CHAPTER ONE

AN OVER VIEW OF LOGISTICS

AND CHANNEL MANAGEMENT

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 INTRODUCTION
INTRODUCTION

 Logistics in the business world have developed fast in

the last twenty years.
 Logistics is unique it never stops! Logistics is
happening around the globe, twenty-four hours of every
day, seven days a week during fifty-two weeks a year.
 Logistics is concerned with getting products and
services where they are needed and when they are
desired.
 The term logistics is not specific to the business or
public sector. The basic concepts of logistical
management are applicable throughout private and
public enterprise activities. 2
 DEFINITION OF LOGISTICS AND LOGISTICS
MANAGEMENT
 Logistics is
 the art of managing the supply chain and science of managing and
controlling the flow of goods, information and other resources
between the point of origin and the point of consumption in order to
meet customers' requirements.

 Process of moving and handling goods and materials, from the

beginning to the end of the production, sale process and waste
disposal, to satisfy customers and add business competitiveness.

 Process of anticipating customer needs and wants; acquiring the

capital , materials, people, technologies, and information necessary
to meet those needs and wants; 3
 Christopher gives the following definition of business logistics:
 “Logistics is the process of strategically managing the procurement,
movement and storage of materials, part and finished inventory (and
the related information flows) through the organization and its marketing
channels in such a way that the current and future profitability are
maximized through the cost-effective fulfillment of orders.”
 The European Committee for Standardization CEN (Comite´ Europe
´en Normalisation) defines
 Logistics as the planning, execution and control of the movement and
placement of people and/or goods and supporting activities related to such
movement and placement, within a system organized to achieve specific
objectives.”

 Here, the term system is to be understood as a dynamic unit of

interconnected elements and subsystems, connected with each other in
specific relations. These elements and subsystems form the system
structure and by virtue of their interaction with each other result in the4
system behavior.
 The purpose of logistics is to plan, organize, coordinate, and
implement the bridging of the dimensions of time and space within a
system.
 Business logistics has the objective of providing the customer with
the desired levels of customer service. The logistics customer-
service goal is to provide the right goods and services, at the right
place, at the right time, and in the desired condition, at the lowest
possible cost.
 business logistics is the study and management of goods and
services flows and the associated information that sets these into
motion.
 Overcoming time and distance in moving goods or delivering services
in an effective and efficient manner is the task of the logistician.
 More memorably, the mission of the logistician is to get the right
goods or services to the right place, at the right time, and in the desired
condition at the lowest possible cost. 5
 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.

1.3 Role and Importance of logistics

1.3.1 Role of Logistics
 Remember the What, Where, When and Why of the economic utilities

 What – Form Utility;- Refers to the value added to goods through a

manufacturing , production or assembly process. For example,
breaking bulk and product mixing changes a product’s form by
changing its shipment size packaging characteristics
 Where – Place Utility;- Logistics extends the physical boundaries of
the market area, thus adding economic value to the goods. This 6
addition is known as place utility
 When – Time Utility;- Goods and services must be available when
customers demand them. By having goods and services available when
it is needed creates time utility
 Why – Possession Utility;- Possession Utility is primarily created by
the marketing activities related to the promotion of goods and services.
It increases the desire in a customer to possess a good or to benefit
from a service.
1.3.1 The Importance of Logistics/Supply Chain
 Maintaining competitive edge;-logistics provide a competitive edge
against other organizations. A business should strive to provide
shipments of merchandise in a more accurate and fast manner than
competitors do. The Internet has made it possible for many companies
to do this.
 Building Good Consumer Relations;- Providing product in an
efficient manner, which business logistics helps to do, also helps to
build good consumer relations. 7
 Creating Finished Product;- A business needs to ensure there
are enough raw materials available to make finished products.
Without quality goods, a business cannot make quality product.
Having enough products stocked is also necessary for supply and
demand purposes and to maximize customer satisfaction

 Value;- According to studies conducted for the US economy,

logistics costs rank second only to the cost of goods sold. Value is
added by minimizing these costs and passing the benefits to the
customer and the firm’s shareholders.

 Impact on cash earnings;- Shareholder Value is represented by

Profitability (which is a relation of Revenue and Cost) and
Invested Capital (represented by Working Capital and Fixed
Capital). 8
1.4.1 SYSTEMS CONCEPT AND ITS
COMPONENT

 Logistic system; - Is made up of a set of facilities linked by

transportation service. Facilities are sites where materials are
processed e.g manufactured, stored, sorted, sold or consumed.
Transportation service move materials between facilitates using
vehicles and equipment such as trucks, tractors, trailers, crews, pallets,
containers, cars and trains.

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LOGISTICS SYSTEM AND IT
COMPONENTS
Packagin
g
order Warehou
processing sing

material logistical
handling system

transportatio
n
Inventory
10
management
1.4.2 COMPONENTS OF LOGISTICS SYSTEM

1. Inventory Management
 It deals with balancing the cost of maintaining additional products on
hand against the risk of not having those items when the customer wants
them (i.e. the cost of lost sales).
 The challenge in this situation is to manage the rest of the logistics
system to accommodate the lack of inventory so that customer service
does not suffer.
 So managers have to decide, whether they need additional products in a
given market and, if so, how many of which items.
2. Transportation
 refers to the physical movement of goods from a point of origin to a
point of consumption. It can involve raw materials being brought
into the production process and/or finished goods being shipped11 out
to the customer.
 cont.d
 Transportation has assumed a greater role in many logistics systems for two
reasons.
 First, the liberalization of transportation laws in many countries has
provided opportunities for knowledgeable managers to obtain better service
at lower prices than they could in the past.
 Second, as inventory levels have dropped in response to the popularity of
just-in-time (JIT) strategies, transportation is frequently used to offset the
potentially damaging impact on customer service levels that would
otherwise result from those inventory reductions.

3. Material handling
 Materials handling is concerned with the movement of goods within
the store (space).
 It would focus on the systems needed to move goods into, through,
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and out of each facility.
CONT.D
4. Order processing
 Processing the order received from the customers is an activity, which is very
important by itself and also consumes a lot of time and paper work.
 It involve steps like checking the order for any deviations in the agreed or
negotiated terms, price, payment and delivery terms, checking if the material
is available in stock, producing and scheduling the material for shortages,
and also giving acknowledgement to the owner, by indicating any deviation.
5. Packaging
 Packaging focuses on protecting the product while it is being shipped and
stored. Too much packaging increases costs while inadequate protection can
result in merchandise damage and ultimately, customer dissatisfaction.
 Furthermore, since every bit of packaging is ultimately discarded, logistics
managers must also consider the societal costs associated with waste disposal.
Increasingly, firms are working to develop materials that provide requisite levels
of protection yet are recyclable or quickly biodegradable.
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CONT.D

6. Warehousing
 This serves as the place where the finished goods are
stored before they are sold to the customers finally.
 This is a major cost center and improper warehouse
management will create a host of problems.

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 The Output of Logistic System
 Product availability
Percentage in stock

 Order cycle time

Elapsed time from order placement to order receipt

 Distribution system flexibility

Response time to special request

 Distribution system information

Speed, accuracy of response

 Post-sale product support

Response time in providing product support

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1.4.3 LOGISTIC COST MANAGEMENT

 logistic costs are the costs concerning all activities from attempting
to provide a product to the moment it is delivered to the customer
and they are composed of the costs of storage, packaging, preparation
for shipment, transportation, assembling and all relevant service costs
and the costs of preparing in voice, transaction recognition and
collection.

 logistic cost management is the preparation of product based cost

and income analysis of the planned logistic activities. Logistics
management has two dimensions for the market (external
environment) in one aspect and for the enterprise (internal
environment) in another aspect. 16
1.5 FOUR KEY AREAS OF INTERFACE BETWEEN
LOGISTICS AND CHANNEL MANAGEMENT

Interface 1: Defining logistics service standards

 Key issue for Channel Manager: Determining precisely the types
and levels of logistics service desired by channel members.
Interface 2: Evaluating the logistics program;- It included as a major
component of the manufacturer’s overall approach for supporting
channel member needs, the logistics program may be the key feature
of a strategic alliance.
 Key issue for Channel Manager: Ensuring that the program the
experts prepare is what the channel members want.
Interface 3: Selling the logistics program to the channel members:-
Minimizing out-of-stock occurrences, Reducing channel member
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inventory requirements and Strengthening the manufacturer-channel
member relationship
CONT.D

 Key issue for Manufacturers: Extending superior logistics

capabilities to help channel members improve their
logistics and marketing capabilities.

 Interface 4: Monitoring the logistics system

 Logistics systems must be continually monitored, both in
terms of how successfully they are performing for the
manufacturer and how well they are meeting changing
channel member needs.
 Key issue for Channel Manager: Continually monitoring
the channel members’ reactions to logistics programs. 18
Never Play With The Feelings Of Others
Because U May Win The Game But The Risk
Is That U Will Surely Lose The Person For A
Life Time".
Shakespeare.

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