LOGISTICS

DEFINITIONS
Logistics:-
1.... Is the management of all activities that facilitate movement and the co-ordination of supply and demand in
the creation of time and place utility. (Hesket, Glaskowsky and Ivie,
1973)

2.... Is the art and science of managing and controlling, the flow of goods, energy, information and other
resources. (Wikipedia, 2006)

3.… Is the planning, implementation, and control of the efficient, effective forward and reverse movement of
goods, services and related information between the point of origin and the point of consumption in order to
meet the customer requirements. (CSCMP, 2006)

4.... Is the placement of resources at the right time, in the right place, at the right price and in the right quantity.
(CILT, UK 2005)

5.… LOGISTICS = SUPPLY + MATERIAL MANAGEMENT + DISTRIBUTION

6. An appropriate modern day definition that applies to most industry might be that logistics concerns the
efficient transfer of goods from the source of supply through to the place of manufacture to the point of
consumption in a cost-effective way whilst providing an acceptable service to the consumer. Logistics has evolved
but still uses the basic ideas such as trade-off analysis, value chains and systems theory, together with their
associated techniques.

The Components of Logistics

1.Sourcing and Procurement

2.Manufacturing
3.Storage and Warehousing
4.Distribution
5.Information systems and management
6.Customer service
These components are going to be expanded in detail in this outlined order, in the proceeding pages.

A.. SOURCING AND PROCUREMENT

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Sourcing refers to the value added process of selecting suppliers and the respective cooperation scheme and it
must be supported by advanced analytics and market intelligence, supplier performance information and a
concrete and well-developed strategy.
Cost Analysis
Before implementing any sourcing and procurement initiative, it is important to analyze past, current and
projected spending patterns. Such an analysis of direct spending gives the company the information and decision
support required to develop supply strategies that are aligned with the objectives of the organisation and to
identify and prioritize sourcing and procurement improvement initiatives such as the following:
 Large and sustainable cost reductions, long-term supply stability and minimization of supply risk.
 Organisations have shifted from the traditional approach of selecting the ‘lowest cost supplier;’ to the ‘total-
cost-of-ownership’ approach. This approach presupposes extensive knowledge of supplier performance and
its impact on enterprise operations.
 Identifying the need for the material/service; end with its receipt. Best practice suggests that the procurement
process should be as lean as possible.
Sourcing and procurement is not just about raw materials. It also includes:
 Utilities e.g. gas, water, electricity and telephones
 Fuel e.g. diesel, petrol and heating fuel
 Capital assets e.g. machinery, vehicles and buildings

Procurement Guidelines
a. Ensuring the supply of raw materials
There is need for an assured flow of raw materials into a manufacturing plant to avoid idle time of plant, machinery
and labour. Customers may be let down and late deliveries become a common feature.
The options of buying commodities such as wheat or crude oil could be negotiated in advance to enable the time
placement of raw materials or finished product to the consumer.
b. The quality of supplies
It is important to check quality of goods purchased to avoid wastages and problems such as the following:
i. If the goods are unusable their presence creates a shortage in the required quantity – crucial act in JIT
ii. Storage of substandard goods creates problems if receipt area is restricted.
More paperwork is involved and its time consuming in rectifying errors.
c. Product Specification
Clear and precise instructions about an order will help avoid costly misunderstandings e.g. when purchasing a car,
the same model may be offered for sale with different types of engine gearbox, paintwork and interior trim.
d. The Price
Price is dictated by certain factors:
 Relative negotiating skills of the purchasing and selling team
 Quality of goods in question
 Detailed knowledge of the product being purchased
 If a product is scarce, then prices tend to be higher – the opposite is true.
 The distance goods have to tract from point of origin to the delivery point, mode of transport used. Cost of
transporting may represent a large part of the purchase price.
 A buying group pools their buying power to get lower prices.

e. The Origin of the Supplies

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  Some large organisations source their supplies offshore where labour and production costs are low.
 International documentation is involved
 Political strife may cause delays in the shipment of goods for an indefinite period, e.g. politically unstable
areas of the world such as the Middle East.

Other important aspects in Sourcing and Procurement

A. Method of Supply
 Smaller, frequent deliveries are typical of a JIT system
 If suppliers provide goods in the right quantities, at the allotted time correctly labeled and bar coded, this
enhances the process of receiving goods.
B. Mode of transport used
Spot purchase of goods on a price-basis alone may be consequential in cost handling.
Hierarchy of Importance
 Routine purchases
 Commodities
 Critical items
 Strategic items
C. Buying process which includes:
 Online catalogues
 Tendering
 A system of approved suppliers
 Strategic partners
D. Make or buy
 Cost
 Ensuring supply
 Production capacity
 Competitive advantage
 A secret product that a company may not want other companies to know
E. Managing the Suppliers
 Check financial stability of a company
 Keep suppliers who perform best on appraisals
 To share information to establish closer ties
 Use EDI to reduce cost of purchasing and geographical coverage, to match the client company.
 EDI calls – high levels of trust, compatible computer system to aid the electronic sharing of information,
financial stability of both parties.
F. e –Procurement
Widespread use of internet creates a global market for both consumers and professional buyers alike. Online
auctions are a welcome initiative where pre-qualified bidders compete to win contracts or buy assets.
G. Outsourcing/Partnerships
This is not just outsourcing the procurement of materials and components but also outsourcing of services that
were previously provided in-house.

B. MANUFACTURING

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Refers to the processing or conversion of raw materials into finished and semi finished goods to meet customer’s
expectations and demands.

It is noteworthy that manufacturing produces and supplies products to distribution channels based on past
forecasts as well as by current orders. Manufacturing is practically a flexible process. Lead-time and plant capacity
are factors of major concern, hence techniques such as MRP II guarantee the effectiveness of manufacturing with
respect to its connection with other components of logistics, especially sourcing and procurement.

Production planning assists in determining the best possible means of managing conversion processes, levels of
production commensurate to demand and cost-efficiency, as well as how resultant inventory of finished goods will
be handled. Manufacturing is an activity that is responsive to push and pull factors that arise in from the operating
environment. Push factors entail the production of specified items against the expectation of demand.
Manufacturing, on a pull factor basis, is when the placement of demand necessitates production to occur. JIT is a
good example of a pull system of production.

Application of MRP ensures that we economize on stockholding. The imperative is that the accumulation of
inventory should be in line with the foreseen level of demand. Master Production Schedule (MPS) is a component
of MRP. MPS is a list of all products and services to be supplied within an outlined time limit.

In addition, there is Bill of Material (BOM), which is a list of sub-assemblies, components and parts required to
produce goods included in the Master Schedule. It also specifies at what stage the components are to be assembled.
All these aforementioned components plus opening stock, closing stock and opening capacity are fed into the MRP
program to identify:
 Purchase requirements
 Closing capacity
 Expected shortfalls in production
Effective implementation of MRP requires
 Accurate lead time data
 Realistic production schedules
 Accurate stock control data
 Computer system to process large volumes of data involved.
So MRP helps in the reduction of costs related to stock holding, helps in the continuity of the manufacturing
process and in the effective integration of procurement and production and as well as flexible fulfillment of
customer orders.

C. WAREHOUSING AND STORAGE

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A warehouse is a place or area where raw materials, work-in-progress and finished goods are sorted and stored.
Warehousing is an important activity in the distribution of materials, from raw materials and work-in-progress
through to finished goods. The prime objective of warehousing is that it must provide the required quality of
customer service in terms of timeliness, accuracy and completeness of order fill.

The function of storage and warehousing includes:

 Receiving orders and products

 Checking goods received and to be dispatched
 Storing of goods
 Picking
 Assembly
 Dispatching

Warehousing is costly in terms of people and the facilities and equipment required. Increasing customer service
levels, inventory reduction, time compression and cost minimization have inevitably changed the structure of how
warehouses evolved to distribution centres, which exist primarily to facilitate the movement of goods to the end
user. The pressure to reduce has also seen the development of stockless depots such as transshipment depots and
cross-docking operations.

Warehouse Operations
 Receiving: This involves the physical unloading of incoming transport, checking and recording of receipts. It
can also include such activities as unpacking and repackaging in a format suitable for the subsequent
warehouse operations.
 Reserve storage: This area holds the bulk of warehouse inventory in identifiable locations.
 Order picking: Goods are selected from order picking stock in the required quantities
 Collation and value-added services: This involves packing into dispatch cases, cartons, shrink-wrapping for
load protection and stability. It may also involve final production postponement activities and value-added
services such as kitting and labeling.
 Marshalling and Dispatch: Goods are marshaled to form vehicle loads in the dispatch area and are then loaded
onto out-bound vehicles for onward dispatch to the next intermediate dispatch point, to a port or airport, for
the next leg of distribution, or directly to the final customer.

It may be helpful to isolate these costs of specific operations such as order-picking and monitor these as a portion
of total warehouse costs.

Storage and Handling Systems

A key aspect for determining the most appropriate system for a particular application is to select one with
characteristics that closely match the overall requirements of the warehouse within which it is to work. In most
warehouses, more than one system is used.

The basic objectives for determining the most appropriate storage and handling system for any application are
likely to include:

 Effective use of space – building height, building area and access aisles
 Good access to pallets for taking out and replenishing

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  Low levels of damage
 High levels of accuracy
 Integrity and security of inventory
 Personnel safety
 Minimum overall system cost

The Palletized System

The wooden pallet is the most common unit load used in warehouses. It is a convenient–sized load for moving
goods around the warehouse and for the storage of goods.
Pallet Movement
There is a wide range of equipment available for moving pallets around a warehouse e.g.

 Hand Pallet truck: The truck has two forks that will fit into the slots of a pallet.
 Powered pallet truck
 Tugs and tractors
 Conveyors
 Automated Guided Vehicles (AGVs)

Non-Palletized System
There are many types of product that are not suitable for palletization because they may be too small, too large, or
too long, or because they require overhead elevation. These products may include nuts and bolts, electronic items,
paper reels, machinery, steel bars, carpets, barrels and hanging garments.
Small items Storage Systems
These include:
 Shelving – short and long-span
 Bins
 Drawer units
 Mobile shelving
 Flow racks
 Carousels – they hold material on shelves or in containers supported and moved by chains.

D. DISTRIBUTION

This refers to the alternative ways in which products are dispatched into the market.
1. Physical distribution is the term used to describe the method by which a product (or a group of products), are
physically transferred from their point of production to the point of consumption.
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2. Trading and transaction channel is concerned with the non-physical aspects of distribution. A transaction is the
sequence of negotiation, the buying and selling of the product, through to the final ownership of the goods.

Physical Distribution:
Channel Types and Structures

RETAIL STORE

RETAIL RETAIL
STORE STORE

RETAILER’S
WAREHOUSE

PARCELS’ BROKER
CARRIER

RETAIL STORE CASH & PRODUCTION RETAIL STORE

CARRY

3RD PARTY LOGISTICS

WHOLESALE MANUFACTURER’S
WAREHOUSE WAREHOUSE

RETAIL SERVICE

RETAIL RETAIL
STORE STORE

Other types of distribution are such that distribution by-passes the retail store:
 Mail order
 Factory to home
 Internet and home shopping
 Factory to factory/ business to business e.g. raw materials

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Channel Selection
The objectives of channel selection are:
 To market the product to the market consumers to whom it’s aimed
 To enhance the prospects of sales to be made, through special displays and demonstrations in stores
 To achieve cooperation with regards to any relevant distribution factors including order sizes, unit load type,
delivery access and/or time constraints.
 To achieve a given level of service
 To minimize logistics and total costs. Costs are reflected in the final price of a product. There’s need for
assessment of product type and service level offered.
 To receive fast and accurate feedback.
A good flow of relevant information is essential in the provision and maintenance of an efficient distribution
service. It includes sales trends, inventory sales, damage report and service levels.

Market Characteristics
Long channels are used if a market is widely spread from geographical point of view. A long channel is one where
there are different storage point and a number of different movements for the product.

Product Characteristics
 Highly priced items tend to favour short channels for security reasons
 Complex products are sold direct for easy explanations
 Perishables need fast channels

Channel Characteristics
Does the channel being considered, serve or supply the customer in the way required? e.g. a new grocery product
that needs demonstration. There would be no point in distributing it through a small self-service store where no
facilities for demonstration are available.

Competitive Characteristics
How efficient is the channel being considered in terms of sales potential, outlets served, the size of orders placed,
the frequency of delivery required, etc?

Company Resources
Large, cash rich companies can afford to set up distribution structures with both warehousing and transport
facilities. Smaller, less financially secure companies may have to use intermediaries or 3 rd party organizations to
perform their distribution.

Types of Third-party Distribution

 Dedicated – complete distribution operation is provided by 3rd party. This entails use of own resources
(warehouses, distribution centres, transport fleets, etc.)
 Multi-user or shared – a small group of client companies is catered for
 Specialist - special storage and movement of products such as frozen foods and hanging garments

Key drivers for 3rd party distribution:

 Cost factors – elimination of asset ownership; no need for investment in resources such as distribution centres
and vehicles.
 Service factors – greater flexibility to the user company and more frequent delivery improves service.
 Organizational factors – 3rd party logistics helps organizations to focus on core business
 Physical factors – vehicle characteristics and requirements can differ between products especially where
specialist services are required.
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Typical failures of 3rd party Logistics include:
 Minimum use of ICT and change management flaws
 Contractors are often activity-driven as opposed to being value-driven
 Contract arrangements require substantial senior management time to coordinate and review

Fourth-party Logistics
This is when an external organization is able to provide a user with an overall ‘supply-chain wide’ solution by
incorporating the resources and expertise of any number of 3rd party logistics organizations to best effect.
4th party logistics will be involved in both the design and the management of clients logistics system and acts as the
coordinator in information systems and financial services.

Advantages of 4th party Logistics

 Addresses strategic failures by sourcing different specialists with reputable credentials
 Addresses service and cost failures through benchmarking of different supply-chain processes against world-
class companies
 Addresses operational failures:
- A new entry makes it easier to eradicate old industrial relations issues
- A new entry company’s culture can be created
- A new, more flexible working environment may be established.

E. INFORMATION & COMMUNICATION TECHNOLOGY (ICT) AND MANAGEMENT

ICT entails the consolidation of information to coordinate other logistics components. It is a far-reaching logical
link of all functions. Information is primarily the input from which management is implemented effectively.
Computer systems whether: for order processing, fleet management, evaluating stock, or enhancing security, are
developed from blue prints of what kind of structures, sequences and indicators that are desired of all elements
encompassing the activities which we undertake or influence our operations. ICT has vastly improved the access
and transfer of information.
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Purpose of ICT
 Centralization of records to reduce errors of omission
 Shortening lead-time by speeding up order processing
 Improving integrity and security
 Identify area of efficiency/inefficiency: application of volumetric analysis, performance indicators
 Inventory checks
 Availing statistics to relevant managerial staff for fast decision making
 Common interface for reference (data base)

How ICT brings out the Logistics sense

Information is availed electronically ‘at real-time’. The more advanced and complex business processes
become, the more planners are compelled to have information at their disposal in the least possible time.
The competence of a department (or an entire organisation), is determined by how organized and fast
they can execute on orders within a time limit. Information is a spur of action.

In industrialized countries RF systems (Radio Frequency systems) are deployed to direct the activities of
warehouse staff, ultimately updating stock-count in real-time. The advantage of using such systems is
that tasks that were previously done independent of each other, can now run concurrently. RF systems
enforce high levels of efficiency by eliminating unnecessary employment of personnel. The objective is to
provide support without excess …economy: an important characteristic of logistics.

The deployment of condition-conscious devices, e.g. freezers and cooling chambers (for storage of liquid
fuel and intricate gases) with embedded temperature sensors. Computers in the control labs reflect
temperature recordings as detected by sensors, alerting lab attendants of temperatures that are outside
acceptable range. The quality of stored commodities should be uncompromised.

Logistics is a precision-based practice. Recently in the UK, scientists developed wireless, handheld
scanners for use by warehouse inspectors to capture barcodes to curb errors of double entry and
omission. Data captured from these devices is transferred for analysis on a warehouse server via a
dedicated intranet.

Technology achieves its objectives through simplicity. The purpose of ICT is to enhance the speed of
processes e.g. GPRS radio communication and vehicle tracking enables freight companies to trace the
movement of haulage trucks. Early response to breakdown becomes possible, reducing the downtime of
trucks in transit. On the other hand, drivers are discouraged from engaging in unlawful tendencies such
as offering lifts to hikers or the sale of diesel to black market traders (a common practice in third world
countries). Transporters will face minimum challenges in adhering to timetables and operating at viable
frequency.

ICT has also enabled logisticians to realize economies of scale in documentation. Carefully computed
records provide a reliable interface for reference e.g. instant retrieval of the price of new-stock items at
EPOS (electronic point of sale) in cases where general shop attendants cannot assist querying customers.

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F. CUSTOMER SERVICE

Customer Service: A customer –oriented philosophy that integrates and manages all of the elements on the
customer interface within a predetermined optimum cost service mix.

Bernard J. Lalonde and Paul H. Zinszor – 1976 Customer Service meaning

 Customer Service acts as the binding and unifying force for all the logistics management activities.
 Customer satisfaction, of which customer service is an integral part, occurs if the firm or organization overall
marketing effort is successful.

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  This is all about the customer receiving the right product, at the right place, in the right condition, for the
right cost at the right time.
 This 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.

KEY ASPECTS
 Condition of goods
 Order status information
 Order size constraints
 Methods of ordering
 Monitoring pest delivery
 After sales service

The major components of Customer Service are:

1. Pre-transaction elements – these are customer service factors that arise prior to actual transaction taking
place. They include written customer service policy, accessibility or order personnel, single order contact
point, organizational structure, method of ordering, order size constraints and system flexibility.
2. Transaction Elements – these are the elements directly related to the physical transaction and are those that
are most commonly concerned with distribution and logistics. These include order cycle time, order
preparations, inventory availability, delivery alternatives, delivery time, delivery reliability, delivery of
complete order, condition of goods and order status info.
3. Post Transaction Elements – these involve those elements that occur after the delivery has taken place e.g.
availability of space, call-out time, invoicing procedures, invoicing accuracy, product tracing, returns policy,
and customer complaints.
Multi-functional dimensions make up the order cycle by enabling a seamless service provision through time,
dependability, communication and flexibility.

Customer Service Policy is imperative. There are six steps to developing a Customer Service policy:
a. Identify the main elements of service.
b. Determine the relative significance of each service element.
c. Establish company competitiveness at the current service levels that are being offered
d. Identify distinct service requirements for different market segments.
e. Develop specific customer service packages
f. Determine monitoring and control procedures

The Conceptual Models of Customer Quality

Service quality is a measure of the extent to which the customer is experiencing the level of service that they are
expecting. A mismatch of what a customer expects and what they experience, is called a quality gap.
*Gap 5: Actual Service - Perceived Gap: This is the difference between the service that is rendered by the supplier and
the service that a customer experiences.
*Gap 4: Service delivery - External communication system: This is the difference between actual service and promised
level of service.
*Gap 3: Management Perceptions – Service Standard gap : This is the difference between the service specification that
is set and the supplier managerial assessment of customer service requirement.
*Gap 1: Customer expectation – Management Perception gap; this is the difference between the service that the
customer expects, and the service level that the supplier thinks the company wants.
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The Customer Service Explosion
Ability to improve service level and to maintain this improvement is a challenge that has led to changes. Major
factors are:
 The growth in customer expectations
 The growing professionalism of buyers
 Markets have become increasingly service sensitive
 The diminution of brand loyalty
 The development of new ideas such as relationship marketing where fulfilling service expectations is the key
and customer retention is a priority

THE CHARACTERISTICS OF LOGISTICS

 Responsiveness – response to orders especially on occasions when there is an expected boom or change in the
demand of a product
 Improvisation – in Logistics, trade-offs occur. Opportunity costs are conceded in facilitating the success of
another process, or more processes other than the one that primarily existed.
 Precision-based – Logistics is the time-related positioning of resources. Strict emphasis of the 7R’s.
 Continuity – Logistics is a forward and reverse process. Several strategies encompassed in this broad subject
focus on identifying constraints and suggesting possible ways of countering bottlenecks. The occurrence of
human needs and the desire to satisfy them is perpetual. Logistics is a derived, co-ordinative function. Hence
logistics is perpetual too.
 Flexibility – Logistics is a diverse and dynamic function that is proportionately responsive to various challenges
imposed upon it, with respect to the environment in which it works.

TRANSPORT

DEFINITION
 Combination of ‘the Way, the Unit and the Commodity’
 A process that involves the transfer of passengers or cargo from where they are, to a destination of choice
where there is recognisable place utility and value attributed to the transfer, respectively.

COMPONENTS OF TRANSPORT

The Unit
 Vehicles
 Vehicle design and capacity
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The Way
 Ownership structure, provision and management
 Regulation
 Infrastructure e.g. terminals, road networks

The Commodity
Freight or Passengers

CHARACTERISTICS OF TRANSPORT
 Instant perishability – when a vehicle starts moving from point A to point B without a full load, excess capacity
represents a loss. Excess capacity cannot be stored for future utilisation.
 Indivisibility – a vehicle’s capacity cannot be adjusted variably (in unit of space), with respect to the size of load
or number of people it is likely to accommodate per trip.
 Intangible – transport is a service, thus its essence cannot be physically felt. Transport as a full package renders
an intrinsic experience which in turn is what gives utility to its user.
 Inseparable – Transport provision and use or consumption occur simultaneously

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