?
• Logistics activities can be conducted by
• the company itself or
• can be entrusted to a third party (outsourcing) (3PL, 4PL).
• In making the choice between “self” and “third party”,
‘make or buy’-model or framework will be used.
• Before making the decision, it is imperative to have an in-
depth knowledge of the nature of the costs that the
company bears (fixed costs, variable costs, direct
costs, and indirect costs).
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Systems perspectives in Logistics Management

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Logistics Management (LM)-defined
The term logistics Management refers to
1) ‘‘that part of the supply chain process that plans,
implements, and controls the efficient, effective
flow and storage of goods, services, and related
information from the point of origin to the point of
consumption in order to meet customers’
requirements” (Council of Logistics Management)
2) It also refers to the overall process of managing how
resources are acquired, stored, and transported to their
final destination.
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Logistics Management (LM)-defined
•LM- refers to planning, implementing,
and controlling 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 customer's
requirements
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Logistics Management (LM)-defined
The term has its roots in military
science and then adopted by the
business world especially among
the manufacturing companies. The
concept was later diffused into the
rest of the sectors including
government, non-profit
(humanitarian) and the services
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The logistics/Supply Chain Mission

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1.2. Evolution of Logistics

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Emergence of Logistics
• Three key factors contributed to its
emergence or origin of Logistics:
• development of a cross-functional model of
the organization
• the need to integrate business processes
across the supply network
• Competitive advantage (competition)

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Evolution & Development of logistics
The stages of development of the discipline can be understood in five major
phases as summarized in the following table:
Stage of Duration Development theme
development
Stage 1 1956 to 1965 A Decade of Conceptualization

Stage 2 1966 to 1970 A Time to Test for Relevancy

Stage 3 1971 to 1979 A Period of Changing Priorities

Stage 4 1980 to 1985 A Period of Significant Political and Technological
Change
Stage 5 1986 and Beyond Toward Integrated Logistics
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Stage 1:1956 to 1965-A Decade of Conceptualization

• Four major developments solidified this

conceptualization:
• development of total cost analysis,
• offered a method for measuring logistical activities
• application of the systems approach,
• provided an framework for analysis of complex relationships
• increased concern for customer service,
• revised attention to marketing channels.
• During 1962 and 1963 the National Council of Physical
Distribution Management (NCPDM) was established

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Stage 2: 1966 to 1970-A Time to
Test for Relevancy
• A time during which the basic concepts of
logistics were tested in the real-world practice
• The predicted cost and service benefits
became reality
• Physical distribution emerged with the goal of
• the management of order processing,
warehousing, transportation, and inventory
control on an integrated basis

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Stage 2: 1966 to 1970-A Time to
Test for Relevancy…
• Materials Management began to develop
• as an attempt to integrate the planning and
logistical dimensions of purchasing and
manufacturing
• performance measurement
• Establishment of physical distribution and
materials management organizations faced
significant opposition in many firms

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Stage 3: 1971 to 1979-A Period of
Changing Priorities
• A period of prolonged uncertainty in almost every dimension
of enterprise activity
• The availability of low-cost energy became a critical concern….
• why fuel cost increase & shortage of materials
• Transportation and storage are among the largest and most visible
energy consumers
• Economic crisis
• Ecological concerns
• logistics activities ranked high among the sources of environmental impact and
potential pollution

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Stage 3: 1971 to 1979-A Period of
Changing Priorities…
• Enterprise priorities and related programs to cope with the ever-changing situation
shifted from servicing demand to maintaining supply
• Attention focused on procurement because of the sheer consequence of supply failure
• Rapid adoption of materials management concepts
• Adoption of just-in-time movement and long-term contractual commitments
emerged
• Emphasis began to focus on proactive rather than reactive procurement
• Mainframe computer models for logistical system design and control confirmed
(development and adoption of computer)
• Significant logistical problems often have an organizational and institutional rather than
a technical base
• Attention began
• Potential of third-party logistical arrangements as an alternative solution to
the growing complexity of logistical support (i.e., outsourcing options)
• Institutionalization of logistics within the organizational structures (fixing
departments)
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Stage 4:1980 to 1985-A Period of Significant
Political and Technological Change
• This era is marked by the
following developments:
• Transportation deregulation
(privatization of all modes
of transpiration- modalities
to promote competition),
• The introduction of micro-
computer technology, and
• The communication
revolution:
• Universal Product Coding
(UPC)
• Electronic Data Interchange UPC Example and its purpose: to make it
(EDI) easy to identify product features, such as the
• Computer-to-computer brand name, item, size, and color, when an
ordering (E-commerce)
item is scanned at checkout.
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Stage 5: 1986 and Beyond-Toward
Integrated Logistics
• What is integrated logistics?
• a business management model that is increasingly used to accelerate
product delivery and improve customer service
• Purpose?
• There is a great deal of interdependence between all logistical areas
which can be exploited to the advantage of the enterprise
• A narrower or restricted approach creates the potential for a
dysfunctional interface
• The control requirements for each operation are similar
• There is an increasing awareness that many trade-offs exist between
manufacturing economies and marketing requirements that can be
reconciled by a well-designed logistical system
• Complexity of contemporary logistics require innovative solutions

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Stage 5: 1986 and Beyond-Toward
Integrated Logistics
• Integrated Logistics Management
• Rapid response
• Minimum variance ( to quest for consistency)
• Minimum (optimum) inventory
• Movement Consolidation (interpretation)
• Life Cycle Support
• Supply Chain Management
• providing excellence to customers by moving the product to the final
destination and making it a priority to meet all requirements set forth by
customers
• Transfer
• Value Chain Management
• Transfer + adding value

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Flows in an Integrated logistics

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Logistics Versus Supply Chain Management (SCM)
• SCM is more strategic in nature whereas logistics is more operations-
oriented.
• SCM deals more with
• the linkages in the chain,
• contracts and relationships,
• supplier selection,
• information and financial flows besides materials flows,
• creating new facilities such as plants, warehouses and distribution center’s, and
• broader issues such as society, economy, government and environment,
• Logistics is more or less confined to the routine job of transportation and
storage of goods.
• However, logistics is the core of Supply Chain Management (SCM), and if
logistics fails, the whole chain snaps.

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Logistics Versus Supply Chain Management

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Objectives of Logistics Management
• Minimize costs
• Storage costs
• Operational
• management costs
• Stock out costs
• Transport costs
• Plant and equipment costs
• Maximize profits and service level

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Elements of Logistics
•There are five elements of logistics:
•Storage, warehousing and materials
handling
•Packaging and unitization
•Inventory
•Transport
•Information and control
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Types of Logistics
• Broadly speaking, logistics can be classified as –
Intralogistics (inbound) and External logistics (outbound)
• In spite of the above broad classification, it is possible to
classify logistics into four types based on the stage of the
product in the supply chain management namely-
procurement, production, distribution, and everything
relating to after-sales service (recovery and recycling
logistics)

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Types of Logistics

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Types of Logistics…
(1) Procurement logistics is responsible for managing supplies required
for the manufacture and sale of finished products, semi-finished goods,
and raw materials.
• Companies have three methods for managing procurement logistics:
• Just-in-time: the necessary materials are received when required to complete the
production process, not ahead of time. This does away with the need to store them.
• Synced with production: supply planning is done with the aim of anticipating
manufacturing needs. This way, you know in advance when and how much
merchandise will be received and whether it will be temporarily stored.
• Safety stock: this consists of storing more goods than those you actually need for
production to mitigate any unforeseen circumstances (changes in demand, supplier
delays, etc.).
• To ensure efficient procurement logistics, it’s crucial to consider a
series of variables, namely: the selection of suppliers, the exact
amount of stock ordered and frequency of procurement, the
inventory management model applied, and the load unit(s) used to
store, handle, and transport the products.
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Types of Logistics…
(2) Industrial or manufacturing logistics includes and
optimizes all processes taking place from the purchase of raw
materials to the creation of the final product.
These are the two most common production strategies:
▪ Make to stock, or the push system: goods are manufactured
ahead of time and subsequently stored in the warehouse. The
sales department only sells the available merchandise.
▪ Make to order, or the pull system: The product is
manufactured once the order is received from the customer.
The main objective of industrial logistics is to reduce
manufacturing lead time, that is, the amount of time it takes
from the moment a production order is generated until the
product is finished.
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Types of Logistics…
(3) Distribution logistics: Also known as transport logistics, is
charged with ensuring that products or goods reach customers
quickly and efficiently. There’s no point in offering an attractive,
functional, and affordable product if you can’t guarantee that the
customer will receive it in the agreed-upon time, condition, and
quantity.
Distribution logistics can be:
▪ Direct: the manufacturer is charged with distributing the product
directly to end consumers.
▪ Indirect: as opposed to end customers, the merchandise is sent to
other wholesalers or to retailers (who sell to end consumers).
Distribution logistics intervenes right after the product has been
manufactured, encompassing transportation, storage, order
preparation, and delivery to the customer.
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Types of Logistics…
(4) Reverse logistics: The set of practices and processes
connected with managing product returns and refunds.
Reverse logistics can be classified as:
▪ Returns logistics: the most common type, this has grown the most
because of e-commerce. It deals with returned orders sent back to
distribution centers.
▪ Waste logistics: this has to do with the recycling, treatment, and
recovery of waste in order to take advantage of it or eliminate it to
prevent environmental damage.
The activities necessary for implementing efficient reverse
logistics are essentially the same as those involved in all types
of logistics operations. Nevertheless, the main difference is that
they need to be properly planned to keep reverse logistics from
interfering in other warehouse operations.
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Types of Logistics…

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 Types of Logistics
(5) Third-Party Logistics (3PL): The third-party logistics
are focused only on the transportation of products from
one end to another end and nothing else.

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 Types of Logistics Strategies (Reading
Assignment)
• Logistics operational strategies can either be product-specific
/ destination-specific / customer-specific.
• There are six different types of logistics strategies:
• Inbound Logistics
• Outbound Logistics
• Reverse Logistics
• Distribution Logistics
• 3rd Party Logistics
• 4th Party Logistics

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Scope of Logistics activities

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 Economic Impacts of Logistics
• Logistics creates value for customers, suppliers &
stakeholders
– Macroeconomic Impacts
– Economic Utility
• Possession utility
• Form utility
• Place utility
• Time utility

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 The Cost of the Business Logistics System in Relation to a Country’s
Gross Domestic Product (GDP)

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 Why study logistics in the Supply Chain?
• Effectively coordinated logistics leads to positive
business results
• Logistics helps businesses create value
• Logistics helps in reducing costs and improves efficiency
• Logistics helps delivering your product at the right place
timely
• Logistics is the key to success with supply chains
• build and maintain a positive public image

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Trends that are Shaping the Future of
Logistics
• Growth patterns • Continuity
• Flexibility • Sustainability
• Globalization • Compliance
• Near shoring • Partnerships
• Multi-channel • End-to-end visibility
sourcing • Complexity
• Information
technology
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 Thank You!

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