Log201 2024 01 SG

Logistics Management II
LOG201
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Prescribed Reading
The prescribed textbooks for Logistics Management 201 (LOG201) are:

• De Villiers, G, Nieman, G., & Nieman, W. (Editors) 2023. Strategic Logistics
Management: A supply chain management approach. 3rd ed. Pretoria: Van
Schaik Publishers (Pty) Ltd. [ISBN: 978-0-627-03918 8
• Pienaar, W.J., Vogt, J.J. 2017. Business Logistics Management. 5th ed. Cape
Town: Oxford University Press. [ISBN: 978-0-190-41566-2]
Recommended Reading
• CSIR. 2014. 10th Annual State of Logistics Survey for South Africa 2013.
ISBN: 978-0-7988-5616-4. Available online: www.csir.co.za/sol
• Stellenbosch University. 2015. Logistics Barometer South Africa 2015.
[ISBN: 978-0-620-65997-0] (e-book). Available online:
www.sun.ac.za/logisticsbarometer
• Havenga, J.H., De Bod, A., Simpson, Z.P., Viljoen, N. & King, D., 2016, ‘A
Logistics Barometer for South Africa: Towards sustainable freight mobility’,
Journal of Transport and Supply Chain Management 10(1), a228. Available
online: http://dx.doi.org/10.4102/jtscm.v10i1.228
• Logistics Management. Free subscription to online newsletters and
information. Available online: http://www.logisticsmgmt.com/
ASSIGNMENT
Semester 1 2024
Module name LOGISTICS MANAGEMENT 201
Module Code LOG201
Due date 22 April 2024
Total Marks 75
This assignment is compulsory and must be submitted through CANVAS,

inside the corresponding Module Class Course on or before 22 April 2024 by
24:00.
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E.g. 21111234 BCU101 Surname.pdf
LIST OF REFERENCES
Refer to the STADIO Referencing guide HERE for guidance.
©STADIO Assignment – 2024 Semester 1 LOG201 Logistics Management 201

Page 1 of 4
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Page 2 of 4
Question 1 (12 marks)
Case Study
AMPS Electric Vehicle (EV) manufacturer is a leading multinational manufacturer with a
facility in Roslyn, Pretoria. Recently AMPS EV found itself facing numerous challenges
in its supply chain and logistics operations. In addition, the company realises that to keep
up with the rapidly growing demand for electrified cars in South Africa due to the ever-
increasing diesel and petrol price, it must ramp up production and reduce manufacturing
costs. AMPS EV uses international raw material suppliers and imports raw materials
through Durban harbour. They also try to take advantage of favourable trade agreements
and economies of scale.
AMPS EV recognises that over the last year their procurement costs have increased
dramatically, which affects the whole operation. The company aims to reduce
procurement costs without compromising product quality or supplier relationships. They
are also considering using e-procurement tools.
Currently AMPS EV are using a materials requirement planning (MRP) system to ensure
that production operations run smoothly and that customer demands are met. They are
considering enhancing the manufacturing processes for efficiency and quality
assurance.
The company acknowledges that it is struggling with imprecise demand forecasts,

resulting in overstocked inventory or sometimes ever underproduction. There are also
issues related to overstocking, understocking, and operational inefficiencies. AMPS EV
has embarked on a mission to optimise its inventory management processes.
AMPS EV had a disjointed and time-consuming product return process. Customer

complaints are often met with delays, miscommunication and frustration. This not only
erodes customer trust but also leads to increased operational costs and inventory
management challenges. To tackle these challenges, the company embarked on a
strategic initiative to review the strategic planning process, enhance its supply chain
operations and improve overall logistics efficiency.
1.1 Define an alternative method of forecasting that AMPS EV can use to reduce
imprecise forecasting. (2)
1.2 Describe at least five forecasting techniques that can be used based on your
answer to 1.1. (10)

Page 3 of 4
2.1. Describe how operations management can be a source of sustainable

competitive advantage for AMPS EV. (8)
2.2 Describe the manufacturing process alternative you would recommend for the
mass production of a new model electric vehicle manufactured by AMPS EV.
Justify your recommendation. (5)
3.1 From a strategic logistics management perspective, explain which customer

service elements are most important to AMPS EV. (12)
3.2 State why it is important for AMPS EV to measure its customer service
performance and give examples of two measures that can be used. (3)
4.1 Discuss the standards AMPS EV must comply with to improve information
quality between the partners. (12)
4.2 Does AMPS EV use a centralised of decentralised information system? Justify
your answer. (2)
5.1 Describe the factors AMPS EV has control over. (10)

5.2 Name a channel intermediary that can assist AMPS EV in its global operations.
(1)
5.3 Explain the factors that could affect the distribution channel of AMPS EV.
(6)
5.4 From the above scenario, name one uncontrollable factor of global logistics.
(1)
Name the performance measurement that measures the critical success factor of
competitiveness of AMPS EV and provide two examples.
Assignment Total: 75 Marks

Page 4 of 4
Table of Contents
Heading Page number
Contents
WELCOME 1
MODULE PURPOSE AND OUTCOMES 1
TOPIC 1 INVENTORY 2
1.1 Introduction 2
1.2 The Purpose of Inventory 2
1.3 Common Types of Inventory 3
1.4 Inventory Holding Costs 4
1.5 Inventory and Inventory Management 4
1.6 Demand and Inventory 5
1.7 Analysis of Demand 6
1.8 Forecasting 6
1.9 Value of Inventory Items 7
1.10 Ordering Systems 8
TOPIC 2 OPERATIONS AND MANUFACTURING 12

2.1 Introduction 12
2.2 Importance of Operations Management 13
2.3 Developing an Operations and Manufacturing Strategy 14
TOPIC 3 CUSTOMER SERVICE 20

3.1 Introduction 20
3.2 Defining Customer Service 22
3.3 Elements and Concerns of Customer Service 25
3.4 Basic Customer Service Dimensions 28
3.5 Establishing a Customer Service Strategy 30
3.6 Measures of Customer Service Performance 32
TOPIC 4 LOGISTICS INFORMATION SYSTEMS 35

4.1 Introduction 35
4.2 Decentralised and Centralised Systems 36
4.3 Types of Centralised Supply Chain Systems 37
4.4 Future Trends: Industry 4.0 37
TOPIC 5 GLOBAL LOGISTICS 41

5.1 Introduction 41
5.2 Defining global Logistics 42
5.3 Controllable and Uncontrollable Elements of Global Logistics 43
5.4 Alternative Global Distribution Strategies 45
5.5 Channel Intermediaries 47
5.6 Global Trade Documents 48
5.7 Incoterms 51
TOPIC 6 CONTROLLING LOGISTICS PERFORMANCE 56

6.1 Introduction 56
6.2 The Process of Control 57
6.3 The Concept of Quality 59
6.4 Performance Measurement 60
6.5 Benchmarking 63
6.6 The SCOR Model 63
6.7 Business Intelligence 65
REFERENCES 68
Welcome
Welcome to Logistics Management II (LOG201)!
The purpose of this subject is to equip you with the basic building blocks of
logistics operations to form the basis for an effective career in logistics through
a recognised professional qualification. We will cover concepts and theories
relating to the movement of goods, the coordination of supply chain, the
exchange of information, and the impact on business within the logistics
management framework.
We trust that you will enjoy the exciting issues and challenges you will be facing.
We look forward to accompany you on this meaningful and positive learning
journey.
Module Purpose and Outcomes
1. Understand important aspects related to the management of inventory.

2. Understand the contribution of manufacturing and operations to create
better quality, higher productivity, faster responsiveness to changing
market requirements and lower overall cost.
3. Appreciate the contribution of customer service in a logistics context.
4. Describe the role of logistics information systems and technology in supply
chain and logistics.
5. Understand why organisations want to compete in the global arena, explain
logistics strategies and explain relevant terms and documents used in global
logistics.
6. Understand the importance to control logistics activities and explain
standards, different performance measures, processes and systems that
play a role in performance measurement.
© STADIO (Pty) Ltd Logistics Management II LOG201

1
Topic 1
Inventory
Prescribed Reading
In this topic, you will be required to read sections from the following chapters in
Niemann, W., & De Villiers, G. (Editors) 2022:
• Chapter 5: Inventory
1.1 INTRODUCTION
After completing this topic, you should be able to:

• Explain why firms need inventory.
• Describe the common types of inventory
• Understand what inventory holding costs entail.
• Explain the different types of demand
• Explain how to analyse demand
• Explain qualitative and quantitative types of forecasting in inventory
management
• Explain the ABC (Pareto) analysis.
• Describe different types of ordering systems
Proper inventory management is very important for organisations due to the

huge cost of inventory. If inventory is not managed properly, it can lead to the
end of an organisation.
Activity 1.1
Read Section 5.1 in Chapter 5 in Niemann et al (2022).
1.2 THE PURPOSE OF INVENTORY
Apart from the availability problems and the fact that continuous supply of
inventory cannot be guaranteed with certainty, there are several other reasons
for organisations to hold stock.

2
Activity 1.2
The purpose of inventory
Some of the reasons for keeping stock include the following:

• Create a cushion for uncertainties in:
o Demand
o Supply
o Yield
• Hold batch stock
• Provide for seasonal stock or anticipation stock
• Provide for strategic stock
• Provide for long-term price changes
• Ensure smooth production processes
• Meet certain legal requirements
• Overcome supply-side disappointments
• Compensate for a shutdown in production
1.3 COMMON TYPES OF INVENTORY
It is common practice that stock is differentiated on the basis of position in the

manufacturing cycle, e.g. raw materials, work-in-progress or finished goods.
When inventory items are categorised according to the reason for holding the
item, the typical categories used are as follows:
• Cycle stock
• Safety stock
• Anticipation stock
• Seasonal stock
• Promotional stock
• Dead stock
• Non-conformance stock

3
Activity 1.3
Explain the typical categories of stock according to the reason for holding stock.
1.4 INVENTORY HOLDING COSTS
In this section we will take a closer look at inventory holding costs.
When we keep inventory there is a cost involved. Costs involved include having
a warehouse, the people working in the warehouse, equipment used in the
warehouse, as well as the computers used in the warehouse.
Now that we understand that it costs money to keep inventory, we must make
sure we find ways to control the cost of keeping inventory.
Activity 1.4
Summarise the main cost components related to inventory holding costs.
The main costs are identified as:

• Capital costs
• Risk of obsolescence
• Handling and storage costs
1.5 INVENTORY AND INVENTORY MANAGEMENT
Inventory (stock) is differentiated on the basis of position in the manufacturing

cycle, e.g. raw materials, work-in-progress, parts or finished goods as indicated
earlier.
The fact that large sums of money are often tied up in inventory requires that
inventory is properly managed.

4
Activity 1.5
Work through the example explaining how mathematical expressions are used
to determine the effectiveness of inventory management.
The Service Level measure (SL%) is used to determine the extent to which orders
received for inventory were serviced. A higher number indicates better service
levels.
The Stock Turn (ST) measure is used as a relative value to determine number of
times that stock cycles through the business. A higher number means that stock
indicates that stock is more quickly converted into cash.
The value of investment in stock is determined through the Time-period

coverage (TPC) measure. The aim is to reduce the investment in stock as
percentage of average cost of sales.
1.6 DEMAND AND INVENTORY
It is important to have an understanding of the nature of demand. In this section

demand is described as follows:
• Dependent and independent demand
• Random and predictive demand
• Fast and slow demand
Activity 1.6
Summarise the section in terms of the nature of demand and provide examples
or explanatory notes to show your understanding of this topic.

5
1.7 ANALYSIS OF DEMAND
Demand will fluctuate for items across time periods. The concepts of “rogue”
demand, average demand and total demand are explained in this section.
The measurement of demand variability is discussed and explained by means of

an example before the concept of standard deviation and safety stock is explored
in detail.
The standard deviation is used in the context of inventory management to act as

measurement of the variability in demand and assist in determining the level of
safety stock required to achieve appropriate customer service levels (SL) as
described in an earlier section.
The level of safety stock can be mathematically determined as described in

Section 5.8.4 and an applied example is given at the end of this section in the
textbook.
Activity 1.7

1. Work through the example to get a clear understanding of the demand
frequency table and how the data is used to plot the bell-shaped graph.
2. Work through the applied example to determine safety stock requirement
to satisfy a specific service level.
1.8 FORECASTING
Forecasting, which is defined as “…an informed estimate of the level of the future
demand of an item” is often used in inventory management.
Forecasting is performed through quantitative or qualitative methods. The results

of a forecast can be given as single values, or as a range of values. When
percentages are used with forecasted numbers (deviations), the percentage can
be considered as an acceptable tolerance.
Qualitative forecasting includes techniques such as the panel consensus method

and the Delphi method.

6
Quantitative forecasting includes methods such as:
• Simple average
• Year-to-date average
• Moving average
• Weighted average
• Exponential smoothing
• Seasonal analysis
A technique known as tracking signals is used to determine and evaluate the

quality of a forecast technique.
Activity 1.8

1. Read the explanation of the two qualitative techniques.
2. Work through the various examples of quantitative techniques and in
particular the seasonal analysis.
3. Explain how the tracking signal is used as evaluation of the quality of a
forecast technique and at what point a value is considered as inaccurate.
1.9 VALUE OF INVENTORY ITEMS
Two main costs involved in inventory are ordering costs and holding costs.
There is a common assumption that the level of inventory holding costs is about
25% of the value of the stock that it holds. These holding costs can be attributed
to the cost of the warehouse facilities, shelving, electricity/utility bills, staff costs
and equipment required to move the stock, to name but a few.
Organisations will attempt to lower stockholding through approaches such as

just-in-time or lean manufacturing to manage inventory.
The ABC categorisation of inventory items assist in diverting attention to the

inventory items that deserves close attention (e.g. category-A items are
considered more important than category-B items).
The most important reason for doing an ABC analysis is so that one can identify
the most important sales items in the company.

7
We do this because the high-volume sales (i.e. the important products) need
different treatment from, say, the “C” products - which only clutter up the store
and do not contribute significantly to the sales picture. If we know which products
are important, we can then plan how to handle them. Different companies have
very different ABC profiles.
Activity 1.9
Work through the explanation of the ABC categorisation.
1.10 ORDERING SYSTEMS
A number of factors, including the nature of demand; for example, independent

or independent demand for the item, influence the ordering of inventory items.
When ordering the item, the lead time (i.e. time to purchase, manufacture and
transport the item) must be considered.
The use of a material requirements plan (MRP) is proposed as a useful tool when
ordering dependent demand items. It is said that the MRP can help by
determining:
• What item to order
• What quantities to order of the item
• When to place the order for the item
• When to schedule delivery for the item
Activity 1.10
Read the introduction to Section 5.11 and Section 5.11.1 in Chapter 5 in Niemann
et al (2022).
Work through the explanation of the MRP in the textbook.
When ordering independent demand quantities, it can be achieved by ordering

variable quantities or fixed quantities.

8
Fixed quantity orders are referred to as an Economic Order Quantity (EOQ). The
aim of the EOQ method is to keep inventory costs to a minimum. The EOQ can
be determined mathematically taking the following into consideration:
• Ordering costs
• Number of orders
• Holding costs
• Value of items held
The re-order point (RP) system is used in conjunction with the EOQ model as it
assists in establishing when it becomes mandatory to place an order. The re-
order point can be mathematically determined.
Activity 1.11
Read Section 5.11.2 and Section 5.11.4 in Chapter 5 in Niemann et al (2022).
Work through the explanations of the EOQ and RP in the textbook.
Variable order quantity methods can be deployed when the required demand
varies from time to time. Some of these methods are described in the textbook
and include the:
• Lot-for-lot system
• Target inventory level system
• Period order quantity system
• Periodic ordering
• Time-phased order point system
The Kanban system (with its variations) that is a pull system of ordering is
described in the textbook. In this system the user of the item must give an
indication to the producer that the item is required at the work desk.
Most of the order systems described will give theoretical quantities of how many
items to order. However, these order quantities will have to be modified if the
supplier limits quantities to specific quantities per pack (e.g. when the pack size
is given as 6 items per pack, quantities in multiples of 6 should be ordered.

9
Activity 1.12
Read the remainder of the sections in Chapter 5 in Niemann et al (2022).
Work through the explanation of the Time-phased order point system.

10
Summary
Due to the capital invested in inventory and the fact that we want to keep
customers happy it is very important to manage stock items effectively. The
challenge here is to match the supply with the demand for a specific product.
A number of inventory management techniques were discussed in this unit.

Please ensure that you are able to give a thorough explanation of these
techniques.
Self-Assessment Questions
1.1 Explain why it is important for organisations to have inventory.

1.2 Differentiate between the various types of inventory found.
1.3 Define inventory-holding costs.
1.4 Explain the ABC analysis and the importance thereof for inventory.
1.5 Differentiate between dependant and independent demand.
1.6 Explain the concepts “rogue” demand, average demand and total demand.
1.7 Explain how to analyse demand – refer to the uses of standard deviation
and its application to determine safety stock.
1.8 Explain qualitative and quantitative types of forecasting in inventory
management.
1.9 Explain the ABC (Pareto) analysis.
1.10 Define and discuss MRP, EOQ and the Time-phased order point system as
types of ordering systems.
1.11 Attempt the end-of-chapter activities.

11
Topic 2
Operations and Manufacturing
Prescribed Reading
In this topic, you will be required to read sections from the following chapter in
Niemann, W., & DE Villiers, G. (Editors) 2022:
• Chapter 6: Operations and manufacturing
2.1 INTRODUCTION

• Define the concept of operations management and manufacturing
• Understand why operations management is important in all types of
organisations
• Describe the concepts of operations management and performance
measures
• Analyse and provide examples of how integrated and aligned operations
strategy may lead to sustainable competitive advantage.
• Identify barriers to be aware of during the implementation of an operations
strategy.
Because better quality, higher productivity, faster responsiveness to changing

market requirements and lower overall cost plays such an important role it is
important that the operations and manufacturing department also come to the
party.
In the introduction to Chapter 6 the primary, secondary and tertiary sections are
defined and it is stated that this Chapter focuses on the secondary sector where
transformation of raw materials (operations and manufacturing) occurs most
frequently.
Operations management (production) is defined as “…the planning, controlling

and organising of resources that create and deliver services and products.”

12
Operations are on the other hand is defined as “…the set of activities that create
form utility by transforming inputs into outputs”.
Activity 2.1
Read Section 6.1 and 6.2 in Niemann et al (2022).
Study the example to understand how goods and services flow through the
sectors of the economy.
In the example that you have studied, the following supply chain aspects were
identified:
• Fundamental elements of the supply chain
• Chain of production
• Five “Ps” of operations management
• Production or manufacturing process
These aspects are depicted in Figure 6.2 in the textbook.
2.2 IMPORTANCE OF OPERATIONS MANAGEMENT
The importance of operations management is described in the textbook with

reference to the following:
• It is one of the core functions of any organisation
• The contribution to financial performance of the organisation
• Improved operations and manufacturing management
• Performance measurement
• Source of sustainable competitive advantage
Activity 2.2
Read Section 6.3 in Niemann et al (2022).
1. Identify the costs that are associated with various sources of waste.
2. Identify the performance measures used in operations management.
3. Identify the value drivers in the schematic that shows the relationship
between corporate, supply chain and manufacturing strategy.

13
2.3 DEVELOPING AN OPERATIONS AND MANUFACTURING
STRATEGY
There are seven stages in the development of an objective operations and

manufacturing strategy.
Stage 1: Define corporate objectives.
Stage 2: Determine marketing strategies in support of corporate objectives.
Stage 3: Assess how different products and/or service affect quality in their
respective markets and win orders against competitors.
Stage 4: Make strategic sourcing decisions.
Stage 5: Implement the appropriate logistics concepts.
Stage 6: Establish the appropriate manufacturing process.
Stage 7: Design the manufacturing infrastructure to facilitate production
streaming.
Activity 2.3
Read Section 6.4.1 in Niemann et al (2022).
Draw a diagram to illustrate the stages in the development of a manufacturing

strategy at a fast-moving consumer goods manufacturer.
2.3.1 Corporate Objective
Make sure you understand what the market requires and strive to satisfy the
market.
Activity 2.4
2.2.2 Market Analysis
To determine the competitive performance based on manufacturing strategy the

organisation should develop an understanding of the market position of the
organisation. Organisations need to determine what the market requires and
then make sure that they compare these to the current level of performance.

14
Activity 2.5
Another aspect to consider during this step is the life cycle of products. The life
cycle of a product goes through four stages as illustrated in figure 2.1 below:
1. Introduction stage
2. Growth stage
3. Maturity stage
4. Decline stage
Figure 2.1 Life Cycle of a Product
2.2.3 Product and Service Profiling
Product and service profiling enables an organisation to test the current or

anticipated level of fit between the characteristics of its market requirements and
the characteristics of its existing or proposed processes and infrastructure
investments.
Activity 2.6
Product and service profiling profiling enables organisations to:

• Evaluate and where necessary improve the degree of fit between the way
in which a firm wins orders in its markets and manufacturing’s ability to
support these criteria

15
• It helps a firm move away from a classic strategy building characterised by
functional perspectives independently agreed in classic silo mentality
without adequate attempts to test the fit or reconcile different opinions of
what is best for the business as a whole.
The purpose of product profiling is to build up a picture to help identify the current
or potential problem, hence allowing discussion of an agreement on what steps
should be taken to improve the organisations strategy position.
2.2.4 Strategic Sourcing
Strategic sourcing can be defined as:

“The process of determining long-term supplies requirements, finding
sources to fulfil those needs, selecting suppliers to provide the
services, negotiating the purchase agreements and managing the
suppliers' performance. Strategic sourcing focuses on developing the
most effective relationships with the right suppliers, to ensure that the
right price is paid and that lifetime product costs are minimised. It also
assesses whether services or processes would provide better value if
they were outsourced to specialist organisations.”
There are various reasons why organisations decide on strategic sourcing,

including:
• The wish to retain immediate control of product identity
• Design security
• Final product quality and
• The ultimate link with its customers
Activity 2.7
Draw a diagram to illustrate a typical strategic sourcing decision framework.
2.2.5 Logistics Concepts
There are six logistics concepts:

• Make and ship to forecast
• Make to forecast
• Assemble or configure to order

16
• Make to order
• Purchase and make to order
• Engineer to order
Activity 2.8
Make sure you understand the logistics concepts. Also refer to the figures that
demonstrate each of these concepts in the prescribed textbook.
2.2.6 Manufacturing Process Alternatives
The next step in designing a manufacturing strategy is to choose which

manufacturing process will best compliment the desired outcome with respect to
all the requirements mentioned previously.
Five options are the following:

1. Project-shop production system
2. Job shop production system
3. Batch flow production system
4. Mass production or line-flow production system
5. Continuous process flow production system
Activity 2.8
Refer to the figure that depicts the five manufacturing process alternatives and
ensure that you are able to describe the alignment of each manufacturing process
with products and markets, manufacturing, investment and cost as well as
infrastructure aspects.
2.2.7 Production Streaming
Production streaming is all about designing the shop floor layout and related
business infrastructure, support systems and support staff to complement the
manufacturing strategy at operational level.

17
The steps in product streaming include:
• Process review
• Identifying manufacturing order winners and qualifiers
• Process rearrangement
• Infrastructure rearrangement
Activity 2.9
Write an essay illustrating your understanding of production streaming.
Activity 2.10
Read the conclusion at the end of Chapter 6 in Niemann et al (2022).
Read the case study African Applied Chemical and answer the five questions that
are listed at the end of the case study.

18
Summary
Due to constant changes in the logistics and supply chain environment it is

important to take notice of the impact these changes have on the cost and
operations and manufacturing complexities of an organisation.
2.1 Define the concepts “operations management” and “manufacturing”.

2.2 Describe the concepts of operations management and performance
measures.
2.3 Explain the value drivers or integrating business processes that create
value.
2.4 Explain in detail the steps you will follow when you develop a
manufacturing strategy
2.5 Discuss the stages in the product life cycle process.
2.6 Explain the purposes of product profiling.
2.7 Why do organisations make use of strategic sourcing?
2.8 Explain the six logistics concepts and give examples of each.
2.9 Define the various manufacturing process alternatives.
2.10 Analyse and provide examples of how integrated and aligned operations
strategy may lead to sustainable competitive advantage.
2.11 Identify pitfalls to avoid in drafting an operations strategy.
2.12 Identify barriers to be aware of during the implementation of an
operations strategy.

19
Topic 3
Customer Service
Prescribed Reading
Niemann, W., & De Villiers, G. (Editors) 2022:
• Chapter 2: Customer Service
3.1 INTRODUCTION

• Understand what customer service means in the logistics context
• Explain why customer service is an important component of an
organisation’s strategy
• Distinguish between the different perspectives of customer service
• Appreciate the primary concerns of customer service
• Identify elements of customer service
• Understand the process of developing a customer service strategy
• Appreciate critical dimensions of customer service.
It is written that customer satisfaction is one of the most important issues any
organisation needs to understand if they want to remain in business. Satisfaction
is thus seen to be directly related to the extent of service a business is able to
offer to clients and customers (Niemann & De Villiers, 2022). Therefore, if we
think of customer satisfaction as a concept that represents a desired outcome,
then the way through which we achieve that could be described as the net of
activities that eventually result in the delivery of a given service or product to
the customer.
In addition to the above, customer service may also offer one company the
chance to offer their clients or customers either a service or product that is
distinctly different from those offered by the competition.
The above provides the frame of reference that we need to start thinking about
the importance of the logistics function in relation to customer satisfaction and
being a successful enterprise.

20
It is believed that the logistics function basically represents the vehicle that
makes it possible to move input materials into and through the intermediate
stages of transformation, right to the end of the process where consumption
takes place. Taking a closer look we find that the logistics function is underscored
by the linkage role that it fulfils (Nieman & De Villiers, 2022).
We also need to understand the importance of customer service as a possible

way to differentiate a business in times where there are increasing amounts of
competition and declining brand power. While most companies competing in the
same market space will use similar forms of technology, which implies little
change in the end product or their core service, the one aspect that will make a
company gain a proper competitive advantage will be its logistical arrangements.
If these logistical arrangements are able to facilitate the delivery of expected
products or services to the customer at the right time or in the right place, this
advantage will be further extended (Nieman & De Villiers, 2022) ).
It makes logical sense that, even when a product is excellent, but does not reach
the correct customer at the right time and place, that the business will be less
likely to make the required sale. When a business is able to achieve time and
space utility, this will lead to increased wellbeing for the customer as well as the
organisation – the bottom line is that this responsibility rests with the logistics
function of the business (Nieman & De Villiers, 2022) .
When we take a closer look at the output of the logistics function, we find that it
is there to establish satisfactory customer service – this is done by ensuring the
availability of a given market offering to customers at the right time and place in
such a way that customer expectations are met. If we now consider the above,
the very important role of logistics within the organisation is underlined and it
may even be stated that logistics are critical to the organisation’s success. When
the logistics function is able to establish the desired physical connection between
customers and the organisation, it makes it possible for the change in ownership
of a product to become a reality (Nieman & De Villiers, 2022) .
As we have now managed to gain an understanding of the importance of the

logistics function with regards to customer service, it will be a good idea to take
a closer look at the concept of customer service and related definitions.

21
Activity 3.1
Read Section 2.1 and 2.2 in Niemann & De Villiers (2022).
Summarise this section to demonstrate the importance of sound logistics

management in the context of customer service as key differentiator for any
organisation.
3.2 DEFINING CUSTOMER SERVICE
It is likely that all companies will agree to the importance of customer service
and its role in its overall success. Looking at the above from a marketing
approach, we find that customers are viewed as the hub of the wheel of all
organisational activities – this means they are in the middle of everything the
company does and thinks about doing. Differently put, it suggests that the
company needs to feed into the expectations of their clients or customers – for
this reason, most companies will describe customer service as a key component
of their overall marketing strategy (Nieman & De Villiers, 2022) .
If you were to consult marketing texts, you will find that marketing is traditionally
based on a mix of related activities, commonly called the 4Ps of marketing –
these refer to product, price, promotion, and place. When we consider these 4Ps,
the P of place represents the physical distribution and logistics aspect of the
marketing mix. The role of place in this model is to bring together the buyer and
seller, which means that this P is precisely where the concept of customer service
will be found. What this means is that the P element of the traditional marketing
mix is described as the interface between the marketing and logistics functions
within a company (Nieman & De Villiers, 2022) .
Before we get ahead of ourselves, we need to first be sure that we are clear on
whom the customer in this relationship is. Typically, customers are those parties
whom patronise an organisation by buying any of its services or products. This
is only partially true, specifically when we consider the above from an external
outlook. When we are interested in seeing the entire picture, we need to also
take an internal look, which implies that we also need to think of our internal
clients or customers as well ((Nieman & De Villiers, 2022).
In the previous paragraphs we looked at the customer and customer service from
a marketing perspective.

22
Let us now consider customers from the logistics perspective. Here, customers
are described as any party that is at the receiving end of delivery – it makes no
difference if this party is internal or external in relation to the business. From a
logistics point of view there are thus many customers along the value or supply
chain – this means that the logistics function needs to ensure a number of things:
firstly that all internal customers are given accurate and on-time delivery of
products; secondly, that this same level of service is extended to all external
customers as well ((Nieman & De Villiers, 2022).
It is essential to keep in mind that the focus of logistics is to make it possible for
the marketing goal to be fulfilled – meeting the time and place requirements
makes this possible. Seeing the negative implications of poor logistical
performance is thus easy to imagine. If the goods or services offered by the
organisation are not available to customers or clients respectively, and at the
right time and place, the required interaction between the buyer and seller will
therefore not take place as often as is needed. Looking at this from a different
point of view, we can thus state that in addition to low operational efficiency and
effectiveness, we will probably encounter internal and external customers who
are dissatisfied, which will have obvious negative implications for the business
(Nieman & De Villiers, 2022) .
As we now know that there are both internal and external customers the logistics
function needs to cater to, it would be a good idea to see what customer service
really is. Before we look at defining the concept of customer service, we need to
be reminded that the definition we find will differ depending on whom we ask.
Also, it is likely to include a number of varying activities. For the purpose of our
current discussion, we will do well to understand that all views on customer
service agree on one thing, which is that customer service is essential to the
success of any given organisation. As we are presently dealing with strategic
logistics management, it will be necessary to understand that every company
will be challenged to develop its own combination of logistics services that would
augment or supplement core activities – by so doing, it will bring added value to
all stakeholders involved in that particular supply chain (Nieman & De Villiers,
2022).
If we continue along the lines of added value, a sound definition for customer
service may read as follows:
It is a process for providing competitive advantage and adding benefits
to the supply chain in order to maximise the total value to the ultimate
customer.

23
To make sense of the above definition, we are reminded of the fact that we are
able to place products into a number of categories, which are core product,
tangible product, and augmented product. Based on the above definition, it
would be in order to state that customer service as part of the logistics function
falls within the category of augmented products. Simply put, this means that
while our customers may not directly ask for good customer service, that it
indeed forms an integral part of the value of the product to the customer (Nieman
& De Villiers, 2022) .
While the above definition is acceptable, we should note that there are more
elaborate definitions to consider. One of these definitions, formulated by Stock
and Lambert (2001) view customer service as a process that occurs between
buyer, seller and a third party. In line with the previous definition, this interaction
is said to result in added value wen the product or service is exchanged. Their
definition also includes reference to the element of time, and the fact that all
parties are better off after the completion of the transaction than before.
Another view in terms of defining customer service belongs to Ballou (1999),

who believes customer service specifically refers to a chain of sales-satisfying
activities that usually start when the order is received and ends with delivery, or
ongoing technical support afterwards (de Villiers, Nieman & Nieman, 2017).
In terms of defining customer service within the logistics environment, we can

also consider an older contribution made by La Londe and Zinszer (1976). These
authors were of the opinion that customer service can be described in terms of
three principal ways, or alternatively as three levels of involvement and
awareness. In short, Level 1 looks at customer service in the form of activities
that ultimately enhance product value to the customer. Level 2 states that
customer satisfaction needs to be viewed in terms of performance measures,
which adds value to the previous viewpoint by allowing for performance
evaluation by using prescribed standards. Level 3 is where the company views
customer service as a philosophy; this underscores the importance of the
customer who is at the epicenter of all organisational activities (Nieman & De
Villiers, 2022) .
If we now consider the above definitions, we find that there are in fact two
fundamental opinion streams – if we know what these streams are, we improve
our understanding and will be able to provide improved customer service.
When consulting the prescribed textbook on these opinion streams, we find

reference being made to the process view on the one hand, and the systemic
view on the other.

24
With regards to the process view, we will do well to realise that satisfactory
customer service is never achieved when a single activity is completed – it is
rather a function of any number of successive activities. From a logistics point of
view this opinion would imply that it would be a good idea to trace the route
through which materials travel and are transformed until such time as it becomes
the subject of a successful transaction.
If we look at customer service from the systemic view, we will find it written that
the main reason for the existence of all activities related to the value chain is to
achieve customer satisfaction. If all involved buy into this notion, all participants
will work towards integrating logistics and other activities with the intention of
complementing one another. In the final analysis, everyone will contribute to the
supply chain in such a way that a product or service of high quality can be
delivered to the customer or client.
Activity 3.2
Read Section 2.2 in Niemann and de Villiers, (2022).
Summarise the definitions of customer service that are presented in this section
and state how the definitions contribute to our understanding of customer
service.
3.3 ELEMENTS AND CONCERNS OF CUSTOMER SERVICE
Now that we have managed to consider a number of definitions explaining the

concept of customer service, we will do well to further unravel the complexities
of customer service by using a three-stage framework. This three-stage
framework for customer service elements is based on a continuum that
represents the different stages of a transaction – here, it refers to pre-transaction
elements, transaction elements, and, finally, post-transaction elements (Nieman
& De Villiers, 2022).
Pre-transaction elements refer to issues related to policy and basically serve to

create an environment that is enabling the customer service we want to offer.
As you will see, these elements will usually show management’s commitment to
serving their customers well. Upon closer inspection, the elements making up
the pre-transaction part of the continuum may not always be thought of as
directly from the logistics environment, but they still help to shape the possible

25
perceptions customers may have of the organisation and their decision to
complete the transaction with the company. When these elements are absent, it
will reduce the chances of the transaction going ahead. So, what exactly are
these elements constituting the pre-transaction stage? These elements include a
written statement of the organisation’s customer service policy, an indication of
the organisational structure, and system flexibility, as well as all associated
technical services.
When we shift our attention to the second stop in the continuum, called
transaction elements, we find they refer to those customer service variables that
directly lead to the physical distribution of the product; this will then culminate
in the delivery of the product to the customer. These elements help to convey
the message of customer care through observable actions and not words only.
The transaction elements that constitute this part of the continuum include the
ability to back order, elements of the order cycle, the convenience of placing an
order, as well as product substitution.
The final element in this three-stage model is made up of post-transaction

elements. As one may think, these elements only come into play effect once the
transaction has been concluded and change in ownership has occurred. It would
not be a good thing to think that since the post-transaction elements are only
relevant after the pre-transaction and transaction that we do not need to plan
for them when the process starts. Post-transaction elements are said to provide
support for the product while it is being used by the customer. When support is
offered, it aims to reduce the cognitive dissonance of customers and increase the
view they hold of the company that offered the product in question. If we
carefully think about this, these elements are important to show just how much
the company is concerned with ensuring that customers are able to utilise the
product to its full potential. Elements that make up this part of the continuum
include installation, warranty, alterations, repairs, parts, product tracing,
customer claims, customer complaints, returns, as well as temporary
replacement of products (Nieman & De Villiers, 2022).
While the above discussion may suggest that these are the most important
elements to consider when talking about customer service, we need to note that
there is single list of customer service that we can rely upon irrespective of the
nature or industry within which we may operate.
Also keep in mind that there are various issues that will influence the importance
different customers attach to these elements. Bottom-line is that companies
should never rely on universal lists of elements, but should take time to properly
get to know their customers.

26
While these customer service elements seem to cover a large range of issues,
we find that they in fact are mainly concerned with issues related to time,
dependability, communication, and convenience (Nieman & De Villiers, 2022).
The concern with time deals with the period it takes to fulfil an order, starting
from the moment it is placed. A general rule is that the shorter this time, the
better customers will feel about the service they have received. From a logistics
perspective, we thus need to remember that our logistics activities need to be
geared towards making the time between placing an order and completing the
transaction, shorter. Dependability, however, deals with how reliable a
company’s service is – in other words, the extent to which a seller or supplier’s
deliveries are consistent with the expectations of the customer. When there is
consistency seen in this regard, it is viewed as good customer service. Customers
will feel they are able to trust the company, which means they will possibly also
become loyal to the company.
Communication, as the third element, deals with the handling of order-related

information. As we see, much of the activities observed in this dimension are of
an administrative nature and would involve aspects such as correct capturing,
transmitting, and processing of customers’ orders up to the stage where the
products in question are collected and delivered (Nieman & De Villiers, 2022). As
soon as communication errors occur, customers will probably become
dissatisfied, and we find that their needs and expectations are not met.
The final concern deals with convenience – this acknowledges the heterogeneity
of all customers, implying that we need to fully understand that all customers
are not the same. We will, for instance, find that the logistics requirements of
customers will never be the same, which includes facets such as packaging,
timing, routing, and mode of transport. It is therefore essential to find the desired
mix of the above variables for each client. Convenience considerations, therefore,
need to be aimed at promoting flexibility in logistics operations that ultimately
lead to providing reasonably customised service that helps companies to meet
the expectations of their customers (Nieman & De Villiers, 2022.

27
Activity 3.3
Read Section 2.3 in Nieman & De Villiers (2022).
Summarise the three-stage framework for customer service as discussed in this

section in the textbook.
3.4 BASIC CUSTOMER SERVICE DIMENSIONS
It is a widely accepted principle that customers will usually be concerned about

the kind of service they are given. While there are obvious differences with
regards to the kinds of service customers receive, there are some fundamental
dimensions of customer service every organisation simply has to keep in mind
when thinking about their logistics function.
The main dimensions we need to be informed about are as follows: availability,

operational performance, and reliability in the logistics domain. Let us take a
brief look at these three dimensions.
The issue of availability is the first-dimension customers require. If a product is

simply not available, it will be impossible to acquire that product. Defining
availability would be to say that it refers to a company’s ‘capacity to have
inventory when it is desired by the customer’ (Nieman & De Villiers, 2022) . In
many cases, it is not sufficient to merely have inventory – it also implies that the
company will have the capacity to avail customers of the product where it is
desired. If we as customers are not able to have access to a product as desired,
we think that this product is not available. If products are to be available,
companies will need to stock enough inventory volume in anticipation of the
needs of their customers. While reading this section, be sure to note that we
typically find two kinds of inventory: base stock and safety stock. If a company
holds enough inventory, we may say that the company scores high on the issue
of availability; we need to, however, keep in mind that carrying high inventory
levels is usually associated with high costs, which imply that companies need to
strive towards the optimal cost-benefit position.
The dimension of operational performance deals mainly with the manner in which
a company undertakes those activities found along the supply chain. Issues that
are included in this discussion are speed, consistency, and flexibility.

28
If we understand the fact that humans are highly changeable, we should
understand that companies will from time to time receive orders that are out of
the ordinary. If the company is interested in keeping their customer, they will
essentially have no choice but to meet those changed customer needs (Nieman
A further factor related to customer service is recovery. While all companies will
do their best to ensure error-free logistical operations, malfunctions will still
occur. Companies are said to be competent in terms of their logistics function if
they are able to anticipate some of these malfunctions and if they have
contingency plans in place to deal any such issues when they arrive. From a
customer perspective, the speed at which this recovery occurs, is also an
important issue. If recovery is quick, it could mean that the offered service to
the customer is not interrupted.
The third dimension we initially referred to is the reliability of the logistics

function – this refers to an organisation’s ability and willingness to provide their
customer with early and accurate information about their orders and all related
logistical activities. When customers are provided with advanced information, it
becomes possible for them to plan according with the information they have been
provided with. This is a very important issue, since it makes it possible for the
customer to conduct their business from a position of being informed. If a
customer is informed of an expected issue, they will be able to make a plan on
their side, which could mean their operation can go ahead without any
unforeseen challenges. In cases where customers do not have sufficient or
accurate information, they will possible be facing a number of disappointments
that may become too much to solve. Reliability is therefore described as an
organisation that volunteers necessary information and is able to keep its
promises to its customers.
In conclusion, if a company is interested in maintaining a competitive advantage

in the marketplace, it will do well to establish efficacious customer service
strategies (Nieman & De Villiers, 2022) .
Activity 3.4
Read Section 2.4 in Nieman & De Villiers(2022).
Draw up a mind map to summarise the three main dimensions of basic customer
service as spelled out in the above section.

29
3.5 ESTABLISHING A CUSTOMER SERVICE STRATEGY
Now that we have an understanding of the basic customer service dimensions,

we need to advance our discussion to the issue of how to approach the
establishment of a customer service strategy in a company.
While we have thus far underlined the importance of a sound customer service
strategy, most will agree that the reality is, however, that developing such a
strategy remains a huge challenge to most (Nieman & De Villiers, 2022) . One of
the reasons why this might be the case, is because many strategies, that are
supposed to be built around the needs of customers, are in fact developed around
perceived industry norms. Upon closer inspection, we find that industry norms
are more often than not based on the views companies have of their competitors,
and not their customers. In other examples, companies rely on judgment calls
by their managers, who, in some cases, do not fully understand the real needs
and expectations of their customers.
No matter what approach we might be taking as company, it remains essential

to remind ourselves of the cost of any strategy we might adopt. As is described,
there is therefore a trade-off between cost on the one hand and higher levels of
customer service. Fortunately, there are some methods companies may use to
establish a customer service strategy.
The four main examples of such methods include a customer strategy based on
customers’ reactions to stock out; customer/revenue trade-offs; ABC analysis;
as well as the customer service audit.
The first approach is where we develop a customer strategy based on customers’

reaction to stock out. When this strategy is used, the company will pay special
attention to how customers react to an incidence of stock out – their reactions
typically are based on the nature of the product or the brand, the extent of its
essence to the customer, and the degree of knowledge about the product or
brand that the customer has.
Further to the above, we need to keep in mind that there may be different parties
in the supply chain that suffer the worst consequences of such stock out when it
occurs (Nieman & De Villiers, 2022) . When looking at this approach, we need to
note what the various implications for the logistics operations are.
Further, we need to keep in mind that there are essentially two fundamental
consequences to an organisation in the stock out situation where a given

30
customer decides to purchase a substitute product provided by another
company. Apart from causing a loss of revenue, the stock out situation also
presents the opportunity for marketplace competitors to test their products while
earning money for that test run. In a different scenario, customers may also
decide to switch stores and not product brand.
The implications we need to consider are that a high level of customer service
will be needed for products affected in this kind of scenario. In short, companies
need to realise the need to identify parties that occupy critical positions in the
supply chain and to give them priority in terms of all logistics operations (Nieman
The second approach can be based on customer/revenue trade-offs. When

developing a customer service strategy, it is imperative to consider the total
investment the company needs to make in order to bring about improved
customer service levels and compare the volume of investment to the projected
returns the company may earn. Typically, most additional costs are incurred by
the logistics function when a decision is made to improve customer service. When
contemplating whether to use this approach, companies will do well to carefully
consider the impact of incremental customer service levels on revenues, logistics
costs and profits. The need for careful appraisal of logistics investments is neatly
illustrated in Figure 2.4 in the prescribed textbook (Nieman & De Villiers, 2022)
. It is indicated that investing in methods that would lead to an improvement in
levels of customer service should be dictated by the anticipated return on
investment (ROI) (Nieman & De Villiers, 2022) .
The third approach to establishing a customer service strategy is by conducting

an ABC analysis. This method is aimed at categorising customers and products
according to the extent of the contribution they make to the organisation’s profits
(Nieman & De Villiers, 2022) . By placing customers into either category A, B, C,
or D, it becomes possible to prioritise the company’s logistics operations.
Customers in category a are thought to be most valuable, followed by those
placed in categories B, C, and D with decreasing value. As is indicated, the same
process is also applied to products associated with the company. In contrast to
the customer categories, product categories range from I, II, III, IV, to V where
the most important products are placed in category I. When this process of
categorisation is used, it makes it possible to determine the most profitable
customer-product combinations. In each of these cases, the company applies the
80-20 principle (Nieman & De Villiers, 2022) .
The fourth and final approach we are presently looking into is conducting a
customer service audit. This is described as a useful way to determine the specific

31
expectations of customers, the capacity of the organisation to meet these
expectations, and the extent to which these expectations are being met
presently. By being able to identify gaps between how customers expect service
levels to be and how they really are, companies are able to take corrective
actions.
Another plus when using this approach is that it also makes it possible for the
company to compare its own customer service offering to those of their
competitors. To ensure that a proper customer audit is conducted, companies
will need to follow four steps:
1. The external customer service audit
2. The internal customer service audit
3. The identification of probable solutions to customer service shortcomings
4. The establishment of customer service levels (Nieman & De Villiers, 2022)
Activity 3.5
Read Section 2.6 in Niemann and de Villiers (2022).
Carefully summarise the four stages of which the customer service audit in this
section consists. Pay special attention to how this audit makes it possible for a
company to identify possible gaps and what they may do to address those.
3.6 MEASURES OF CUSTOMER SERVICE PERFORMANCE
As we now have a sufficient understanding of how to develop a customer service

strategy, we need to shift our attention to measures how well our customer
service strategy is performing. As soon as such a strategy has been put in place,
we need to remind ourselves of the importance of monitoring the company’s
logistics operations and to conduct performance measures – the final outcome
should be that we are informed of the level of customer service being rendered
and whether our customer service actually meets the expectations of the
organisation as a whole (Nieman & De Villiers, 2022) . When a customer service
performance measurement is done, we will be able to determine the areas of
service in which our company excels, or where it is failing to meet the customer
service targets.
There are a number of customer service measures companies may employ.
These include the elements of product availability, order time cycle, distribution

32
system flexibility, distribution system information, distribution system
malfunction, as well as post-sale product support.
Initially, companies would use performance measures that were based on the
perspective underpinning their customer service strategy; nowadays, this
approach is no longer sufficient due to the highly competitive business
environment. It is now rather accepted to state all measures of customer service
from the customer’s perspective and not that of the organisation (Nieman & De
Villiers, 2022) .
One such example is ‘orders shipped on time’ – if we were to restate this from
the perspective of the customer, we would rather talk about ‘orders received by
the customer on time’. Why this restatement would make sense is simple: the
company is not so much interested in the shipping of goods as it is interested in
making sure that orders are delivered to customers in good time (Nieman & De
Villiers, 2022) .
Therefore, stating performance measures from the customer’s point of view

makes it possible for the organisation to gain a more thorough or holistic view of
the total customer service effort of the organisation (Nieman & De Villiers, 2022).
Activity 3.6
Read Section 2.7 in Nieman & De Villiers (2022)de Villiers.
Construct a table that contains the provided samples of customer service

measures. Be sure to include a brief description of each element, and to state
the typical measurement unit per element.

33
Summary
In the context of Topic 3 we were introduced to the concept of customer service.

Once the power of good customer service was explained and discussed, we were
provided with a number of definitions pertaining to customer service.
Being able to define the concept enabled us to look at the various elements and
concerns of customer service from a bit closer. The importance of time,
communication, dependability, and convenience was spelled out and were
underscored in terms of their importance to offering good customer service. After
looking into the basic customer service dimensions, some time was spent
considering some of the aspects relevant to establishing a customer service
strategy. The four strategies were outlined and the discussion culminated in a
breakdown of how companies can approach measuring their performance on
customer service.
3.1 Outline why it would be important to an organisation to be informed of

the power of customer service.
3.2 Briefly explain what is referred to when we read about cost trade-offs in
marketing and logistics and how these may differ.
3.3 Consider the textbook and formulate a definition to explain what the
concept of customer service is about.
3.4 When defining customer service, we can do this from either a process view
or a systemic view. Briefly explain what these two opinion streams are
about.
3.5 Draw a diagram and explain the three-stage framework for customer
service.
3.6 Briefly outline the three dimensions of basic customer service as they are
discussed in this section in the textbook.
3.7 Explain the customer service strategy that is based on customers’ reaction
to stock out.
3.8 Discuss the process involved in doing a customer service audit, which
companies may conduct if they are working towards establishing a
customer service strategy.

34
Topic 4
Logistics Information Systems
Prescribed Reading
Niemann, W., & De Villiers, G (Editors) 2022:
• Chapter 10: Information systems and technology.
4.1 INTRODUCTION

• Understand how information systems and technology support supply chain
management
• Understand the application of information systems for different supply chain
processes
• Describe decentralised and centralised systems in supply chain
management
• Describe different types of centralised logistics and supply chain information
systems
• Explain the concept of Industry 4.0 and list the main factors leading thereto
• Describe the concept of connected factory as a core element of Industry 4.0
• Explain the concept of blockchain in supply chains and the benefits thereof.
• Understand how machine learning has revolutionised the supply chain.
Information motivates action and information plays a very important role in

organisations and more so in supply chains.
An information system is defined as “… a set of interrelated components that

collect (or retrieve), process, store and distribute information to support the flow
of goods, decision making, coordination and supply chain management.”
Two major categories of information systems are identified namely decentralised

and centralised systems.

35
Activity 4.1
Read Section 10.1 and 10.2 in Niemann et al (2022).
4.2 DECENTRALISED AND CENTRALISED SYSTEMS
The different departments in organisations need to communicate and exchange

data constantly to enable the flow of material and information throughout
different processes.
Activity 4.2
An organisation with decentralised systems may experience many problems such

as:
• Disparate information that is difficult to maintain
• Data integration becomes time consuming and costly
• Inconsistencies, duplication or omission of data
• Customer dissatisfaction, loss of revenue and damage to reputation due to
lack of timely information.
The key benefits of a centralised system are as follows:

• Eliminates duplication, discontinuity and redundancy of data
• Provides access to information across all departments in real time
• Facilitates control over various business processes
• Increase productivity, improves inventory management, promotes quality
and reduces material and handling costs
• Allows for effective human resources management and reduces overheads
while boosting profits
• Leads to better customer interaction, increased throughput and improved
customer service.

36
4.3 TYPES OF CENTRALISED SUPPLY CHAIN SYSTEMS
There are many different centralised supply chain systems. Material

requirements planning (MRP) systems and enterprise resource planning (ERP)
systems are discussed in your textbook.
Activity 4.3

1. Identify the components required for the effective use of MRP.
2. Identify what benefits ERP III brings to organisations.
MRP systems deal with dependent demand and are used to plan production and
raw materials for future periods.
The benefits of MRP systems include:

• Lower inventory levels
• Better response to orders
• Agile response to market
• Improved utilisation of resources
ERP systems are an extension of MRP. An ERP system incorporates components

that integrate people, information and all business processes required for
effective supply chain management. The core business functions in ERP include
finance, accounting, sales, operations management, corporate services, and
purchasing and human resource management.
ERP II systems include downstream and upstream elements (customers and

suppliers).
ERP III goes a step further and integrates market supporters and critics through
social media and various data streams.
4.4 FUTURE TRENDS: INDUSTRY 4.0
Industry 4.0, the fourth “industrial revolution”, has evolved from ERP III. It is a
German initiative also known globally as the Industrial Internet of Things – a
sub-category of the Internet of Things (IoT).

37
Whereas the IoT focuses on smart devices and sensory products from a customer
point of view, Industry 4.0 focuses on manufacturing, supply and value chains.
Industry 4.0 poses some potential challenges, including:

• Bandwidth challenges
• Privacy and security
• Standardisation across devices while maintaining data accuracy and quality
• Change management
• Cost of integrating devices
• Expert knowledge and skills
A number of benefits and opportunities related to Industry 4.0 are identified:

• Shift from mass-customisation to customer-specific, individual products
• Real time data at different touch points through the connection of all
systems, machines and products for continuous information exchange
• Smart logistics, connected warehouses provide opportunity for new
business processes
• Visualise infrastructure and assets via GIS-based navigation to trigger
actions such as maintenance or replenishment
• New approach to knowledge management, development and capitlisation
• Predictive maintenance and services will enable connection of humans and
machines, objects and systems providing a dynamic self-organised network
of business models and processes that can be optimized in real time.
Activity 4.4
Describe how you would justify the need for Industry 4.0 in terms of supporting
supply chain processes.
The concept of the connected factory or “smart factory” in Industry 4.0 is

discussed in the textbook in detail. The five most likely uses of smart factories
under Industry 4.0 are identified as follows:
• Production tracking and remote factory monitoring
• Track-and-trace functionality across the supply chain
• Extended plant floor automation through machine-to-machine
communication
• Real-time assets performance management
• Utility and energy management

38
Industry 4.0's blockchain technology uses the internet to publicly validate, store,
and disseminate transactions in permanently encrypted ledgers. It was invented
to support transactions in bitcoin, the digital cryptocurrency that operated
independently from a central bank. Refer to Table 10.2 in the prescribed textbook
for an overview of blockchain technology (Nieman & De Villiers, 2022)
Machine learning also forms part of AI and is regarded as a technology with in

Industry 4.0. Machine learning is the study of computer algorithms that get
better on their own over time and with the use of data. Machine learning has
revolutionised supply chains in various ways.

39
Summary
It will be very difficult for supply chains to operate at their full potential without
information systems and technologies.
Activity 4.5
4.1 Explain how information systems and technology support supply chain
management.
4.2 Illustrate the application of information systems for different supply chain
processes by means of an example.
4.3 Describe decentralised and centralised systems in supply chain
management
4.4 Identify at least four different types of centralised logistics and supply
chain information systems.
4.5 Define and discuss MRP and ERP systems as types of centralised logistics.
4.6 Explain the concept of Industry 4.0 and list the main factors leading
thereto.
4.7 Describe the concept of connected factory as a core element of
Industry 4.0
4.8 Explain blockchain technology and the benefits thereof.
4.8 Ealborate on the impact machine learning has had on supply chains.

40
Topic 5
Global Logistics
Prescribed Reading
In this topic, you will be required to read sections from the following chapters in
Niemann, W, & De Villiers, G (Editors) 2022:
• Chapter 13: Global dimensions of logistics
5.1 INTRODUCTION

• Understand the definition of global logistics.
• Understand why organisations want to compete in the global arena.
• Explain the uncontrollable and controllable factors influencing the global
environment
•
• Explain alternative global logistics strategies
• Discuss the various channel intermediaries in the global environment.
• Understand the various trade documents in global logistics.
• Understand the definitions of the Incoterms, which are used in global
transactions.
This unit is focused on the issue of global logistics. Since South Africa’s re-entry
into the global arena, the logistics environment has changed quite a bit. The
movement of materials, products, and also information, between different
countries happens much easier than before – this has been the main reason for
the entry of numerous companies into the global logistics arena (Niemann & De
Villiers, 2022).
We may ask how international trade impacts the world of logistics – it is said to
broaden and diversify logistics operations and has caused logistics and supply
chain management to become much more complex than before (Niemann & De
Villiers, 2022).

41
In addition to the impact of globalisation on the logistics function, South Africa
has also benefited from the changes that have occurred. For one, logistics make
it possible for local companies to become and remain highly competitive in the
global arena.
As we proceed, we will take a closer look at some of the major logistics issues
and associated decisions companies may need to make when they are interested
in operating in global markets.
5.2 DEFINING GLOBAL LOGISTICS
While there is agreement on the importance of logistics in making South Africa

globally competitive, we will do well to first consider defining global logistics.
Global logistics is defined as the design and management of a system that directs
and controls the flows of materials and goods into, through, and out of a
company, across international boundaries, to achieve its corporate objectives at
minimum total cost (Niemann & De Villiers, 2022).
The global marketplace is hugely complex, and for this reason, companies need
to take note of the various contributing issues. The following risks need to be
considered when moving goods globally (Niemann & De Villiers, 2022):
• Economic and political factors

• Regulatory requirements
• Import/export limitations
• The available modes of transport
• Access to ports and warehouse facilities
To ensure that a company is able to operate effectively and efficiently in the

global arena, they should have an understanding of all of the factors and its
impact on their logistics function. This, in turn, will make a positive contribution
to the company specifically and the country in general in terms of meetings
formulated strategic objectives.
Activity 5.1
Read Section 14.2 in Niemann & De Villiers (2022).
Briefly outline the importance of global logistics.

42
5.3 CONTROLLABLE AND UNCONTROLLABLE ELEMENTS OF GLOBAL
LOGISTICS
Further to the above sections, we need to know that there are a number of
factors and pressures that have a direct influence on how the global marketplace
functions. When a company considers entering the global arena, it will have no
other choice but to understand all of these factors and pressures. In the
subsections that follow, we differentiate between elements that are
uncontrollable and those that companies can in some way control (Niemann &
De Villiers, 2022). Let us take a closer look.
5.3.1 Uncontrollable Elements
As the naming of this group of elements may suggest, they are uncertain,
volatile, and can change very quickly. Typically, we will encounter uncontrollable
elements in the external business environment. When looking at these elements
from the logistics function, we find that logistics managers will need to make
decisions that weigh up customer service levels against pricing considerations.
Companies may, for example, find it is less costly to transport part components
as opposed to finished goods – this could be due to fees payable (Niemann & De
Villiers, 2022). .
There are a number of key uncontrollable factors people in the logistics function
need to be informed about; these are briefly outlined below:
• Political and legal systems of foreign markets: companies need to be
cognisant of difficulties arising from trading in countries that are prone to
conflict and political instability.
• Regional and global economic conditions: economic conditions in the global
marketplace always have the potential to negatively impact export growth
and expansion.
• Technological forces: technology has the ability to change very rapidly and
has the potential to create new opportunities to expand a business, or it can
become a real threat to a product or business in the global arena.
• Competitive forces: as we have stated previously, competition is at a high
level in the global market and is mainly something companies are not able
to control. Companies need to find ways to protect themselves against these
forces.
• Social and cultural customs: this is a factor that has huge impact on product
and logistics strategies; international cultures will react differently to those
products companies may easily sell in their home marketplace (Niemann
and De Villiers, 2022).

43
5.3.2 Controllable Elements
Further to our current discussion on uncontrollable and controllable elements,

we now shift our attention to those elements that managers of logistics functions
are able to control quite effectively.
Some key examples of controllable elements are outlined below:

• Customer service strategy: companies are able to control customer service
levels quite efficiently, although the global environment adds the dimension
of increased distances that goods will travel before reaching the end-
consumer – this will probably impact delivery dates. By ensuring sufficient
levels of safety stock companies are better able to deal with possible delays;
again, one needs to be mindful of the cost implications of this approach.
Companies also do well to have an understanding of a the customer service-
level expectations of the countries within which they operate (Niemann and
De Villiers, 2022).
• Inventory strategies: customer service level strategy and inventory
strategy are closely related – to ensure that they are able to meet customer
expectations, companies need to ensure they have sufficient inventory
available. This necessitates the use of proper inventory policies in the
company.
• Transportation strategies: Companies can choose from a number of options
pertaining to modes of transport – these include road, rail, air, and water.
• Packaging strategies: another strategy entails thinking about how our
products are packaged. Due to the long distances that packages travel and
the amount of times they are handled, companies need to think clearly
about how to protect those packages.
• Warehousing and storage strategies: it often happens that goods are
produced and stored in local warehouses, after which they are ordered from
an international customer.
As soon as companies decide to use wholesalers and distributors, they need
to keep in mind that this will have implications for the warehousing or
storage of said products (Niemann and De Villiers, 2022).
When companies have a thorough understanding of all of the controllable and

uncontrollable factors, they are able to start thinking about a number of
alternative global distribution strategies.

44
Activity 5.2
Read Section 13.3 in Niemann and De Villiers (2022).
Compile a table to provide an overview of the various uncontrollable and

controllable elements logisticians need to consider when entering into the global
market environment.
5.4 ALTERNATIVE GLOBAL DISTRIBUTION STRATEGIES
The purpose with this section is to underline the fact that distribution strategies
for global markets are different from those companies use for local markets. As
the textbook points out, there are no less than four main strategies companies
can select from when thinking about global distribution of their goods or
products.
5.4.1 Exporting
Exporting takes place when a manufacturer uses someone else to sell their
products in an overseas marketplace. When this strategy is chosen, the channel
member will buy the goods from the manufacturer, after which they will sell
those goods into a marketplace selected by the manufacturer (Niemann and De
Villiers, 2022).
Some of the main organisations or channel members that could be involved in

terms of this strategy include trading firms, brokers, and freight forwarders and
distributors.
Before a company selects to export their goods or products, they will do well to
consider both the advantages and disadvantages of this strategy.
Amongst others, the main advantages include total flexibility, the ability to
terminate or expand distribution quite quickly, no fixed assets, and no
investment in the foreign market.
On the negative side, exporting include the payment of tariffs for exporting
goods, import quotas that prevent companies from selling as much as they want
in a foreign market, little control over how products are handled, the presence

45
of middlemen, differences in currency values, as well as reliance on expertise of
intermediaries to sell the product (Niemann and De Villiers, 2022).
5.4.2 Licensing
A second strategy companies can consider, deals with licensing – this entails an
agreement between two countries where one permits another firm to make a
product, letting them use the company’s recipe, or to employ another process
that is the property of the first firm ((Niemann and De Villiers, 2022).).
Some of the main advantages of this strategy are that it is associated with
minimal risk due to capital layout, the licensor has more control of the
distribution, and it is a way to overcome high tariff barriers.
On the negative side, licensee sometimes turn into competition, they may find it
challenging to cancel the agreement, and they may also have to raise capital to
develop new sites for manufacturing (Niemann and De Villiers, 2022).
5.4.3 Joint Ventures
As third option, joint ventures refer to an agreement between two or more

companies with one buying an ownership interest in another. As it happens,
these agreements are signed with customers, vendors, distributors, and in some
cases also competitors. When a joint venture is entered into, the parties agree
to exchange or share the risks and their resources – the final goal is to share in
the rewards (Niemann and De Villiers, 2022). When companies consider this
approach, they need to also think about the track record of the potential partner.
As with the other strategies, joint ventures are also characterised by a number
of advantages and disadvantages. In terms of advantages, the investor has more
control over the process. On the downside, joint ventures are associated with
higher risk, there is a chance that the local firm may enjoy the benefit of majority
ownership, the local partner can become a competitor, and there may also be
conflict from time to time (Niemann and De Villiers, 2022).
5.4.4 Ownership
The fourth and final strategy companies can choose from, is ownership. When
this kind of agreement is selected, the company has complete control over a
foreign firm in a new country. The main advantages of ownership include total
control, there is no need for a partner, and there is the elimination of customs
duties and other important taxes. On the negative side, ownership is associated

46
with some degree of lost flexibility, as well as the risk of nationalisation by foreign
governments (Niemann and De Villiers, 2022).
In conclusion, it is important to note that market conditions have a meaningful

impact on the choice of strategy. Companies also consider the risk associated
with each option and think of the control they want to have when making their
choice. Finally, companies need to ensure that their logistics system will be able
to support the strategy they select (Niemann and De Villiers, 2022).
Activity 5.3
Summarise the four main strategies that organisations can use when they have
to consider alternative global distribution strategies.
5.5 CHANNEL INTERMEDIARIES
When a company has selected its global distribution strategy, they need to take
the next step, which is to select specific channel intermediaries.
Studying this section requires an understanding of the concept of distribution

channel – this refers to the means by which a manufacturer distributes products
from the manufacturing plant to the ultimate user; this includes warehouses,
brokers, wholesalers and retailers.
As soon as a company has clarity about the market they are interested to enter
within the global arena, they will do well to understand the role of intermediaries
in getting the process underway.
Generally, intermediaries offer great assistance to companies that enter into new
markets; it is, therefore, essential that logistics managers understand the
various kinds of intermediaries they can select from, as well as the possible
impact of these intermediaries on marketing efforts and the profits of the global
organisation (Niemann and De Villiers, 2022).
Further to the above, and based on the needs of a company, a channel can be
described as either short or long. There is a general rule that states that the

47
longer a distribution channel, the lower the company’s profits are likely to be
(Niemann and De Villiers, 2022).
For the purposes of mastering the outcomes of this section, readers need to be
informed of the following categories into which channel intermediaries can be
broken(Niemann and De Villiers, 2022).
:
• Industrial buyers
• Wholesalers
• Retailers
• Foreign freight forwarders
• Non-vessel operating common carriers (NVOCC)
• Export management firms
• Trading firms
• Customs house brokers
• Ship brokers
• Agents
• Export packers
Activity 5.4
Read Section 14.7 in de Villiers, Nieman and Nieman (2017).
Draw a mind map to represent the different categories into which channel
intermediaries can be divided.
5.6 GLOBAL TRADE DOCUMENTS
When taking a closer look at global transactions, we find a number of components

that make up this process.
Some of these include the following:
• Buyers
• Sellers
• Products or services
• Sales agreements
• Shipping terms
• Terms of payment
• Documentation
• Insurance (Niemann and De Villiers, 2022).

48
As one may imagine, correct and accurate documentation plays an integral role
in the global goods transactions picture. Some of the documents associated with
global transactions include the following:
• Bookkeeping and reconciliation
• Cost accounting
• Tax purposes
• Export and import formalities
• Payment purposes (Niemann and De Villiers, 2022).
Upon closer inspection, there are a number of specific documents companies

need to be aware of. While differences exist between countries and the kinds of
documents required during the import and export process, it is essential to have
a basic understanding of all of those documents. When preparing this section,
we need to differentiate between export documentation and import
documentation (Niemann and De Villiers, 2022).
5.6.1 Export Documentation
The following are examples of documentation that are used when companies
export goods or products:
• Bill of lading: this transport document serves to confirm the cargo that a
company will be shipping internationally. The main function of this kind of
documentation is to define the terms of the contract, it is a formal signed
receipt for a specified number of packs, and it is a document of title to the
goods. Amongst others, the information contained on a bill of lading usually
include the name of the carrier, the date of loading, the place of departure,
place of delivery, and the terms and conditions of carriage. Further to the
above, there are two kinds of bills of lading companies need to be informed
of: non-negotiable bills of lading (also called a straight bill of lading), as
well as a negotiable bill of lading (alternatively known as an order bill of
lading) (Niemann and De Villiers, 2022).
• Airway bill: these documents are similar to bills of lading, but are associated
with the air transport industry. An airway bill serves as evidence of the
conclusion of a contract of carriage, proof of receipt of the goods for
shipment, an invoice for the freight, insurance certificate, and a guide to
airline staff for the handling, dispatch, and delivery of the consignment
• Sight drafts and time drafts: These documents are issues by the freight
forwarder on behalf of the company that is exporting goods. In short, the
purpose of these documents is to request payment from a foreign buyer

49
• Dock receipt: These documents are usually issues by ocean carriers to
acknowledge the receipt of a shipment at either the carrier’s warehouse or
dock. Usually, a dock receipt is issued when delivery of a foreign shipment
is completed (Niemann and De Villiers, 2022).
• Delivery instruction: This document is an instruction that explains to the
inland carrier precisely how they need to go about the transportation of the
goods in question (Niemann and De Villiers, 2022).
• Packing list: In some cases, there is a need to provide a separate packing
list that is compiled by the freight forwarder or exporter. Packing lists help
customers check whether the correct number of units is delivered. To aid in
this process, there are a number of forms of information included in a
packing list – some examples include the name and address of the seller,
the invoice number, quantity, and description of contents, to name but a
few (Niemann and De Villiers, 2022).
• Export declaration: This kind of export documentation is prepared by the
exporter or freight forwarder for any shipment that is valued in excess of a
specified amount. This formal statement declares the full details of goods
that are exported and made to customs at the port of exit (Niemann and
De Villiers, 2022).
• Letter of credit: Letters of credit are issued by banks and state that the
purchaser has been able to establish sufficient credit in the seller’s favour;
these financial documents also confirm that the payment will be made as
soon as certain documents are presented and found to meet certain
provisions (Niemann and De Villiers, 2022).
• Pro forma invoice: As a preliminary invoice this document is usually
produced before shipment, or before the buyer receives the firm’s order
• Commercial invoice: While this document is similar to a pro forma invoice,
it contains all of the final and accurate information pertaining to a specific
order (Niemann and De Villiers, 2022).
• Certificate of origin: These documents provide proof of the value and/or the
origin of the goods in question (Niemann and De Villiers, 2022).
• Insurance certificate: These documents are prepared by exporters and their
respective forwarders to show that the goods are insured against loss or
damage (Niemann and De Villiers, 2022).
• Transmittal letter: These letters are formulated to explain the purpose of a
shipment (Niemann and De Villiers, 2022).
• Validated export licence: The Department of Trade will issue this document
and authorises the export of a particular commodity to a specified foreign
country within a given timeframe (Niemann and De Villiers, 2022).

50
5.6.2 Import Documentation
As stated in the introduction to this section, we also need to be informed of the

different forms of import documentation. These documents are briefly listed
below and discussed in the prescribed textbook:
• Arrival notice
• Customs entries
• Carrier certificate and release order
• Delivery order
• Freight release
• Clearance certificate
• Import permit (Niemann and De Villiers, 2022).
Activity 5.5
Compile a table to represent the various kinds of export and import

documentation found within the global trade arena. Your table needs to include
a brief description of each kind of documentation indicated.
5.7 INCOTERMS
Keeping in mind that global logistics is defined as the design and management
of a system that directs and controls the flows of materials and goods into,
though, and out of a firm, across international boundaries, we will do well to take
note of a number of relevant differences that may exist between countries in
relation to logistics. Differences may be found with regard to language and
culture, as well as social customs and social laws, which all contribute to the
complexity of global logistics (Niemann and De Villiers, 2022).
To help companies manage these and other differences, the International
Chamber of Commerce developed what is known as the International Commercial
Terms (Incoterms) – these are a set of commercial terms used for defining costs,
risks, and obligations of sellers and buyers in international goods transactions
(Niemann and De Villiers, 2022). Since its inception in 1936, the Incoterms have
undergone a number of amendments, which all were essentially created for
people engaged in global trade and those who have a tough time understanding
them.

51
5.7.1 Use of Incoterms
While Incoterms seem to be an essential part of global trade, we cannot assume

that it will automatically be used in global trade. For one, both buyer and seller
need to state upfront that they will be using these terms for their transaction, as
well as which version thereof. Also, the named port of destination or named place
of destination has to be mentioned explicitly in the agreement. Although
Incoterms are not laws, but definitions, they do cover a number of important
areas; these include the costs, risks, and obligations associated with global trade
An Incoterms rule is said to assign cost and performance tasks that the
companies need to adhere to; these tasks become contractual responsibilities
the companies owe to one another. Further, the use of these rules and
agreements contribute to reducing misunderstandings between the role players
What is the purpose of the Incoterm rules in global logistics? Incoterm rules are
said to offer the involved parties a number of options, which are as follows:
• The seller’s minimum obligation to make the goods available to the buyer
• The seller’s extended obligation to hand over the goods for carriage
• The seller’s maximum obligation to deliver the goods at a destination
5.7.2 Grouping of Incoterms
When taking a closer look at Incoterms, there are two main categories we need
to consider. The table below offers an overview of the two Incoterms groups, and
the forms that each category may take.

52
Grouping of Incoterms
Group I – Any Mode or Group II – Sea and Inland
Modes of Transport Waterway Transport
To be chosen for wholly maritime or To be chosen for wholly maritime
partly non-maritime transport transport
• EXW – ex works (named place) • FAS (free alongside ship) – named
port of shipment
• FCA (free carrier) – named place • FOB (free on board) – named port
of shipment
• CPT (carriage paid to) – named • CFR (cost and freight) – named
place of destination port of destination
• CIP (carriage and insurance paid • CIF (cost, insurance, and freight) –
to) – named place of destination named port of destination
• DPUT (delivered at place
unloadedl) – named place of
destination
• DAP (delivered at place) – named
place of destination
• DDP (delivered duty payment) –
named destination
(Source: Niemann & De Villiers , 2022)
Activity 5.6
Read Section 13.7 in Niemann and De Villiers(2022).
Read the section on Incoterms and draw up a table to summarise the two groups
of Incoterms all role players may elect to use.

53
Summary
This chapter was dedicated to a number of aspects pertaining to global logistics.

The global business world emphasises the importance of sound logistics
strategies that make it possible for companies to operate across borders – to
make this happen, companies need to understand the global market as well as
those structures that support global logistics (Niemann and De Villiers, , 2022).
5.1 Explain the importance of global logistics from a South African

perspective.
5.2 A global study published by BVL suggested that a number of major
challenges lie ahead as the world becomes more complex; name the nine
key trends that were thus identified.
5.3 Compile a list of forces that shape the environment in which today’s
managers need to make decisions.
5.4 What is the difference between controllable and uncontrollable elements
in the context of global logistics?
5.5 Name and briefly discuss the various kinds of uncontrollable elements that
are said to influence the global market environment.
5.6 Name and briefly discuss the different kinds of controllable elements that
are said to influence the global market environment.
5.7 It is written that there are four main strategies organisations can use when
thinking about global distribution. Identify these main strategies and write
a summary to capture the essence of each strategy.
5.8 Write a definition to explain what the concept of distribution channel refers
to.
5.9 Identify and explain the categories into which channel intermediaries can
be broken.
5.10 Discuss the different kinds of export documentation people in the logistics
environment need to know about when exporting goods.
5.11 Explain the different kinds of documents companies need to use when
importing goods.
5.12 Provide a brief background to Incoterms and explain why companies may
decide to make use of this.

54
5.13 Incoterms can be divided into Group I and Group II respectively; indicate
for what application these groups are used and provide an overview of the
different terms associated with each group.

55
Topic 6
Controlling Logistics Performance
Prescribed Reading
Pienaar, W.J., Vogt, J.J. 2017:
• Chapter 21: Controlling logistics performance
6.1 INTRODUCTION

• Understand why the planning and control of logistics activities is a cyclical
process and not an n once-off event.
• Identify the ISO standards that are of importance in logistics management.
• Differentiate between the different types of performance measures, and
provide examples of performance measures that can be used to track
processes in various functional areas of logistics.
• Describe the steps involved in a benchmarking exercise.
• Identify the supply-chain-reference (SCOR) processes involved in any
supply chain.
• Understand the important role that business intelligence can play in supply
chain management.
This unit aims to equip learners with an understanding of the importance to

control logistics activities and explain standards, different performance
measures, processes and systems that play a role in performance measurement.
Activity 6.1
Read Section 21.1 in Chapter 21 in Pienaar and Vogt (2017).
Confirm that the definition of logistics refers to the control of the flow of goods,
services and information.

56
Monitoring and controlling logistics should mainly focus on:
• Efficient use of resources, ensuring that the required output is produced
with the minimum input.
• Controlling expenses incurred by logistics activities and ensure that money
is spent prudently and the budget is not exceeded
• Providing financial information for future feedback and use in planning,
costing and budgeting
6.2 THE PROCESS OF CONTROL
6.2.1 Definition of Control
Control is defined as a continuous, dynamic process of management in order to

achieve a business’s goals and objectives, involving all levels of management
throughout the organisation.
The goal of control in a logistics context is that profit must be maximised over
the long term while ensuring that customer service requirements are met,
subject to other organisational objectives.
Activity 6.2
Read Section 21.2.1 in Chapter 20 in Pienaar and Vogt (2017).
Identify the most important factors that influence the process of control and then
compare and contrast the difference in approach when controlling objectives in
a global context as opposed to achieving technical standards.
6.2.2 Planning and Control Cycle
Planning and control activities are a cyclical process aimed at continually

reviewing and revising plans, policies and operations.

57
Activity 6.3
Study the framework for the planning and control cycle and describe each
activity.
6.2.3 Characteristics of the Control Process and System
Control systems acts as triggers for management action. These control systems
must give attention to issues that are important from the organisation’s point of
view and can be identified as:
• Strategic control – aimed at achieving objectives of the organisation
• Tactical control – aimed at improving short-term organisational
performance
• Technical (or operational) control – aimed at performing according to
standards.
Activity 6.4
Distinguish between strategic control, tactical control and technical control by

writing a short paragraph on each.
6.2.4 Technical Control Systems
The technical control system is a dynamic process aiming to ensure that specific
tasks are carried out efficiently and to achieve efficiency standards at supervisory
levels of management.
Technical control systems therefore deals with the conversion process (both
quantity and quality) of a product manufactured or service provided within a
specific time frame.
Technical control monitors actual output of the physical process and variances
from expected or standard performance targets serve as triggers to implement
corrective action.

58
The aspects that must be incorporated into a technical control system are:
• Yardsticks: statistical units
• Standards: measures of performance
• Range of satisfactory performance
• Frequency of measurement
• Reporting system
Activity 6.5
Prepare a short summary of each aspect that must be incorporated into a

technical control system and then write an essay to show your understanding of
this topic.
6.3 THE CONCEPT OF QUALITY
An important principle to keep in mind is that the concept of quality is very closely
related the goal of achieving optimal customer service in logistics.
Quality is the result of a well-organised system, in which the processes are

managed in a systematic and formalised way. Total Quality Management (TQM)
and ISO 9000 are two systems of control that are often used in logistics control.
Another methodology that is also used is Six Sigma, which is aimed at improving
a company’s operational performance by eliminating defects in manufacturing
and service-related processes.
6.3.1 Total Quality Management (TQM)
TQM is a philosophy and set of principles that can be applied to any business
process or activity to achieve continuous improvement in an organisation.
Activity 6.6
Define TQM and list the principles on which TQM are based.

59
The TQM principles are:
• Customer focus and customer involvement
• Involvement of all employees
• Process-orientated
• Consistency of purpose
• Act according to facts
• Focus on continuous improvement
The problem-solving discipline (PSD) is a methodology contained in TQM for the

systematic, gradual and team-based solving of problems.
Activity 6.7
Draw a diagram to illustrate the PSD methodology and summarise the steps. List
the techniques that can be used during a successful PSD process.
6.3.2 ISO 9000
The International Orgnization for Standardization (ISO) is the world’s largest

developer of standards. International standards provide a reference framework
or common technological language between suppliers and their customers, which
facilitates trade and transfer of technology.
The benefit of the adoption of ISO standards is that suppliers that adopt these
standards in development of their products and services can compete in markets
around the world as it gives customers assurance about quality safety and
reliability.
Activity 6.8
Read Section 21.3.2 in Pienaar and Vogt (2017)
Summarise the purpose of ISO9000 and ISO14000 respectively.
6.4 PERFORMANCE MEASUREMENT
Traditionally performance measurement systems were dominated by financial

measures because it was easily obtainable from the accounting system.

60
With the development of logistics information systems and automatic data
capturing, operational data became more readily available so non-financial
performance measures have gained in importance.
6.4.1 Definition, Objectives and Purpose of Performance Measurement
Business performance refers to the efficiency (economic use of resources),

effectiveness (meeting requirements from the environment) and adaptability of
a business.
Performance measurement is defined as the process of quantifying strategic,

tactical and operational actions. A performance measurement system is a set of
performance measures used to quantify actions.
Activity 6.9
List the purposes of a performance measurement system.
6.4.2 Types of Performance Measures
According to Pienaar & Vogt, differentiate Rolstadas between hard and soft
performance measures, financial and non-financial performance measures, and
develops a model for performance measurement based on the three dimensions
of performance (efficiency, effectiveness and adaptability).
Activity 6.10
Create a list of financial and non-financial performance measures.
The performance measurement model described in the textbook refers to the

three dimensions of performance as achievement, diagnostic and competence
performance measures. A business must have a balanced mixture of these
measures to ensure that it has a good indication of past, present and future
performance.

61
Activity 6.11
Differentiate between the dimensions of performance measurement as

mentioned in the textbook and illustrate your answer with examples.
6.4.3 Hierarchy of Performance Measures
Organisational performance and supply chain performance should be closely

aligned. By first applying the performance measures at the highest level of the
organisation and then cascading it down through the tactical and operational
levels this close alignment between the organisation and supply chain will be
obtained.
Performance measures form a hierarchy within the supply chain. To measure

supply chain reliability, an organisation could choose to measure the ”Perfect
Order Fulfilment” – the percentage of orders that meet delivery performance with
complete and accurate documentation and no damage during delivery.
Activity 6.12
Study the hierarchy of “Perfect order fulfillment” in the textbook.
6.4.4 Logistics Performance Measures
Logistics performance measures are established to track certain processes within

the logistics framework.
The process to establish performance measures starts with the definition of the
system that needs to be measured and the identification of its components. When
the functional requirements of the system have been determined, a set of
performance measures that can quantitatively measure the functional
requirements must be identified.
In the logistics environment, the generic measures are those that measure cost,
customer service, quality, productivity, and asset management.

62
Activity 6.12
Create a list of performance measures identified in the textbook and link it to the
areas of logistics management that you have studied up to this point.
6.5 BENCHMARKING
Benchmarking is an exercise wherein the performance of the organisation is

compared to those of the industry/competitors.
During the benchmarking process an organisation’s strategies, systems and/or

operating performance are compared with best-in-class organisations, or
compared with direct industry competitors with the intention to develop best
practices in within the organisation.
Activity 6.13
Read Section 21.5 in Pienaar and Vogt (2017)
Write an essay to illustrate your understanding of the benchmarking concept and

its application to controlling of logistics performance. You should define the
concept, refer to the characteristics of benchmarking, the partners for
benchmarking and summarising the steps when conducting a benchmarking
exercise.
6.6 THE SCOR MODEL
The concepts of business process re-engineering, benchmarking and process

measurement are integrated into a cross-functional framework known as the
Supply Chain Operations Reference (SCOR) model. This model was developed by
the Supply Chain Council.
The latest version of SCOR is version 11. The section below is an extract from
the SCOR Quick Reference Guide v.11 as published by APICS SCC (2017).

63
“The Supply Chain Operations Reference (SCOR®) model describes the
business activities associated with all phases of satisfying a customer’s
demand. The model itself is organized around the six primary management
processes of Plan, Source, Make, Deliver, Return and Enable. Using these
process building blocks, the SCOR model can be used to describe supply
chains that are very simple or very complex using a common set of
definitions across disparate industries.
Today public and private organizations and companies around the world use
the model as a foundation for global and site-specific supply chain
improvement projects.
SCOR spans all customer interactions (quote to cash), all physical material
transactions (procure to payment, including equipment, supplies, spare
parts, bulk product, software, etc.) and all market interactions
(manufacturing, from the understanding of aggregate demand to the
fulfillment of each order).
The model is designed and maintained to support supply chains of various

complexities and across multiple industries. The model focuses on three
process levels and does not attempt to prescribe how a particular
organization should conduct its business or tailor its systems or information
flow.”
SCOR recognises that there are five main areas within which supply chains
compete. These are referred to as performance attributes. According to APICS
the performance attributes of a supply chain permit it to be analysed and
evaluated against other supply chains with competing strategies. SCOR identifies
five core supply chain performance attributes:
• Reliability
• Responsiveness
• Agility
• Costs, and
• Asset Management.
Without these characteristics it is difficult to compare an organisation that

strategically chooses to be the low-cost provider against an organisation that
chooses to compete on reliability and performance.
A few hundred performance measures have been developed by the SCC to

measure the achievement of goals relating to each performance attribute.

64
Activity 6.14
Download your own copy of the SCOR Quick Reference Guide v11 from the APICS
website for future use.
SCOR proposes the use of supply-chain thread diagrams to illustrate how the
SCOR configurations can be done. Each thread consists of linked plan, source,
make, deliver and return processes and is used to describe, measure and
evaluate supply chain configurations. The steps to perform this process is
described in the textbook and once it is completed, will provide a process map
that can be used to evaluate and understand the organisation’s supply chain.
6.7 BUSINESS INTELLIGENCE
Business Intelligence (BI) is described as the utilisation of software programs to

collect, integrate, analyse and present business information from various sources
with the purpose of better decision-making.
The use of BI has expanded to the use of advanced analytics for forecasting,
optimisation and other decision-support techniques.
The foundation of BI solutions is the data warehouse where data from different
sources are brought together. This data can be queried to display specific results.
Within the supply chain context, an organisation has access to a variety of data,
such as supply chain data in the enterprise resource system, warehouse
management system, order processing system, and tracking systems of its
transport providers.
Dashboards are reporting tools that consolidate, aggregate and arrange

performance measures, indices, charts, graphs and even maps in a single screen
so that the information can be monitored at a glance. BI reports are an
automated way of rendering information requested from existing data with some
level of formatting and added calculations.

65
Data needs to be accurate, consistent, complete and valid for it in order to be
usable. The validity and usefulness will depend on the quality and availability of
the supply chain data.
Activity 6.15
Describe how BI can be applied in a supply chain context. Refer to available

systems and reporting methods as well as the requirements to ensure validity
and usefulness of the reports.

66
Summary
An organisation must ensure that all its resources are used as efficiently and
effectively as possible to ensure that it remains competitive. By monitoring and
controlling the logistics performance the logistics-related costs are kept under
control.
Monitoring and controlling also involves comparing the organisation to other

organisations through a process of benchmarking.
Controlling can take place at strategic, tactical and operational level.
The management of quality in the supply chain takes place through application
of TQM and ISO standards.
The SCOR model enables organisations to map their supply chains before
measuring the performance of the various process activities.
6.1 Explain why the planning and control of logistics is a cyclical process.
6.2 Which of the following in your opinion offers a higher quality of service if
you wish to travel to the airport:
6.2.1 A limousine service
6.2.2 A municipal bus service
6.2.3 High-speed train service
6.3 What are the potential benefits of dealing with an ISO9000 supplier?
6.4 Why is it necessary for an organisation to implement and use a logistics
performance measurement system?
6.5 What are the advantages and disadvantages of using internal colleagues
and industry competitors as partners in a benchmarking exercise?
6.6 SCOR defines supply chain management as the integration of five types
of basic processes that takes place within a supply chain.
Identify and describe these five processes.

67
References
APICS. 2015. SCOR Quick Reference Guide v.11. Available online:

www.apics.org/apicsscc. Accessed on: 17 March 2017.
CSIR. 2014. 10th Annual State of Logistics Survey for South Africa 2013. [ISBN:
978-0-7988-5616-4]. Available online: www.csir.co.za/sol
De Villiers, G., Nieman, G., & Nieman, W. (Editors) 2017. Strategic Logistics
Management: A supply chain management approach. 2nd ed. Pretoria: Van
Schaik Publishers (Pty) Ltd.
Havenga, J.H., De Bod, A., Simpson, Z.P., Viljoen, N. & King, D., 2016, ‘A
Logistics Barometer for South Africa: Towards sustainable freight mobility’,
Journal of Transport and Supply Chain Management 10(1), a228. Available
online: http://dx.doi.org/10.4102/jtscm.v10i1.228
Pienaar, W.J. & Vogt, J.J. 2017. Business Logistics Management. 5th ed. Cape
Town: Oxford University Press Southern Africa (Pty) Ltd.
Stellenbosch University. 2015. Logistics Barometer South Africa 2015.

[ISBN: 978-0-620-65997-0] (e-book). Available online:
www.sun.ac.za/logisticsbarometer

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Logistics Management II

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©STADIO Assignment – 2024 Semester 1 LOG201 Logistics Management 201

The company acknowledges that it is struggling with imprecise demand forecasts,

AMPS EV had a disjointed and time-consuming product return process. Customer

©STADIO Assignment – 2024 Semester 1 LOG201 Logistics Management 201

2.1. Describe how operations management can be a source of sustainable

Question 3 (15 marks)

3.1 From a strategic logistics management perspective, explain which customer

Question 4 (14 marks)

Question 5 (18 marks)

5.1 Describe the factors AMPS EV has control over. (10)

Assignment Total: 75 Marks

©STADIO Assignment – 2024 Semester 1 LOG201 Logistics Management 201

Heading Page number

MODULE PURPOSE AND OUTCOMES 1

TOPIC 2 OPERATIONS AND MANUFACTURING 12

TOPIC 3 CUSTOMER SERVICE 20

TOPIC 4 LOGISTICS INFORMATION SYSTEMS 35

TOPIC 5 GLOBAL LOGISTICS 41

TOPIC 6 CONTROLLING LOGISTICS PERFORMANCE 56

Welcome to Logistics Management II (LOG201)!

Module Purpose and Outcomes

1. Understand important aspects related to the management of inventory.

© STADIO (Pty) Ltd Logistics Management II LOG201

After completing this topic, you should be able to:

Proper inventory management is very important for organisations due to the

Read Section 5.1 in Chapter 5 in Niemann et al (2022).

1.2 THE PURPOSE OF INVENTORY