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ELEMENTS OF LOGISTICS MANAGEMENT

WHAT IS LOGISTICS?
Logistics is concerned with getting the products and services where they are needed and when they are
desired. It is difficult to accomplish any marketing or manufacturing without logistical support. It involves
the integration of information, transportation, inventory, warehousing, material handling, and packaging.
The operating responsibility of logistics is the geographical repositioning of raw materials, work in process,
and finished inventories where required at the lowest cost possible.
The formal definition of the word logistics as per the perception of Council of Logistics Manageent is
the process of planning! ipleenting an" controlling the efficient! effecti#e flo$ an" storage of
goo"s! ser#ices an" relate" inforation fro the point of origin to the point of consuption for the
purpose of conforing to custoer re%uireents&
!ission of logistics is providing a means by which customer satisfaction is achieved. "rt of moving,
lodging and supplying troops, supplies and equipment is logistics. #oncept of logistics has moved into
business to move, lodge and supply inputs and outputs.
Logistics is practiced for ages since organi$ed activity began. %ithout logistics support no activity can be
performed to meet defined goal. The current challenge is to perform logistics scientifically in order to
optimi$e benefits to the organi$ation.
Logistics is a planning function of management. Logistics function is concerned with taking pro"ucts an"
ser#ices $here they are needed and $hen they are needed.
Logistics ensures that the required inputs '$hat( to a #alue a""ing process are made available, $here they
are needed, $hen they are needed and in the %uantities 'ho$ uch( they are needed. It also ensures that
the outputs of the value adding process are made available $here they are needed $hen they are needed
and in the %uantities 'ho$ uch?( they are needed.
There are many ways of defining logistics but the underlying concept might be defined as follows&
Logistics is the process of strategicall) anaging the procureent! o#eent an" storage of
aterials! parts an" finishe" in#entor) through the organi*ation an" its ar+eting channels in such a
$a) that current an" future profita,ilit) are a-ii*e" through the cost.effecti#e fulfillent of
or"ers&/
What causes ,a" logistics?
a. 0 'ad roads, inefficient railways, poor communication lines, and congestion in the ports.
b. Ta-ation0 e.g. (ctroi
c. Inforation0 Inadequate information
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d. Manageent0 *oor management decisions
IM3O4TANCE OF LOGISTICS
Logistics is the ,e"roc+ of tra"e an" ,usiness&
+ %ithout selling and or buying there can be no trade and business. 'uying and or selling takes place
only when goods are physically moved into and or away from the market.
+ Take away logistical support trade and business will collapse
5& Leads to customer satisfaction through superior customer service.
(rgani$ational ob,ectives of *-*roductivity.,/ -/uality.,# -#ost.,0 -0elivery.,1 -1mployee !orale.,2
-2le3ibility.,4 -4afety.,5 -5ealth.,1 -1nvironment. are set to meet customer e3pectations of /,#,0.
/, #, 4, 5, 1 are parts of must be quality that a customer e3pects. Logistics addresses 0, 2 ob,ectives
which lead to customer satisfaction through superior customer service
6& Integrates logistical activities
In conventional management environment, various activities of logistics work in isolation under different
management functions. 1ach pocket trying to sub optimi$e its ob,ectives at the cost of overall
organi$ational ob,ectives. *urchasing trying to purchase at minimum price at the cost of what is needed
by operations. (perations produce large quantities at minimum production cost ignoring demand leading
to doom inventory. Logistics function of management brings all such functions under one umbrella
pulling down inter departmental barriers.
7& #ompetitive edge& In the fiercely competitive environment logistics provides the edge. 0ue to
technological revolution most of the products are moving into coo"it) ar+ets. In a commodity
market where price is controlled by competition, where there is no product differentiation in terms of
quality parameters like perforance 6 relia,ilit), where brands are almost irrelevant, competitive edge
is that of a#aila,ilit) of product and service in terms of tie! place and %uantit)&
8& Logistics wins or loses wars
'ritish lost "merican war of independence due to poor logistics
7ommel was beaten in the desert by superior logistics of "llies
9& 4upports critical functions like operations and marketing
4trong logistics support enables a company to move towards 894T I: TI!1 production system for
survival in a highly competitive market
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a< Interface with marketing
These days marketing a product is increasingly on the strength of availability and fle3ibility as we
discussed earlier. 4tronger emphasis is on the last of four *s of marketing -product, price, promotion and
place.. Logistics provides the interface between production function and marketing function. !arketing
is trying to sell the product in the market place. Logistics makes the product accessible to marketing by
acting as interface between the function that produces it and the function that makes the consumer buy it.
This interface is gaining importance due to following changes that are sweeping the market making many
companies adopt 894T I: TI!1 production system.
a. change in the customer& demanding, knowledgeable, conscious of rights, lacking in brand loyalty,
changes preferences very fast, e3pects very high degree of service
b. many products are moving towards commodities market& product differentiation in terms of quality of
performance is vanishing and brands are losing their magic.
"s a result of above we find that availability is an important determinant of purchasing decision.
:& Logistical costs& 2or individual businesses logistics e3penditures are => to ;=> of sales depending on
type of business, geographical areas of operation, weight?value ratios of products and materials. This is
an e3pensive operation. Improvement in the efficiency of logistics function yields savings as well as
customer satisfaction
IM3O4TANCE OF LOGISTICS MANAGEMENT IN IN;IA
I. Liberali$ation and opening our door to competition
II. @lobal business has long supply 6 distribution lines
III. #hanging Indian customer, aware, demanding and less brand loyal
IA. #ompetition ensures that product differentiation in terms of quality is difficult
A. *roduct life cycles are shrinking
AI. (ur markets are shifting from sellers to buyers
AII. !any consumer products are moving into commodities market
AIII. India is a large country. Large distances separate production and consumption centers. 1ssential
commodities have to travel from 2ood #orporation warehouses to consumers through *04.
IB. Logistics performance has not been impressive
B. 2ruits and vegetables are grown at various places but do not en,oy access to market
WHAT A4E THE O3E4ATIONAL O2<ECTI=ES OF LOGISTICS?
5& 4api" response
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FDfle3ibility ob,ective of an organi$ation& 4ome companies measure this as response time to customers
order. (n an average how much time do we need to fulfill one particular type of customers order in a
yearE This is a measure of 4api" response
Logistics should ensure that the supplier is able to respond to the change in the demand very fast. 1ntire
production should change from traditional push s)ste to pull s)ste to facilitate rapid response.
Instead of stocking the goods and supplying on demand, orders are e3ecuted on shipment to shipment
basis. Information Technology plays an important role here as an ena,ler. IT helps management in
producing and delivering goods when the consumer needs them. This results into reduction of inventory
and e3poses all operational deficiencies. :ow the management resolves these deficiencies and slashes
down costs. -#oncept of 4!10 and F":'": as practiced by 8IT companies in 8apan or elsewhere.
6& Miniu #ariance
;.delivery ob,ective of an organi$ation, this can be measured as (n Time 0elivery or OT;& If 1GG
deliveries are made in a month?quarter?year how many reached as per the commitment made to the
customerE This percentage is OT;&
"ny event that disrupts a system is variance. Logistics operations are disrupted by events like delays due
to obstacles in information flow, traffic snarls, acts of god, wrong dispatches, damage in transit.
Traditional approach is to keep safety stocks and transport the goods by high cost mode. The cost of this
approach is huge. Logistics is e3pected to minimi$e these events, thereby minimi$e and improve on (n
Time 0elivery.
7& Miniu in#entor)
This is component of cost ob,ective of a company. In#entor) is associated with a huge baggage of costs.
It is termed as a necessary evil. (b,ective of minimum inventory is measured as Inventory Turns or
Inventory Turnover 7atio. "mericans call this measure as turn #elocit). Logistics management reduces
these turns without sacrificing customer satisfaction. Lower turns ensure effective utili$ation of assets
devoted to stock. -#oncept of single piece flow as practiced by 8IT companies in 8apan or elsewhere..
Logistical management should keep the overall well being of a company in view and fi3 a minimum
inventory level without trying to minimi$e the inventory level as an isolated ob,ective
8& Mo#eent consoli"ation
Transportation is the biggest contributor to logistics cost. Transportation cost depends on product type,
si$e, weight, distance to be transported etc. for transporting small shipments ,ust in time -reduction in
inventory costs. e3pensive transport modes are used which again tend to hike the costs. Mo#eent
consoli"ation is planning several such small shipments together -of different types of shipments. by
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integrating interests of several players in the supply chain. @enerally, large shipment si$e and long
distances reduce transportation cost per unit. !ovement consolidation shall result into reduction in
transportation costs.
9& >ualit)
If the quality of product fails logistics will have to ship the product out of customers premises and repeat
the logistics operation again. This adds to costs and customer dissatisfaction. 5ence logistics should
contribute to T/! initiative of management. In fact, commitment to T/! has made the managements
world over wake up to the significance of logistics function. Logistics can play a significant role in total
quality improvement by improving the quality of logistics performance continuously and continually.
H. Life c)cle support -cradle to cradle logistical supportD produce, pack Icradle< and repackIcradle<.
Logistics function is e3pected to provide life cycle support to the product after sale. This includes
a. After sales ser#ice& the service support needed by the product once it is sold during its life cycle
b. 4e#erse logistics -concept (ctG;. or *roduct recall as a result of
- rigid quality standards -critical in case of contaminated products which can cause environmental
ha$ard.
- transit damage -leaking containers containing ha$ardous material.
- product e3piration dating
- rigid laws prohibiting unscientific disposal of items associated with product -packaging.
- 7igid laws making recycling mandatory
- 1rroneous order processing by supplier
- 7everse logistics is an important component of logistics planning
Functions of logistics anagers0
1< 7eceiving of materials, counting and storing.
)< Implant progress , checking and up to date information
;< #ontact person for customer
C< "rranging inbound and outbound transportation of materials.
=< /uality assurance
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H< *acking and dispatching
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INFO4MATION
S1STEMS
. Internal ?
E-ternal
Information flow
J
LOGISTICAL F@NCTIONS 'coponents of logistics or eleents of logistics(
5& Inforation anageent
!anagement is appreciating importance of information as an element of logistics of late, now. The role
of information is vital in or"er processing. /uality of information is critical as error in composition of
information requirement creates potential disturbance in the supply chain. Incorrect order processing due
to erroneous information will result into product recall and reshipment if the sales opportunity still e3ists.
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LOGISTICS
F@NCTIONS
WA4E
HO@SING
.Storage!
Han"ling!
3ac+ing ?
;istri,utio
n
IN=ENTO41
. When to
or"er? Ho$
uch to
or"er? <ust In
Tie
T4ANS3O4TATION
. Water! 4oa"! 4ail!
3ipeline ? Air
NETWO4A
;ESIGN
. Suppliers!
operations!
$arehouses&
K
2aster and quality information flow from customer to processor results into cost effective logistics.
2orecasting and order management are two areas of logistical work dependent on information.
2orecasting is an effort to estimate future requirements to position inventory or assets devoted to
inventory. "s forecasting becomes unreliable in a fast changing environment, control strategies like 8IT,
/uick 7esponse and #ontinuous 7eplenishment came into being. :ow it is the task of the logistics
function to use information technology to strengthen operation control an" forecasting to the ,est
a"#antage of the organi*ation&
Leading firms typically have information systems capable of monitoring logistical performance on a real
time basis giving them the capability to identify potential operational breakdowns and take corrective
actions prior to customer service failure. In situations where timely corrective action is not possible,
customers can be notified in advance and thereby taking the surprise out of forthcoming service failures
6& In#entor) control
Feeping the stock levels in such a position, so that neither stock out nor stock piling takes place is
Inventory control. %hile formulating inventory policies find out )G> of the products marketed that
account for KG> of the profit.
7& Transportation
Transportation is the most #isi,le of all elements of logistics and high contributor to logistics
e3penditure. #osts of transportation are mainly as follows
a. Mo#eent costs& money paid for moving material across geographical terrain
b. 3reser#ation costs0 money spent on preserving the material during transit
c& Cost of i"le asset0 inventory is unavailable for conversion during transit. This results into costs for
organi$ation
d. A"inistration costs0 money spent on administration
Transportation is accoplishe" in three $a)s
a. (nes own fleet L private carriage
b. #ontract with specialists on long term basis L contract carriage
c. #ontract on individual shipment basis L common carriage
E-pectations fro transportation ser#ice are
a. iniu cost L transportation costs are e3plained earlier
b. Spee"0 speed of transport means the speed with which goods reach the destination.
c. Consistenc)0 consistency in speed is achieving the same speed over a long period of time. #onsistency
reflects on the reliability of carrier. "ny une3pected variance can play havoc with logistics. !odern
information technology has made continuous tracking of consignments possible. This takes the element
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of surprise out. IT has helped logistics managers to seek out ways and means to improve speed and
consistency. %hat is becoming important is a combination of speed and consistency.
7equirement of speed depends on type of industry. In some situations speed may not be important. Then
transportation service offering high speed increases cost. 4o logistics managers have to strike a balance
between service and cost. Three important aspects of transportation are facility location, transportation
cost and consistency.
0esign of logistics system should consider total costs rather than elemental cost of transportation
8& Warehousing
%arehousing is holding material before dispatch after it is produced. "lthough warehousing is
conventionally considered to be a storage facility, it plays a much higher role from logistics viewpoint. It
is perceived to be a switching facility rather than a storage facility. %arehouse ownership can be private,
public or third party contract. %arehouse provides economic and service benefits to the logistical system.
Econoic ,enefits are !ovement #onsolidation, 'reakDbulk, #rossDdock, *rocessing?*ostponement 6
stock piling.
Ser#ice ,enefits are spot stocking, assortment, mi3ing 6 production support
9& Material han"ling
!aterial handling covers receiving, moving, storing, dispatching activities. It has an
impact on cost -capital as well as running., quality and safety. (ne of the principles of
material handling is minimum movement. #ommonly used material handling
equipment are forklifts, 1(T #ranes, hoists, pulley blocks, trolleys, railroad cars, conveyers, ropes and
slings etc.
:& 3ac+aging
*ackaging is done to make handling and transporting cost effective. It protects the product in transit and
handling. *acking is e3pected to facilitate lifting and moving by providing easy access to forks or hooks.
*acking is also e3pected to display universal symbols and other instructions for handling. 1g. pallets and
containers, wooden bo3es, wrapping etc.
Types of packaging& consumer packaging and industrial packaging
Consuer pac+aging . There is no focus on logistics& Importance is given to marketing appeal and
packaging the finished product.
Industrial packaging iportance is gi#en to logistics consi"erations han"ling an" o#ing& In"i#i"ual
parts are pac+e" in cartons or ,ags an" groupe" together as aster cartons& Master cartons are
groupe" into units for han"ling& This concept lea"s to uniti*ation an" su,se%uentl) to
containeri*ation&
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;ifference ,et$een logistics an" suppl) chain anageent
particulars Logistics anageent Suppl) chain anageent
4cope Inbound logistics, in process
inventory -movement from one
plant to another., outbound
logistics
"ll players in the supply chain
from raw material source to
finished product consumer,
vendors, their vendors, supplier
organi$ation-shipper.,
%arehouses, service providers,
customers, their customers
5ow this is
created in
businessE
'y internal integration of logistics
functions handled by various
management functions within
organi$ation
'y e3ternal integration of roles of
various players in the supply
chain.
!ain
ob,ective
Logistics cost reduction by
integrating resources across the
pipeline
4upply chain profitability by value
creation.
definition Logistics is the process of
strategically managing
procurement and storage of
material , part and finished
inventory -and related information
flow. through organi$ation and its
marketing channels in such a way
that current and future profits are
ma3imi$ed through cost effective
fulfillment of order
!anagement 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.
(rigin " very old concept in military "s a logical e3tension of logistics
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!arket
1)
planning. management
focus L?! tries to take the product to
the consumer at minimum
logistical cost. 5ence it is supply
driven.
4#! focuses on value creation in
the supply chain. 5ence this is
customer focused or demand
driven.

=alue a""e" role of Logistics
0ifferent types of economic utilities like form utility, place and time utility and possession utility add value
to a product. In other words make product attractive and trigger purchase.
aB For @tilit) is given by *roduction to a product when conversion process is held. Logistics also
adds form utility when warehousing activities like mi3ing, assembling, processing postponement or
unpacking take place.
,B 3lace an" Tie @tilit) is given by logistics functions when a product is moved to a needed place on
time to serve the customer
cB 3ossession @tilit)0 Mar+eting creates 3ossession @tilit) by promoting the product by advertising
and or by any other means. 'ut logistics finally possession by customer happen

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