Introduction to Logistics PDF

Lesson 1 Introduction to Logistics Learning Objectives: Define the meaning of Logistics Know the meaning of Logistics management and its goal Understand the seven R’s of logistics Identify the components and elements of Logistics Explain the reasons for the rise of Logistics Identify t...

Lesson 1 Introduction to Logistics Learning Objectives: Define the meaning of Logistics Know the meaning of Logistics management and its goal Understand the seven R’s of logistics Identify the components and elements of Logistics Explain the reasons for the rise of Logistics Identify the logistics goals and strategies Know the classification of logistical activities Explain the importance of Flexibility for Strategic Logistic Management Know the difference between traditional flexibility and Modern flexibility Logistics – is the overall process of managing how resources are required, stored, and transported to their final destination. - art and science of obtaining, producing, and distributing material and product in proper place and in proper quantities. - the process of planning, implementing, and controlling the efficient, cost-effective flow and storage of goods, services, and related information from the point of origin to the point of consumption. Supply Chain - transforming raw materials into products, and getting it to customers Logistics – movement of materials in whole supply chain  Key differences between logistics management and supply chain management Aspect Logistics Management Supply Chain Management Scope Focuses on specific activities within the Encompasses the entire process from the supply chain, such as transportation, acquisition of raw materials to the delivery of warehousing, and inventory management. finished products to end customers. Primary Primarily concerned with the movement and Involves the coordination and integration of Function storage of goods, ensuring they are delivered various functions, including procurement, efficiently and cost-effectively. production, and distribution, to optimize the entire supply chain. Timeframe Generally has a shorter time horizon and is Has a broader and longer-term perspective, more operational in nature. considering strategic planning and overall supply chain design. Focus Area Emphasizes the physical movement of goods Encompasses a broader set of activities, and the associated tasks, such as packaging, including strategic planning, procurement, transportation, and warehousing. production, distribution, and customer service.  Aspect Logistics Management Supply Chain Management Goal Aims to achieve efficient and effective flow Aims to achieve overall supply chain and storage of goods within the supply optimization, considering cost efficiency, chain. responsiveness, and customer satisfaction. Integration Integrates with specific functions within Requires a high degree of integration and the supply chain, collaborating with other collaboration across the entire supply chain, elements for smooth operations. including suppliers, manufacturers, distributors, and customers. Viewpoint Views the supply chain as a holistic and Views the supply chain as a series of interconnected system, emphasizing the need interconnected activities, focusing on for coordination and collaboration across all optimizing individual processes. stages. Decision-Making Typically at the operational and tactical Involves strategic decision-making, addressing Level levels, dealing with day-to-day logistics long-term goals, network design, and overall activities. supply chain strategy. Examples of Transportation management, inventory Strategic sourcing, demand planning, Activities control, warehousing, and order production scheduling, distribution network fulfillment. design, and collaboration with suppliers and customers. Examples of Logistics Inventory Management: Tracking the availability of items in a warehouse or store and making sure there is enough stock for customer demand. Transportation Management: Planning and coordinating the movement of goods from one location to another. Warehousing: Storing goods in a safe and efficient manner. Order Fulfillment: Picking, packing, and shipping orders in a timely manner. Freight Management: Negotiating rates and selecting carriers for the transportation of goods. Reverse Logistics: Managing the return of products for repair, replacement, or disposal. Logistic providers: FedEx, UPS and DHL Logistics management – involves identifying prospective distributors and suppliers and determining their effectiveness and accessibility. Logistics managers are referred to as logisticians - involves the integration of various activities, such as transportation, inventory management, warehousing, and information flow, to ensure the smooth and efficient movement of goods and services. The primary goal of logistics management is to meet customer requirements while minimizing costs.  Goal of Logistics Management ✔ to have the right amount of a resource or input at the right time, getting it to appropriate location in proper condition and delivering it to the correct internal or external customer. - The concept of business logistics has been transformed since the 1960’s - increasing intricacy of supplying companies with the material and resources they need led to a need for specialists known as supply chain logisticians - in modern era, the technology boom and the complexity of logistics processes have spawned logistics management software and specialized logistics-focused firms - logistician’s responsibilities includes overseeing and managing inventory for appropriate transportation and adequate storage for the inventory. Seven R’s of Logistics Right product Right quantity Right condition Right place Right time Right customer Right Price Components and Elements of Logistics Elements Logistics and Maintenance Support Planning Logistics Maintenance and Support Personnel Training and Training Support Supply Support – Spares or Repair Parts and Associated Inventories Computer Resources Technical data, Reports and Documentation Maintenance and Support Facilities and Utilities Packaging, Handling, Storage or Ware Housing and Transportation Test, Measurement, Handling and Support Equipments Logistics and Maintenance Support Planning - Effective logistics and maintenance support planning involves interactive planning, organization, and management activities to ensure proper coordination and implementation of programs, scheduling maintenance activities, and coordinating operational requirements. Logistics Maintenance and Support Personnel - The role involves providing support items, procurement, logistics, installation, and customer service, training personnel, and overseeing maintenance and support operations at various levels of maintenance teams. Training and Training Support - Training and support services include personnel, equipment, facilities, and resources for operational and maintenance personnel, as well as supply support for spare parts and related items. - training equipment like simulators, mock-ups, special devices, training manuals and computer resources software are developed and utilized to support day-to-day onsite training Supply Support – Spares or Repair Parts and Associated Inventories - covers spares, repairable units, components, censurable items, and other necessary inventories for maintaining prime mission equipment, including computers, software, transportation, training, and communications facilities. Computer Resources - This includes all computers and software that support daily information flow for logistics functions, scheduled and unscheduled maintenance activities, and special monitoring and reporting requirements. Technical data, Reports and Documentation - includes system installation, check-out, maintenance, inspection, calibration, overhaul instructions, facilities data, engineering data, supplier data, operational and maintenance data, and supporting databases. Maintenance and Support Facilities and Utilities - storage buildings, warehouses, and maintenance facilities. Physical plant, portable buildings, mobile vans, personnel housing structures, intermediate maintenance shops, calibration labs, special repair shops, overhaul material suppliers. Packaging, Handling, Storage or Ware Housing and Transportation - includes all materials , equipment special provisions, containers both resistible and disposable and supplies necessary to support the packages, safety and preservation storage. Handling or transportation of the prime mission related elements of the system Test, Measurement, Handling and Support Equipment - includes all tools, condition monitoring equipment, diagnostic and check out equipment, special test equipment, metrology and calibration equipment, maintenance fixtures and stands and special handling equipment required to support operational and maintenance functions through-out the forward and reverse flows. Logistic Information - refers to the resources necessary to ensure that an effective and efficient logistics information flow is provided throughout the organizations responsible for all the activities that come within its focus. - this flow includes the necessary communication links among the customer, producer or prime contractor, sub-contractors, sup priors and supporting maintenance organisations. Reasons for the Rise of Logistics 1. Changes in Customer Demand Patterns: - Increased affluence has shifted customers towards more services and has also contributed to major geographical changes in population concentrations and to a general proliferation of products and product types offered by marketers to consumers. - more and more product line variety is needed to satisfy the growing range of customer tasks and requirements, stock levels in both field and factory rise inevitably. 2. Economic Pressures on Industry: - Two economic forces are instrumental in encouraging the movement towards a re-organisation for business logistics. First logistics costs are recognized take significant proportion of total costs. Second reduced profit margins encouraged the firms to look for more efficiently organisational patterns. 3. Technological Changes and the Application of Quantitative Techniques to Business Problems: - Technological innovation is not only unique to logistics but it has increased complexity of logistic problems leading to the need for careful and cautions management. The technological innovation has led to the problems namely: (1) Contraction of product life- cycle (2) Decrease in the cost of value addition and simultaneous rise costs of materials and distribution. (3) Greater proliferation of logistical choices (4) Growth of scientific management techniques and computer technology side by side with logistics system components. The technological innovation has led to the problems namely: ❖ Contraction of Product Life Cycle Technological advancements have accelerated the pace of product development, leading to shorter product life cycles. Products become obsolete faster due to rapid innovations, requiring businesses to continuously develop and release new products to stay competitive. Example: Smartphones: A new smartphone model is often released within 12 months, making older models quickly outdated. Fashion: Fast fashion brands like Zara update collections frequently, leading to shorter demand cycles. ❖ Decrease in the Cost of Value Addition and Simultaneous Rise in Costs of Materials and Distribution Technology has lowered the cost of adding value to products (e.g., customization or improved features), but material and distribution costs have risen. While automation and process improvements make manufacturing cheaper, sourcing raw materials and delivering products (especially globally) has become more expensive due to supply chain complexities. Example: Value Addition: Automated factories reduce production costs by using robotics. Rising Costs: The 2020-2022 global logistics crisis caused shipping costs to increase dramatically. For instance, container shipping from China to the U.S. became 10x more expensive. ❖ Greater Proliferation of Logistical Choices The rise of technological solutions has expanded the number of logistical options available to businesses. Companies now have various methods to transport, store, and distribute goods, including advanced tools like route optimization software, drone delivery, and omnichannel distribution strategies. Example: Amazon: Offers multiple shipping options, from one-day Prime delivery to drone-based "Prime Air." Retailers: Use "Buy Online, Pick Up in Store" (BOPIS) or ship directly to customers from warehouses. ❖ Growth of Scientific Management Techniques and Computer Technology Alongside Logistics System Components The application of scientific management and computer technology has enhanced logistics system efficiency and decision-making. Tools like AI, machine learning, and real-time tracking systems allow companies to optimize operations, forecast demand, and streamline supply chains. Example: Warehouse Management Systems (WMS): Automates inventory management and order fulfillment, reducing errors. Fleet Management: GPS tracking and AI algorithms improve delivery route planning and fuel efficiency. Predictive Analytics: Helps companies anticipate demand surges, such as holiday shopping or weather-related disruptions. 4. Development in Military Logistics - For instance in the early 1991 during gulf war the US and allied forces were faced with the problem of moving half a million people and over a half a million tons of material and supply by air. That is 12000 kms and 2.3 million tons of equipment by sea in a matter of months. It was logistics that made this difficult mission possible. Logistics Goals and Strategies Respond rapidly to changes in the market or customer orders Minimize variances in logistics service Minimize inventory to reduce costs Consolidate product movement by grouping shipments Maintain high quality and engage in continuous improvement Support the entire product life cycle and the reverse logistics supply chain Logistics Goals and Strategies 1. Respond Rapidly to Changes in the Market or Customer Orders Goal: Quickly adapt to fluctuations in demand, customer preferences, or unforeseen circumstances. A sudden spike in demand for face masks during the COVID-19 pandemic. Strategy: Companies like 3M ramped up production by utilizing flexible manufacturing and agile logistics networks to meet urgent demands. 2. Minimize Variances in Logistics Service Goal: Ensure consistent service levels by reducing delays, errors, and inconsistencies in delivery. A retailer promises 2-day delivery to customers. Strategy: Amazon uses automated warehouse systems and real-time tracking to minimize delays and ensure consistent shipping times. 3. Minimize Inventory to Reduce Costs Goal: Keep inventory levels low without risking stockouts to save on storage and holding costs. Zara's "fast fashion" approach minimizes inventory while maintaining high availability of new designs. Strategy: The company relies on just-in-time (JIT) inventory systems to replenish stock based on real-time sales data. 4. Consolidate Product Movement by Grouping Shipments Goal: Combine multiple shipments into one to reduce transportation costs and improve efficiency. A supplier ships products to different retail locations in one truckload rather than separate deliveries. Strategy: Walmart uses regional distribution centers to consolidate shipments and reduce fuel costs. 5. Maintain High Quality and Engage in Continuous Improvement Goal: Ensure products and services meet high-quality standards and continuously optimize processes. A logistics company monitors delivery accuracy and customer satisfaction scores. Strategy: FedEx uses feedback systems and Six Sigma methodologies to identify areas for improvement, ensuring high delivery quality. 6. Support the Entire Product Life Cycle and the Reverse Logistics Supply Chain Goal: Manage logistics for the entire product journey, including returns, recycling, and disposal. Electronics manufacturer HP manages the lifecycle of its printers, including disposal and recycling. Strategy: HP offers customers trade-in programs and manages reverse logistics for product recycling, ensuring environmental sustainability. An effective logistics management strategy depends upon the following tactics: Coordinating functions (transportation management, warehousing, packaging, etc.) Integrating the supply chain Locate in the right countries: ❖ Identify all geographic locations in forward and reverse supply chains. ❖ Analyze the forward and reverse chains to see if selecting different geographic locations could make the logistics function more efficient and effective. Develop an effective Import-Export strategy ❖ Determine the volume of freight and number of SKU’s that are imports and exports. ❖ Decide where to place the inventory for strategic advantage.  Select Warehouse location: ❖ Determine the optimal number of warehouses. ❖ Calculate the optimal distance from markets. ❖ Establish the most effective placement of warehouses around the world. Select transportation Modes and Carriers: ❖ Determine the mix of transportation modes that will most efficiently connect suppliers, producers, warehouses, distributors, and customers. ❖ Select specific carriers. Select the Right Number of Partners: ❖ Select the minimum number of firms’ freight forwarders and 3PL’s or 4PL’s to manage forward and reverse logistics. Develop State-of-the-Art Information Systems: ❖ Reduce inventory costs by more accurately and rapidly tracking demand information and the location of goods.  Substituting information for inventory Physical Inventory can be replaced by better information in the following ways: ❖ Improve communications. Talk with suppliers regularly and discuss plans with them. ❖ Collaborate with suppliers. Use HT to coordinate deliveries from suppliers. ❖ Track inventory precisely by using bar codes and/or RFID with GPS. ❖ Keep inventory in transit. Cross-docking is a method of keeping inventory in motion.  Reducing supply chain partners to an effective minimum number Pooling risks: Defined as: ❖ Manufacturers and retailers facing significant demand variability can manage inventory efficiently by grouping shared components across a product family. This approach minimizes the need to hold separate inventories for each product, reducing the overall inventory burden. ❖ Using a central warehouse to store common parts across products can lower storage costs and reduce stockout risks compared to decentralized warehouses. Centralization improves inventory efficiency and supports the supply network. ❖ However, centralizing inventory introduces trade-offs. While it lowers storage costs, it may increase lead times and transportation costs since the central warehouse could be farther from production facilities than decentralized ones. Logistics Management Logistics management is a supply chain management component that is used to meet demands through the planning, control, and implementation of the effective movement and storage of related information, goods, and services from origin to destination. Logistics management involves numerous elements, including: 1. Selecting appropriate vendors with the ability to provide transportation facilities, 2. Choosing the most effective routes for transportation, 3. Discovering the most competent delivery method, 4. Using software and IT resources to proficiently handle related processes Classification of Logistical Activities Logistics may be Broadly Classified into Two Categories: Inbound Logistics: concerned with the smooth and cost effective inflow of materials and other inputs Outbound Logistics: concerned with the flow of finished goods and other related information from the firm to the customer.  Significance (or Objectives) of Logistics Management (a) Cost Reduction and Profit Maximization: Logistics management results in cost reduction and profit maximization, primarily due to: 1. Improved material handling, 2. Safe, speedy and economical transportation, 3. Optimum number and convenient location of warehouses etc. (b) Efficient Flow of Manufacturing Operations: Inbound logistics helps in the efficient flow of manufacturing operations, due to on-time delivery of materials, proper utilization of materials and semi-finished goods in the production process and so on. (c) Competitive Edge: Logistics provide, maintain and sharpen the competitive edge of an enterprise by: 1. Increasing sales through providing better customer service, 2. Arranging for rapid and reliable delivery, 3. Avoiding errors in order processing; and so on. (d) Effective Communication System: An efficient information system is a must for sound logistics management. As such, logistics management helps in developing effective communication system for continuous interface with suppliers and rapid response to customer enquiries. (e) Sound Inventory management: Sound inventory management is a by-product of logistics management. A major headache of production management, financial management etc. is how to ensure sound inventory management; which headache is cured by logistics management. Significance of Logistics Management – at a glance: 1. Cost reduction and profit maximization, 2. Efficient flow of manufacturing operations, 3. Competitive edge, 4. Effective communication system, 5. Sound inventory management. Activities involved in Logistics Management Following is a brief account of key activities involved in logistics management: Network Design - required to determine the number and location of manufacturing plants, warehouses, material handling equipment’s etc. on which logistical efficiency depends. Order Processing - includes activities for receiving, handling, filing, recording of orders. Procurement - includes supply sourcing, negotiation, order placement, inbound transportation, receiving and inspection, storage and handling etc. Material Handling - involves the activities of handling raw-materials, parts, semi-finished and finished goods into and out of the plant, warehouses and transportation terminals. Material handling systems, in logistics management are divided into three categories: 1. Mechanized Systems - pallet trucks, conveyor belts and bucket elevators 2. Semi-automated Systems - a system that utilizes automated machinery with human labor and intervention. 3. Automated Systems Inventory Management - basic objective is to minimized the amount of working capital blocked in inventories and to provide timely supplies of goods to meet customers’ demands. Management has to maintain inventories of: 1.Raw-materials and parts 2. Semi-finished goods 3. Finished goods Packaging and Labeling - Packaging implies enclosing or encasing a product into suitable packets or containers, for easy and convenient handling of the product by both, the seller and specially the buyer. Labeling means putting identification marks on the package of the product. – provides information about the date of packing and expiry, weight or size of product, ingredients used in the manufacture of the product, instructions for sale handling of the product, price payable by the buyer etc. Warehousing The management has to decide about: 1. The number and type of warehouses needed 2. The location of warehouses Transportation - the logistical activity which creates place utility. Transportation is needed for: 1. Movement of raw-materials from suppliers the manufacturing unit. 2. Movement of work-in-progress within the plant 3. Movement of finished goods from plant the final consumers. Major transportation systems include: 1. Railways 2. Roadways 3. Airways 4. Waterways 5. Pipelines The choice of a particular mode of transportation is dependent on a balancing of following considerations: 1. Speed of transportation system, 2. Cost involved in transportation, 3. Safety in transportation. 4. Reliability of transportation time schedules, 5. Number of locations served etc. Strategic Logistic Management Proper Planning Proper planning is a wise plan, but an experienced manager will be able to prepare for the unforeseen circumstances as well. This situations can be related to: The products, Unavailability of the transportation Any internal issue in the organization Research and pick the correct Freight class Adopt Automation There is valuable software that can be deployed in the logistics process. The operator and the client will get details regarding: The goods that are dispatched from the supplier Procurement of the goods at the warehouse, and lastly Delivery of the goods at the destination Value Relations The team is an essential aspect of an organization that is responsible for the growth. Whether it’s the delivery guy, or the warehouse manager, everyone should be perfect in their respective field of work. Warehouse Management Effective logistics management is incomplete without proper warehouse management. Warehouse operations are considerably dependent on the type of goods. - maximize the storage capacity of the warehouse - usage of vertical columns is recommended - effective implementation of the software for sequencing the product is necessary because there should be no delay while locating the product when the order is placed. Warehouse Management Efficient Transportation Following factors should be considered for efficient transportation: Determining the best delivery route. Cost-effective packaging that ensures low investment and safety of goods. Measure and Improvise Measurement tools and software should be integrated that easily determine and classifies the information as per requirement. Analyze the metrics related to different operations. This includes: Cycle time metrics Cost metrics Service metrics  SHIPPING TIME ORDER ACCURACY Spot potential issues in the order fulfillment process Monitor the degree of incidents in your warehouse PICKING ACCURACY How many orders are picked without errors? DELIVERY TIME DWELL TIME Track your average delivery time in detail Reduce driver’s waiting time to pick or drop orders INVENTORY CARRYING COSTS Track all related costs of storing unsold inventory  The importance of Flexibility for Strategic Logistic Management Flexibility is often misunderstood as more companies move towards software-as-a-service(SaaS) models for transportation management (TMS) Software as a service (or SaaS) is a way of delivering applications over the Internet—as a service. (Customer Relationship Management (CRM), Enterprise Resource Planning (ERP), Content Management System, (CMS)) Flexibility refers to the scalability and adaptability within a given system to improve the effectiveness of shipping processes. Catalysts for Increased Flexibility Scalability and demand from customers and suppliers. - flexible TMS allows a shipper to view potential influences in a shipment, makes adjustment as necessary. Compliance and visibility concerns - allows an organization to ensure compliance statutes are met. Unpredictability in shipping - flexible TMS should consider historic data for time periods and changes in transportation methods and devise a solution to address each problem. Core Components of Flexibility Flexible and strategic logistic management includes three key means of improvement: 1. Delivery Model: implements a Software as Service (SaaS) that helps create networks outside the company and benefits the latter financially by matching savings and costs. 2. Functionality: combines the best commercial practices with supply chain management tools that can be deployed by modules. 3. Services: adds analytics, comparative assessments, business intelligence, engineering, and administration to the platform. Traditional Flexibility Vs Modern Flexibility Traditional Flexibility: adjusting delivery schedules to meet the expectations of when drivers and shipments would arrive and be ready for processing. Modern Flexibility: involves the use of data analytics to discern where problems arise and how such problems can be addressed. - modern shipping includes the “break-apart” aspects of traditional flexibility model.  Logistics is Important to your Company Increased Customer Satisfaction - customer demand better service. Good management strategy is aimed to constantly optimize transportation processes and eliminate disruptions. Visibility and Insight Cost Savings - advanced transportation management system (TMS) analyze historical data and track the real-time movement of goods in and out of a business. Logistics managers can use this information for process optimization and avoiding potential disruptions.  Cost Savings - managing logistics on a proper level will give a company control over inbound freight, keep inventory at optimal levels, organize the reverse flow of goods and utilize moves on the proper transportation modes. Demand Side Analysis Demand side analysis takes into account data related to customer’s income level, price of products, price of supplementary product or any buying constraints or stimulus. Demand side analysis is used to find out how much demand exists for a particular product or service There can be various methods for demand side analysis but the basic components remain the same that are as follows: Market identification Business cycle Product differentiation Growth potential and Competition As demand analysis is highly important for companies, it has to be carried out in systematic way. The key steps involved in demand side analysis are as follows. Situation analysis and defining objectives Secondary study and data collection Conduct market survey Market characterization Forecasting of demand Market planning