Some important concepts of Logistics

SOME IMPORTANT CONCEPTS

1. Logistics Management and Supply Chain Management……… Development of Logistics and Supply Chain Management Concept a. 1950 – 1960: Importance of examining costs and benefits in physically moving the goods to customers came into focus in post war1950s. We have seen earlier that concept of logistics was born in the crucible of warfare and came into business after the end of II world war. Idea of total system cost emerged during this period. Analyses of trade off situations between costs of several activities, selection of modes of transport keeping total system cost in mind are fallout of this concept. It can be understood that selection of water as a mode of transport gives low transportation cost that will result into high transit inventory adversely affecting total system cost. Initially outbound logistics was in focus as value of the finished goods inventory is high. A new management function called Physical Distribution Management emerged integrating various activities on the outbound side like transportation, warehousing, packaging, customer service etc. Advent of electronic era of 1960s made information a strong component of physical distribution management. Inbound logistics was still considered to be a concern of vendors and did not receive the attention of management.

b. In 1970s strengthened by IT, physical distribution management started looking into some aspects of financial management subsystems. Monitoring and planning for efficient completion of cash cycle became attached to physical distribution management. Around the same time importance of inbound logistics was appreciated.

c. In 1980s physical distribution management function came to be called logistics management encompassing inbound and outbound logistics. During this time this function started looking closely into logistical operations adopting modern concepts like TQM & TPM to logistical operations.

d. 1990: This concept expanded, all up stream and down stream organizations and activities were brought closer for mutual cooperation in order to gain benefits of QCD. This idea of external integration is Supply Chain Management.

Definition: the management of upstream and down stream relationships with suppliers and customers to deliver superior customer value at less cost to the supply chain as a whole. Supply Chain Management looks beyond the confines of organizations to deliver value to the end user at minimum cost. Supply chain is visualized as a pipeline through which products from raw materials stage to the end user. Supply Chain Management is ensuring that this flow is smooth and quick. Henry Ford visualized the importance of this flow in early 1990s and expanded his business to cover raw materials, their deposits, forests, plantations and even transportation activities like shipping lines. His business interests extended beyond the frontiers. This diverse expanse of business gave him final control on the supply chain but became nonviable due to labor problems and unwieldy bureaucracy. He realized that smaller independent organizations were more efficient and cost effective in delivering value and shifted his focus to a network of competent dealers. Idea of supply chain management Supply Chain Management aims at breaking down organizational barriers

a] to share sales information on ‘real time’ basis that reduces inventories and need for safety stocks. This is called supply chain compression resulting into inventory reduction and larger inventory turns. Dell Computers considered to be leaders in computers business have recorded 50 inventory turns in 1997, IV Q, whereas Compaq could manage only 10 turns.

b] Smoothen the flow of information both ways [orders reaching the suppliers, and products reaching the that results into reduced delivery time or reduction of lead-time resulting into shortened cash-flow cycle

2. Business functions of logistics I] Business logistics is planning, implementing and controlling efficient & effective flow and storage of goods, efficient & effective flow services, and related information from point of origin to point of use or consumption in order to meet customer requirements. a. Food and agricultural products: We are familiar with warehouses owned by Food Corporation of India. The government in these warehouses stores huge quantities of procured food grains. These stocks are subsequently moved to outlets of Public Distribution System. This is a logistical operation by Govt. of India in Agricultural Products Sector b. Raw materials and finished engineering, chemical, pharmaceutical goods. c. Consumer durable goods: Logistical Management is receiving attention in industry as many consumer durable products are moving into commodities market. II] Business logistics plays the role of facilitator for trade and business. It makes business happen.

3. Logistical mission Mission of logistics is to achieve business objectives by delivering desired quality of service at the lowest total cost. This is nothing other than delivering QCD expectations of the customer by planning logistical operations at minimum cost. This can also be called creating customer value at minimum cost. The illustration below shows that Logistical mission cuts across functional lines to achieve business objectives at minimum cost. Logistical mission is a set of goals to be achieved at a particular type of market for a particular type of product. Naturally this is responsive to competition. Hence logistical mission is to achieve above goals at minimum system cost. Focus is on mission rather than on isolated functions. Mission of logistics is providing a means by which customer satisfaction is achieved.

4. Role of planning in logistics management · Role of planning is central to logistics management · Mission of logistics management is to plan and coordinate all those activities necessary to achieve desired levels of service and quality at lowest possible cost. · Logistics is fundamentally a planning concept that seeks to create a frame work through which needs of the market place can be translated into a manufacturing strategy and plan · Logistics makes one plan, integrating various resources of the organization that replaces traditional concept of planning in pockets

5. Logistics interface with marketing Interface is a common wall or surface between two objects, concepts or functions. It can also be common area/areas of performance or interest. Outbound logistics plays an important role in selling the product of the company as it moves the product through the distribution system to the customer. Hence it is called the other half of marketing. In several instances making the product available at the right time at the right place itself is the key to successful selling. A student of management very well knows four Ps of marketing. We have already seen the role of logistics as far as ‘Place’ is concerned. It is quite interesting to see the interface with respect to other Ps as well. Price: Logistics enables marketing to quote a competitive price by providing discount opportunities on account of Transportation cost savings. Logistics Manager can plan the size of the consignment confirming to the most economical schedules published by transportation service providers to save transportation costs. If order size matches with the favored size the benefits are substantial. Logistics Management has to balance inventories to tackle anticipated price-triggered sales. Product: Inputs of logistics manager are quite important as far as the size and shape of the product are concerned. Size and shape of the product can make logistics nightmarish, thereby adding huge amount of costs. Weight/volume ratio plays very important role in deciding economics of logistics. The story of Gillette is well known logistical circle. The low weight, unwieldy floor display proved to be a very expensive logistical operation. While consumer packaging provides sales push in a retailers shop, it can make industrial packaging difficult due to its shape and ability to protect the contents. Product and its packaging is a common area from the point of view of logistics. Promotion: Logistics Management is required to manage inventory needed to match sales triggered by promotional activities in the market. Marketing Management & Logistics Management need to work closely in deciding promotional strategies for the product. Promotional strategies may be push or pull type. Logistical problems may be faced in either or both, but being aware takes the punch away from the blow!

Place: Marketing decision to distribute the product directly to retailers or through wholesalers has a great impact on logistical operations. Demand placed by wholesalers is more streamlined as compared to retailers. Logistical management of retailers’ demand often requires time sensitive transportation methods which are expensive. In addition to the four Ps, customer service is another area where marketing & logistical managements have to work closely to effectively beat the competition.

6. Inbound & outbound logistics Inbound Logistics Creation of value in a conversion process heavily depends on availability of inputs on time. Making available these inputs on time at point of use at minimum cost is the essence of Inbound Logistics. All the activities of a procurement performance cycle come under the scope of Inbound Logistics. Scope of Inbound Logistics covers transportation during procurement operation, storage, handling if any and overall management of inventory of inputs. Several activities or tasks are required to facilitate an orderly flow of materials, parts or finished inventory into a manufacturing complex. They are sourcing, order placement and expediting, transportation, receiving and storage. Overall, procurement operations are called inbound logistics. A procurement cycle is shown below. Inbound logistics have potential avenues for reducing systems costs. Delivery time, size of shipment, method of transport & value of products involved are different from those of physical distribution cycles. Normally delivery time is large as a low cost transportation mode is chosen. As the value of inventory is low size of shipment is large & transit inventory costs are low. As the price of products is lower, trade off between cost of maintaining inventory in transit and low cost transport exists to the benefit of the organization.

Outbound Logistics Value added goods are to be made available in the market for customers to perceive value. Finished goods are to be distributed through the network of warehouses and supply lines to reach the consumer through retailers’ shops in the market. During conversion value is added to the raw materials and as a result value of the inventory in this case is very high unlike inputs. Now the size of shipment, modes of transport and delivery time are different as compared to inputs. Activities of distribution performance cycle come under the scope of Outbound Logistics. They are order management, transportation, warehousing, packaging, handling etc.

7. Importance of 3Cs – competitive advantage by effective logistics management The three Cs in business are Company, Customer and Competition. All the three “C” are vital for healthy business and prosperous economy. Buying decision is always triggered by a need a consumer is experiencing due to the stress he is under. Customer is attracted by value when he is about to make a buying decision. Competitors in business continuously add value to their products in order to be ahead in the competition. Any supplier organization or Company tries to be better than the Competition by utilizing their assets efficiently and effectively. The Supplier Company tries to differentiate her products in terms of functional quality and product cost. Competition has ensured that technology and human skills are almost same everywhere. Hence product differentiation in terms of functional quality and product cost is nearly impossible. But a great opportunity exists for the Supplier Company to differentiate her products by service and logistics cost by superior logistics. When this happens customer sees better value in the products of Supplier Company as compared to competition.

8. Logistics overview and its implications a. Birth and development of logistics in post war business since 1950. b. External integration of supply chain and concept of Supply Chain management………… 1990 c. Elements of Logistical Management function d. Scope of Logistical Management e. Significance of logistics in Business Management, the time and place f. Overall goal of Logistical Management function

9. Different attributes of logistics management and need of coordination of different organizational departments with that of logistics Attributes of Logistics Management [what makes Logistics Management distinct from other departments?] 1. Functions of logistics are spread across various stages of value chain. 2. Provides interface between marketing and customers, marketing and operations, operations and supplier 3. Provides competitive edge to business in the current environment 4. Handles flow of information and materials. 5. Large avenue for cost reduction. Need of coordination of different organizational departments with that of logistics. The above features show the complexity and scope of logistics management. For such a management function to function effectively various pieces of jigsaw puzzle should fall at correct places which requires coordination of all functional departments. If we want to solve a jigsaw puzzle, we need to have the complete picture on the box. In the absence of this picture solving the puzzle becomes impossible. Overall coordination of different organizational departments can provide the complete picture. This requires integration of all functions of logistics. If a firm does not consistently satisfy time and place requirement it has nothing to sell in the market, it is simply out of business. Good logistics alone can enable organizations to do business. To enjoy full benefits of logistics, full range of functional work must be performed on an integrated basis. Excellence in each aspect of functional work is relevant only when it is viewed in terms improving overall efficiency and effectiveness of integrated logistics. This requires that the functional work of logistics be integrated to achieve business unit goals.