LOGISTICS MANAGEMENT

Integrated logistics and the supply

chain
 Integrated logistics and the supply chain

• In this chapter, the emphasis is on the

integration of the various distribution and
logistics components into a complete working
structure that enables the overall system to
run at the optimum.
 Objectives of logistics
• The primary purpose of logistics is to provide
availability. That is, ensure the provision of the
right product in the right place at the right
time.
• It also aims at achieving the above at least
cost
• To reduce conflict & promote cooperation and
coordination between the sub systems
• Control &, where possible, reduce inventory of
materials, WIP, & finished goods to provide
stock levels at which the costs of stock holding
are balanced by production requirements and
customer service
 Cont,
• Reduce the time spent at every stage of the
chain from procurement to delivery to the
customer, i.e. lead time, production time,
transportation time;
• Ensure the highest possible level of customer
service and satisfaction by achieving the right
combination of product availability and
dependability;
• Encourage a commitment to quality
improvement so that both bought-out
supplies and the products in which they are
incorporated are right first time, every time.
 The total logistics concept
• In the first lesson we saw that logistics is made
up of different functions which are part of a
flow process.
• This time we shall find out how to integrate
the various distribution and logistics
components into a working structure that
enables the overall system to run at an
optimum thus the concept of TOTAL
LOGISTICS.
 Cont,
• TLC aims to treat the many different elements that
come under logistics and distribution as one
integrated system.
• It’s recognition of the interrelationship between
different elements (e.g. order processing, transport
and storage) need to be considered within the context
of the broader Supply Chain. Therefore the total
system should be considered and not just the
individual element alone.
• Look at it as a bike which cannot operate in isolation.
• A company produces plastic toys that are packaged in
cardboard boxes. These boxes are packed on to wooden
pallets that are used as the basic unit load in the warehouse
and in the transport vehicles for delivery to customers.
• A study indicates that the cardboard box is an unnecessary
cost because it does not provide any significant additional
protection to the quite robust plastic toys and it does not
appear to offer any significant marketing advantage. Thus,
the box is discarded, lowering the unit cost of the toy and so
providing a potential advantage in the marketplace.
• A company produces plastic toys that are packaged in
cardboard boxes. These boxes are packed on to wooden
pallets that are used as the basic unit load in the warehouse
and in the transport vehicles for delivery to customers.
• A study indicates that the cardboard box is an unnecessary
cost because it does not provide any significant additional
protection to the quite robust plastic toys and it does not
appear to offer any significant marketing advantage. Thus,
the box is discarded, lowering the unit cost of the toy and so
providing a potential advantage in the marketplace.
• This is a classic example of sub optimization concerning
relationship of logistics elements in determining costs of
tradeoffs. As far as packaging is concerned, they think
they’ve done their job by removing the cardboards and yet
the overall effect on logistics is a negative one. It’s therefore
imperative that a logistics professional identifies and
determines costs tradeoffs which will benefit the logistics
system as a whole. Such tradeoffs may mean additional
costs in one function but greater cost savings in another.
• Therefore one needs to be prepared to make tradeoffs in
logistics.
• A tradeoff is a swap, exchange or substitution.
• Within the distribution components; those tradeoffs
that occur within single functions, e.g. a decision to
use random storage locations rather than fixed storage
location in a depot.
• Between distribution components; between the
different elements in distribution, a Company may opt
to increase strength thus cost of packaging and yet it
would save through improvements in warehousing
and storage e.g. through block stacking than racking
• Between company functions; there a number
of areas of interface between a Companies
functions where tradeoffs can be made. E.g. a
tradeoff between optimizing productions runs
lengths and the associated warehousing costs.
Long runs means lower unit costs but high
storage/ inventory costs while short runs
mean higher unit costs but meager inventory
costs.
• Between a Company and external
organizations; where a trade off can benefit
Companies associated with each other e.g.
instead of direct delivery to retailer it’s sent to
a retailers distribution depot network leading
to savings for both companies.
• This will be mainly with your downstream
partners.
 Planning for distribution and logistics

• In order to achieve the TLC and suitable trade

offs it essential that a positive planning
approach is adopted.
• Planning should be undertaken according to a
certain hierarchy that reflects the different
planning horizons
• The different levels of planning needed here
are strategic, tactical and operational which
will lead to better planning and control.
• There is an interrelationship between planning
and control.
• One way to envisage the difference between
these two concepts is as follows: planning is
about ensuring that the operation is set up to
run properly – it is ‘doing the right thing’ or
preparing for and planning the operation
‘effectively’
• Control is about managing the operation in
the right way – it is ‘doing the thing right’ or
making sure that the operation is being run
‘efficiently’.
• Logistics elements must be planned correctly
then monitored and controlled to ensure
smooth operations. Failing to plan is planning
to fail.
 Major functions of different planning/
horizations
• Strategic. Medium to long term, 1 to 5 yr,
structural decisions, trade offs in functions,
policy decisions. E.g. customer service,
distribution channels, product locations,
depot types Number and locations, transport
modes, 3rd party services
• Tactical. Short term to medium, 6 months to 1
yr, sub-system decisions are made, annual
budgets transport, vehicle type, routes,
contract hire, delivery schedule, driver
resources, storage, design & layout, space
allocation, handling method, unit loads,
administration/ information, information
support systems, monitoring systems, order
processing documentation
• Operational. Day to day, control via weekly
monthly reports, implementing operational
plans. order picking, bulk storage, goods
receipt & checking, stock update, vehicle
maintenance, stock replenishment etc
 Planning cycle
• The planning and control of an operation can
be described within the context of the
planning cycle, which emphasizes the need for
a systematic approach with continual review
of the process. Emphasis is put on continual
review due to the dynamic nature of logistics
today e.g. changes in customer requirements,
demand patterns keep changing etc.
• Where are we now? To determine current position
through information feedback or through a logistics
audit, market research, questionnaires etc.
• Where do we want to be? Determine logistics
objectives, need to be related to customer service
requirements and marketing decisions. This is at
times embedded in the firm’s vision or mission
statement. It shows what the company wants to
achieve
• How are we going to get there? Planning through all
levels, strategic, tactical and operational. This looks at
the planning process.
• How do we know when we have arrived? Monitoring
and control to measure the effectiveness of the
operation. This can be through a performance appraisal
to know how far you have gone and determine whether
you have experienced a strategic drift.
• The cycle is now a circle and begins again with continued
review and revision of plans , policies and operations
 Planning cycle decisions
• Transportation
– rate and contract negotiation
– mode and service selection
– routing and scheduling
• Inventories
– finished goods policies
– supply scheduling
– short term forecasting
• Warehousing
– private vs. public
– space determination
– warehouse configuration
– Stock layout and dock design
– stock placement
– Cross-docking
• Facility Location
– determining location, number
and size of facilities
• Allocating demand to facilities
• Customer Service
– determining customer wants
– determining customer response to service
changes
– Materials Handling
– equipment selection
– equipment replacement
– order picking procedures
– Packaging design
• Order Processing
– order procedure determination
– Production Scheduling
– aggregate production quantities
– sequencing and timing of production runs
 The financial impact of logistics
• Logistics can have a positive or negative
impact especially on the finances of an
organisation
• Organizations use return on investment
( ROI) as the measure of success. This is
determined by several variables profit &
capital employed upon which logistics directly
impacts
Profit
• Is determined by sales and costs which in turn
are determined by logistics

• Sales; service levels, customer relationships,

after sales

• Costs; inventory holding, storage, transport,

depot location, labor efficiency, obsolescence.
 Capital employed

• The capital includes, Inventory; raw material,

Components, WIP, Stock location, Inventory
control, EOQ systems.
• Cash and receivables; Cash to cash cycle,
Order cycle time, invoice accuracy.
• Fixed assets; Warehouses, depots, transport,
outsourcing, network optimization.
• Question;
For an organization of your choice, discuss
how logistics will have a bearing on it’s
financial position
 Globalization
• One area that has seen significant changes is
the shift to operate in the global market. This
can be seen locally with Ugandan firms
exporting to the European Union & the rest of
the world. Also importing from the world
over.
• This means that Companies have to get
involved in global sourcing, global branding,
global production, centralization of
inventories and centralization of information.
Consequences of global sourcing?
• This means having more expansive and
complex networks which calls for proper
planning, managing and controls.
• Complexity provides some significant
implications for logistics operations.
• These include:
i. extended supply lead times/ floods cutting of
roads
ii. production postponement with local added value
iii. complicated mode management
iv. multiple freight transport options
v. extended and unreliable transit times
vi. the need for greater visibility in the supply chain.
The implications of globalization will be
1. Extended supply lead times
2. Extended & unreliable transit times
3. Multiple break bulk & consolidation
4. Multiple freight mode & cost options
• This as seen creates a conflict between
globalization & the move to JIT which is being
sought by many Company’s, this is the
challenge that logistics faces and may call for
trade offs.
• QN; as a logistics planner, what strategies
would you undertake to counter the
challenges of globalization?
 Logistics competitive advantage
• It has been argued that there elements within
logistics that add costs to Company.
• This can’t be denied as movement and storage
of goods will involve cost however, it ought to
be recognized that it can also add value to a
product.
• This is because logistics provides means by
which a product reaches an end user in an
appropriate condition and location.
• This makes it possible for Companies to
compete by either providing the lowest cost
possible or providing the highest value to a
customer.
• Some Company's may try to achieve both of
these.
• This brings into play the value advantage and
the cost advantage point of view.
 Value advantage
• This is whereby a company competes as a service leader by
trying to provide a number of key services to differentiate
itself e.g. Rwenzori Mineral water, Coca Cola with names.
• These include;
i. Provision of specially tailored services/ customized.
ii. Use of different distribution channels
iii. Guaranteed service levels with regular updates/
information
iv. Responsiveness and flexibility
v. Reliability and information
 Cost advantage
• Here a Company utilizes its resources in order to offer its
products at the lowest cost possible. Warid before it turned
to Airtel
• These include;
I. Having low inventory levels
II. Capacity utilization
III. Low wastage
IV. asset turn
• However today's leading Companies are segmenting their
Supply Chains according to the service and costs, needs of
the customer thus no more “one size fits all approach”.