LOGISTICS IN THE FIRM

Module outline
1. Introduction 2. Importance of an effective logistics organization 3. Logistics interfaces with manufacturing, operations and marketing 4. Logistics activity which interfaces with manufacturing 5. Logistics interfaces with marketing 6. Factors affecting the cost importance of logistics

INTRODUCTION

Role of logistics in the firm is an important strategic decision Raw parts, materials and services must be distributed efficiently Companies have become more global Important to ensure proper interfaces of logistics function with operations/ manufacturing and other supporting departments Companies can benefit from the seamless flow of their goods and services across the region when the logistics industry becomes fully integrated

IMPORTANCE OF AN EFFECTIVE LOGISTICS ORGANIZATION In traditional firms, the functions of logistics were not specialized and were scattered throughout the firm Until the late 1970s, the firm paradigm was bigger is better. The problems and challenges do not lie primarily with strategic decision making Requires reengineering in system, structure, mission, people, corporate culture and reward structure Case study of IBM: Reorganizing to Regain Competitive Advantage, is a good example

LOGISTICS INTERFACES WITH MANUFACTURING, OPERATIONS AND MARKETING Big challenge for logistics function in a firm is to manage the whole logistics system Ensure order fulfillment to meets or exceeds customer expectations A new face of logistics started from early 1980s Align logistics to ensure the it can add value through interfaces with many sub-departments Interfaces with production - determine the length of the production run. Interfaces with marketing - determine the selling of the products.

LOGISTICS ACTIVITY WHICH INTERFACES WITH MANUFACTURING Logistics services that can be provided to the firm are:
Transportation

Packaging

Warehousing

Kitting

Distribution

Staging

Inventory management

LOGISTICS ACTIVITY WHICH INTERFACES WITH MANUFACTURING

Ensure the availability of parts and raw materials Crucial if the firms run its operations 24x7 basis Must meet the Just-In-Time (JIT) requirement Failure in feeding of raw materials to manufacturing line will cause the line down eventually loss sale ensuring product availability at the right time, right quantity, and at right place - give competitive advantage to the firm Space that stored all the components, raw materials and finished goods of a firm A proper layout and proper segregation, can confirm correct picking, packing and delivery process right number of safety stock can ensure the availability of products even if there is a revision in production planning or in customer demands

Transportation

Warehousing

LOGISTICS ACTIVITY WHICH INTERFACES WITH MANUFACTURING

Distribution
Distribution is involving management of goods on the physical path between production, consumption and storage Important when the firms have stored their products in distribution centers and meant for distribution to many drop points (customers locations) A good routing planning will ensure the effective distribution plan to meet the customers demand

Inventory management
Very important activity for logistics in firm Keeping right quantity and right product is very important for continue producing the products a per production plan Managing and distribute the inventory information in firm, also a critical factor in interfacing with manufacturing

LOGISTICS ACTIVITY WHICH INTERFACES WITH MANUFACTURING

Staging is important in order to have a lean material movement to support the production Staging areas are an area where materials or equipment in transit are assembled or processed

Staging

Kitting

Kitting involves the gathering of all the parts needed for a particular assembly from the stockroom and issuing the kit to the manufacturing line at the right time and in the right quantity

LOGISTICS ACTIVITY WHICH INTERFACES WITH MANUFACTURING

Packaging

process that enclosing the goods for protection for distribution, storage, sale, and, use while handling in warehouse and transporting in a vehicles Certain packages will be printed with certain symbols which classify product certification, trademarks, proof of purchase, communicate aspects of use and safety, and environment and recycling

LOGISTICS ACTIVITY WHICH INTERFACES WITH MANUFACTURING Symbols on packaging:

Fragile

Center of gravity

Keep away from water

This way up

Do not clamped as indicated

Clamped as indicated

Keep away from sunlight

Do not hand hook

Explosives

Flammable liquid

LOGISTICS INTERFACES WITH MARKETING Logistics play an important role in:

Customer satisfaction

Integrated efforts/ system approach

Adequate corporate profit

LOGISTICS INTERFACES WITH MARKETING

Suppliers Intermediate customers Final customers

Customer satisfaction

Integrated effort

Product Price Promotion Place

Company profit

Maximize long-term profitability Lowest total costs

LOGISTICS INTERFACES WITH MARKETING Logistics play a crucial role particularly in assisting of getting the product to the right place In order to ensure the success of the marketing effort, the firm have to integrate the ideas of having the right:

Product

Price

Promotion

Place

FACTORS AFFECTING THE COST IMPORTANCE OF LOGISTICS The major categories which contributing to logistics cost are:

FACTORS AFFECTING THE COST IMPORTANCE OF LOGISTICS

Transportation Customer service

- Capital

that spent to enhance the customer service - Extremely difficult to measure the true cost of customer service!

- Delivery of materials drives transportation costs - Cost can be differing considerably with volume of cargo, weight of cargo, distance, and point of origin and destination

FACTORS AFFECTING THE COST IMPORTANCE OF LOGISTICS

Warehousing
- Purely created by storage and warehousing activities

Order processing & information

- Cost includes: order processing, communications, distributions, and forecasting demand

FACTORS AFFECTING THE COST IMPORTANCE OF LOGISTICS

Purchasing or production related cost Vary with changes in order size or frequency

Cost quantity

Inventory carrying

Costs include inventory control, packaging, and salvage and scrap disposal Four type of inventory cost: Capital cost or opportunity cost Inventory service cost Storage space cost Inventory risk cost