Definition Of Logistics

• Ballou (1987) considered logistics as: ‘All the move-store activities

that facilitate product flow from one point of raw material acquisition
to the point of final consumption, as well as information flows that set
the production in motion for the purpose of providing adequate levels
of customer service at a reasonable cost.’

• He further defined logistics as: ‘Getting the right goods or services to

the right place, at the right time, and in the desired condition, while
making greatest contribution to the firm.’
• Council of Logistics Management defines logistics as: the part of the
process of supply chain management that sees to effectively planning,
implementing, and monitoring the storage and direct and reverse
flow of goods, service, and all the information related to them,
between the point of origin and the point of consumption, with the
aim of fulfilling the consumer’s expectations or requirements.
• The Chartered Institute of Logistics and Transport (CILT) describes
logistics as involving: getting the right product to the right place in the
right quantity at the right time, in the right condition and at the right
cost in the right way to the right customer. These are also known as
the 7Rs.
• Christopher Martinstated: Logistics is the process of strategically
managing the procurement, movement, and storage of materials,
parts and finished inventory (and the related information flows)
through the organization and its marketing channels in such a way
that current and future profitability are maximised through the cost-
effective fulfilment of orders
Key features of logistics (from the
definitions)
• – It is concerned with movement and storage of materials.
• – It is concerned with managing information flows that underpin the
materials’ flow.
• – Its scope ranges across the whole supply chain from the raw
materials’ point of origin to the finished products’ final consumption
• It ensures a smooth flow of all types of goods such as raw materials,
work-in-process and finished goods.
• – It has two key objectives: (a) achieving appropriate customer-
service standards and (b) doing so in a cost-effective manner.
• ^ It offers the best possible customer service at the least possible cost.
• It is an integration of various managerial functions for optimization of
resources.
• * It deals with movement and storage of goods in appropriate quantity.
• * It enhances productivity and profitability
• Optimize the overall enterprises for purpose
• Based on information technology as the driving force, effectively link
from the supplier to the end-user.
• Unified management
Scope of Logistics
• Logistics does not only apply to manufacturing, it applies to the
service sector as well.
• Government bodies, hospitals, banks, retail shops and schools are
typical examples of service sector entities that are involved in
logistical activities.
• Many service firms are offering tangible products.
• Examples of such firms include fast food giant McDonald’s, newspaper
publisher Dow Jones & Co.
• These service operators carry out the same logistics activities as
manufacturers.
• For those that do not offer physical products, logistics activities, though
not obvious, exist in their workflow and decision-making processes.
• Eg. hospitals need to reduce the costs of acquiring medical supplies,
express couriers need to design optimal pickup and delivery routes,
and banks need to locate and retain cash inventories for their ATMs.
• Because of the increasing concern for disposal, recycling and reuse of
products in the modern business environment, logistics also
encompasses activities such as removing packaging once a product is
delivered, and removing old equipment. (Green Logistics)
Logistics MGT Drivers
Several factors have contributed to the growing focus on logistics management including:

• Advances in technological and quantitative techniques

• Increase in power of retailers.
• Globalization
• Advances in retailing
• Rising transportation costs
• Proliferation of product lines
• Environmental concerns
• Customers are more knowledgeable, and demand higher quality, lower costs and better
service.
• Fierce competition.
• Demand for customized logistics from suppliers by large retail chains,
such as Wal-Mart, Tesco, Toys-R-Us and McDonald’s.
• Growth of 24-hour opening, home deliveries, out-of-town malls, retail
parks, telephone and on-line shopping.
• International trade continues to grow. This is encouraged by free
trade areas such as the EU and NAFTA.
• Organisations are introducing new types of operation, such as just-in-
time, lean operations, time compression, flexible manufacturing,
mass customisation, virtual operations, etc.
• There have been considerable improvements in communication.
These allow electronic data interchange (EDI), item coding, electronic
fund transfer (EFT), e-commerce, shared knowledge systems, and
other new practices.
GOALS/ OBJECTIVES OF LOGISTICS MANAGEMENT

• The overarching goal of Logistics Management is to effectively and

efficiently move the inventory in supply chain so as to extend desired
level of customer service at the least cost.
• Sub objectives include:
• Responsiveness/ Rapid response (short lead times, flexibility,
customized solutions)
• Reducing Inventory Burden
• Delivery Reliability and Consistency
• Lowering Freight Cost (freight consolidation, selection of transport
mode, route planning, and load unitizing)
• Minimum Transit Damages
• Quality of Product
• Relationships (partnership sourcing etc)
OUTPUTS OF LOGISTICS MGT/SYSTEMS PROCESS

• ‘Poor logistics are the cause of roughly 50 per cent of all customer
complaints’. No organization can expect to prosper if it ignores
logistics.
• Effective logistics management can provide a major source of
competitive advantage to a company.
• Competitive advantage is thus a key output of the logistics
management process. These outputs as well as the inputs of the
logistics management process can be summarized as follows:
• Competitive advantage for the organisation resulting from a
marketing orientation and operational efficiencies and effectiveness
•Time and place utility
•Efficient movement to customer
•Proprietary asset of the organization. We can, then, summarize the
importance of logistics by saying that it:
• Logistics can improve the perceived value of products – perhaps
making them more easily available, giving faster delivery or
shortening lead times. More attractive products can get premium
prices.
● is essential, as all organizations, even those offering intangible
services, rely on the movement of materials.
● is expensive, with costs often forming a surprisingly high proportion
of turnover.
● directly affects profits and other measures of organisational
performance.
• forms links with suppliers, developing mutually beneficial, long-term
trading relationships
● forms links with customers, contributing to customer satisfaction and
added value.
● has a major effect on lead time, reliability and other measures of
customer service.
● determines the best size and location of facilities.
● gives public exposure with visible locations, advertising on trucks,
‘corporate citizenship.
• can be risky, because of safety, health and environmental concerns.
● prohibits some operations, such as moving excessive loads or
dangerous goods
● can encourage growth of other organisations – such as suppliers and
intermediaries offering specialised services.
Role of logistics in the economy

• major enabler of growth of trade and commerce in an economy.

• Logistics industry provides significant macro contributions to national
economy by creating employment.
• Also promotes foreign investment influx. ...
• logistics industry has an important mission in revitalizing and
improvement of the competitiveness of other industries.
Key Elements of Logistics
• There are five key elements of logistics:
• transport,
• warehousing,
• inventory,
• packaging,
• information processing
Generally transport is the major component of most logistics services.
The key aspects of transport management include modes of transport (such as road,
rail, waterways, air, pipeline, multimodal or intermodal), transport infrastructure,
geographical condition, type of delivery (such as overnight express, normal, long
distance), load planning (in the cargo unit), routing and scheduling.
ROLE OF LOGISTICS IN THE SUPPLY
CHAIN
• Logistics basically connects the source of supply with the sources of
demand.
• bridges the gaps between market demand and the capabilities of supply
sources
• fulfills the two primary objectives of customer service and cost while
striking a balance between them.
• Today, we are talking of a virtual supply chain wherein the cycle time is
reduced to zero, no warehouses exist, as inventory levels plummet to
near zero and freight is cut down to a minimum through networking.
This is an ideal situation but attempts should be made to achieve this
goal.
Role of Logistics in the Supply Chain
• Utility Creation
• Production – Form utility (by assembling parts into finished goods)
• Logistics – place utility, time utility, quantity utility
• Marketing – Possession utility (promotion and sales)
ROLE OF LOGISTICS IN DISTRIBUTION CHANNEL

• basic role is to ensure smooth movement of products to make them

available at distribution outlets as and when they are required by the
customer.
• This is not an easy task, since it involves a great degree of planning for
material availability and movement at the lowest cost and with speed.
• logistics helps avail product in the right quantity whenever the
customer needs it. Hence, the logistics network needs to be
integrated with the distribution channels of the firm.
TYPES OF DISTRIBUTION CHANNELS

• Producer Direct to Consumer

• Products that are customized for specific customers and those
ordered through catalog or newspaper advertising are examples of
goods commonly distributed through this channel.
• Customers who shop through the Internet, are other users of this
channel.
• Moreover, products composed of data, such as text, software, music,
and films, can be directly distributed from computer to computer.
• Producer to Retailer to Consumer
• this channel contains one or more intermediary levels, which are referred
to as indirect-marketing channels.
• producers deliver their own goods directly to large retail stores, which then
sell these products to end users. In general, this channel is suitable for
manufacturer.
• producers can also deliver their own products in large shipments to
distribution centers, which could be one central distribution center (CDC) or
a number of regional distribution centers (RDCs).
• The products are then broken down into smaller orders that are
transported to retailers on the manufacturers’ own means.
• Producer to Wholesaler to Retailer to Consumer
• Producer via 3PL or Broker to Retailer to Consumer
• Producer via Broker to Wholesaler to Retailer to Consumer
• Business-to-Business Channels
Key Elements in Logistics Management
• customer service;
• transportation;
• inventory management;
• order processing
Logistics Supporting Activities
• warehousing;
• purchasing;
• materials handling;
• packaging;
• information maintenance.

• Although these supporting activities may be as important as the key

activities in any particular situation to help firms to attain cost reduction
and service improvement, they are complementary to the key activities
in contributing to the logistics mission of a firm.
• WHY ARE THEY CONSIDERED SUPPORTING ACTIVITIES???

• Unlike the key activities, not all of them will take place in every
logistics process in a supply chain, and one or more of them may not
be a part of the logistics activity mix of every firm. For instance, bulk
cargo such as iron ore and timber does not require packaging or
protection against bad weather and theft, even though inventory
management and materials handling are necessary for these items.
Customer service elements

• Customer service in logistics encompasses a number of service

elements before, during and after actual sale transactions.
• There are three generic customer service elements:
• These are:
• pre-transaction elements,
• transaction elements
• post-transaction elements,
Order Processing

• Order processing involves all the activities concerned with collecting,

checking, entering and transmitting sales-order information.
• It is the means by which suppliers and firms exchange order information.
• The information collected will provide useful data for market analysis,
financial estimation, logistics operations and production.
• Order processing is considered a primary logistics activity because there is a
critical time element in getting goods and services to customers, and it
triggers product movement and service delivery.
• The challenge to the firm is to compress the order cycle time, that is, the
time a customer transmits an order to the time the customer receives that
order.
 The order processing activity consists of the following steps:
• Order checking for any deviations in agreed-upon or negotiated
terms (Prices, payment, and delivery terms)
• Checking the availability of materials in stocks
• Production and material scheduling for shortages
• Acknowledging the order indicating deviations, if any
Inventory Management

• If money makes the world go round, then inventory makes logistics go

round.
• The planning, storing, moving and accounting or inventory is the basis for
all logistics.
• Inventory availability is the most important aspect of customer service.
• Inventory carrying costs are typically the most expensive costs of logistics.
• It is very difficult to convert physical inventory into a liquid asset; hence
inventory is a very risky investment.
• The goal of inventory management is to increase the financial return on
inventory while simultaneously increasing customer service levels.
Functions of Inventory

• Striking a balance between supply and demand:

• Provide the desired customer service levels:
• Provide the desired customer service levels:
Transportation
• To be dealt with separately
SUPPORTING ACTIVITIES

• Procurement
• concerned with purchasing and arranging inbound movement of
materials, parts, or finished inventory from suppliers to manufacturing
or assembly plants, warehouses, or retail stores.
• Depending on the situation, the acquisition process is commonly
identified by different names.
• In manufacturing, the process is called purchasing.
• In government circles, procurement.
• In retailing and wholesaling, buying.
• In other circles, the process is referred to as inbound logistics.
• Warehousing
• Warehousing is the storing of finished goods until they are sold.
• It plays a vital role in logistics operations of a firm.
• The effectiveness of an organization’s marketing depends on its
warehousing strategy.
• In today’s context, warehousing is treated as a switching facility rather
than a storage place. (Cross-docking)
• It is a major cost centre, and many problems at the customer end are
directly a result of improper warehousing management.
• Warehousing is the a decision area in logistics.
The major decisions in warehousing are:
• Location of warehousing facilities
• Number of warehouses
• Size of the warehouse
• Warehouse layout
• Design of the building
• Ownership of the warehouse (private, public, or contractual.)
• Functions within the warehouse:
• Receiving
• Pre packing
• Storage
• Order picking
• Sorting
VALUED ADDED ROLE OF
LOGISTICS/UTILITIES
• Possession utility refers to the value or usefulness that comes from a
customer being able to take possession of a product.
• Possession utility can be influenced by the payment terms associated
with a product.
• Credit and debit cards, for example, facilitate possession utility by
allowing the customer to purchase products without having to
produce cash or a cash equivalent.
• Form utility refers to a product’s being in a form that (1) can be used
by the customer and (2) is of value to the customer.
• Although form utility has generally been associated with production
• and manufacturing, logistics can also contribute to form utility.

• Place utility refers to having products available where they are

needed by customers; products are moved from points of lesser value
to points of greater value.