Download 1.2 Components of Logistics Management

Topic 1 – Introduction to Logistics
Management
Outline
1.1
Definition & Scope
1.2
Components of Logistics Management
1.3
Systems Approach to Integrating and Managing Logistics
1.4
Role of Logistics in the Economy & to Organization
1.5
Factors Underlying Development of Interest in Logistics
M4/T1/Trans 1
1.1 Definition & Scope

The term logistics was first associated with military use.
In 1905, Major Chauncey B. Baker wrote :
“That branch of the Art of War pertaining to the movement
and supply of armies is called Logistics.”
(Johnson and Wood, 1990).
M4/T1/Trans 2
1.1 Definition & Scope

Shapiro and Heskett (1985) used the Seven R’s concept to
define logistics as:
“ensuring the availability of the right product, in the right
quantity and the right condition, at the right price, at the right
time, for the right customer, at the right cost.”
M4/T1/Trans 3
1.1 Definition & Scope

Definition by Council of Logistics Management, USA:
“Logistics management is that part of the supply chain
process that plans, implements, and controls the efficient,
effective flow and storage of goods, services, and related
information from the point-of-origin to the point-ofconsumption in order to meet customers’ requirements.”

The above is the most commonly accepted term among
practicing logisticians.
M4/T1/Trans 4
1.1 Definition & Scope

Scope of CLM definition covers:
 planning, implementation and control : managing
 flow and storage : fundamental activities
 point-of-origin to point-of-consumption : start and end
points
 meet customers’ requirements : customer-focused

Includes flow of goods, services and information in both
manufacturing and service sectors
M4/T1/Trans 5
1.2 Components of Logistics Management

Inputs

Processes

Outputs
M4/T1/Trans 6
1.2 Components of Logistics Management

Inputs
 Land
 Facilities : factories, warehouses, etc.
 Equipment : production, warehouse equipment, etc.
 Raw materials : commodities, parts, sub-assemblies,
packing materials
 In-process inventory : products partially completed
 Finished goods : completed products ready for sale to
intermediate or final customers
M4/T1/Trans 7
1.2 Components of Logistics Management

Processes - activities
 Customer service
 Demand forecasting
 Inventory management
 Logistics communications
 Materials handling
 Order Processing
 Packaging
M4/T1/Trans 8
1.2 Components of Logistics Management

Processes - activities
 Parts & service support
 Plant & warehouse site selection
 Procurement
 Reverse logistics
 Traffic & transportation
 Warehousing & storage
M4/T1/Trans 9
1.2 Components of Logistics Management

Processes – management actions
 Planning
 Implementation
 Control
M4/T1/Trans 10
1.2 Components of Logistics Management

Outputs
 Competitive advantage : marketing orientation,
operational efficiencies & effectiveness
 Time utility : customers receive product at the right
time
 Place utility : product delivered to the right place for the
customer
 Efficient movement to the customer : getting it right the
first time
M4/T1/Trans 11
1.2 Components of Logistics Management

Outputs
 Proprietary asset
 Effective logistics system achieves high levels of
customer satisfaction for a company
M4/T1/Trans 12
1.2
Components of Logistics Management – an Overview
Management actions
Inputs into
Logistics
Planning
Implementation
Outputs of
Logistics
Control
Competitive
advantage
Natural
resources
Human
resources
Time &
Place Utility
Logistics management
Suppliers
Financial
resources
Raw
In-process Finished
materials inventory goods
Customers
Efficient
movement
to customer
Information
resources
Proprietary
asset
Logistics activities
•Customer service
•Order processing
•Procurement
•Demand forecasting
•Packaging
•Reverse logistics
•Inventory management
•Parts & service support
•Traffic & transportation
•Logistics communications
•Plant & warehouse site
selection
•Warehousing & storage
•Materials handling
Source : Lambert and Stock, (2001)
M4/T1/Trans 13
1.3 Systems Approach to Integrating &
Managing Logistics

Definition
 The systems approach states that all functions or activities need
to be understood in terms of how they affect, or are affected by,
other elements and activities with which they interact.
 The sum, or outcome of a series of activities, is greater than its
individual parts.
 Unfavorable factors of a decision on one element of the system
must be “traded off” with the favorable aspects of that same
decision on other element(s) of the system.
M4/T1/Trans 14
1.4 Role of Logistics in the Economy and to
Organization

Logistics is a significant component of Gross Domestic
Product (GDP)

Consumes land, labor and capital
M4/T1/Trans 15
1.4 Role of Logistics in the Economy and to
Organization
 Logistics creates Competitive Advantage for an organization
 Customer service is an output of the logistics system
 Organization with a superior logistics system achieves
superior customer service and product differentiation
M4/T1/Trans 16
1.4 Role of Logistics in the Economy and to
Organization

Logistics creates Time and Place utility for an organization’s
products
 Time utility is created by making products available to the
customer at the right time for purchase or consumption.
 Place utility is created by making products available to the
customer at the right place for purchase or consumption.
 Time and Place utility complements each other, must happen
together.
 Prevents lost sales/customers, closes the order cycle.
M4/T1/Trans 17
1.4 Role of Logistics in the Economy and to
Organization

Logistics allows efficient movement of Goods & Services to the
Customer
 Efficient and effective logistics processes have a substantial
impact on an organization’s business costs
 “Almost 50 cents of each dollar the American public spends for
goods goes for activities that occur after the goods are made,
that is, after they have come in finished form … Economically …
distribution is the process in which physical properties of matter
are converted into economic value; it brings the customer to the
product.” (Drucker, 1962)
M4/T1/Trans 18
1.4 Role of Logistics in the Economy and to
Organization (con’t)
 Efficient and effective logistics processes have a substantial
impact on an organization’s business costs
 “… There is room for substantial improvement, particularly in the
performance of the physical distribution functions of marketing
which constitutes a major part of the total marketing costs.”
(Parker, 1962)
M4/T1/Trans 19
1.4 Role of Logistics in the Economy and to
Organization

An efficient and economical logistics system is a tangible
asset for an organization
 A competitive differentiation not easily duplicated by
competitors
M4/T1/Trans 20
1.5 Factors Underlying Development of
Interest in Logistics Management

Increased emphasis on customer service
 recognizing logistics’ role in an organization’s customer service
program

Total cost analysis
 Cost and service trade-offs
 Logistics costs relative to product value and importance of
service considerations, e.g. fast and reliable delivery to
customers
M4/T1/Trans 21
1.5 Factors Underlying Development of
Interest in Logistics Management

Profit squeeze
 Cost pressures from rising interest rates and increasing
energy costs during the 1970s
 Logistics efficiency provides cost savings and
contributes to company profitability
M4/T1/Trans 22
1.5 Factors Underlying Development of
Interest in Logistics Management

Competitive pressures from globalization
 Growth of world-class competitors forced organizations to
look for new ways to differentiate their product offerings
 Emergence of longer, more complex and more costly
global supply and distribution channels focused
management action increasingly on developing more
effective logistics
M4/T1/Trans 23
1.5 Factors Underlying Development of
Interest in Logistics Management

Shifts in channel power from manufacturers to retailers
 Consumers see leading brands as substitutes for each other, i.e.
parity products
 Reduction in brand loyalty decreases manufacturers’ power
 Retailers’ power increases as they decide what products to sell
based on efficiency of supply from manufacturers
 Making product available as and when retailers and customers
demand them becomes of paramount importance to logistics
M4/T1/Trans 24
1.5 Factors Underlying Development of
Interest in Logistics Management

Advances in computer and information technology
 Provided companies with the ability to monitor
transaction-intensive activities
 Computerized quantitative modeling tools increased
organizations’ ability to manage flows and optimize
inventory levels and movements
 Computerized planning systems such as MRP, DRP and
JIT allowed organizations to link many materials
management activities under a logistics management
umbrella
M4/T1/Trans 25
Topic 1
Summary
and
Conclusion
M4/T1/Trans 26
1. Logistics management must be approached from a total cost
and service perspective in order to optimize the overall
performance of the system.
2. Efficient and effective logistics management contributes
significantly to an organization’s financial performance.
3. Logistics is a substantial component of a nation’s Gross
Domestic Product.
M4/T1/Trans 27