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Learning Objectives
Understand the role and importance of logistics in
private and public organizations
Appreciate the impact of logistics on the economy
and how effective logistics management
contributes to the economy
Understand the value-added roles of logistics
Define logistics systems from several perspectives
Dimensions of Logistics
Drucker – 1962 “The Economy’s Dark Continent”
◦ Distribution is one of the most sadly neglected but most
promising areas of American business…
15-25% of the cost of manufactured components
goes to cover expenses before it hits the assembly
Origins date back to the military around WWII –
Gulf War regarded as a ‘logistics war;
Definition of Logistics

That part of the supply chain process that

plans, implements, and controls the efficient,
effective flow and storage of goods, services
and related information from the point of
order to the point of consumption in order
to meet customers’ requirements
Seven R’s of Logistics
Ensuring the availability of the
◦ Right product
◦ Right quantity
◦ Right condition
◦ Right Place
◦ Right time
◦ Right customer
◦ Right cost
Change in Logistics
Emphasis on Quality and meeting customer

Change – influence of large buyers such as Wal-Mart

Increasing sophistication of all buyer types –industrial

and consumer
Macro Perspective
Logistics has relationship with economy:
Cost of business logistics increasing
Percentage of GDP decreasing
Transportation largest percentage of logistics costs
(rising due to inventory management practices)
Macro Perspective
Logistics adds value to a product
Place utility - moving goods to points where
demand exists
Time utility - moving goods to points at a specific
Allows for economic development and
Affects land values due to increased accessibility
Micro Perspective
Interfaces with production in determining the
length of the production run
Interfaces with marketing in selling the product
◦ price - size, quantity
◦ product - dimensions, packaging
◦ promotion - inventory, channels
◦ customer service
Relationship with all areas of a company
Logistics Activities
Transportation - physical movement or flow of
Storage - inventory management and warehousing
Packaging - affected by product and transportation
Materials handling - movement in, from, and within
a warehouse
Logistics Activities
Order fulfillment - completing customer orders, affects lead time
Forecasting - predicting inventory necessary to fulfill customer demand
Production planning - product necessary to cover market
Purchasing - procurement of supplies, affects transportation
Approaches to
Analyzing Logistics
Materials Management versus Physical
◦ Balanced System
◦ Heavy Inbound
◦ Heavy Outbound
◦ Reverse Systems

Cost centers
◦ Trade offs
Approaches to
Analyzing Logistics
Nodes versus links
◦ nodes - points where goods stop for
◦ links - transportation connecting nodes
Logistics Channels - network of intermediaries
that contribute to efficient flow of goods
Logistics and Systems
System - is a set of interacting elements, variables,
parts or objects that are functionally related to one
another and that form a coherent group.
Optimization –always the best alternative
Logistics and Systems
Levels of optimality
◦ Delivery timeframes

Functional relationships
◦ Interdepartmental cooperation

Logistics System
Short-Run/Static Analysis
◦ Look at short run situation and select the system with the lowest overall cost.

Long-Run/Dynamic Analysis
◦ Mathematically calculate the point of equality between the two systems
Factors Affecting the
Cost and Importance of
Competition via customer service
◦ Order Cycle
◦ shorter order cycle, less inventory required
◦ Substitution
◦ more substitutable product, higher customer service level required
◦ Inventory Effect
◦ increase inventory, reduce cost of lost sales
◦ Transportation Effect
◦ increase transportation costs, reduce cost of lost sales
Factors Affecting the
Cost and Importance of
Product factors
Dollar Value - product value increases, cost of
warehousing, transportation and inventory
Density- higher the density, more efficient use of
warehouse and transportation space
Damage -greater the risk of damage, higher the
transportation and warehousing cost
Special Handling Requirments