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Principles of Logistics Management

Diploma in Logistics Management

Principles of Logistics Management


Chapter 1 The Role of Logistics in the Economy and Organization

Why study Business Logistics?


Wide career prospect Manufacturing & trading firms Service firms e.g. 3PL, freight forwards Learning institutions Government agencies Other service institutions e.g. restaurants, hospitals, etc

Logistics Management
The process of planning, implementing and controlling the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements. Council of Logistics Management
a leading organization for logistics professionals

Logistics Management
many names including:

Business logistics Channel management Distribution Industrial logistics Logistical management Materials management Physical distribution Quick-response systems Supply chain management Supply management

Components of Logistics Management

Systems Approach/Integration
Logistics is, in itself, a system It is a Network of activities with the purpose of managing the orderly flow of materials and personnel within the logistics channel.

The system approach


All functions or activities need to be understood in terms of how they affect, and are affected by, other activities. The sum, or outcome of a series of activities, is greater than its individual parts. Eg. High inventory level good or bad? -Bad: warehouse cost, obsolete, cash flow, insurance, currency fluctuation -Good: support demand

Logistics role in the Economy

Logistics is an important component of GDP Adds value by creating TIME and Place Utility(value)

Logistics role in the Organization


Supports Marketing Marketing management philosophy holds that achieving organizational goals depends on determing the needs and wants of target markets and delivering the desired satisfactions more effectively and efficiently than competitors.

Marketing/Logistics Management Concept


Customer Satisfaction 1.Suppliers 2.Intermediate customers 3.Final customers

Integrated Effort 1.Product 2.Price 3.Promotion 4.Place(distribution)

Company Profit 1.Maximize long-term profitability 2.Lowest total costs given an acceptable level of customer service

4 Ps of the Marketing Mix


Products- the set of utilities or characteristics a customer receives as a result of a purchase
(quality, features, customer service, warranty)

Price- the amount of money a customer pay for a product or service


(discount, rebates, customers)

Promotion- a product or service encompasses both personal selling and advertising Place- component of the marketing mix support the levels of customer service provided by the organization

Cost Trade-offs Required in Marketing and Logistics

Role of logistics in the Organization


Logistics Types of Utility
Form utility Manufacture Production or Operations process The value of making materials available in a completed state Possession/ utility Value added to a product allow the customer take ownership

Role of Logistics in the Organization


Logistics Types of Utility Time utility value created by making product or service availability when it is needed Place utility value created or added to product or service availability where it is needed

Role of Logistics in the Organization


One way of viewing the Major Costs of Doing Business Profit $0.04 Logistics Costs $0.21 = Time& Place utility Marketing Costs $0.27 = Possession utility Manufacturing Costs $0.48 = Form utility

Role of Logistics in the Organization


Profit Leverage provided by Logistics Cost Reduction If net profit on the sales dollar is 2% then A Savings of $0.02 $2.00 $200.00 $2,000.00 $20,000.00 is Equivalent to a Sales increase $1.00 $100.00 $10,000.00 $100,000.00 $1,000,000.00

Logistics role in the Organization


Logistics is a Proprietary Asset It is similar to a tangible asset on a firms books It cannot be readily duplicated by the firms competitors If a company can provide its customers with products quickly and at low cost, it can gain market share advantages over competitors

Logistics allows efficient movement to the customers


7 Rights of Logistics Move the Right Materials/Products In the Right Quantity In the Right Condition At the Right Time To the Right Place At the Right Cost To the Right Customers, Associates, Suppliers and Stockholders.

The Logistics Evolution


Fragmentation1960
Evolving Integration 1980 Total Integration2000

Factors Impacting the Development of Logistics


Advances in Computer Technology Quantitative techniques Development of the systems approach Total cost analysis concept Recognition/ of logistics role Erosion of firms profits Profit leverage Economic condition

Key Logistics Activities


Customer Service Demand forecasting planning Inventory management Logistics Communications Material handling Order processing Packaging
Parts & Service Support Plant & warehouse site selection Procurement Return goods handling Reverse logistics Traffic & transportation Warehousing & storage

Key Logistics Activities


Customer Service -Customer oriented philosophy -Optimum costservice mix -Output of logistics system -Customer satisfaction