TOM 301 Operations Management

Logistics Management
Source:
www.wikipedia.org
www.cscmp.org
Note that some logistics topics are discussed in the textbook and omitted
here.

1. Overview
Logistics is the management of the flow of materials and services between the point of origin
and the point of use in order to meet the requirements of customers or corporations. Logistics
involves the integration of information, transportation, inventory, warehousing, material
handling, and packaging, and often security. Logistics is a channel of the supply chain which
adds the value of time and place utility. Today the complexity of production logistics can be
modeled, analyzed, visualized and optimized by simulation software.
Logistics is one of the main functions within a company. The main targets of logistics can be
divided into performance related and cost related. Some performance related metrics are high
due date reliability or short delivery times. The cost related performance targets can be low
inventory level, low transportation costs, or high capacity utilization. But when decisions need to
be made, there is always a tradeoff between these targets. This is what makes challenging and
interesting being a logistician. For example, to lower the transportation costs, it is common for
companies to ship full truck load all the time. However, this leads to longer delivery time as
trucks wait until there are enough orders.
Inbound logistics is one of the primary processes and it concentrates on purchasing and
arranging inbound movement of materials, parts and/or finished inventory from suppliers to
manufacturing or assembly plants, warehouses or retail stores.
Outbound logistics is the process related to the storage and movement of the final product and
the related information flows from the end of the production line to the end user.
Third-party logistics (3PL) involves using external organizations to execute logistics activities
that have traditionally been performed within an organization itself. According to this definition,
third-party logistics includes any form of outsourcing of logistics activities previously performed

in-house. If, for example, a company with its own warehousing facilities decides to employ
external transportation, this would be an example of third-party logistics.
The concept of Fourth-Party Logistics (4PL) provider was first defined by Andersen
Consulting (Now Accenture) as an integrator that assembles the resources, capabilities and
technology of its own organization and other organizations to design, build, and run
comprehensive supply chain solutions. Whereas a third party logistics (3PL) service provider
targets a function, a 4PL targets management of the entire process. Some have described a 4PL as
a general contractor who manages other 3PLs, truckers, forwarders, custom house agents, and
others, essentially taking responsibility of a complete process for the customer.
Emergency logistics is a term used by the logistics, supply chain and manufacturing industries
to denote specific time critical modes of transport used to move goods or objects rapidly in the
event of an emergency. The reason for enlisting emergency logistics services could be a
production delay or anticipated production delay, or it could be that specialist equipment is
needed urgently to prevent instances such as aircraft being grounded (also known as "aircraft on
ground"--AOG), ships being delayed, or telecommunications failure. Emergency logistics
services are typically sourced from a specialist provider.

2. Main Functions of Logistics

The main functions of logistics management include inventory management, purchasing,
transportation, and warehousing. Logisticians combine a professional knowledge of each of these
functions to coordinate resources in an organization. Inventory management is discussed in our
textbook, so here only brief descriptions of other functions are provided.
2.1. Purchasing
Purchasing refers to a business or organization attempting for acquiring goods or services to
accomplish the goals of the enterprise. Though there are several organizations that attempt to set
standards in the purchasing process, processes can vary greatly between organizations.
Purchasing managers/directors, and procurement managers/directors guide the organizations
acquisition procedures and standards. Most organizations use a three-way check as the
foundation of their purchasing programs. This involves three departments in the organization
completing separate parts of the acquisition process. This is to prevent unethical practices and
lend credibility to the process. These departments can be purchasing, receiving; and accounts
payable or engineering, purchasing and accounts payable; or a plant manager, purchasing and
accounts payable. Combinations can vary significantly, but a purchasing department and
accounts payable are usually two of the three departments involved.

Historically, the purchasing department issued Purchase Orders for supplies, services, equipment,
and raw materials. Then, in an effort to decrease the administrative costs associated with the
repetitive ordering of basic consumable items, "Blanket" or "Master" Agreements were put into
place. When additional supplies are required, a simple release would be issued to the supplier to
provide the goods or services.
Another method of decreasing administrative costs associated with repetitive contracts for
common material is the use of company credit cards, also known as "Purchasing Cards" or
simply "P-Cards". P-card programs vary, but all of them have internal checks and audits to
ensure appropriate use
This trend away from the daily procurement function (tactical purchasing) resulted in several
changes in the industry. The first was the reduction of personnel. Purchasing departments were
now smaller. There was no need for the army of clerks processing orders for individual parts as
in the past. Another change was the focus on negotiating contracts and procurement of large
capital equipment. As a result, companies can lower inventories, have less personnel, and get the
end product to the organizations consumer quicker. Purchasing managers success in these roles
resulted in new assignments outside to the traditional purchasing function logistics, materials
management, distribution, and warehousing. More and more purchasing managers were
becoming Supply Chain Managers handling additional functions of their organizations operation.
Purchasing managers were not the only ones to become Supply Chain Managers. Logistic
managers, material managers, distribution managers, etc all rose the broader function and some
had responsibility for the purchasing functions now.
2.2. Warehouse Management
A simple definition of a warehouse is: A warehouse is a planned space for the storage and
handling of goods and material. (Fritz Institute) In general, warehouses are focal points for
product and information flow between sources of supply and points of demand.
Warehouse operation is composed of four key work activities:

goods receipt

storage

picking

goods dispatch

Other areas of warehouse operation involve the followings:

human resources management

security

pest control

warehouse maintenance and cleaning

quality control

record keeping and reporting

Disposal of obsolete and damaged goods.

When select a warehouse location and size, factors to consider:

nature and characteristics of goods to be stored;

nature of handling equipment available;

duration of storage needed i.e. short term or long term;

the need for other activities, e.g. repackaging, labeling, kitting, etc;

access and parking for vehicles;

number of loading docks required; and

Secure requirement.

Various types of equipment are required to ensure the smooth execution of work in a warehouse.
All equipment should be properly stored when not in use and a regular maintenance schedule
posted. Warehouse staff should be trained in standard daily maintenance practices and the correct
use of equipment. Where necessary, they should be equipped with personal safety equipment
such as work gloves, work boots, goggles, etc.
Required equipment may include:

sufficient quantities of standard forms, calculators and stationery to keep

proper storage records;

small tools for opening cases, such as hammers, pliers, crowbars, steel
cutters;

tools and materials for store repair and simple maintenance;

supplies for reconditioning damaged packaging, such as bags, needles, twine,

oil containers, stitching machine, strapping machine, adhesive tape and small
containers or cartons;

standard wooden pallets in sufficient numbers ideally international;

two-wheel hand trolleys for moving supplies within the warehouse;

a pallet-jack to move pallets;

a forklift where pallets are to be loaded and offloaded from trucks;

brooms, dust pans, brushes, shovels, sieves, refuse bins for cleaning and
disposing of collected waste;

first aid kits, flashlights, fire extinguishers and other fire-fighting equipment
both inside and outside the warehouse;

weighing scales; and

Ladders.

The warehouse is a key component of the supply chain. It buffers uncertainties and breakdowns
what may occur in the supply chain. When properly managed and appropriately stocked a
warehouse provides a consistent supply of material when it is needed.
2.3. Transportation
Transport or transportation is the movement of people , cattle, animals and goods from one
location to another. Modes of transport include air, rail, road, water, cable, pipeline, and space.
The field can be divided into infrastructure, vehicles, and operations. Transport is important since
it enables trade, which in turn establishes civilizations. Each mode of transport has a
fundamentally different technological solution, and some require a separate environment. Each
mode has its own infrastructure, vehicles, and operations, and often has unique regulations.
Transport using more than one mode is described as intermodal.
Transport infrastructure consists of the fixed installations necessary for transport, and may be
roads, railways, airways, waterways, canals and pipelines, and terminals such as airports, railway
stations, bus stations, warehouses, trucking terminals, refueling depots (including fueling docks
and fuel stations), and seaports. Terminals may be used both for interchange of passengers and
cargo and for maintenance.
Vehicles traveling on these networks may include automobiles, bicycles, buses, trains, trucks,
people, helicopters, and aircraft. Operations deal with the way the vehicles are operated, and the

procedures set for this purpose including financing, legalities and policies. In the transport
industry, operations and ownership of infrastructure can be either public or private, depending on
the country and mode.
Passenger transport may be public, where operators provide scheduled services, or private.
Freight transport has become focused on containerization (use standard containers), although
bulk transport is used for large volumes of durable items. Transport plays an important part in
economic growth and globalization, but most types cause air pollution and use large amounts of
land. While it is heavily subsidized by governments, good planning of transport is essential to
make traffic flow, and restrain urban sprawl.
Air
This mode of transportation needs big investment on infrastructure, such as airports, for
maintenance, restocking, and refueling areas, and for the loading and unloading of crew, cargo
and passengers.
The aircraft is the second fastest method of transport, after spacecraft. Aviation is able to quickly
transport people and limited amounts of cargo over longer distances, but incur high costs and
energe use. It was estimated that up to 500,000 people are on planes at any time.
Rail
Rail transport is a means of conveyance of passengers and goods by way of wheeled vehicles
running on rail tracks, known as a railway or railroad. The rails are anchored perpendicular to
ties (or sleepers) of timber, concrete or steel, to maintain a consistent distance apart, or gauge.
The rails and perpendicular beams are placed on a foundation made of concrete, or compressed
earth and gravel in a bed of ballast.
A train consists of one or more connected vehicles that run on the rails. Propulsion is commonly
provided by a locomotive, that hauls a series of unpowered cars, that can carry passengers or
freight. The locomotive can be powered by steam, diesel or by electricity supplied by trackside
systems. Alternatively, some or all the cars can be powered, known as a multiple unit. Also, a
train can be powered by horses, cables, gravity, pneumatics and gas turbines. Railed vehicles
move with much less friction than rubber tires on paved roads, making trains more energy
efficient, though not as efficient as ships.
Intercity trains are long-haul services connecting cities; modern high-speed rail is capable of
speeds up to 350 km/h (220 mph), but this requires specially built track. Regional and commuter
trains feed cities from suburbs and surrounding areas, while intra-urban transport is performed by
high-capacity tramways and rapid transits, often making up the backbone of a city's public

transport. Freight trains traditionally used box cars, requiring manual loading and unloading of
the cargo. Since the 1960s, container trains have become the dominant solution for general
freight, while large quantities of bulk are transported by dedicated trains.
Road
The most common road vehicle is the automobile; a wheeled passenger vehicle that carries its
own motor. Other users of roads include buses, trucks, motorcycles, bicycles and pedestrians. As
of 2002, there were 590 million automobiles worldwide.
Automobiles offer high flexibility and with low capacity, but are deemed with high energy and
area use, and the main source of noise and air pollution in cities; buses allow for more efficient
travel at the cost of reduced flexibility. Road transport by truck is often the initial and final stage
of freight transport.
Water
In the 1800s, the first steamboats were developed, using a steam engine to drive a paddle wheel
or propeller to move the ship. The steam was produced using wood or coal. Now, most ships
have an engine using a slightly refined type of petroleum called bunker fuel. Some ships, such as
submarines, use nuclear power to produce the steam. Recreational or educational craft still use
wind power, while some smaller craft use internal combustion engines to drive one or more
propellers, or in the case of jet boats, an inboard water jet. In shallow draft areas, hovercraft are
propelled by large pusher-prop fans.
Although slow, modern sea transport is a highly effective method of transporting large quantities
of non-perishable goods. Commercial vessels, nearly 35,000 in number, carried 7.4 billion tons
of cargo in 2007. Transport by water is significantly less costly than air transport for
transcontinental shipping; short sea shipping and ferries remain viable in coastal areas.
Pipeline
Pipeline transport sends goods through a pipe, most commonly liquid and gases are sent, but
pneumatic tubes can also send solid capsules using compressed air. For liquids/gases, any
chemically stable liquid or gas can be sent through a pipeline. Short-distance systems exist for
sewage, slurry, water and beer, while long-distance networks are used for petroleum and natural
gas.
Worldwide, the most widely-used modes for passenger transport are the Automobile (16,000 bn
passenger km), followed by Buses (7,000), Air (2,800), Railways (1,900), and Urban Rail (250).

The most widely used modes for freight transport are Sea (40,000 bn ton km), followed by Road
(7,000), Railways (6,500), Oil pipelines (2,000) and Inland Navigation (1,500).
Transport is a key necessity for specializationallowing production and consumption of
products to occur at different locations. Transport has throughout history been a spur to
expansion; better transport allows more trade and a greater spread of people. Economic growth
has always been dependent on increasing the capacity and rationality of transport. But the
infrastructure and operation of transport has a great impact on the land and is the largest drainer
of energy, making transport sustainability a major issue.
Modern society dictates a physical distinction between home and work, forcing people to
transport themselves to places of work or study, as well as to temporarily relocate for other daily
activities. Passenger transport is also the essence of tourism, a major part of recreational
transport. Commerce requires the transport of people to conduct business, either to allow face-toface communication for important decisions or to move specialists from their regular place of
work to sites where they are needed.

Additional Reading
http://places.designobserver.com/feature/walmart-logistics/13598/
Please read and you may see questions in exam on this Wal-Mart story.