Origins

The term "logistics" originates from the ancient Greek "λόγος"

("logos"—"ratio, word, calculation, reason, speech, oration").

Logistics is considered to have originated in the military's need to supply themselves with
arms, ammunition and rations as they moved from their base to a forward position.

Before the 1950s, logistics was thought of in military terms. It had to do

with procurement, maintenance, and transportation of military facilities,
materiel, and personnel

Logistic is the art and science of management, engineering and technical

activities concerned with requirements, design and supplying and
maintaining resources to support objectives, plans and operations ''

Logistics evolved during planning and exercising crusades and

military expeditions, as well as with the development of trade. The
practicality of logistics is also seen with its involvement in everyday life.
The beginning of logistics theory can be dated to second world war, and in
business logistics, to 1950’s. During the Second World War, also the
computer age was started, which enabled analysis with the evolving
operations research models. The main application areas of operations
research in the beginning involved logistics problems such as transportation
routes, inventory models.
Logistics management as an independent discipline started to evolve
under management science. Models geared to minimization of costs were
developed. Both modelling and OR methods developed. Since these models
often were simplifications, the solutions lacked true applicability.
In business world, external situations such as oil crisis, growing
competition, and increasing customer demands made logistics a
management issue, and in gaining more importance, logistics became
eventually the top level issue in management. Integration of production
scheduling and materials management was needed, and on the other hand,
transports were analysed taking inventories into consideration at the same
time.
Network models for restructuring the distribution networks were taken
into use. Several rounds of streamlining the number of warehouses in
distribution networks have been seen. The models initially were facilities
location problems, now the analysis is based on costs, availability, and
delivery service levels in an environment of many factories, markets,
products, and time periods.
OR-models started to become too complex, and the same problems
with simplifications remained. Logistics became a management discipline in
its own right.
Control over own management environment had to widened,
especially when materials management was considered. Logistical efficiency
became a competitive factor when providing customer service, and obtaining
cost efficiency. During structural change, outsourcing of non-core functions
became a trend. Most companies outsourced first their transports, then also
their inventories and sourcing, so most of the logistical operations were
outsourced. Partnerships, alliances, and cooperation became a management
strategy as well as a research area.
Forecasts of demand have become extremely crucial. Seasonality,
perishability, risk handling, shorter life cycles, shorter times to market all
make more demands on both the accuracy and quickness of forecasts. For all
participants in the logistics chain, they have great importance. Visibility will
be the main strategic competitive issue in logistics management across
company borders.

2. Brief history

Early references to logistics can be located in business literature. Prior

to the 1950’s, the typical enterprise performed the work of logistics purely
on functional basis. Bowersox and Closs [4] comment that the continuous
pressure for profit improvement since then along with erratic market
conditions puts the focus on cost containments, avoidance, and reduction.
According to Ballou [2], logistics management, as a discipline in
management science and practice, was defined in US in 1950-60’s when the
potential of efficient material distribution to decrease companies’ direct
product costs was realized. The physical distribution models were developed
because of the following four factors: 1) shifts in consumer demand patterns
and attitudes toward more demanding needs for high availability and variety
of products, 2) cost pressures on industry, 3) progress in computer
technology, and 4) the influences of military experience.
The change in logistics practices faced significant opposition.
Managers, responsible for specific functions, were not happy with
organizational changes that were considered necessary for implementing
logistics in broader meaning. Bowersox and Closs [4] comment further that
return on investment became harder to distinguish in integrated logistics.
During the oil crisis in 1970’s , both transportation costs and interest
rates (thus also inventory carrying costs) increased simultaneously, and the
importance of logistics was really understood by top management.
Optimization of physical distribution alone was not enough, it was necessary
to integrate purchasing and materials handling into it as well.
The most significant drivers for integrated logistics during 1980’s and
early 1990’s were listed by Bowersox and Closs [4] as 1) significant
regulatory change, 2) microprocessor commercialisation, 3) information
revolution, 4) widespread adoption of quality improvements, and 5) the
growth of partnerships and strategic alliances.
This integration process was leading to an evolution of logistics
management that according to the increasing number of logistics literature,
e.g. Langley and Holcomb [18], Gattorna and Walters [11], and Gopal and
Cypress [12] in addition to earlier edition from year 1992 of Ballou [2] can
be considered to be the combination physical distribution and materials
management.
Gradually logistics management became cross functional within the whole
organization (Christopher [8]).
Porter [23] published in 1985 the famous doctrine of value chain and value
system. Each activity in a company should be adding value to the value
chain of the customer. In the value concept, logistics plays very central role
in creating value for the customer, as both inbound and outbound logistics
are presented as primary activities in the chain. Logistics increased
importance, as it was seen as an activity that enables companies to improve
customer value, and not only regarded internally as cost-efficiency target.
This lead further to value stream mapping presented by Hines et al. [14]
An abundance of definitions of logistics have been presented. The term
Supply Chain was introduced, and had to be distinguished from logistics.
There is a view that logistics is contained in a company’s internal processes,
whereas supply chain is a more holistic concept (Christopher [8]). The
current interpretation is also that the supply chain creates products and
services that are transferred from suppliers to end customers. This
interpretation has been complemented with the term demand chain, defined
to transfer demand information from end customer markets to suppliers.
Combined, demand and supply chain create demand-supply chain, an end-
to-end network (Harrison and van Hoek [13]). It can be noted, that the
traditional term logistics chain has also been defined to cover the material
flow from raw material end to final customer end, the demand information
flow to the opposite direction, and transfer of payments as well; the modern
view is that in the supply chain, logistics is a subset (Harrison and van Hoek
[13]).
Analytical approaches even in the beginning of 2000’s rely on traditional
methods of statistics and operations research, as is displayed by Chopra and
Meindl [6], and Shapiro [24].

3. Evolution platforms

The evolution of production supply chains depends on the previous

platforms of best practice. Hughes et al. [15] describe this by the stages seen
in the supply chains over the past forty years. In the 1960’s, the goal was to
secure the stability of production, which was achieved by modelling and
optimising the economic batch sizes, safety stocks, and reorder levels. This
provided a natural platform for adoption of material requirements planning
(MRP) in the 1970’s and early 1980’s. MRP is built on a push system, where
materials are ordered against a projected demand. Manufacturing is arranged
along ordered schedules. MRP attempts to eliminate safety stock and cycle
stock, Flexibility is taken up by varying the demand on the suppliers.
Simultaneously, in Japan, just-in-time (JIT) practices were evolving
alongside with total quality management (TQM), with the goal to eliminate
all waste from manufacturing and inventories. JIT and TQM were business
philosophies supported by several interconnected principles, which were
defined around the three QCD principles: a continually improving quality
assurance system to meet customer requirements, a continually improving
cost management system to provide the product at an attractive price to the
customer while securing reasonable profits for the company, and a
continually improving delivery system to ensure that products arrive on
time. Huge improvements were seen. Without integrating all three
principles, there would have been the risk of concentrating on trading costs
for quality and customer response. JIT production is a pull system. Capacity
is matched to the demand. Production patterns are regular, but
manufacturing systems are flexible. Batch quantities are economic, supplier
lead times are short, product range was narrow, and demand patterns in the
market are regular. JIT prevailed in the 1980’s and in the beginning of
1990’s.
JIT was a natural platform for the lean production and lean supply systems
emerging in the 1990’s. In lean systems, all waste, also time wastes, were
eliminated. Total inventories, for production, in production work in process,
and in finished goods inventories, were minimized. Cost transparency in the
supply chain was necessary, for production flexibility, multi-skilled workers
were needed, work queues were shortened, change-over times were reduced,
product variability was great but product volumes were low. During this
period, synchronous manufacturing was introduced, product modularisation,
postponements and pushing order penetration point upstream (Krajewski and
Ritzman [17]). At every stage, continuous improvement was the target.
Value stream management and value stream mapping was one of the
methods to achieve lean management and excellence in the supply chains
(Hines et al. [14]).
The need for greater flexibility and shorter times to market and customers,
brought out the next stage of responsive supply chains. Quick response to
customer requirements, supply flexibility, and customized manufacturing are
all geared for better customer service. Production schedules were
synchronized with final demand, supply processes were controlled, and
capability to integrate trading partners, full use of electronic commerce, and
concurrent product development were taken into use.
Simchy-Levy et al. [25] note that, in 2000’s, e-business has already
brought out a significant change. Improvement in the service level and
inventory level could not be achieved simultaneously earlier. Recent
developments in information technology and communication technology,
together with better understanding of supply chain strategies, have led to
innovative approaches so that the firm can improve both objectives
simultaneously.
From lean manufacturing and supply chains, the next platform to emerge
at the end of 1990’s, is the process model and the agile supply chain
(Harrison and van Hoek [13]). These involve goods and products with short
life cycles, volatile demand, high product variety, customer service driver is
availability, not cost alone. Profit margin is high, and dominant cost factor is
marketability cost. Stockout penalties are immediate and volatile,
information enrichment is obligatory, and forecasting methods have become
consultative. The need for new customer relation management systems, with
better forecasting capabilities is imminent. Agility means, that capacity and
demand variances have to be benefited.