Few areas of business involve the complexity or span the geography typical of logistics. Logistics is concerned with getting products and services where they are needed whenever they are desired. Most consumers take a high level of logistical competency for granted. When they go to store, they expect products to be available and fresh. It is rather difficult to visualize any marketing or manufacturing without logistical support Modern logistics is also a paradox. Logistics has been performed since the beginning of civilization: it’s hardly new.
However implementing best practice of logistics has become one of the most exciting and challenging operational areas of business and public sector management According to Council of logistics management: “Logistics is the process of planning, implementing and controlling the efficient, effective flow and storage of goods, services and related information from point of origin to point of consumption for the purpose of conforming the customer requirement”. Logistical management includes the design and administration of systems to controls the flow of material, work- in – process, and finished inventory to support business unit strategy.
Logistics is the designing and managing of a system in order to control the flow of material throughout a corporation. This is a very important part of an international company because of geographical barriers. Logistics of an international company includes movement of raw materials, coordinating flows into and out of different countries, choices of transportation, and cost of the transportation, packaging the product for shipment, storing the product, and managing the entire process. Analysis of the figure of evolution of logistics [pic] Fragmentation 1960
This era was known as fragmentation because every thing that done was disintegrated Evolving Integration At this stage of time new concepts of Logistical management were evolving Total integration In the present scenario because of technological advances logistics has evolved as part of management Concept of Logistics The concept of logistics is fairly new in the business world. The theoretical development was not used until 1966. Since then, many business practices have evolved and logistics currently costs between 10 and 25 percent of the total cost of an international purchase.
There are two main phases that are important in the movement of materials: material management and physical distribution; Materials management is the timely movement of raw materials, parts, and supplies. The physical distribution is the movement of the firm’s finished products to the customers. Both phases involve every stage of the process including storage. The ultimate goal of logistics is: “To coordinate all efforts of the company to maintain a cost effective flow of goods. ” Word, ’Logistics’ is derived from French word ‘loger’, which means art of war pertaining to movement and supply of armies.
A military concept, fighting a war requires: i. Setting of an objective ii. Meticulous planning to achieve the objective iii. Troops properly deployed iv. Supply line consisting weaponry, food, medical assistance, etc. maintained v. Plan should be such that there is minimum loss to men & material Like fighting a war in the battlefield, the marketing managers also need a suitable logistics plan that is capable of satisfying the company objective of meeting profitably the demand of targeted customers. Inbound logistics + Material Management + Physical Distribution =Logistics
Discussion of each and every term in this above summation i. Inbound logistics covers the movement of materials received from suppliers ii. Material management describes the movements of material & components within a firm iii. Physical distribution refers to movement of goods outward from the end of the assembly line to the costumer. iv. Supply- chain management is somewhat larger than logistics and it links logistics more directly within the user’s total communication network & with the firm engineering staff. It includes manufacturer and suppliers but also transporters, warehouses, retailers and customers themselves.
Importance of logistics i. Transportation cost rose rapidly due to the rise in fuel prices ii. Production efficiency was reaching a peak iii. Fundamental change in inventory philosophy iv. Product line proliferated v. Computer technology vi. Increased use or computers vii. Increased public concern of products Growth of several new, large retail chains or mass merchandise with large demands & very sophisticated logistics services, by pass traditional channel & distribution viii. Reduction in economic regulation ix. Growing power of retailers x. Globalization
The interrelation of different logistics element and their costs should be based on total cost rather than individual costs. The objectives of Logistics Operating Objectives In terms of logistical system design and administration, each firm must simultaneously achieve at least six different operational objectives. These operational objectives, which are the primary determinants of logistical performance, include rapid response, minimum variance, minimum inventory, movement consolidation, quality, and life-cycle support. Each objective is briefly discussed. Rapid Response
Rapid response is concerned with a firm’s ability to satisfy customer service requirements in a timely manner. Information technology has increased the capability to postpone logistical operations to the latest possible time and then accomplish rapid delivery of required inventory. The result is elimination of excessive inventories traditionally stocked in anticipation of customer requirements. Rapid response capability shifts operational emphasis from an anticipatory posture based on forecasting and inventory stocking to responding to customer requirements on a shipment-to-shipment basis.
Because inventory is typically not moved in a time-based system until customer requirements are known and performance is committed, little tolerance exists for operational deficiencies Minimum Variance Variance is any unexpected event that disrupts system performance. Variance may result from any aspect of logistical operations. Delays in expected time of customer order receipt, an unexpected disruption in manufacturing, goods arriving damaged at a customer’s location, or delivery to an incorrect location-all result in a time disruption in operations that must be resolved.
Potential reduction of variance’ relates to both internal and external operations. Operating areas of a logistical system are subject to potential variance. The traditional solution to accommodating variance was to establish safety stock inventory or use high-cost premium transportation. Such practices, given their expense and associated risk, have been replaced by using information technology to achieve positive logistics Control. To the extent that variances are minimized, logistical productivity improves as a result of economical operations.
Thus, a basic objective of overall logistical performance is to minimize variance. Minimum Inventory The objective of minimum variance involves asses commitment and relative turn velocity. Total commitment is the financial value of inventory deployed throughout the logistical system. Turn velocity involves the rate of inventory usage over time. High turn rates, coupled with inventory availability, means that assets devoted to inventory are being effectively utilized. The objective is to reduce inventory deployment to the lowest level consistent with customer service goals to achieve the lowest overall total logistics cost.
Concepts like zero inventories have become increasingly as managers seek to reduce inventory deployment. The reality of reengineering a system is that operational defects do not become apparent until inventories are reduced to their lowest possible level. While the goal of eliminating all inventories is attractive, it is important to remember that inventory can and does facilitate some important benefits in a logistical system. Inventories can provide improved return on investment when they result in economies of scale in manufacturing or procurement.
The objective is to reduce and manage inventory to the lowest possible level while simultaneously achieving desired operating objectives. To achieve the objective of minimum inventory, the logistical system design must control commitment and turn velocity for the entire firm, not merely for each business location. Movement consolidation One of the most significant logistical costs is transportation. Transportation cost is directly related to the type of product, size of shipment, and distance. Many Logistical systems that feature premium service depend on high-speed, small-shipment transportation.
Premium transportation is typically high-cost. To reduce transportation cost, it is desirable to achieve movement consolidation. As a general rule, the larger the overall shipment and the longer the distance it is transported, the lower the transportation cost per unit. This requires innovative programs to group small shipments for consolidated movement. Such programs must be facilitated by working arrangements that transcend the overall supply chain. Quality improvement A fifth logistical objective is to seek continuous quality improvement.
Total quality management (TQM) has become a major commitment throughout all facets of industry. Overall commitment to TQM is one of the major forces contributing to the logistical renaissance. If a product becomes defective or if service promises are not kept, little, if any, value is added by the logistics. Logistical costs, once expended, cannot be reversed. In fact, when quality fails, the logistical performance typically needs to be reversed and then repeated. Logistics itself must perform to demanding quality standards.