LOGISTICS MANAGEMENT

International Business Management

 Three objectives of logistics

Definition:
Logistics management is a process of planning, executing, and
controlling the efficient, effective, flow and storage of goods and
services, and related information from point of origin to point of
consumption for the purpose of conforming to customer
requirement.

Objectives:
1. Make available the right quantity of right quality products
at the right place and time in the right condition.
2. Reduce costs of operations:
• Cost reduction (variable costs)
• Capital reduction (investment, fixed costs)

3. Service Improvement
Components of
logistics management : Management actions
Outputs of
Planning Implementation Control logistics
Inputs into logistics
Marketing
Natural Logistics management orientation
resources (land, Suppliers (competitive
Raw In-process Finished Customers
facilities, and advantage)
materials inventory goods
equipments)
Time and
Human place utility
Logistics Activities
resources
Customer Service Plant and warehouse Efficient
Financial Demand forecasting site selection movement to
resources Distribution Procurement customer
Information communications Packaging
resources Inventory control Return goods handling
Material handling Salvage and scrap Proprietary
Order Processing disposal asset
Parts and service Traffic and
support transportation
Warehousing and
storage
Three categories:

Production
Storage
Transportation

Inputs: resources.

The term “Resource” applies to all of the factors

of production, including materials (e.g. cotton,
parts), equipment (e.g. machines or vehicles),
energy (e.g. oil, coal, electricity) and labor.
PRODUCTION: Fundamental logistics questions are: (1) when should a
resource be produced; and (2) where should a resource be
produced.
The “when” question includes the topics of aggregate resource
planning, and production scheduling.
The “where” question includes the topics of facility location and
production allocation.
Some of the important production questions are:
(a) What outside source should be used to supply a part?
(b) Where should a new facility be built?
(c) When should a facility produce different items, taking into account:
• Seasonal demand patterns?
• Demand uncertainty?
• Cost of operating single, double, triple shifts?
• Labor costs?
(d) When should a firm use two or more sources for a part?
INVENTORY: Fundamental logistics questions are (1) when should a
resource (material, machine or labor) be put in inventory and taken
out of inventory; and (2) where should a resource be stored.

The “when” question includes the general topics of economic-order-

quantity models, safety stock models and seasonal models, and
specialized topics of fleet management, and personnel planning.

The “where” questions includes the topic of inventory echelons.

Some of the important inventory questions are:

(a) How much does it cost to store resources in inventory?

(b) How much “safety stock” should be carried in inventory to prevent
against running out of a resource?
(c) How much inventory should be carried in order to smooth out
seasonal variations in demand?
(d) Where should replacement parts be stored in multi-echelon
inventory system?
TRANSPORTATION: Fundamental logistics are: (1) where should
resources be moved to, and by what mode and route; (2) when
should resources be moved.

The “where” question includes the topics of terminal location,

vehicle routing, and shortest path methods and network flow
allocation.

The “when” question includes the topic of distribution rules.

Some of the important questions are:

(a) When should shipment be sent through terminals, and when

should shipment be sent direct?
(b) Which, and how many, terminals should shipments be sent
through?
(c) What are the best vehicle routes?
(d) When should a vehicle be dispatched over a route?
Logistics - Science of managing (controlling) the movement and
storage of goods (or people) from acquisition to consumption.

Goods: Raw Materials  Final products, and everything in between.

Logistics for services & people similar to goods logistics.
Ex. Police, fire, ambulance, passenger airlines, taxi cabs, etc.

Movement = Transportation (between locations).

Storage = Inventory, Warehousing (at locations).

Difference between acquisition and consumption is a matter of space

and time.

Focus: Best way to overcome space and time that separates acquisition
and consumption.

NOTE: Logistics does not deal with Technology of Production, such

as the design of machines and vehicles and the design of finished
products.
 1998 CLM DEFINITION OF LOGISTICS

….is that part of the supply chain process that

plans, implements, and controls the efficient,
effective flow and storage of goods, services,
and related information from the point-of-
origin to the point-of-consumption in order to
meet customers' requirements.

Council of Logistics Management, 1998;

www.CLM1.org
 Five Business Systems - Tightly Interconnected Within The
Organization
Management

}
Systems Strategic Product Process
Decisions Design Design
Decisions Decisions
Engineering
Measurement Systems

}
Decisions
Product
Decisions
Reward
Decisions Price
Decisions
Promotion
Decisions
Marketing
Systems
Place (How,

{ }
where, how
much)

Production
Inventory Capacity
Decisions Decisions

Logistics Transportation Production

Manufacturing
Scheduling
Systems Decisions
Decisions Systems

Sourcing Shop Floor

Decisions Decisions

Copyright 2000 - All Rights Reserved

Logistics – Mission [A Bill of “Rights”]

 Logistics embodies the effort to deliver:

 the right product
 in the right quantity
 in the right condition
 to the right place
 at the right time
 for the right customer
 at the right cost
Activities and Logistics Decisions
Transportation
rate and contract negotiation
mode and service selection
routing and scheduling
Inventories
finished goods policies
supply scheduling
short term forecasting
Warehousing
private vs. public
space determination
warehouse configuration
Stock layout and dock design
stock placement
Cross-docking
Facility Location
determining location, number
and size of facilities
allocating demand to facilities
Customer Service
determining customer wants
determining customer response
to service changes
Materials Handling
equipment selection
equipment replacement
order picking procedures
Packaging design
Order Processing
order procedure determination
Production Scheduling
aggregate production quantities
sequencing and timing of
production runs
 Logistics Planning
 Decide what, when, how in three levels:
 Strategic – long range > 1 year
 Tactical - < 1 year horizon
 Operational – frequently on hourly or daily basis

Examples of Decisions
Type Strategic Tactical Operational

Location #Facilities, size, Inventory Routing

location positioning

Transportation Mode Seasonal Service Replenishment Qty

Mix and timing

Order Processing Selecting order Priority rules for Expediting orders

entry system customers
(CS)
 The Logistics (Strategic) Planning Triangle

Strategy/Control Which mode?

system? Which carrier?
How much? Which route?
Where? Shipment size and
frequency?

Where?, How
many? What size?
Allocation?
Transport Fundamentals
Most important component of logistics cost.
Usually 1/3 - 2/3 of total cost.

 Transport involves
 equipment (trucks, planes, trains, boats, pipeline),
 people (drivers, loaders & un-loaders), and
 decisions (routing, timing, quantities, equipment size,
transport mode).
When deciding the transport mode for a given product
there are several things to consider:
 Mode price
 Transit time and variability (reliability)
 Potential for loss or damage.

NOTE: In developing countries we often find it

necessary to locate production close to both
markets and resources, while in countries with
developed distribution systems people can live in
places far from production and resources.
 Routes of Goods
let us guess

Air plane
air terminal
Goods at
shippers Container
sea terminal May Freight
vessel forwarder
sea bulk goods change
Freight mid-stream transpor- warehouse
pier
forwarder tation
land barge
warehouse modes
land
railway
Goods at
consignees
truck
Single-mode Service Choices and Issues
Air
•Rapidly growing segment of transportation industry
•Lightweight, small items [Products: Perishable and time sensitive
goods: Flowers, produce, electronics, mail, emergency shipments,
documents, etc.]
•Quick, reliable, expensive
•Often combined with trucking operations
Rail
•Low cost, high-volume [Products: Heavy industry, minerals, chemicals,
agricultural products, autos, etc.]
•Improving flexibility
•intermodal service
Truck
•Most used mode
•Flexible, small loads [Products: Medium and light manufacturing, food,
clothing, all retail goods]
•Trucks can go door-to-door as opposed to planes and trains.
Single-mode Service Choices and Issues (Contd.)

Water
•One of oldest means of transport
•Low-cost, high-volume, slow
•Bulky, heavy and/or large items (Products: Nonperishable
bulk cargo - Liquids, minerals, grain, petroleum, lumber,
etc )]
•Standardized shipping containers improve service
•Combined with trucking & rail for complete systems
•International trade

Pipeline
•Primarily for oil & refined oil products
•Slurry lines carry coal or kaolin
•High capital investment
•Low operating costs
•Can cross difficult terrain
•Highly reliable; Low product losses
Transport Cost Characteristics
 Fixed costs:
 Terminal facilities

 Transport equipment

 Carrier administration

 Roadway acquisition and maintenance

[Infrastructure (road, rail, pipeline,

navigation, etc.)]
 Variable costs:
 Fuel

 Labor

 Equipment maintenance

 Handling, pickup & delivery, taxes

NOTE: Cost structure varies by mode

 Transport Cost Characteristics
 Rail
 High fixed costs, low variable costs
 High volumes result in lower per unit (variable) costs
 Highway
 Lower fixed costs (don’t need to own or maintain roads)
 Higher unit costs than rail due to lower capacity per truck
 Terminal expenses and line-haul expenses
 Water
 High terminal (port) costs and high equipment costs (both
fixed)
 Very low unit costs
 Air
 Substantial fixed costs
 Variable costs depend highly on distance traveled
 Pipeline
 Highest proportion of fixed cost of any mode due to pipeline
ownership and maintenance and extremely low variable costs