Introduction To

Logistics Management
Logistics : An Introduction
• The term “Logistics” is based on the physical movement
of goods.
• The word "logistics" is derived from the Greek adjective
logistikos meaning "skilled in calculating".
• The modern interpretation of the term “logistics” has
its origins in the military.
• The Webster’s New Encyclopedia (1993) defined
logistics as
• “the branch of military science having to do with
procuring, maintaining, and transporting material,
personnel, and facilities”
Logistics : An Introduction
Logistics is considered to have originated in the military's need to
supply themselves with resources (arms, ammunition and rations)
as they moved from their base to a forward position.

In ancient Greek, Roman and Byzantine empires, military officers

with the title Logistikas were responsible for financial and supply
distribution matters.

In military science, maintaining one's supply lines while

disrupting those of the enemy is a crucial—some would say the
most crucial—element of military strategy, since an armed force
without resources and transportation is defenseless.
Logistics management has many names….
Business logistics Physical distribution
Channel management Logistical management
Distribution Logistics
Industrial distribution Quick-response systems
Industrial logistics
Supply chain
Materials management
management
Logistics : Definition
Benson (1994) defined logistics
as the art of maintaining control over world-wide
supply-chains by a combination of transport,
warehousing skills, distribution management and
information technology.
Transport bridges the geographical gaps in the
complex pattern of manufacturing centers, sources of
raw material supplies, depot locations and marketing
outlets.
Definition
Council of Logistics Management :

“Logistics is that part of the supply chain

process that plans, implements, and controls
the efficient, effective forward and reverse
flow and storage of goods, services, and
related information between the point of
origin and the point of consumption in order
to meet customers’ requirements.”
Logistics
Logistics is the task of managing two key flows
Material flow of the physical goods from suppliers
through the distribution centers to store
Information flow of demand data from the end-
customer back to purchasing and to suppliers, and
supply data from suppliers to the retailer, so that
material flow can be accurately planned and controlled
 Logistics

From cow to customer

Logistics and Types of Organizations
Is logistics relevant to all types of Organizations?
manufacturing entities such as automobiles, computers,
cosmetics, aircraft and food items
Service sector such as government organizations,
hospitals, banks, universities, retailers and wholesellers
Business logistics include all the activities
related to the physical movement of goods
(upstream and downstream) and related
paperwork.

Upstream
Near the source
Downstream
those near the end-customer
Supply network
Source: After Slack et al., 1997
In the early days, logisticians were concerned about
making sure that the goods arrived in good
condition and at the lowest possible cost.

The advent of containers in ocean trades (mostly

1960s and 1970s) lowered transit times substantially.

International air shipments became an increasing

percentage of all shipments in the 1980s
In the 1980s, with very high interest rates, companies
shifted their emphasis to inventory reductions.

Logisticians became ever more focused on transit

times in order to minimize inventory costs, raising
the expectations of customers.

Fast delivery times facilitated the adoption of

different inventory management techniques:
Just-In-Time
MRP
MRP II
Just-In-Time
A management philosophy that consists of planning the
manufacturing and shipment of goods in such a way that they are
produced and delivered just before they are needed in the next
step of the assembly process. In the US, JIT is often accomplished
with the adoption of MRP and MRP II systems.

Materials Requirement Planning (MRP)

A computer-based management tool that allows a manufacturing
firm to determine what to produce, and in which quantity, in
function of what it sells to its customers.

Manufacturing Resources Planning (MRP II)

A computer-based management tool that uses MRP at its core,
and that includes other functions in the firm, such as finance and
marketing.
Logistics and Supply Chain Management

• The terms “Logistics” and supply

chain management are often used
interchangeably, logistics is actually a
subset of supply change management
Logistics and Supply Chain Management
Supply Chain Management
Encompasses the planning and management of all
activities involved in sourcing and procurement,
conversion, and all Logistics Management activities.

Importantly, it also includes coordination and

collaboration with channel partners, which can be
suppliers, intermediaries, third-party service
providers, and customers.

In essence, Supply Chain Management integrates

supply and demand management within and across
companies.
Logistics and Supply Chain Management

Three views on the relationship between logistics and SCM

Logistics and Supply Chain Management
Supply Chain Management includes more activities
than Logistics Management: the “Inclusionist”
viewpoint prevails.

In 2004, the Council of Logistics Management changed

its name to the Council of Supply Chain Management
Professionals (CSCMP) to reflect what was perceived as
the broader nature of the field
Supply Chain Management
Definition by the Council of Supply Chain Management
Professionals (CSCMP)

Supply Chain Management encompasses the planning

and management of all activities involved in sourcing
and procurement, conversion, and all Logistics
Management activities. Importantly, it is also includes
coordination and collaboration with channel partners,
which can be suppliers, intermediaries, third-party
service providers, and customers. In essence, Supply
Chain Management integrates supply and demand
management within and across companies.
 Components of Logistics Management
Outputs of
Inputs into
logistics
logistics Management actions
Natural Planning Implementation Control Competitive
resources advantage

Logistics management Time and

Human Raw In-process Finished place utility
resources Suppliers Customers
materials inventory goods
Efficient
Financial movement
resources to customer
Logistics activities
Customer service
Plant & warehouse site selection Proprietary
Information Demand forecasting
Procurement
Inventory management
asset
resources Packaging
Logistics communications
Reverse logistics
Material handling Copyright © 2001 by The
Traffic and transportation McGraw-Hill Companies, Inc.
Order processing
Warehousing and storage All rights reserved.
Parts and service support
A Significance of Definition
Suppose one organization defined logistics as
transportation and inventory management and
another organization as transportation, inventory
management and warehousing

Whose total cost of logistics would be higher?

Output of Logistics
Competitive Advantage
Logistics leads to Competitive Advantage
A company has CA whenever it has an edge over rivals in
attracting customers and defending against competitive
forces (Thompson & Strickland, 2003)
Read K-Mart vs. Wal-Mart’s case
 Two retail merchandise chains sold the same products,
sought the same customers
 K-Mart focused on marketing and merchandising
 Wal-Mart invested on computer system linking cash register

to HQ, trucks and modern distribution centers

Output of Logistics
Logistics contributes to time and place utility
Place utility
 Refers to having products available where they are needed by
customers
 Products are moved from points of lesser value to points of

greater value
Time Utility
 Refers to having products available when they are needed by
customers
 Different products have different sensitivities to time, e.g three-

day late delivery of perishable items likely has more serious

consequences than three-day late delivery of nonperishable
items
Output of Logistics
Efficient movement to customer
Effective and efficient performance of 13 logistics
activities
Proprietary asset
Possession utility
 refers to the value or usefulness that comes from a customer
being able to take possession of a product
Strategies for Increasing Profitability
Profit squeeze
Generate additional sales volume through increased
marketing effort
 Difficult - Saturated market, highly competitive market or low
growth
Increase the price of the firm’s product
 Depend on the demand elasticity may not have the desired

impact on sales
Reducing the firm’s costs of doing business
 Logistics is one of the most promising areas where significant
cost savings can be achieved
Major Costs of Doing Business
Key Logistics Activities
• Parts and service
Customer service
support
Demand forecasting
• Plant and
Inventory
warehouse site
management
selection
Logistics
• Procurement
communications
Material handling • Reverse logistics
Order processing • Traffic and
Packaging transportation
• Warehousing and
storage
Customer service
Five rights of a logistics systems
Each component of the logistics system can affect
whether a customer receives the right product, at the
right place, in the right condition, for the right cost,
at the right time.
Thus, customer service involves successful
implementation of the integrated logistics management
concept in order to provide the necessary level of
customer satisfaction at the lowest possible total cost
Demand forecasting
Demand forecasting involves determining the amount
of product and accompanying service that customers
will require at some point in the future
Determine how much of each item produced by the
company must be transported to the various markets
the firm serves
Sophisticated computer models, trend analysis, sales
force estimates, or other methods can help in demand
forecasting
Inventory management
The inventory control activity is critical because of the
financial necessity of maintaining a sufficient supply
of product to meet both customers’ needs and
manufacturing requirements
Inventory management involves trading off the level
of inventory held to achieve high customer service
levels, with the cost of holding inventory, including
capital tied up in inventory, warehousing costs, and
obsolescence
Logistics communications
Success in today business requires the management of a
complex communication system
Effective communication must take place among
The organization, its suppliers, and its customers
The major functions within organization, such as logistics,
engineering, accounting, marketing, and production
The 13 various logistics activities listed above
A firm’s communications system may be as sophisticated
as a computerized management information system (MIS)
or a simple word-of-mouth communication between
individuals
Material handling
Materials handling is concerned with every aspect of the
movement or flow of raw materials, in-process inventory,
and finished goods within a plant or warehouse
The objectives of materials handling are to
Eliminate handling whenever possible
Minimize travel distance
Minimize work-in-process
Provide uniform flow free of bottlenecks
Minimize losses from waste, breakage, spoilage, and theft
A firm incurs cost every time an item is handled
Order processing
A customer’s order triggers the logistics process and
directs the actions to be taken in satisfying order
demand
The component of order processing
Operational elements
Communication elements
Credit and collection elements
Computers and electronic commerce can help reduce
the time between order placement and product
shipment
Packaging
Packaging performs two basic function
Marketing
 Package acts as form of promotion or advertising - size,
weight, color and printed information
Logistics
 Package protects the product from damage while being stored
or transported
 Proper packaging can make it easier to store and move

products, thereby reducing materials handling costs

Parts and service support
Logistics deal with after sale service – repair and
servicing of products,
Adequate supply of spare and replacement parts
Logistics is responsible for making sure those parts are
available when and where the customer needs them
Plant and warehouse site selection
The strategic placement of plants and warehouses can
assist firms in improving customer service levels
Considerations in site selection
Location of firm targets markets
Location of raw materials, component parts
Labor rates
Transportation services
Security
Land cost
Availability of utilities
Procurement
Procurement
The process of acquiring materials and services to
ensure the operating effectiveness of the firm’s
manufacturing and logistics processes
Organizations form long-term relationships with fewer
key suppliers
Reverse logistics
The handling of return goods, as well as salvage and
scrap disposal (waste materials)
Buyer may return items to the seller due to product
defects, overages, shipping errors
Customers return products for warranty repair,
replacement, remanufacturing, or recycling,
Reverse logistics are high relative to forward logistics
costs some as much as five to nine times more than
moving the same product from producer to consumer
Traffic and transportation
Selecting the method of shipment (air, rail, water,
pipeline, truck, intermodal)
Choosing the specific path (routing)
Complying with various state, countries
transportation regulations
Transportation is often the single largest cost in the
logistics process
Warehousing and storage
Products must be stored at the plant or in the field for later
sale and consumption unless customers need them the
instant they are produced.
Generally, the greater the time lag between production and
consumption, the larger the level or amount of inventory
required
Warehousing and storage activities involve the management
of the space needed to hold or maintain inventories
Specific storage activities include decisions as to whether the
storage facility should be owned, leased, or rented; layout and
design of storage facilities; product mix considerations