introduction to
Logistics Management
CHAPTER ONE
"Logistics means having the right
materials, at the right place, at the right
time."
● Word, ’Logistics’ is derived from French word ‘loger’,
which means art of war pertaining to movement and
supply of armies.
● “Logistics means the art of managing the flow of raw
materials and finished goods from the source to the user”
● To get goods from where they are, to the right place in
the right form, at the right time, at the right cost,
“Logistics or physical distribution or distribution logistics
is an integral part of Marketing Process”.
Definition Of LM
● According to Council of logistics management:
“Logistics is 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 for the purpose of conforming
the customer requirement”.
● Logistical management includes the design and
administration of systems to controls the flow of
material, work- in – process, and finished
inventory to support business unit strategy.
● Logistics is the designing and managing of a
system in order to control the flow of material
throughout a corporation.
● Logistics of an company includes movement of
raw materials, coordinating flows into and out of
different countries, choices of transportation, and
cost of the transportation, packaging the product
for shipment, storing the product, and managing
the entire process.
● Fragmentation 1960-This era was known as
fragmentation because every thing that was done was
disintegrated.
● Evolving Integration-At this stage of time new
concepts of Logistical management were evolving
● Total integration-In the present scenario because of
technological advances logistics has evolved as part of
management
● There are two main phases that are important in the movement of
materials: material management and physical distribution.
● Materials management is the timely movement of raw
materials, parts, and supplies.
● The physical distribution is the movement of the firm's finished
products to the customers. Both phases involve every stage of the
process including storage.
● The ultimate goal of logistics is: "To coordinate all efforts of the
company to maintain a cost effective flow of goods."
● Inbound logistics covers the movement of materials received from
suppliers.
● Material management describes the movements of material &
components within a firm.
● Physical distribution refers to movement of goods outward from the
end of the assembly line to the costumer.
● Supply- chain management is somewhat larger than logistics and
it links logistics more directly within the user’s total
communication network & with the firm engineering staff. It
includes manufacturer and suppliers but also transporters,
warehouses, retailers and customers themselves.
Importance of logistics
● Transportation cost rose rapidly due to the
rise in fuel prices
● Production efficiency was reaching a peak
● Fundamental change in inventory philosophy
● Product lines increased
● Computer technology
● Increased use or computers
● Increased public concern of products Growth of
several new, large retail chains or mass merchandise
with large demands & very sophisticated logistics
services
● Reduction in economic regulation
● Growing power of retailers
● Globalization
● The interrelation of different logistics element and their
costs should be based on total cost rather than individual
costs.
The objectives of Logistics
● Rapid Response-Rapid response is concerned with a
firm's ability to satisfy customer service requirements in
a timely manner.
● Minimum Variance-Variance is any unexpected
event that disrupts system performance. Variance may
result from any aspect of logistical operations.
● Delays in expected time of customer order receipt, an
unexpected disruption in manufacturing, goods arriving
damaged at a customer's location, or delivery to an
incorrect location-all result in a time disruption in
operations that must be resolved.
● Minimum Inventory-The objective of minimum
variance involves asses commitment and relative turn
velocity. Total commitment is the financial value of
inventory deployed throughout the logistical system.
Turn velocity involves the rate of inventory usage over
time. High turn rates, coupled with inventory availability,
means that assets devoted to inventory are being
effectively utilized. The objective is to reduce inventory
deployment to the lowest level consistent with customer
service goals to achieve the lowest overall total logistics
cost.
● Movement consolidation-One of the most
significant logistical costs is transportation.
Transportation cost is directly related to the
type of product, size of shipment, and distance.
Many Logistical systems that feature premium
service depend on high- speed, small-shipment
transportation.
● Quality improvement-A fifth logistical objective is to
seek continuous quality improvement. Total quality
management (TQM) has become a major commitment
throughout all facets of industry.
● Life-Cycle support-The final logistical design
objective is life-cycle support. Few items are sold
without some guarantee that the product will perform as
advertised over a specified period. In some situations.
The normal value-added inventory flow toward
customers must be reversed.
Essence of logistics in marketing
● Marketing Process is successfully completed when
● Products are produced and priced to satisfy the identified
needs of the segment of buyers
● Arrangements are made to supply these goods through
selected distribution channels
● An awareness is created among the buyers about the
availability of the goods through information facilitation &
● Goods are physically supplied to the buyers at the place & time
selected by them.
● Besides satisfying the customers need, the marketing process must
be profitable to the seller.
Basic logistical service is measured in
terms of
● Availability-Availability means having inventory to consistently
meet customer material or product requirements.
● Operational performance-Operational performance deals with
the elapsed time from order receipt to delivery. Operational
performance involves delivery speed and consistency. A firm's
operational performance can be viewed in terms of how flexible it is
in accommodating unusual and unexpected customer requests.
Service reliability-Service reliability involves the quality
● attributes of logistics. For logistics performance to continuously
meet customer expectations, it is essential that management be
committed to continuous improvement
There are four logistics concepts
● The systems concept-The systems concept is
based on all functions of a organization
working together in order to maximize
benefits. This concept sometimes requires
certain components of the organization to
operate sub optimally in order to achieve
maximum goals of the system.
● The total cost concept-The total cost concept is based on the
systems concept; however goal achievement is measured in terms of
cost.
● After-tax concept-A variation of the total cost concept is the
after-tax concept. This goal of this concept is after-tax profit. This
concept is becoming very popular because of the many different
national tax policies.
● The trade-off concept links the system together in a way that is
very efficient, but can have trade-offs that might be inefficient.
The advantages of such high efficiency must be weighed
against the risk.
Logistics sub-systems
● Physical Supply or Management of flow of raw
materials, spare parts, consumable stores and
machinery & tools from suppliers.
● Physical distribution or management of finished
goods from the factory to the buyers &
● Logistical Controls for managing the logistics system, it
helps an efficient co-ordination of physical supply &
distribution sub-systems.
Primary Activities
● Inbound logistics: materials handling, warehousing,
inventory control, transportation;
● Operations: machine operating, assembly,
packaging, testing and maintenance;
● Outbound logistics: order processing, warehousing,
transportation and distribution;
● Marketing and sales: advertising, promotion, selling,
pricing, channel management;
● Service: installation, servicing, spare part
management
Support activities:
● Firm infrastructure: general management, planning,
finance, legal, investor relations;
● Human resource management: recruitment,
education, promotion, reward systems;
● Technology development: research & development,
IT, product and process development;
● Procurement: purchasing raw materials, lease
properties, supplier contract negotiations.
Importance of Inbound and Outbound
logistics
● Inbound and Outbound Logistics covers and
supports the following processes and options:
● All of the processes in the warehouse from goods
receipt through goods issue.
● Option to use RFID to support goods Issue and
goods receipt processes
● Complete stock transparency, to allow companies to
know what is in the warehouse.
● Trace and track the history of the warehouse
processes in Detail for each individual article
● Improve the accuracy of deliveries, thus increasing
customer satisfaction.
● Option to use mobile data entry and work in a paper- free
environment.
● Build optimal loads with the routing and scheduling
allowing a close collaboration between shipper and
carrier via optimized carrier selection and tendering
● Operational shipping, manifesting, freight costing,
freight settlement, and foreign trade are always
transparent to company
Objective of an ideal logistic system is to ensure flow of supply to the
buyer
● In Correct Quantity
● At Desired location
● At Required time
● At useable condition
● At the lowest total cost
● Thus the objectives encompass efforts to coordinate
physical distribution and material management in order
to save money or improve service.
Elements of logistics system
● Transportation
● Warehousing
● Inventory Management
● Packing & Utilization
● Information & Communication
Forms of logistics management.
● Centralized logistics management-Centralized logistics
management provides that managers of other divisions of the
company participate in the logistics operations. This type of
management helps avoid internal problems by having a central
manager that ultimately decides how logistics and operations are
coordinated.
● Decentralized logistics management-Decentralized logistics
management is based on the fact that a company needs to have a
division that helps control the local-adaptation needs.
Dealing with different cultures requires input from the local branch.
The managers that deal with the cultural differences on a daily basis
normally know what works and what don’t.
Outsourcing-Outsourcing is the final option for
logistics management. When this happens,
transportation firms concentrate on logistics, and
the company can concentrate on it's production.
There are many cost savings using this type of
program, however that lack of control can
negatively effect many companies.
Logistical competency is achieved by
coordinating
● Network design
● Information
● Transportation
● Inventory
● Warehousing
● Material handling
● Packaging
● Work
Logistics Cost
Logistics Cost
● As companies continue to manufacture and source
materials from overseas, controlling costs remains a top
priority for those involved in international trade.
● One key factor that should be monitored more closely is
logistics management, which covers all activities
relating to the procurement, transport, transshipment
and storage of goods. Depending on the industry sector,
supply chain logistics costs account from 5% to 50% of
a product’s total landed cost.
● Some issues effecting logistics costs: Fuel
prices remain high and ports continue to
experience delays, resulting in higher
transportation fees. Increasingly complex
international trade laws and security
measurements threaten to lengthen delivery
times and increase warehousing costs.
10 tips on to reduce supply-chain costs
● Understand the true costs of sourcing
overseas- Calculate freight, duty,
brokerage, and inventory-carrying costs to
support these lengthened supply chains. Factor in
such items as the costs of flying engineers
overseas. Once you understand the true total
landed cost and total impact to the business,
buying domestically may look a lot better.
● Focus on eliminating the variability from transit
times-The more variable the transit times are, the more
likely it is that the receiving party is using more
premium freight, building buffers of inventory or
ordering more often and more quantity than necessary to
compensate for the uncertainty.
● Understanding these dynamics can lead to the conclusion
that paying higher freight costs to ensure higher
variability actually saves your company in total costs.
● Consolidate-If you have multiple suppliers in one
country, consolidate their goods into one shipment. In
addition, if you always have less-than- containerload
shipments out of one country, try to find another Less
than Container Load(LCL) importer of goods from that
country.
● You may be able to partner and consolidate to a more
cost-effective full- containerload shipment.
● Informed decision-making-Provide to the decision-
makers/customers of your logistics network the cost of freight for
each service level, the reliability of each lane for each service level,
and the true cost of carrying inventory so they can make informed
decisions
● Sometimes insurance doesn’t pay-When a company has a
shipment of premium goods, they often tend to use the carrier’s
insurance, which is very expensive. If the company is self- insured,
as most companies are, it should check its insurance policy to see if
it covers shipment of goods. If it does, the company does not need to
add the extra cost of carrier’s insurance.
● Automate compliance processes-
Companies that implement software solutions to
automate trade compliance are able to speed the cycle
times associated with tasks being performed manually,
such as document preparation, and eliminate the
associated errors.
Automated compliance procedures also bring fewer
delays at border crossings, resulting in on-time
delivery, adequate inventory levels, increased
customer satisfaction, and the avoidance of fines.
● Control your express shipping costs-When a
company runs into a supply-chain issue, it typically
will have an entire shipment sent on an
express/expedited (highest-cost) service basis.
Panicking often results in higher costs. A little bit of
calculating can help the company determine the
amount of goods needed immediately.
● It can then have that amount sent using
express/expedited services, while the balance of the
shipment can be sent using a standard (lower-cost)
service.
● Planes, trains and automobiles-Which is cheapest?
In general, rail is more cost-effective than trucking or air.
Water is cheaper than air shipment. No matter the mode
of delivery, always try to get three quotes for
movements.
● Be aware of non-tariff trade barriers -Companies
need to be more aware of the increasing level of non-
tariff trade barriers that are in force to reduce sweatshop
labor and support human rights and animal welfare
issues. These restrictions can bring importers increased
liability and compliance costs.
Distribution & Warehousing Mgnt
● A warehouse management system, or
WMS, is a key part of the supply chain and
primarily aims to control the movement and
storage of materials within a warehouse and
process the associated transactions, including
shipping, receiving, put away and picking. The
systems also direct and optimize stock put away
based on real-time information about the status
of bin utilization.
● Warehousing, material handling, and packaging are an
integral part of other logistics areas. For example,
merchandise typically needs to be warehoused at selected
times during the logistics process. Transportation
vehicles require material handling for efficient loading
and unloading. Finally, the individual products are most
efficiently handled when packaged together into shipping
cartons or other types of containers.
● When warehouses are required in a logistical system, a firm can
choose between obtaining the services of a specialist or operating
its own facility.
The decision is broader than simply selecting a facility to store
inventory, since many activities essential to the overall logistical
process are typically performed while products are warehoused.
Examples of such activities are sorting, sequencing, order
selection, transportation consolidation and, in some cases, product
modification and assembly.
●
Within the warehouse, material handling is an important
activity. Products must be received, moved, sorted, and
assembled to meet customer order requirements.
Physical Distribution
● The area of physical distribution concerns movement of
finished product to customers. In physical distribution, the
customer is the final destination of a marketing channel. The
availability of the product is a vital part of each channel
participant's marketing effort.
● Even a manufacturer's agent, which typically does not own
inventory, must depend on inventory availability to perform
expected marketing responsibilities. Unless a proper
assortment of products is efficiently delivered when and
where needed, a great deal of the overall marketing effort
can be jeopardized.
● It is through the physical distribution process that the time and space
of customer service become an integral part of marketing. Thus
physical distribution links a marketing channel with its customers.
● To support the wide variety of marketing systems that exist in a
highly commercialized nation, many different physical distribution
systems are utilized. All physical distribution systems have one
common feature: they link manufacturers, wholesalers, and retailers
into marketing channels that provide product availability as an
integral aspect of the overall marketing process.
