LOGISTICS

1. Introduction
The most direct and clear way to understand business logistics is by defining it through the
activities that constitute or conform it. And if that is the case, the best way to do it is by saying
that business logistics is concerned with the supply and management of raw materials and supplies, as well as
distribution of products or services, taking charge of issues such as transportation,
inventory maintenance, order processing, purchasing, product planning, the
protection packaging, storage, handling of goods and warehousing of
information. (See Appendix 1)

We have mentioned in the previous paragraph key activities, such as support activities. Among them
first are customer service, transportation, inventory management, and processing
orders. Meanwhile, the support functions are: storage, handling of goods, purchasing,
packaging, product planning, and information management.

The difference between key activities and support activities is based on the fact that some activities will always be
to take place in any logistics channel, while others only develop under certain circumstances
and in certain companies.

Integral Logistics is made up of the actions and interrelationships of the Logistics:

a) Supply
b) From Production
c) Storage
d) Distribution

Integrated Logistics is the set of techniques and means aimed at managing the flows of materials and
information, the fundamental objective being the satisfaction of the needs for goods and services of a
client and/or market, in quality, quantity, place and time; maximizing customer satisfaction and the
response flexibility, while minimizing response times and costs.
Logistics groups the activities that organize the flows of materials, coordinating resources and demand.
to ensure a certain level of service at the lowest possible cost.
It was largely the lack of coordination between sales and production that led to the
the emergence of logistics in companies as a means of resolving the conflict between such activities,
serving as the necessary link between market demand and production activities of the
company.

Within logistics activities, two of the most cost-absorbing are inventory and transportation.
Experience and the studies developed clearly indicate that each of them represents,
approximately, from half to two-thirds of the total logistics cost. As long as the
storage adds 'time value' to the product, transportation adds 'situation value'.

Nowadays, transportation is an essential factor for any company, as none could operate without it.
to foresee the displacement of their raw materials and/or their final products. The other crucial topic is given
for inventory control, since it is generally not feasible or practical to produce and sell in a way
snapshot or immediate. This intermediate step between the point of production and demand has as
the objective is to maintain the availability of goods for the user, while also providing the
 necessary flexibility in the production and logistics areas in their search for manufacturing methods
more efficient distribution.

The last key activity is order processing. Compared to transportation costs and
storage, order processing constitutes an important part of the total time of
receipt by the client of the requested products or services.

Within business management, logistics is vital for almost all areas it covers, whether it is the
cost control, the level of employment, or the achievement of the company's overall objectives. Only in
In recent years, logistics activities have become important functional areas.
The increase in international competition, the scarcity of key raw materials, and the problems in
Productivity issues have led to a greater emphasis on logistical aspects.

It is within this framework that the competitive pressures of an increasingly globalized economy arise.
move in the direction of incorporating logistics as a strategic component within the
organization.

In light of the increasing internationalization of changes, the quality of competition and diversification
In the markets, the logistics sector is expected to play a central role within companies and in
the physical circuits of the products. Logistics controls up to 30% of the company's costs.

2. The costs of logistics

There are significant variations in logistics costs between different companies. These costs have become
reflected in different studies that have been conducted at different times. The costs for a
companies seem to fluctuate between less than 4 percent of sales for those that produce and
They distribute high-value goods, up to more than 32 percent for the companies that distribute.
low-value products.

Companies that include manufacturing processes generally experience logistics costs between a
10 and a 15 percent of their sales, while companies that are only sellers have costs that
represent about 25 percent of sales. These costs do not include the cost of the products that
they are bought, which account for an average of 50 percent of sales, nor the
financial costs for holding them. If the cost of these products were reflected in those of
logistics, this would become the most important area of the company in terms of cost absorption.

Logistical costs as percentages of sales

Industry Administers Transport Maintenance Store Reception Pack Treatment Total
action of inventories lie and shipment lie of orders
Pharmaceuticals 0.7% 1.4% ------- 1.2% 0.5% 0.1% 0.5% 4.4%
Nutrition 0.4 8.1 0.3 3.5 0.9 ------- 0.2 13.4
Industrial goods 0.7 5.9 13.7 2.9 0.2 2.0 1.0 26.4
Consumer goods 1.3 8.1 8.5 4.0 0.9 0.9 0.5 24.2

In the field of logistics, a basic problem is the planning of transportation flows that
meet the demand at the destinations while respecting the limitations present in the production system
distribution. The use of various optimization models (operations research - programming
(linear) makes it feasible to significantly reduce distribution costs, making logistics and this
aspect in particular a formidable weapon to increase profits and achieve higher levels of
competitiveness.

2
Within this same tone, warehouse management has become critically important, as a
optimization of them allows not only significant cost reductions but also
increases the fluency of productive processes, reduces bottlenecks, improves quality of
information and process controls.

3. Hidden costs
The stocks that make up the inventory are subject to various circumstances that result in a loss.
of its real value, being the most significant causes for this obsolescence or aging,
deteriorations and shortages.

. Obsolescence or aging: It occurs suddenly due to a technological change, but

it can also be the result of a loss of relevance or novelty.
. Deteriorations: Generated by the manipulations to which the items are subjected, which may occur.
Hello both in the article and in the packaging or packaging. If the damaged item is irrecoverable, the
The cost of its deterioration equals the total cost of the item. If work is carried out for the
recovery of damaged items, the cost to consider will be equivalent to the costs of these
recovery work.
. Missing items: Motivated by thefts or even in certain products due to physical-chemical processes.

The work done for the treatment of the should also be considered as hidden costs.
returned orders, replacements, shipping corrections, double handling, urgencies and
the delays caused by poor organization, in addition to administrative and accounting processes
what circumstances force a redo.

Other hidden costs, but of a different nature than those previously mentioned, are generated by the breakage of
stock. This leads firstly to unrealized sales, secondly to the loss of image, and
the loss of customer or consumer loyalty.

4. Objectives of Business Logistics

The logistics manager of a company seeks, within the company's broader objectives, their own.
functional objectives that, basically, must serve to guide the firm towards the established goals.
concrete, its mission is to develop a relationship of logistics activities capable of achieving the greatest
possible return of the funds invested in the company. This objective moves across two dimensions: the
impact of the logistics system design on the revenues and costs of such design.

The objectives of logistics are to respond to demand, achieving an optimal level of service at the lowest cost.
possible cost. Within this great objective, we can point out the following:

Supply: the necessary products, at the right time, in the required quantities, with
the quality demanded and at the minimum cost.
Making the needs of the client a priority.
With the necessary flexibility to meet the needs of the changing market.
Reacting quickly to customer requests.

Thus, James Heskett tells us that the objective of logistics is to respond to demand.
an optimal level of service, at the lowest possible cost.

5. Interrelation with other departments

3
 Marketing Product Design
- Packaging
- Weight-volume
- Palletization-manipulations
Geographic markets
- Delivery point location
- Transportation costs
Sales Units
- Minimum delivery
- Order size
Type of sales channel
- Order size
- Transportation costs
- Required service
Seasonality
- Campaigns
Promotions
- Need for resources
- Costs
- Service Points
Sales Sales forecasts
- Calculation of needs
- Stock coverage
- Customer services
Production Factory capacity
- Needs planning
- Stocks of semi-finished products
Purchases Planning - management
- Procurement Resources
- Transport
- Commodity Stocks
Finance Costs: Logistics Budgets
Investments: Control costs
Margins: Fixed Assets

6. Importance of the purchasing function

Purchasing is a term used in the industry to identify the activities aimed at obtaining
materials, supplies, and services. In a strict sense, purchasing goals involve defining the
need, select the supplier, agree on an acceptable price, prepare the contract and proceed to
ensure a proper delivery. In this way, purchasing objectives can be defined
how:

Provide an uninterrupted flow of materials and services to the operating system.

2. Maintain the minimum level of investment in inventory.
3. Maximize the quality levels.
4. Find and develop competitive supply sources.
5. Standardize.
6. Buy materials at the lowest total acquisition cost.
7. Foster interfunctional relationships.

4
Acquisitions contribute directly to a company's operating results and profits.
The fact that purchases are responsible for spending more than 60% of a company's sales income.
manufacturer highlights the potential that this function represents for increasing profits.
Money saved when purchasing is money that accumulates in profits.

7. Stages in the purchasing process

Prior operations Detailed knowledge of the needs.

Determination of the conditions under which those
needs must be satisfied.

Preparation - Market research.

- Pre-selection of the possible
suppliers.
Execution - Analysis and comparisons of the offers.
- Negotiation with the bidders.
- Supplier selection.
- Order preparation.
Follow-up - Monitoring and claiming deliveries.
- Quantitative and qualitative control of the
products received.
- Invoicing format.
- Eventual return of the products not
found to be compliant.
Derivative operations - Recovery y alienation of
packaging, waste, leftovers, etc.
- Management of the stocks of materials and
purchased products.

8. Transportation and logistics

Usually, transport constitutes the single most important logistical cost for most of the
Companies. It has been observed that cargo movement absorbs between one third and two thirds of costs.
logistics.

With the constant improvement of transportation, the costs of products from distant markets can
compete with those from other producers who sell in the same market. In addition to favoring the
direct competition, low-cost transport also stimulates an indirect form of competition
making available to a market products that normally could not bear the costs of
transportation.

Cheap transportation also contributes to the reduction of prices of goods and supplies. This is
not only because it generates an increase in competition in the markets, but also because the
Transport is a component of the cost that goes hand in hand with production, sales, and other costs.
distribution that makes up the total cost of the input or product.

The transportation system is physically composed of the networks through which the cargo is transported.
and for the equipment used in its transport. Thus, we have vehicles, terminals, pipelines, highways, roads
aquatic, boats, canals, airports, ports, railways, etc.

5
The transport user has a wide range of services available, although all are focused
around the five basic modes (rail, truck, ship, pipeline, and airplane). The variety is almost
unlimited; from combining all five media to using only one of them, going through the agencies of
transportation, associations or freight agents. Among all these options, the user must choose the one,
or a combination of several services that offers the best balance between quality and cost of
service.

For the purpose of deciding which service or combination of services to use, it must be considered
taking into account the objects to be transported, the cost, the average delivery time, and its variability,
and the losses and damages.

Cost. The cost of the service for the company that sends the merchandise is determined by the cost of the means of
which is used, plus some additional or terminal costs that are paid for additional services that are
they usually provide. in the case of a rental service, the total cost of the service is composed of the
fee charged for transporting products between two points, plus additional costs such as the
pickup at the point of origin, delivery at the destination, insurance or the preparation of the goods
for transportation. When the service is owned by the company that ships the products, the cost of
the same is a part of the relevant costs of the shipment in question. These relevant costs include
elements such as fuel, labor, maintenance, equipment depreciation, and costs
administrative.

The cost of services (per ton-mile) varies greatly from one type of service to another. Thus, we have that the
air transport is the most expensive, while that of pipelines is the cheapest. Transport by
Truck is approximately five times more expensive than rail, and this, in turn, is five or six times
more expensive than river transport or by pipeline.
The comparison between costs in order to choose a transport service must always be made based on
the actual costs resulting from the specific merchandise to be transported, the distance, and the direction
of transport, and the special handling it may require.

Delivery time and its variability. Repeated studies and research have shown that time
delivery method and its variability is the most important factor when defining and evaluating the
operation of a transportation service. Delivery time is usually understood as the average time that
it involves transferring a shipment from its point of origin to its destination.

Different modes of transportation vary in whether they provide a direct connection between points.
of origin and destination, such as air transport of a cargo between two airports. However, to
practical effects are more real to measure the delivery time 'door to door', considering all means
involved in transportation.

Variability refers to the normal differences that usually occur in the delivery time of shipments.
Even if we have a series of goods with the same origin and destination, and that are going to be
transported by the same means, the transit time will not necessarily be the same for each one of
them. This is due to differences in factors such as climate, traffic congestion, the number of
stops along the way or the different consolidation time of shipments. Therefore, the variability of
Transit time is a measure of the uncertainty of the operation of the transportation service.

Losses and damages. Given that the various means of transport also differ in their capacity to carry
the load without losses or damage, these two factors must be taken into account when
select the most suitable means for the transportation of the products.

6
Transport companies have the obligation to carry goods with reasonable promptness and to
Do it with enough care in order to avoid damage and defects. This responsibility is seen
mitigated if the losses or damages are the result of chance, failures by the sender of the products or by
any other cause that is beyond the control of the carrier. Although normally companies of
transportation, after an appropriate presentation of a resource by the client, assume the losses that
The shipment may suffer; there are hundreds of costs that the company making the shipment must know beforehand.
to choose their means of transportation.

The most serious losses that the company sending the goods may potentially suffer have to
see with customer service. In principle, the products that are shipped can be used to replenish the
inventory of a customer or for immediate use. A delay or goods arriving unusable
they mean inconveniences for the customer, with higher inventory costs due to the increase of
situations of stock unavailability, and being forced to make new replenishment orders
due to the fact that the previous orders have not been received as planned. The process of
the complaint can be lengthy, taking time to gather all the factors and facts relating to the
claim.

Regarding the likelihood of damage and defects, if it is high, it usually requires making a
packaging with greater protection for shipping, with the impact this represents on cost
logistical.

9. Coordinated services
In recent years, there has been a renewed interest in the idea of coordinating services with more than one
means of transportation. The most important characteristic of coordination is the free exchange of equipment.
among the different means. An example of this is the transport of a truck by plane, or that of a wagon in
boat. This exchange of equipment creates transport services that the user cannot access.
a single mode of transport. Normally, coordinated services are a commitment between the
services that companies offer individually.

This implies that the cost and operational characteristics are positioned between those corresponding to the
involved media.
There are ten possible combinations of coordinated services:

1. Train – Truck
2. Train - Boat
3. Train - Plane
4. Train – Pipeline
5. Camión – Avión
6. Truck - Boat
7. Truck – Pipeline
8. Boat – Pipeline
9. Ship – Airplane
10. Avión – Oleoducto

The combined service "Train - Truck" is the one that is experiencing the greatest acceptance and utilization.
combinations 'Truck - Ship' and 'Train - Ship', using container ships is obtaining a
very strong acceptance, especially in the international transport of goods.

10. Combination 'Train - Truck'

7
The train-truck combination involves the transportation of truck-trailers, or better yet just the trailer or
a container on train cars, generally over distances greater than those typically covered by a
truck. This option offers the combination of comfort and flexibility of transport by
road, with the long-distance railway service economy.

The total cost is lower than if only the truck were used, which has allowed for an expansion of the range.
economic use of this medium. Moreover, with this combination, trains have been able to
Share the traffic that would normally be transported by road. Finally, the user benefits from
the convenience of door-to-door service over long distances and at a reasonable price. All these features
they have made the combined train-truck service the most popular in its category.

11. Storage system

The use of inventories arises as a tool capable of significantly improving coordination.
between demand and supply, achieving at the same time that total costs are lower. It is the
inventory maintenance which requires carrying out storage and handling activities
goods, so more than as a necessity, both tasks arise as a convenience
economic.

The costs of storing and handling goods are justified based on the fact that they can
compensate with others such as those in transport, or those in production-purchases. This is the case since,
For example, storing a product can mean lower production costs if it prevents...
having to adjust to the needs of a demand with large variations or uncertainty. Also
The storage of goods can lead to lower transportation costs, as it is possible
make larger and therefore more economical shipments. In this way, the objective is to employ
the sufficient amount of storage, in such a way that a good economic balance can be achieved
among storage, production, and transportation costs.

12. Four reasons to carry out storage

. Reduction of production-transport costs. Storage and the associated inventory.
The same are two factors that generate new expenses. However, that increase in costs is offset.
with the decrease in transportation and production, as the efficiency of both processes improves.
. Coordination of demand and supply. Companies that have a production of a character
seasonal and a reasonably constant demand often have coordination problems between the
demand and supply. A clear example of this are food companies, since, for
maintain their canned fruits and vegetables offer, they must store all their production in the seasons
for collection in order to supply the market for the rest of the year. On the contrary, the companies that
They must provide a product or service of a seasonal nature and with uncertain demand.
they usually produce consistently throughout the year in order to minimize costs
production and to create sufficient inventories to respond to the demand that may arise
in the sales seasons.

Examples of this type of companies are manufacturers of air conditioning units or dolls.
of Christmas. Another factor that may create the need to use warehouses is the prices of the
products. Those goods and items that experience large variations in price of a
from one period to another, they may require companies to make advance purchases of the same,
that can be obtained at lower prices, thus offsetting the cost of the warehouses necessary for their
maintenance.

8
. Support for the production process. Storage can be part of the production process.
The production of certain products, such as cheeses, wines, or spirits, requires a period of
storage for its maturation.
. Support for the marketing process. Marketing generally deals with when and how.
the product will be available on the market. Storage is used here to add value to a
product, so that if it is stored near the customer, the delivery time decreases.
This improvement in buyer service can lead to an increase in sales.

13. Conclusions
The objective of logistics is:
Make the needs of the customer a priority.
Introduce the necessary flexibility in distribution to meet the needs of a
changing market.
React quickly to customer requests.
Eliminate all unnecessary stocks by having customer orders 'pull' from the process.
productive.

This provides a clear vision of its strategic importance. As companies strive to

achieve a higher level of competitiveness globally, the effective management of logistics,
with special attention to purchasing, materials management, and the distribution of products and services,
has become a field of great interest, playing a critical role in
restructuring and restoration of industries that are trying to gain or recover a global position.

Industry leaders recognize that to achieve global competitiveness, a

efficient management of the organization's productive and material resources. Cost, quality and
deliveries have become key words in manufacturing operations.

In the effort to match and surpass the competition, companies tend to consider more and more each
logistics area, not just as a necessary function, but as a strategic weapon. With this criterion
many companies have made profound changes to their organizational structures in order to
achieve higher levels of consistency in their competitive capabilities.

In logistics, cost reduction is set as a basic objective, but it must be taken into account that such
reduction does not deteriorate the level of service, seeking cost improvement through reorganization of
the activities and improving coordination, but above all continuously improving
performance in terms of quality and productivity for the company as a whole.

Logistics management in companies has increasingly become important in conservation

the health of organizations in general. It is enough to observe the increase in the cost of capital,
to perceive the greater concern of companies about excess inventories, much more so when the
economic uncertainty and, in particular, the fluctuations of the recession are problematic from the point
from the perspective of materials planning.

14. Annexes
ANNEX 1 - Logistics Activities
Key activities

9
 Customer service a) Determination of needs and
Cooperation with the sales department user wishes regarding the service
logistical.
b) Determination of the customer's response
to the service that has been provided.
c) Establishment of levels of
customer service.
2. Transport a) Selection of the mode and medium of
transport
b) Consolidation of shipments.
c) Establishment of transportation routes.
d) Distribution and planning of the
transport vehicles.
3. Inventory Management a) Inventory policy at both the level of
raw materials, such as production
final.
b) Short-term sales projection.
c) Relationship of products in the warehouses.
d) Number, size and location of the
storage points.
e) Strategies of "input-output" of
warehouse products.
4. Order Processing a) Determination space of
storage.
b) Design of the warehouse and the docks
loading and unloading.
c) Warehouse configuration.
d) Location of the products in the
warehouse.

Support activities

Storage a) Determination of space of

storage.
b) Design of the warehouse and the docks
loading and unloading.
c) Warehouse configuration.
d) Placement of the products in the
warehouse.
2. Handling of goods a) Team selection.
b) Preparation procedures of
orders.
c) Storage and retrieval of
merchandise.

10
 3. Purchases a) Selection of supply sources.
b) Calculation of the quantities to buy.
c) Selection of purchase moments.
4. Packaging – Function Design a) Of the treatment.
b) From storage.
c) From the level of protection against losses and
defects.
5. Product Planning a) Specifying the quantities of the
Cooperation with the production department components.
b) Establishing the sequence and the cycle of
production.
6. Information Management a) Collection storage y
manipulation of information.
b) Data analysis.
c) Control procedures.

Annex 2 - Results of changes in logistics in the United States

CONCEPTS 1988 1990 1995

Stock rotation per year 6,0 6,5 8,0
Orders completely served (in %) 90,5 92,8 95,2
Orders served with delays (in %) 8.1 6.5 4.2
Order cycle duration (in days) 5.0 4.5 2.9
Duration of the transport of goods (in days) 3.0 2.8 2.0
Logistic cost (index) 100 90 86

Annex 3 - Purchasing Objectives

Reduction in stock breaks.
Balance and reduction of stocks.
Increase in stock availability.
Improvement of product costs.
Improve the programming.
Maximum approximation to JIT (Just in Time).
Improvement in the level of service.

Annex 4 - Classification of transport modes based on cost and characteristics

service operation

11
 Means of Cost per Average time Variability of Variability of the Losses and
transport ton of delivery delivery time delivery time defects
milla (time door Absolute Percentage
to the door lesser smaller 1 = smaller
faster
Railway 2 3 4 3 5
Truck 2 2 3 2 4
Boat 5 5 5 4 2
Pipeline 4 4 2 1 1
Airplane 1 1 1 5 3

Appendix 5 – Ratios

Net Activity Time worked

x100
Available time
Speed Manipulation Number of Packages
Time spent
Delivery speed Number of deliveries
Time spent
Traffic Total weight
Time spent
Transport speed Distance covered
Time spent
Warehouse performance Occupied space
x100
Total Space
Degree of utilization Total bundles
Occupied space
Space performance Total Space
Occupied space
Degree fractionation Totalbulks
Number of deliveries
Degree of density Total weight
Number of packages
Average delivery Total weight Kg.
Number of packages Delivery
Transport performance Total weight Tn
=
Total distance km.
Transport cycles Distance traveled [Link]
Total distance [Link]

15. Bibliography

12
Business Logistics Management – Ronald Ballou – Prentice-Hall Inc. - 1985
Logistics. Strategic Aspects
Supply Logistics - Bernardo Prida Romero and Gil Gutiérrez Casas - McGraw Hill - 1997
Comprehensive Logistics Manual
Optimization of Transport

13