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Logistics ManagementWhat is Logistics Management?admin2022-11-14T12:24:58+00:00 Logistics Meaning and Definition:Logistics meaning is “the activity of transporting commercial goods to customers”, and logistics definition may be given as “The art and science of obtaining, producing, and distributing material and product in the proper place and in proper quantities.” It is a rapidly evolving business discipline that involves management of order processing, warehousing, transportation, materials handling, and packaging—all of which should be integrated throughout a network of facilities. Others tout a broader definition: “Getting the right product in the right quantity and right condition at the right place at the right time for the right customer at the right price”. The following video explains, what is logistics management? and the importance of logistics in the supply chain. Programs
What is Logistics Management?The supply chain is about “moving” – or “transforming” – raw materials and ideas into products or services and getting them to customers. Logistics meaning may be given as, “moving materials or goods from one place to another”. Logistics is, in that sense, the servant of design, production, and marketing. But it is a servant that can bring added value by quickly and effectively doing its job. The above figure combines several perspectives to illustrate logistics meaning, in a broader scope. Students of AIMS’ academic programs, such as online certification in logistics, one of the best online certifications is the supply chain management, and the postgraduate diploma program in supply chain management and logistics develop expertise in logistics and supply chain management areas. These qualifications also lead to the online MBA degree in supply chain management and a Research based PhD in supply chain management and logistics. All these qualifications are career-oriented, and they are also recognized and accredited globally. The following areas of the logistics management process contribute to an integrated approach to logistics within supply chain management. 1. Transportation:Many modes of transportation play a role in the movement of goods through supply chains: air, rail, road, water, and pipeline. Selecting the most efficient combination of these modes can measurably improve the value created for customers by cutting delivery costs, improving the speed of delivery, and reducing damage to products. 2. Warehousing:When inventory is not on the move between locations, it may have to spend some time in a warehouse. Warehousing is “the activities related to receiving, storing and shipping materials to and from production or distribution locations. It is a very important factor, we need to consider to know the logistics meaning.” 3. Third and Fourth-Party Logistics:Like other aspects of supply chain management, the various logistics functions can be outsourced to firms that specialize in some or all of these services. Third-party logistics providers (3PLs) actually perform or manage one or more logistics services. Fourth-party providers (4PLs) are logistics specialists and play the role of general contractor by taking over the entire logistics function for an organization and coordinating the combination of divisions or subcontractors necessary to perform the specific tasks involved. This growing trend incorporates the supply chain management philosophy of concentrating on core competencies and partnering with other firms to perform in areas outside your competence. You may learn more about 3PLs and 4PLs logistics processes. 4. Reverse Logistics:Another growing area of supply chain management is reverse logistics, or how best to handle the return, reuse, recycling, or disposal of products that make the reverse journey from the customer to the supplier. This business can be handled at a loss, or it can actually become a profit center. We’ll also cover this topic in more detail later in this section.
Importance of Logistics Management:Now that’s a tall order! Although logistics has been performed around the globe since ancient civilizations were at war with one another, we’re still learning and trying to become experts at managing it. Despite the research and progress that’s been made, logistics is still one of the most dynamic and challenging operational areas of supply chain management or SCM. To understand logistics’ meaning at the most basic level, we must know that logistics management includes the various related tasks required to get the right goods to the right customers at the right time. No other function in the supply chain is required to operate 24 hours a day, seven days a week from New Year’s Day to New Year’s Eve—there are no days off. That is why customers often take logistics for granted; they have come to expect that product delivery will be performed as promised. But it’s not that simple, as you will learn. It can be expensive and takes expertise. 1. Importance of Logistics in Supply Chain Process:Logistics management adds value to the supply chain process if inventory is strategically positioned to achieve sales. But the cost of creating this value is high for both inbound logistics and outbound logistics. According to the 19th annual “State of Logistics Report” by the Council of Supply Chain Management Professionals published in 2008, United States companies spent US$1,398 billion performing logistical services in 2007. Transportation costs for the same year ran US$857 billion, and that constituted nearly 62 percent of total logistics costs. 2. Transportation Costing in Logistics:As these statistics indicate, the largest contributor to logistics cost is transportation: the movement of raw materials to a processing plant, parts to a manufacturer, and finished goods to wholesalers, retailers, and customers. But getting the goods from one point to another requires performing a number of other functions related to the shipment. Goods need to be packaged, loaded, unloaded, warehoused, distributed and paid for whenever they change hands. 2. How to Differentiate Logistics with Supply Chain Management?Supply chain partners must efficiently and effectively carry out these logistical tasks to achieve a competitive advantage. In an increasingly global market, this may require mastery of languages, currencies, divergent regulations, and various business climates and customs. Defining logistics precisely presents a challenge. Everyone agrees that logistics management is (or should be) a part of supply chain management. As Douglas Long writes, “Supply chain management is logistics taken to a higher level of sophistication.” The exact line of demarcation between the two management systems is understandably a bit vague. FORECASTING AND INVENTORY MANAGEMENT:In their classic text Supply Chain Logistics Management, authors Bowersox, Closs, and Cooper include several functions that are treated outside the logistics section of this course, such as forecasting and inventory management. Some authorities may place those two functions within the scope of logistics management, while others may not, but all agree that inventory and forecasting must be considered when designing and managing an effective, efficient system for moving goods quickly from place to place.
What is Value Proposition in Logistics?Being able to match key customer expectations and requirements to your firm’s operating competency level and customer commitment is the essential ingredient in optimizing the value of logistics. The logistics value proposition stems from a unique commitment of your firm to an individual customer or select group of customers. The value stems from your ability to know exactly how to balance logistics costs against the appropriate level of customer service for each of your key customers. So you’ll need to determine the exact recipe and proportion of ingredients in order to meet a particular customer’s logistical expectations and requirements. How will you know when you’ve got the right balance? If you keep in mind that logistics must be managed as an integrated effort to achieve customer satisfaction at the lowest total cost, then it makes sense that service and cost minimization are the key elements in this proposition. 1. Service:What company hasn’t had to pay a painfully high price to ship a product overnight to meet a deadline of some sort? It can be done, but it’s not fiscally prudent. In the same manner, any level of logistical service can be achieved if a company is willing and able to pay for it. So technology isn’t the limiting factor for logistics for most companies—it’s the economics. For instance, what does it cost to keep the service level high if a firm keeps a fleet of trucks in a constant state of delivery readiness or it keeps dedicated inventory for a high-volume customer that can be delivered within minutes of receiving an order? How do you decide if that’s money well spent? HOW TO OUTPERFORM COMPETITORS:The key is to determine how to outperform competitors in a cost-effective manner. If a table manufacturer needs a specific type of wood to produce all its table legs but that wood type is not available, it may force the plant to stop or close down until the material arrives, thereby incurring expensive delays, potential lost sales, and decreased customer satisfaction. In contrast, if a home improvement store experiences a one-day delay in inventory replenishment of 20-watt night-light bulbs at its warehouse, the impact on profit and operational performance is likely to be very low and insignificant. LOGISTICS FAILURE:In the majority of situations, the cost-benefit impact of a logistical failure is directly related to the importance of the service to the customer. When a logistical failure will have a significant impact on a customer’s business, error-free logistics service should receive higher priority. Such service implies that the customer’s order was complete, delivered on time, and consistently correct over time. 2. Cost Minimization:The second element of the value proposition, cost minimization, should be interpreted as the total cost of logistics in order to be accurate. The total cost of logistics is “the idea that all logistical decisions that provide equal service levels should favor the option that minimizes the total of all logistical costs and not be used on cost reductions in one area alone, such as lower transportation charges.” LOWEST POSSIBLE COST FOR LOGISTICS FUNCTION:For many decades, the accounting and financial departments in organizations sought the lowest possible cost for each logistical function, with little or no attention paid to integrated total cost trade-offs. As they learned later, that did not work very well. So today’s leading supply chain companies develop functional cost analysis and activity-based costing activities that accurately measure the total cost of logistics. COST-BENEFIT ANALYSIS:The goal now is for logistics to be cost-effective as determined by a cost-benefit analysis, taking into account how a logistical service failure would impact a customer’s business.
Logistics Goals:At the highest level, logistics management shares the goal of the supply chain: “to meet customer requirements.” There are a number of logistics goals that most experts agree upon:
Logistics Strategies:An effective logistics management strategy depends upon the following tactics:
We’ll analyze each of these tactics. 1. Coordinating Functions:Logistics can be viewed as a system made up of interlocking, interdependent parts. From this perspective, improving any part of the system must be done with full awareness of the effects on other parts of the system. Before the advent of modern logistics management, however, the various operations contributing to the movement of goods were usually assigned to separate departments or divisions, such as the traffic department. Each area had its own separate management and pursued its own strategies and tactics. DECISION MAKING:Decisions made in any one functional area, however, are very likely to affect performance in other areas, and an improvement in one area may very well have negative consequences in another unless decisions are coordinated among all logistics areas. Adopting a more efficient movement of goods, for example, may require rethinking the number and placement of warehouses. Different packaging will almost certainly affect shipping and storage. You may improve customer service to a level near perfection but incur so many additional expenses in the process that the company as a whole goes broke. You need a cross-functional approach in logistics, just as you do in supply chain management as a whole. Teams that cross functions are also very likely to cross company boundaries in a world of international supply chains with different firms focused on different functions. ADDING MORE VALUE:The overall goal of logistics management is not better shipping or more efficient location of warehouses but more value in the supply network as measured by customer satisfaction, return to shareholders, etc. There is no point, for instance, in raising the cost of shipping—thus, the price to the customer—to make deliveries faster than the customer demands. Paying more to have a computer-delivered today rather than tomorrow may not be a tradeoff customers want to make. Getting a still-warm pizza delivered in less than 20 minutes, however, might be worth a premium price (and a tip). Fast delivery, in other words, is not an end in itself, and the same is true of any aspect of logistics management or supply chain management. An im-proper demand planning may result in poor logistics. However, demand planning and many other important factors may be controlled through good real-time project management software. 2. Integrating the Supply Chain:Integrating the supply chain requires taking a series of steps when constructing the logistics network. In a dynamic system, steps may be taken out of order and retaken continuously in pursuit of quality improvements; the following list puts the steps in logical order. LOCATE IN THE RIGHT COUNTRIES:
DEVELOP AN EFFECTIVE IMPORT-EXPORT STRATEGY:
SELECT WAREHOUSE LOCATION:
SELECT TRANSPORTATION MODES AND CARRIERS:
SELECT THE RIGHT NUMBER OF PARTNERS:
DEVELOP STATE-OF-THE-ART INFORMATION SYSTEMS:
3. Substituting Information for Inventory:Physical inventory can be replaced by better information in the following ways:
EXAMPLE OF CROSS-DOCKING:Another example of cross-docking can be taken from the airline industry. When a passenger travels from Seattle to New York, he or she might be cross-docked in Chicago. The airline has configured its network in this way as opposed to having direct flights from city to city. Passengers are not warehoused per se but simply pass through the airport in an hour or two, getting off of one plane and onto another. At the end of the day, ideally, the airport should be empty, as should all cross-docking locations. A trailer, railcar, or barge can be considered a kind of mobile warehouse. Rolling inventory should be closely tracked by GPS to facilitate rapid adjustments if a shipment is delayed or lost or if a customer changes an order at the last minute.
4. Reducing Supply Chain Partners to an Effective Number:Though you have to watch out for tradeoffs in effectiveness when knowing what is logistics and reducing the number of logistics partners, you can generally increase efficiency by doing so. If possible, look for an entire echelon (tier) you can do without such as all the wholesale warehouses or factory warehouses The more partners there are in the chain, the more difficult and expensive the chain is to manage. Handoffs among partners cost money and eat up time. Having many partners means carrying more inventory. Reducing the number of partners can reduce operating costs, cycle time, and inventory holding costs. There is, however, some lower limit below which you create more problems than you solve. If you eliminated all partners other than your own firm, you’d be back to the vertical integration strategy pursued in a simpler marketplace during the early 20th century by U.S. automaker Henry Ford. 5. Pooling Risks:In regard to inventory management, pooling risks is a method of reducing stockouts by consolidating stock in centralized warehouses. The risk of stockouts increases as supply chains reduce the safety stock held at each node and move toward Just-in-Time ordering procedures. With every entity attempting to keep inventory costs down in this manner, the risk of stockouts rises if buying exceeds expectations. Statistically speaking, when inventory is placed in a central warehouse instead of in several smaller warehouses, the total inventory necessary to maintain a level of service drops without increasing the risk of stockouts. An unexpectedly large order from any one customer will still be small in relation to the total supply available. RISK POOLING EXAMPLES:Risk pooling also works with parts inventories. Risk pooling is defined as follows:
Last Words:If you recall, there are flows of goods (product or inventory) and information in each supply chain. Customer information flows through the enterprise via orders, sales activity, and forecasts. As products and materials are procured, a value-added flow of goods begins. The enterprise must have internal process integration and collaboration between functions as well as alignment and integration across the supply chain. With a foundation in the role of logistics and its operational areas, we’re ready to discuss how and why firms outsource some or all of their logistics operations. Share This Lecture, Choose Your Platform!Free Lectures
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Which is the sequence of activities that will entail the greatest amount of time?A PERT chart identifies a critical path—the sequence of activities that will entail the greatest amount of time.
What is the supply chain management quizlet?Supply Chain Management (SCM) involves the management of information flows between and among stages in a supply chain to maximize total supply chain effectiveness and profitability. Operations Management. Forecasting, Capacity Planning, Scheduling, Maintaining inventory, assuring quality, and motivating and training.
Which method of production describes the process where groups of items go through stages of production together until finished?Batch production is a manufacturing method where sets of identical goods go through different production stages together, i.e. the production process creates one batch of finished goods at a time.
What is the objective of a supply chain quizlet?the objective of supply chain management is to structure the supply chain to maximize its competitive advantage and benefits to the ultimate consumer. -the coordination of all supply chain activities, staring with raw materials and ending with a satisfied customer.
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Supply-chain activities ________ in order to achieve the lowest total logistics cost.
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