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CHAPTER 7 – LOGISTICS AND SUPPLY CHAIN

 Logistics is the general management of how resources are acquired, stored and transported to
their final destination. It involves identifying prospective distributors and suppliers, and
determining their effectiveness and accessibility. For example, in the natural gas industry,
logistics involves all of the systems used to gather and transport oil.
 Supply Chain operation is a network between a company and its suppliers to produce and
distribute a specific product and the supply chain represents the steps it takes to get the
product or service to the customer.
In other words, logistics refers to the production and distribution process within the company
while supply chain includes suppliers, manufacturers and retailers that distribute the product to
the end customer.

COMPONENTS OF LOGISTICS

A business logistics system is made up of three main activities: order processing, inventory
management, and freight transportation.

- Order processing (FORWARD AND REVERSE FLOW OF GOODS) is concerned with the information flow
in the logistics system and includes a number of operations. The beginning of the process consists of a
request from a customer for a particular product via an order form. These orders are then transmitted
and checked for completeness and accuracy. The availability of the requested product and the
customer’s credit status are verified. Finally, products are retrieved from the stock, packed, and
delivered along with their shipping documents. Throughout this entire process, the customers have to
be kept informed about the status of their orders.

- Inventory management (STORAGE OF GOODS) is a key issue in logistics systems. Businesses choose to
maintain inventories for a variety of reasons, including:

1. Improving service level.


2. Reducing overall logistics costs.
3. Making seasonal items available throughout the year.
4. Overcoming inefficiencies managing the logistics system.

The objective of inventory management is to regulate stock levels for minimizing total operating cost
while satisfying customer service requirements.

- Freight transportation plays an important role in today’s economy since it enables production and
consumption to take place at locations far away from each other. A manufacturer or distributor can
choose among three alternatives to transport its materials: private transportation, contract
transportation, and public transportation.

ACTIVITIES INVOLVED IN SUPPLY CHAIN OPERATIONS:


 Transformation of natural resources
 Movement and storage of raw materials
 Processing of raw materials and components into finished goods
 Storage of work-in-progress and finished goods
 Delivering the finished product from point of origin to point of destination.

Benefits of supply chain operations:


 Better quality of life
 Wealth creation
 New and innovative job opportunities

Challenges of supply chain operations:


 Globalization counterfeiting
 Product complexity
 Rapid product obsolescence
 Regulatory complexity
 Management blunders
 Changing market conditions
 Natural disasters
 Political instability

Impact of logistics and supply chain operations on the competitiveness of business.


 Logistics improve competitiveness – the ability of the organization to differentiate itself, in the
eyes of the customer, from its competition and secondly, by operating at a lower cost and hence
a greater profit.

THE DISTRIBUTION CHAIN


 The first channel includes all four, from producer to the end consumer. For example, the
beverage industry sells to a wholesaler who then sells to a retailer. The retailer, in turn, sells
the product to the end consumer.
 The second channel is one where the producer sells directly to a retailer, who then sells the
producer’s product to the end consumer. For example, Dell sells its products directly to
reputable retailers such as Best Buy.
 The third channel is whereby the producer sells its product directly to the end consumer.
For example. Amazon sells its Kindles to its customers.

Outsourcing logistics through:


- Second party: this concerns the carriers that are providing a transport service over a specific segment
of a transport chain. It could involve a maritime shipping company, a rail operator or a trucking company
that are hired to haul cargo from an origin to a destination.

-Third party: this means outsourcing all or much of a company’s logistics operations to a specialized
company. Services that they provide are transportation, warehousing, cross docking, inventory
management, packaging and freight forwarding.

-Fourth party: this is a supply chain integrator that assembles and manages the resources, capabilities
and technology of its own organization with those of complementary service providers to deliver a
comprehensive supply chain solution.
Forms of technology:

 Global Positioning Systems (GPS) - A system of satellites, computers, and receivers that is able to
determine the latitude and longitude of a receiver on Earth by calculating the time difference for
signals from different satellites to reach the receiver.
 Geographic Information System (GIS) – a computer application used to store, view and analyze
geographical information, especially maps.
 Telemarketing – the marketing of goods and services by means of telephone calls
 E-commerce – transactions conducted electronically on the internet
 Global logistics – refers to the flow of resources and information between a business or source
and the consumer. For example, Amazon, FedEx.
 Logistic hubs – integrated centres for transshipment, storage, collection and distribution of
goods. For example, Jamaica.

Transportation

Intermodal Shipping is when shipments are handled by several different shipping companies while
Multimodal Shipping would be where one company or one contract would handle all legs of the journey.

Road

Advantages Disadvantages
- It is the only type of transport that can - Limit to the weight that can be carried
reach all destinations in a country - Goods in transit can be held up by
- Flexible, especially where door to door congestion
deliveries are concerned - Pollution is a problem
- Faster than other forms of transport for - For distances over 200km, road transport
distances below 200km. is slower and more expensive

Sea

Advantages Disadvantages
- Cheaper for goods - Sea transport is slower than other forms of
- Heavy, bulkier goods can be carried easily transport
- Specialized cargo, such as oil, can be
transported in specially designed shape

Pipelines

Advantages Disadvantages
- Convenient for transporting oil, water and - Broken lines can lead to leakage and waste
gas of resources
- Cheaper for consumer - Costly to build pipelines
- Inflexible – pipelines are not easily moved
Rail

Advantages Disadvantages
- Quicker than road transport for distances - Slower than road transport, over short
over 200km distances
- Bulky goods are cheaper to transport by - Less convenient than road transport due
rail to transfer of cargo and people from one
- Schedules are reliable train to another.
- Time may be inflexible

Air

Advantages Disadvantages
- Quickest form of transport - Cana be expensive for bulky goods
- Suitable for light and perishable goods - Technical difficulties can interfere with
schedule
- Weight limit on cargo

Digital delivery: (also called content delivery, online distribution, or electronic software distribution
(ESD), among others) is the delivery or distribution of media content such as audio, video, software and
video games.

PROBLEMS ENCOUNTERED IN DISTRIBUTION

Common transport problems Measures to reduce them


Delayed shipment - Use a quicker form of transport
- Use a different carrier
Spoilage - Use a different transport company that
has a better reputation for handling goods
- Ensure goods are insured in transit
- Avoid transshipment as far as possible
- Use refrigerated transportation for food
products
- Use containerization
- Make clear on the packaging that contents
may be fragile
Misdirection of goods - Ensure all documents are clearly filled out
with sender’s and customer’s address
- All goods to be clearly labelled
Inadequate warehousing facilities - Use harbors or airports with extensive
warehousing
- Avoid holding large stocks

Poor security - Employ security company with special


vehicles
- Security cameras in warehouses and other
sites
Industrial unrest - Do not rely too much on one distribution
company or one method of transportation
Ineffective communication - Ensure all drivers have cell phones
- Employ courier companies that use
electronic means of track
- Clear labeling of all packages
- Correct documentation
Availability of airport, harbor and docking facilities - Government intervention
and the efficient distribution of goods

Role of transport in marketing:


 To fast track sourcing of commodities
 To ensure security of supply
 To have cost reduction

Role of transport in regional trade.

- The importance of domestic trade in a country is that it facilitates exchange of goods within the
country. By doing this it also makes sure that factors of production reach to the right places so
that the economy of the country can grow. By allowing all different types of goods and services
to reach to all parts of the country it improves the standard of living of the residents of the
country as well as the employment rate of the country. And it helps the growth of an industry by
ensuring the availability of raw materials. Traders from outside the country will have to come in
contact with internal traders, because it is not easy to come directly into another country and
get the required products.

Transport Documents:

- Import license: an official document from the government that allows only certain goods and
services into a country.
- Bill of lading: a detailed list of a ship's cargo in the form of a receipt given by the master of the
ship to the person consigning the goods.
- Airway bill: is a receipt issued by an international airline for goods and an evidence of the
contract of carriage.