2.

LOGISTICS MANAGEMENT

INTRODUCTION
The Oxford English dictionary defines logistics as: “The maintaining & transporting material,
personnel and facilities.” It is a branch of military science having to do with procuring. Another
dictionary definition is: "The time related positioning of resources." As such, logistics is
commonly seen as a branch of engineering which creates "people systems" rather than
"machine systems"

Logistics is the art of managing the supply chain and science of managing and controlling the
flow of goods, information and other resources like energy and people between the point of
origin and the point of consumption in order to meet customers' requirements. It involves the
integration of information, transportation, inventory, warehousing, material handling and
packaging.
Logistics has been called by many names, like Business Logistics, Industrial Logistics, Channel
Management, Physical Distribution, Quick-Response Systems, Logistical and Supply Chain
Management The common meaning conveyed by all these terms is that they deal with the
management of the flow of goods or materials from the point of origin (supplier) to the point of
consumption (customer) and in some cases even to the point of disposal. .

Logistics is an activity of managing the TOTAL flow of materials from the beginning i.e. from the
flow of raw materials to production and of finished product to the customer. It includes inward
movement of materials from the sources (In-bound Logistics) as well as distribution outward
movement of products from the manufacturers to customers (Out-bound Logistics). But it
excludes other matters connected with distribution, such as marketing strategies,
advertisements etc.

Definition

“Logistics Management can be defined as the process of planning, implementing and

controlling the efficient and effective flow and storage of goods, services & related
information from point of origin to point of consumption for the purpose of meeting
customer requirements.”

Logistics is not confined to manufacturing organizations alone but it is relevant to all the
enterprises, including government, institutions such as hospitals and schools and service
organisations such as retailers, banks and financial service organisations.

Customer’s Needs
• What he wants? (products & price)
• When he wants? (time)
• Where he wants? (place)
• Why he wants? (purpose / frequency)
• How he wants? (Convenience)

Supplier’s (Organisation’s) Needs

• How Much Money Orgnisation Wants To Make? (Profitability)
• How Long Organisation Wants To Remain In Business & Make Money? (Vision)
Logistics Operating Objectives

1. Rapid & Complete Response to Customer’s Requirements

2. Reduction in Overall Logistics Operations Costs
3. Continuous Improvement in Quality of Services Offered
4. Life-Cycle Support

The basic objective of a good Logistics system can be defined as “To Get the Right Goods or
Services, to the Right Place, At the Right Time, In the Right Condition, and At the Right Cost".

The above objectives are realised by the logistics management by carrying out many activities
encompassed under its umbrella. The logistics is dependent upon natural, human, financial and
information resources for inputs.

The Management objectives & policies provide the framework for logistics activities through the
process of planning, implementation and control. The outputs of the logistics system are
competitive advantage, time and place utility, efficient movement of the products to the
customer and providing a logistics service mix so that logistics becomes a proprietary asset of
the organization. These outputs are made possible by the efficient & effective performance of
various Logistics activities mentioned later.

Logistics Plays a Key Role in the Economy

1) Logistics is one of the major expenditures in business thereby affecting and being affected by
other economic activities.

2) Second, logistics supports the movement and flow of many economic transactions. It is an
important activity in facilitating the sale of virtually all goods and services. If goods do not arrive
at the proper place or in time or in proper condition no sale can be made.

In recent years, effective logistics management has been recognised as a key opportunity to
improve both the profitability and competitive performance of firms.

Advantages of Logistics

1. Logistics Adds Value By Creating Time & Place Utility

• Form utility ( right product): creating goods & services

• Possession utility ( right condition & right price) : the customer is able to take actual
possession of the products
• Time utility (right time) : when it is required : from manufacturer to the market
• Place utility ( right place) : where it is required : to production / warehouses /
customers

2. Logistics Supports Marketing Activities

• It brings all the items for sale together at one place

• It provides a wide mix of products, colours, sizes & styles through the assortment
process
• Makes products available when they are required
 • Today under competitive scenario the sales are determined by what is in stocks & not by
what particular brands are offered by organization

Logistics Performance Cycles

The logistics performance cycle consists of three different performance cycles which takes
place the moment a customer places an order with the firm. The logistical performance of the
company & its response level to the customer’s need is judged by the speed & accuracy with
which these cycles are completed.

A) Physical Distribution Performance Cycle

B) Manufacturing Support Performance Cycle
C) Procurement Support Performance Cycle

LOGISTIC
Integrated Systems Approach

• Logistics is, in itself, a system. It is a network of related activities with the purpose of
managing an orderly flow of materials & personnel within the logistics channel.
• The system approach is a powerful tool of understanding inter-relationship.
• The system approach states that all functions & activities need to be understood in terms
of how they affect & are getting affected by other elements & activities with which they
interact.
• Outcome of series of activities is greater than its individual parts.

MATERIALS
7RIGHTS
Barriers To Integrated Approach

1. Conventional Organization Structure

2. Lack Of Logistics Infra-structure
3. Performance Measurement System
4. Inventory Ownership
5. Lack Of Accountability
6. Lack Of Trained People
7. Unaware Of Changing Business Environment

Competitive Pressures on Logistics

1. Economic Conditions
2. Global Logistics
3. Cost Control
4. Advances In Computer & Information Technology
5. Shifting Of Channel Power From Sellers To Buyers
6. Profit Leverage ( Impact Of Logistics On Cost Savings & Generating Profitability)

Total Cost Concept

The total cost concept is the key to effectively managing logistics process. The goal of the
organisation should be to reduce the total cost of logistic activities rather than focusing on each
activity in isolation. Reducing costs in one area, such as transportation may drive up inventory
carrying costs as more inventories are required to cover longer transit times or to balance
against uncertainty in transit times. Management therefore should be concerned with the
implications of decision-making in all these major cost categories covering the key logistics
activities.

These Costs are:

1. Cost of Customer Service Levels
2. Inventory Carrying Costs
3. Lot Quantity Costs
4. Warehousing Costs
5. Order Processing and Information Costs
6. Transportation Costs

PROCUREME
 “Logistic System Must Be Viewed As a Whole & Therefore Making Trade- Off In
Logistics Is Very Important”

KEY LOGISTIC ACTIVITIES

Listed below are the key activities or functions, which form the part of the overall logistics
process and required to facilitate the flow of the product from point of origin to point
consumption.

Amongst the activities mentioned below, Warehousing, Transportation, Inventory Control and
Order processing are to be considered as primary activities as they are essential for the
effective co-ordination and completion of the orders and all others as secondary activities.

1. Customer Service is the output of the logistics system and may be defined as the consistent
provision of time and place utility. In other words products don't have value until they land in the
hands of the customer at the time and place required. Good Customer Service supports
customer satisfaction, which is the output of the entire marketing process

2.Demand Forecasting is a complex issue with many interactions among functions and
forecast variables. Marketing forecasts demand based on promotions, pricing, competitions etc.
Manufacturing forecasts production requirements based on marketing's sales demand forecasts
and current inventory levels. Logistics usually becomes involved in forecasting in terms of how
much should be ordered from its suppliers (through purchasing) and how much of finished
product should be transported or held in each market that the organisation serves. Logistics
may even plan production in some organisations. Logistics therefore needs to be linked to
marketing, manufacturing, forecasting and planning.

3. Order Processing covers the systems that an organisation has for getting orders from
customer, checking on the status of orders and communicating to customers about them and
actually executing the order by making the product available to the customer. Part of the order
processing includes checking inventory status, customer credit, invoicing and accounts
receivable. Thus, order processing is a broad, highly automated area. Because the order
processing cycle is a key area of related to the customer with the organisation, it can have a big
impact on a customers' perception of service and their satisfaction. Hence organisations are
turning to advanced order processing methods such as EDI (Electronic Data Interchange), EFT
(Electronic Funds Transfer) to speed up the process, improve accuracy and efficiency. Order
Processing contributes to reduction in lead-time.

4. Transportation adds place utility to a product. A key logistics activity is to actually provide for
the movement of materials and goods from point of origin to point of consumption.
Transportation involves selection of the mode e.g. air, rail, water, truck, pipeline, the routing of
the shipment, assuring of compliance with regulations in the region of the country where
shipment is occurring and selection of the carrier. It is definitely the largest single cost element
among logistics activities.

5. Warehousing supports time and place utility by allowing an item to be produced and held for
later consumption. It can be held near the location where it will be needed or transported later.
Warehousing activities relate to warehouse layout, design, ownership, automation, training of
employees and related issues.
6. Materials Handling is a broad area that encompasses virtually all aspects of all movement of
raw materials, work in process or finished goods within a plant or warehouse. Because an
organization incurs costs without adding value each time an item moves or is handled, a primary
objective of the management is to eliminate unnecessary handling wherever possible. This will
include minimum travel distance, bottlenecks, inventory levels and loss due to mishandling,
Pilferage & damage.

7. Packaging is valuable both as a form of advertising/marketing and for protection & storage
from a logistical perspective. Packaging can convey important information to educate the final
consumers. Aesthetically pleasing packaging also can attract the consumer's attention.
Logistically, package provides protection during storage and transport. This is especially
important for long distance & over multiple transportation modes such as international shipping.
Packaging can ease movement and storage by being properly designed for the warehouse
configuration and materials handling equipment.

8. Inventory Management: Inventory levels are linked to customer service levels and inventory
management involves trading off the level of inventory held to achieve high customer service
levels with the cost of holding inventory. Such costs include capital tied up in inventory, variable
storage costs and costs of obsolescence. Inventory adds time value to the product. Inventory
management is getting much more attention from organisations with high costs associated with
items such as high-tech merchandise, automobiles & seasonal items that become obsolete
rapidly.

9.Supply ( Procurement) Management : The Supply management plays a more important role
in an organisation with the increase in outsourcing of goods and service. Most industries spend
60-70 percent of their revenues on materials and services from sources outside their
organisations. Supply management can be defined as the purchase of materials and services
from outside organisations to support the firm's operations from production to marketing, sales
and logistics. Procurement continues to grow in importance and its contributions to the
organisation in the present competitive scenario.

10. Reverse Logistics. Logistics is also involved in renewal and disposal of waste materials left
over from the production distribution or packaging processes. These could be temporary
storage, followed by transportation to the disposal, reuse, reprocessing or recycling location. As
the concern for recycling and reusable packaging grows, the importance of this issue will
increase in near future.

11.Parts and Service Support: Logistics is also responsible for providing after-sale service
support. This is in addition to supporting production through the movement of materials, work in
process and finished goods. This may include delivery of repair parts to dealers, stocking
adequate spares and responding quickly to demands for repairs. Downtime can be extremely
costly to industrial customers who may have to stop or delay production while awaiting repairs.

12. Logistics Information / Communication: Logistics interfaces with a wide array of functions
mentioned above and organisations in its communication process. Communications are becoming
increasingly automated, complex and rapid.

Communication must occur between :

• The organisation and its suppliers and customers
• The major functions within the organisation, such as logistics, engineering, accounts,
marketing, and production.
 • The various logistics activities listed above
• The various aspects of each logistics activity, such as co-coordinating warehousing of
materials, work-in-process and finished goods.
• Various members of the supply chain, such as intermediaries and secondary customers/
suppliers who may not be directly linked to the firm.

Communication is a key to the efficient functioning of any system, whether it may be distribution
system of an organisation or the wider supply chain. Excellent communications within a system
can be a key source of competitive advantage.