Logistics management is that of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods service, and related information from the point-of origin to the point of consumption in order to meet customers’ requirements.
Logistics’ role in economy Logistics play a key role in the economy in two significant ways. First, logistics is one of the major expenditures for business, thereby affecting and being affected by other economic activities. If logistics expenditures are high, this would translate into higher prices for consumers, lower profits for businesses, or both. The result could be a lower overall standard of living and/or a smaller tax base. Thus, by improving the efficiency of logistics operations, logistics makes an important contribution to the economy as a whole.
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. To understand this role form systems perspective, consider that if goods do not arrive on time, customers cannot buy them. If goods do not arrive in the proper place, or in the proper condition, no sale can be made. thus, all economic activity throughout the supply chain will suffer. One of the fundamental ways that logistics adds value is by creating utility. From an economic standpoint, utility represents the value or usefulness that an item or service has in fulfilling want or need.
The role of Logistics in the organization In recent years, effective logistics management has been recognized as a key element in improving both profitability and the competitive performance of firms. The marketing concept, as mentioned above, is a “marketing management philosophy which holds that achieving organizational goals depends on determining the needs and wants of target markets and delivering the desired satisfactions more effectively and efficiently than competitors.” Logistics plays a key role in each of the elements of the three critical elements of the marketing concept (customer satisfaction, integrated effort/systems approach, and adequate corporate profit) in several ways.
Key logistics activities Below are the key activities required to facilitate the flow of a product from point of origin to point of consumption. All of these activities may be considered part of the overall logistics process: customer service, demand forecasting, inventory management, logistics communications, material handling, order processing, packaging, parts and service support, plant and warehouse site selection, procurement, return goods handling, reverse logistics, traffic and transportation, warehousing and storage.
Customer service Customer service can be defined as: A process which take place between the buyer, seller, and third party. The process result in a value added to the product or service exchanged. This value added in the exchange process might be short term as in a single transaction or longer term as in a contractual relationship. The value added is also shared, in that each of the parties to the transaction or contract are better off at the completion of the transaction than ot was before the transaction tool place. Thus, in a process view: customer service is a process for providing significant value-added benefits to the supply chain in a cost-effective way.
In time of tough competition when many organizations offer similar products in terms of price,features, and quality, customer service differentiation can provide an organization with a distinct advantage over the competition. Customer service represents the output of the logistics system as well as the “place” component of the organizationg’s marketing mix.customer service performance is a measure of how well the logistics system functions in creating time and place utility, woth a focus on external cunsomers. The level of service provided to functions, such as marketing and production, affects the organization’s ability to serve the needs of customers and will determine how well these functions communicate and interact with logistics on a day-to-day basis.
The level of customer service provided to customers determines whether the organization will retrain existing customers and how many new customers it will attract. In virtually every industry today, from computer to clothing to cars, customers have a wide variety of choices. A company cannot afford to offend its customers. The customer service level that an organization provides has a direct impact on its customers. The customer service level that a organization provides has a direct impact on its market share, its total logistics costs and, ultimately, its overall profitability. To illustrate, a key to corporate profitability is to successfully attract and retain customers.
For these reasons, it is of the utmost importance that customer service be an integral part of the design and operation of all logistics systems. Customer service is the output of the logistics system. It involves getting the right product to the right customer at the right place, in the right condition and at the right time, at the lowest total cost possible. Good customer service supports customer satisfaction, which is the output of the entire marketing process.
Inventories represent the largest single investment in assets for many manufacturers, wholesalers, and retailers. Inventory investment can represent over 20 percent of the total assets of manufacturers, and more than 50 percent of the total assets of wholesalers and retailers. Competitive markets of the past 20 years have led to a proliferation of products as companies have attempted to satisfy the needs of diverse market segments. Customers have come to expect high levels of product availability. For many firms, the result has been higher inventory levels. With the growing popularity of just-in-time [J IT) manufacturing. the reduction of product life cycles, and an increased emphasis on time-based competition, ﬁrms who hold large amounts of inventory have been much criticized. However, inventory does serve some very important purposes.
But carrying excessive levels of inventory is costly. Organizations frequently do not identify or capture all of the many costs associated with holding inventory. Since capital invested in inventories must compete with other investment opportunities available to the firm, and because of the out-of-pocket costs associated with holding inventory, the activity of inventory management is extremely important. Management must have a thorough knowledge of inventory carrying costs to make informed decisions about logistics system design, customer service levels. the number and location of distribution centers, inventory levels, where to hold inventory and in what form, transportation modes. production schedules. and minimum production runs.
For example, ordering in smaller quantities on a more frequent basis will reduce inventory investment. but may result in higher ordering costs and increased transportation costs. It is necessary to compare the savings in inventory carrying costs to the increased costs of ordering and transportation to determine how the decision to order in smaller quantities will affect proﬁtability. A determination of inventory carrying costs also is necessary for new product evaluation, the evaluation of price deals/discounts. Make-or-buy decisions and profitability reports. It is thus imperative to accurately measure a firm’s inventory carrying costs.
Logistics information system
Computer and information technology has been utilized to support logistics for manyyears. It grew rapidly with the introduction of microcomputers in the early 1980s. Information technology is seen as the key factor that will affect the growth and development of logistics. The order processing system is the nerve center of the logistics system. A customer order serves as the communications message that sets the logistics process in motion. The speed and quality of the information ﬂows have a direct impact on the cost and efficiency of the entire operation. Slow and erratic communications can lead to lost customers or excessive transportation. inventory, and warehousing costs, as well as possible manufacturing inefficiencies caused by frequent production line changes.
The order processing and information system forms the foundation for the logistics and corporate management information systems. It is an area that offers considerable potential for improving logistics performance. Organizations of all types are utilizing computers to support logistics activities. This is especially true for companies thought to be on the “leading edge.” that is, leaders in their industry. Such firms are heavy users of computers in order entry, order processing, ﬁnished goods inventory control, performance measurement, freight audit payment, and warehousing. A recent study of world-class logistics practices cited logistics information systems as a key to competitiveness. Going beyond “transaction processing and tracking,” decision support systems (DSSs) are computer-based and support the executive decision-making process.
The DSS is an integrative system of subsystems that has the purpose of providing information to aid a decision maker in matting better choices than would otherwise be possible. To support time-based competition, organizations are increasingly using information technologies as source of competitive advantage. Systems such as quick response (QR), just-in-time [JIT], and efficient consumer response (ECR) are integrating a number of information-based technologies in an effort to reduce order cycle times, speed responsiveness, and lower supply chain inventory. In addition, more sophisticated applications of information technology such as decision support systems, artificial intelligence, and expert systems are being used directly to support decision making in logistics.
Communication is key to the efficient functioning of any system, whether if be the distribution system of an organization or the wider supply chain. Excellent communications within system can be a key source of competitive advantage.
Materials handling is a broad area that encompasses virtually all aspects of all movements 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 materials management. is to eliminate handling wherever possible. That includes minimizing travel distance., bottlenecks, inventory levels, and loss due to waste, mishandling, pilferage, and damage. Thus, by carefully analyzing material ﬂows, materials management can save the organization signiﬁcant amounts of money.
ln addition to supporting production through the movement of materials, work in process, and ﬁnished goods. logistics also is responsible for providing after-sale service support. This may include delivery of repair parts to dealers, stocking adequate spares, picking up defective or malfunctioning products from customers, 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.
Packaging packaging is valuable both as a form of advertising, marketing, and for protection and storage from a logistical perspective. Packaging can convey important information to inform the consumer. Aesthetically pleasing packaging also can attract the consumer’s attention. Logistically. packaging provides protection during storage and transport. This is especially important for long distances over multiple transportation modes such as international shipping. Packaging can case movement and storage by being properly designed for the warehouse conﬁguration and materials handling equipment.
Plant and warehouse site selection
Determining the location of the company’s plants and warehouses is at strategic decision that affects not only the costs of transporting raw materials inbound and ﬁnished goods outbound, but also customer service levels and speed of response. Issues to consider include the location of customers. suppliers, transportation services, availability and wage rates of qualiﬁed employees, governmental cooperation. and so on.
Warehousing is an integral part of every logistics system. There are an estimated 750,000 warehouse facilities worldwide. including slate-of-the-art, professionally managed warehouses. as well as company stockrooms, garages. self-store facilities, and even garden sheds. Warehousing plays a vital role in providing a desired level of customer service at the lowest possible total cost. Warehousing activity is an important link between the producer and the customer. Over the years, warehousing has developed from a relatively minor facet of a firm‘s logistics system to one of its most important functions.
With the increase in outsourcing of goods and services, the procurement function plays a more important role in the organization. Procurement is the purchase of materials and services from outside organizations to support the firm’s operations from production to marketing. sales, and logistics. Procurement. also referred to as purchasing, supply management, and by a number of other names. includes activities such as supplier selection, negotiation of price, terms and quantities, and supplier quality assessment. As organizations form longer-term relationships with fewer key suppliers, procurement continues to grow in importance and contribution to the organization.
Return goods handling
Returns may take place because of a problem with the performance of the item or simply because the customer changed his or her mind. Return goods handling is complex because it involves moving small quantities of goods back from the customer rather than to the customer as the firm is accustomed. Many logistics systems have a difficult time handling this type of movement. Costs tend to be very high. The cost of moving a product backward through the channel from the consumer to the producer may be as much as nine times as high as moving the same product forward from the producer to the customer. Thus, this significant cost and service area is beginning to receive more attention.
Logistics is also involved in removal and disposal of waste materials left over from the production. distribution. or packaging processes. There could be temporary storage followed by transportation to the disposal, reuse. reprocessing, or recycling location. As the concern for recycling and reusable packaging grows. This issue will increase in importance. This is of particular concern in Europe. Which has very strict regulations regarding removal of packaging materials and even obsolete product due in part to limited landfill space.