Fundamentals of Logistics Management PDF

Fundamentals of Logistics Management LSCM 2051 Zelalem Bayisa (PhD) Addis Ababa University, School of Commerce, Department of Logistics and Supply Chain Management Addis Ababa, Ethiopia 1/8/2023 ZB Gurmessa (PhD) 1 Chapter Objectives Basic...

Fundamentals of Logistics Management LSCM 2051 Zelalem Bayisa (PhD) Addis Ababa University, School of Commerce, Department of Logistics and Supply Chain Management Addis Ababa, Ethiopia 1/8/2023 ZB Gurmessa (PhD) 1 Chapter Objectives Basic concepts' of logistics Management Historical Development of logistics Management The difference between Logistics versus supply chain management Objectives of (Business) Logistics Management Economic Impacts of Logistics Management The main functions of Logistics Management 1/8/2023 ZB Gurmessa (PhD) 2 1.1. Basics of Logistics and Logistics Management 1/8/2023 ZB Gurmessa (PhD) 3 Reflection points Brief introduction session? What is an organization for you? Can you give us some examples of organizations? How can we differentiate between organizations? 1/8/2023 ZB Gurmessa (PhD) 4 Basis of classification of organizations Ownership (private, public, NGOs, etc.), Objective/mission (Manufacturing versus services or profit-making versus non-profit making), Size (small, medium, large), geographic boundary (local, international, multinational, etc.) 1/8/2023 ZB Gurmessa (PhD) 5 Introduction to Organization Organization defined - A group of two or more people working together to achieve some common objectives. Two or more people Common objective Organizations can be Profit making Private companies Public enterprises Share companies Non profit making Non Governmental organizations-NGO Civil service organizations 1/8/2023 ZB Gurmessa (PhD) 6 Organization– Defined Common Objectives Activities Resources Human Capital Information Physical resources Scarcity of resources? Then we need management 1/8/2023 ZB Gurmessa (PhD) 7 What is Management then? Classically it is defined as a process of planning, organizing, directing, and controlling for efficient and effective use of scarce resources to achieve organizational objectives. Functions of Management are, therefore, Planning Organizing Staffing Directing Controlling Why do we need management? To bring about Efficiency and Effectiveness 1/8/2023 ZB Gurmessa (PhD) 8 Functions of Management Planning Set Objectives List the activities to be performed to achieve objectives List resources to undertake each activity Organizing/Staffing Group similar activities together Establish relationship b/n group of activities Organizational Structure Allocate resources including human resources 1/8/2023 ZB Gurmessa (PhD) 9 Functions of Management – Defined Directing Leading …..influencing the others Motivation …encouraging the employees Communication Controlling Set performance standard Measure the actual performance Compare the actual and planed performance Take action Corrective Reward 1/8/2023 ZB Gurmessa (PhD) 10 1.1. Conceptualizing logistics and logistics management 1/8/2023 ZB Gurmessa (PhD) 11 Basic terminologies Conventionally the term Logistics has been called by many names Business logistics Channel management Distribution Industrial logistics Logistical management Materials management Physical distribution Quick-response systems Supply chain management Supply management 1/8/2023 ZB Gurmessa (PhD) 12 Logistics defined The frequently mentioned ‘logistics’ originated from the word ‘logistique’ or ‘loger’ in French which mean storage. Logistics in English refers to a system that transports goods, information and resources from a place of origin to a destination according to customer’s needs. Logistics involves information, transportation, stock management, raw material management and packing. Logistics is a part of the supply chain which utilises space and time to add value to goods. 1/8/2023 ZB Gurmessa (PhD) 13 Logistics Defined… Logistics defined as the process of planning, implementing and controlling the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption/destination for the purpose of conforming to customer requirements 1/8/2023 ZB Gurmessa (PhD) 14 Logistics Defined… Logistics defined (cont’d) the positioning of resources at the right time, in the right place, at the right cost, at the right quality (rights of logistics) is seen as a system (the logistics system), which includes not only all the functional activities determining the flow of materials and information, but also the infrastructures, means, equipment and resources that are indispensable to the execution of these activities. 1/8/2023 ZB Gurmessa (PhD) 15 Logistics Defined… Simply speaking, logistics is a process of transferring, storing and distributing goods, services or information from its place of origin to a location where there is a demand. This is done through a holistic process focusing on effectiveness and efficiency aiming at a timely delivery and reducing cost while also increases customer satisfaction and adds value to goods and services. 1/8/2023 ZB Gurmessa (PhD) 16 Scope of Application of the discipline Logistics is not confined to manufacturing operations alone. It is relevant to all enterprises, including government institutions such as hospitals and schools, and service organizations such as retailers, banks, and financial service organizations Manufacturing sector 1/8/2023 ZB Gurmessa (PhD) 17 Logistics system vis –a-vis body system 1/8/2023 ZB Gurmessa (PhD) 18 Logistics system- Components A logistics system is made up of facilities, where one or more functional activities are carried out that logistics is dependent upon natural, human, financial, and information resources for inputs Management actions 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 goods to the customer’s vicinity, and providing a logistics service mix such that logistics becomes a proprietary asset of the organization 1/8/2023 ZB Gurmessa (PhD) 19 Logistics system- Components Internal Logistics functions/activities Receiving and storing materials, Picking them up from the warehouse to feed the production lines and Successively moving the semi-finished goods (work- in-progress) up to packaging and storing the finished product External Logistics Functions/Activities Supply (Input) logistics and Distribution (output) logistics 1/8/2023 ZB Gurmessa (PhD) 20 Logistics system- Components Who performs logistics activities? Logistics activities can be conducted by the company itself or can be entrusted to a third party (outsourcing) (3PL, 4PL). In making the choice between “self” and “third party”, ‘make or buy’-model or framework will be used. Before making the decision, it is imperative to have an in- depth knowledge of the nature of the costs that the company bears (fixed costs, variable costs, direct costs, and indirect costs). 1/8/2023 ZB Gurmessa (PhD) 21 Systems perspectives in Logistics Management 1/8/2023 ZB Gurmessa (PhD) 22 Logistics Management (LM)-defined The term logistics Management refers to 1) ‘‘that part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from the point of origin to the point of consumption in order to meet customers’ requirements” (Council of Logistics Management) 2) It also refers to the overall process of managing how resources are acquired, stored, and transported to their final destination. 1/8/2023 ZB Gurmessa (PhD) 23 Logistics Management (LM)-defined LM- refers to planning, implementing, and controlling the efficient, effective, forward, and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customer's requirements 1/8/2023 ZB Gurmessa (PhD) 24 Logistics Management (LM)-defined The term has its roots in military science and then adopted by the business world especially among the manufacturing companies. The concept was later diffused into the rest of the sectors including government, non-profit (humanitarian) and the services 1/8/2023 ZB Gurmessa (PhD) 25 The logistics/Supply Chain Mission 1/8/2023 ZB Gurmessa (PhD) 26 1.2. Evolution of Logistics 1/8/2023 ZB Gurmessa (PhD) 27 Emergence of Logistics Three key factors contributed to its emergence or origin of Logistics: development of a cross-functional model of the organization the need to integrate business processes across the supply network Competitive advantage (competition) 1/8/2023 ZB Gurmessa (PhD) 28 Evolution & Development of logistics The stages of development of the discipline can be understood in five major phases as summarized in the following table: Stage of Duration Development theme development Stage 1 1956 to 1965 A Decade of Conceptualization Stage 2 1966 to 1970 A Time to Test for Relevancy Stage 3 1971 to 1979 A Period of Changing Priorities Stage 4 1980 to 1985 A Period of Significant Political and Technological Change Stage 5 1986 and Beyond Toward Integrated Logistics 1/8/2023 ZB Gurmessa (PhD) 29 Stage 1:1956 to 1965-A Decade of Conceptualization Four major developments solidified this conceptualization: development of total cost analysis, offered a method for measuring logistical activities application of the systems approach, provided an framework for analysis of complex relationships increased concern for customer service, revised attention to marketing channels. During 1962 and 1963 the National Council of Physical Distribution Management (NCPDM) was established 1/8/2023 ZB Gurmessa (PhD) 30 Stage 2: 1966 to 1970-A Time to Test for Relevancy A time during which the basic concepts of logistics were tested in the real-world practice The predicted cost and service benefits became reality Physical distribution emerged with the goal of the management of order processing, warehousing, transportation, and inventory control on an integrated basis 1/8/2023 ZB Gurmessa (PhD) 31 Stage 2: 1966 to 1970-A Time to Test for Relevancy… Materials Management began to develop as an attempt to integrate the planning and logistical dimensions of purchasing and manufacturing performance measurement Establishment of physical distribution and materials management organizations faced significant opposition in many firms 1/8/2023 ZB Gurmessa (PhD) 32 Stage 3: 1971 to 1979-A Period of Changing Priorities A period of prolonged uncertainty in almost every dimension of enterprise activity The availability of low-cost energy became a critical concern…. why fuel cost increase & shortage of materials Transportation and storage are among the largest and most visible energy consumers Economic crisis Ecological concerns logistics activities ranked high among the sources of environmental impact and potential pollution 1/8/2023 ZB Gurmessa (PhD) 33 Stage 3: 1971 to 1979-A Period of Changing Priorities… Enterprise priorities and related programs to cope with the ever-changing situation shifted from servicing demand to maintaining supply Attention focused on procurement because of the sheer consequence of supply failure Rapid adoption of materials management concepts Adoption of just-in-time movement and long-term contractual commitments emerged Emphasis began to focus on proactive rather than reactive procurement Mainframe computer models for logistical system design and control confirmed (development and adoption of computer) Significant logistical problems often have an organizational and institutional rather than a technical base Attention began Potential of third-party logistical arrangements as an alternative solution to the growing complexity of logistical support (i.e., outsourcing options) Institutionalization of logistics within the organizational structures (fixing departments) 1/8/2023 ZB Gurmessa (PhD) 34 Stage 4:1980 to 1985-A Period of Significant Political and Technological Change This era is marked by the following developments: Transportation deregulation (privatization of all modes of transpiration- modalities to promote competition), The introduction of micro- computer technology, and The communication revolution: Universal Product Coding (UPC) Electronic Data Interchange UPC Example and its purpose: to make it (EDI) easy to identify product features, such as the Computer-to-computer brand name, item, size, and color, when an ordering (E-commerce) item is scanned at checkout. 1/8/2023 ZB Gurmessa (PhD) 35 Stage 5: 1986 and Beyond-Toward Integrated Logistics What is integrated logistics? a business management model that is increasingly used to accelerate product delivery and improve customer service Purpose? There is a great deal of interdependence between all logistical areas which can be exploited to the advantage of the enterprise A narrower or restricted approach creates the potential for a dysfunctional interface The control requirements for each operation are similar There is an increasing awareness that many trade-offs exist between manufacturing economies and marketing requirements that can be reconciled by a well-designed logistical system Complexity of contemporary logistics require innovative solutions 1/8/2023 ZB Gurmessa (PhD) 36 Stage 5: 1986 and Beyond-Toward Integrated Logistics Integrated Logistics Management Rapid response Minimum variance ( to quest for consistency) Minimum (optimum) inventory Movement Consolidation (interpretation) Life Cycle Support Supply Chain Management providing excellence to customers by moving the product to the final destination and making it a priority to meet all requirements set forth by customers Transfer Value Chain Management Transfer + adding value 1/8/2023 ZB Gurmessa (PhD) 37 Flows in an Integrated logistics 1/8/2023 ZB Gurmessa (PhD) 38 Logistics Versus Supply Chain Management (SCM) SCM is more strategic in nature whereas logistics is more operations- oriented. SCM deals more with the linkages in the chain, contracts and relationships, supplier selection, information and financial flows besides materials flows, creating new facilities such as plants, warehouses and distribution center’s, and broader issues such as society, economy, government and environment, Logistics is more or less confined to the routine job of transportation and storage of goods. However, logistics is the core of Supply Chain Management (SCM), and if logistics fails, the whole chain snaps. 1/8/2023 ZB Gurmessa (PhD) 39 Logistics Versus Supply Chain Management 1/8/2023 ZB Gurmessa (PhD) 40 Objectives of Logistics Management Minimize costs Storage costs Operational management costs Stock out costs Transport costs Plant and equipment costs Maximize profits and service level 1/8/2023 ZB Gurmessa (PhD) 41 Elements of Logistics There are five elements of logistics: Storage, warehousing and materials handling Packaging and unitization Inventory Transport Information and control 1/8/2023 ZB Gurmessa (PhD) 42 Types of Logistics Broadly speaking, logistics can be classified as – Intralogistics (inbound) and External logistics (outbound) In spite of the above broad classification, it is possible to classify logistics into four types based on the stage of the product in the supply chain management namely- procurement, production, distribution, and everything relating to after-sales service (recovery and recycling logistics) 1/8/2023 ZB Gurmessa (PhD) 43 Types of Logistics 1/8/2023 ZB Gurmessa (PhD) 44 Types of Logistics… (1) Procurement logistics is responsible for managing supplies required for the manufacture and sale of finished products, semi-finished goods, and raw materials. Companies have three methods for managing procurement logistics: Just-in-time: the necessary materials are received when required to complete the production process, not ahead of time. This does away with the need to store them. Synced with production: supply planning is done with the aim of anticipating manufacturing needs. This way, you know in advance when and how much merchandise will be received and whether it will be temporarily stored. Safety stock: this consists of storing more goods than those you actually need for production to mitigate any unforeseen circumstances (changes in demand, supplier delays, etc.). To ensure efficient procurement logistics, it’s crucial to consider a series of variables, namely: the selection of suppliers, the exact amount of stock ordered and frequency of procurement, the inventory management model applied, and the load unit(s) used to store, handle, and transport the products. 1/8/2023 ZB Gurmessa (PhD) 45 Types of Logistics… (2) Industrial or manufacturing logistics includes and optimizes all processes taking place from the purchase of raw materials to the creation of the final product. These are the two most common production strategies: ▪ Make to stock, or the push system: goods are manufactured ahead of time and subsequently stored in the warehouse. The sales department only sells the available merchandise. ▪ Make to order, or the pull system: The product is manufactured once the order is received from the customer. The main objective of industrial logistics is to reduce manufacturing lead time, that is, the amount of time it takes from the moment a production order is generated until the product is finished. 1/8/2023 ZB Gurmessa (PhD) 46 Types of Logistics… (3) Distribution logistics: Also known as transport logistics, is charged with ensuring that products or goods reach customers quickly and efficiently. There’s no point in offering an attractive, functional, and affordable product if you can’t guarantee that the customer will receive it in the agreed-upon time, condition, and quantity. Distribution logistics can be: ▪ Direct: the manufacturer is charged with distributing the product directly to end consumers. ▪ Indirect: as opposed to end customers, the merchandise is sent to other wholesalers or to retailers (who sell to end consumers). Distribution logistics intervenes right after the product has been manufactured, encompassing transportation, storage, order preparation, and delivery to the customer. 1/8/2023 ZB Gurmessa (PhD) 47 Types of Logistics… (4) Reverse logistics: The set of practices and processes connected with managing product returns and refunds. Reverse logistics can be classified as: ▪ Returns logistics: the most common type, this has grown the most because of e-commerce. It deals with returned orders sent back to distribution centers. ▪ Waste logistics: this has to do with the recycling, treatment, and recovery of waste in order to take advantage of it or eliminate it to prevent environmental damage. The activities necessary for implementing efficient reverse logistics are essentially the same as those involved in all types of logistics operations. Nevertheless, the main difference is that they need to be properly planned to keep reverse logistics from interfering in other warehouse operations. 1/8/2023 ZB Gurmessa (PhD) 48 Types of Logistics… 1/8/2023 ZB Gurmessa (PhD) 49  Types of Logistics (5) Third-Party Logistics (3PL): The third-party logistics are focused only on the transportation of products from one end to another end and nothing else. 1/8/2023 ZB Gurmessa (PhD) 50  Types of Logistics Strategies (Reading Assignment) Logistics operational strategies can either be product-specific / destination-specific / customer-specific. There are six different types of logistics strategies: Inbound Logistics Outbound Logistics Reverse Logistics Distribution Logistics 3rd Party Logistics 4th Party Logistics 1/8/2023 ZB Gurmessa (PhD) 51 Scope of Logistics activities 1/8/2023 ZB Gurmessa (PhD) 52  Economic Impacts of Logistics Logistics creates value for customers, suppliers & stakeholders – Macroeconomic Impacts – Economic Utility Possession utility Form utility Place utility Time utility 1/8/2023 ZB Gurmessa (PhD) 1-53  The Cost of the Business Logistics System in Relation to a Country’s Gross Domestic Product (GDP) 1/8/2023 ZB Gurmessa (PhD) 1-54  Why study logistics in the Supply Chain? Effectively coordinated logistics leads to positive business results Logistics helps businesses create value Logistics helps in reducing costs and improves efficiency Logistics helps delivering your product at the right place timely Logistics is the key to success with supply chains build and maintain a positive public image 1/8/2023 ZB Gurmessa (PhD) 55 Trends that are Shaping the Future of Logistics Growth patterns Continuity Flexibility Sustainability Globalization Compliance Near shoring Partnerships Multi-channel End-to-end visibility sourcing Complexity Information technology 1/8/2023 ZB Gurmessa (PhD) 56  Thank You! 1/8/2023 ZB Gurmessa (PhD) 57 1/8/2023 ZB Gurmessa (PhD) 58