Fundamentals of Logistics

Fundamental of Logistics

The Concept of Logistics

• Logistics management involves planning, implementing, and controlling the flow and storage of goods, services, and related information.
• Manages the forward and reverse flow of all resources.
• Manages from the point of origin to the point of consumption.
• The overall goal is to meet customer requirements.
• There are "7 Rights" or "7 Rs" of logistics: ensuring the right product, to the right customer, at the right place, at the right time, in the right quantity, with the right quality, and at the right price.
• Efficiency in logistics can be expressed as: Efficiency = Movement X (Speed of Communications)^2

Business Logistics in a Company

• Business Logistics involves management of raw materials, manufacturing, and finished goods.

Key Components of Logistics

• Key components include raw materials, components, packaging, work-in-progress, finished goods, distribution centers and depots to ensure a customer receives the product.

Scope of Logistics Management

• Logistics Management includes physical supply and physical distribution.
• Physical supply involves managing materials.
• Physical Distribution focuses on delivering the final product to customers.
• Transportation, inventory maintenance, order processing, acquisition, protective packaging, warehousing, materials handling, and information maintenance are all included in the scope of logistics management.

Logistics versus Supply Chain Management

• Supply Chain Management (SCM) emerged in the late 1980's, expanding logistics to cover a wider range of interests and activities, and is often used interchangeably with "logistics management."
• SCM integrates all activities concerning the flow and transformation of goods from raw materials to the end user, as well as the related information flows.
• SCM aims to improve supply chain relationships and achieve a sustainable competitive advantage.
• SCM includes sourcing, procurement, conversion, and all logistics activities.
• It also involves coordination and collaboration with channel partners.
• Channel partners can include suppliers, intermediaries, third-party service providers, and customers.
• SCM integrates supply and demand management within and across companies.
• Logistics focuses on inbound logistics, internal operations and outbound logistics.
• Supply chain management focuses on a broad and integrated supply chain from materials to customer demands.

The Start and End of Logistics

• Logistics starts with the end of the production line.
• Logistics ends when the product is delivered to the consumer.
• Logistics now includes the entire process from the origin of resources to their destination, incorporating material management and distribution.
• Disposal is becoming a key consideration, with "reverse logistics" increasingly integrated into the overall logistics process.

Logistics Questions: Location

• Location logistics questions include where to find resources, labor, and parts.
• A location decision determines what product to produce and which plants will produce it.
• Logistics also questions where to locate production bases, factories, warehouses, and distribution centers.

Logistics Questions: Movement and Storage

• Movement and storage logistics questions include how to transport resources from origin to final destination and by which transportation method (air, sea, road, etc).
• Also includes determining when transport should start, the optimal route, and deciding if storage and packing are needed.
• Logistics considers space and time.
• Logistics addresses questions on location, movement, and storage of economic resources.

Value-added Role of Logistics

• Logistics is commonly associated with economic utilities.
• Logistics contributes to form utility, place utility, time utility, and possession utility.

Important Logistics Concepts

• Total costs are a key concept.
• The focus is to minimize total costs of logistics rather than focusing on individual activity costs.
• Cost trade-offs are analysis tools to minimize integrated logistics costs.
• Different cost elements need analysis in the planning stage in order to identify an optimal portfolio.
• The major cost elements in a logistics system are interrelated.
• Reducing a cost element may increase another, therefore a total cost saving is needed.

Logistics and Critical Interfaces

• Production/operations, logistics, and marketing are all interfaces of logistics.
• Production interfaces include quality control, production scheduling, equipment maintenance, planning capacity, and work standards.
• Logistics activities include transport, inventory, order processing, and materials handling.
• Marketing activities include promotion, research, product mix, and sales.
• The internal supply chain is affected by the production and marketing interface.

Logistics and Production Interface

• Logistics coordinates with production using scheduling and strategy in make-to-order or make-to-stock environments.
• It is an integral part of the supply chain.
• It affects customer response time.
• Shares activities such as inventory planning.
• Costs can be a trade-off with production lot quantities, transportation, customer service, and warehouse location.

Logistics and Marketing Interface

• Marketing creates customer demand; logistics satisfies it through physical distribution.
• Logistics interfaces with the marketing mix using the "Four Ps": Price, Product, Promotion, and Place.

Logistics and Marketing Interface (C)

• Price: Tailoring shipment sizes to the carrier's vehicle capacity impacts transportation costs.
• Product: Considering product size, shape, weight, and physical characteristics in storage, transportation, and handling decisions.
• Promotion: Ensuring logistics is aware of demand pattern changes to plan for consequences in pull versus push strategies.
• Place: Differing logistics costs between wholesalers and retailers, where wholesalers have lower logistics costs while retailers have higher costs.

Factors Affecting the Costs and Importance of Logistics

• Logistics is affected by Competitive relationships, product relationships, market relationships, and spatial relationships.

Factors Affecting the Costs and Importance of Logistics (C)

• Substitutability determines that the more substitutable a product is, the more critical customer service becomes.
• There is an inventory effect where the cost of lost sales is inversely related to inventory cost.
• Transportation effects are similar to inventory costs.
• Higher dollar value products will increase the cost of transport, inventory, warehousing, and material handling.
• Increasing the product's density will decrease the transport, inventory and warehousing costs.
• If a product has susceptibility to damage, then the transport and warehousing costs will increase.
• The more that a market has competition in intra-mode and inter-mode, the cheaper the service will be.
• Government transport regulations can affect competition and costs.
• When there is a balance of freight traffic the transport cost will be lower.
• The location of markets and resources affects the transport distance and overall costs. Spatial relationships directly affect transport costs and indirectly affects inventory & warehousing.

Logistics Principles

• Logistics improves society through the availability and pricing of goods and services.
• Logistics helps society respond to the needs of citizens (Living standards, Medical Care, etc)
• Effective logistics affects every aspect of business as it is needed to supply retailers, manufacturers, and non-profits.
• Logistics benefits a company's revenues and growth.
• Logistics has a positive effect on Return On Investment (ROI).
• Logistics provides better customer service and allows companies to lower costs and have higher profits.
• Logistics plays a key role in marketing strategies.
• Logistics will help promote customer loyalty.
• Logistics will extend market reach, discover new markets and have a competitive advantage.