Logistics

management
 Introduction
• Logistics mean having the right thing, at the right
place, at the right time.
• Logistics is defined as a business planning framework
for the management of material, service, information
and capital flows. It includes the increasingly complex
information, communication and control systems
required in today’s business environment.
 Logistics as a part of SCM
• Logistics involves the integration,
transportation, inventory, warehousing,
material handling and packing.
• Logistics is the channel of the supply
chain which adds the value of time and
place utility.
• The term Logistics Management is that part of
SCM that plans, implements, and controls the
efficient, effective, forward, and reverse flow
and storage of goods, services, and related
information between the point of origin and
the point of consumption in order to meet
customers’ requirements.
Objectives of logistics management
Delivering customer service
Reducing total distribution costs
Reducing cycle time
Rapid response
Minimum variance
Minimum inventory
Quality improvement
 Focus areas of logistics
• In order to achieve least total supply chain cost,
operational integration of the 5 main areas of
logistics must be simultaneously optimized::
• Warehousing
• Transportation
• Inventory
• Order processing
• Lot quantities
 Modes of transportation
• Choices available::
Rail
Water
Road
Air
Pipeline
 Comparison of modes of transportation
on supply chain performance measures
Modes of Cost Lot size Delivery Delivery Loss and
transportation (1=Least) (1=Smallest) time time damage
(1=Fastest) variability (1=Least)
(1=Least)

Rail 2 3 3 3 4

Road 3 2 2 2 3

Water 1 4 4 4 1

Air 4 1 1 1 2
 Drivers of logistics decision

• Transportation cost structure

• Impact of product and demand characteristics on
system cost
 Factors influencing logistics
decisions
• Customer communications
• Market coverage
• Sourcing decisions
• Manufacturing operations
• Pricing decision
• Customer service decisions
 Models of logistics
• Forecasting model
• Mathematical programming models
• Inventory models
• Routing models
• Scheduling models
 Logistics functions

Order Material
Warehousing Information
processing handling

Inventory Logistical
Transportation
management packaging
 Logistics applications
• Inbound logistics- flow of products from suppliers to
manufacturing unit

• Outbound logistics- physically distributing the

products to the customers from the manufacturing unit
 Third-party logistics
• Third-party logistics (3PL) involves using
external organizations to execute logistics activities
that have traditionally been performed within an
organization itself.
• If, for example, a company with its own
warehousing facilities decides to employ external
transportation, this would be an example of third-
party logistics. Logistics is an emerging business
area in many countries.
Fourth-party logistics
• The concept of Fourth-Party Logistics (4PL) provider is an integrator
that assembles the resources, capabilities and technology of its own
organization and other organizations to design, build, and run comprehensive
supply chain solutions.
• Whereas a third party logistics (3PL) service provider targets a
function, a 4PL targets management of the entire process. Some have
described a 4PL as a general contractor who manages other 3PLs,
truckers, forwarders, custom house agents, and others, essentially
taking responsibility of a complete process for the customer.
 Market logistics decisions
• Order processing
• Inventory management
• Reorder point
• Order lead-time
• Usage rate
• Safety stock
• EOQ
• JIT
• Transportation
 Future direction of logistics
• Carrier relationship management
• Corporate traffic councils
• Training & certification
• Driver quality
• Joint procurement
• Security officers
 Reverse logistics
• Reverse logistics stands for all operations related to the
reuse of products and materials. It is "the process of
planning, implementing, and controlling the efficient, cost
effective flow of raw materials, in-process inventory, finished
goods and related information from the point of consumption
to the point of origin for the purpose of recapturing value
or proper disposal.
• Normally, logistics deal with events that bring the product
towards the customer. In the case of reverse, the resource
goes at least one step back in the supply chain
 Bullwhip effect in logistics
• The objective of SCM is to provide a high velocity
flow of high quality, relevant information that will
enable suppliers to provide an uninterrupted and
precisely timed flow of materials to customers.
• However, unplanned demand oscillations, including
those caused by stockouts, in the supply chain
execution process create distortions, which can wreck
havoc up and down the supply chain. This is called
“Bullwhip effect”
Drivers of demand distortions
Customers Suppliers
Sales Promotions
Policies Manufacturing
Systems Processes
Causes of Bullwhip effect
How do sporadic sales promotion impact demand patterns,
cost and margins?
Does your sales incentive plan contribute to demand
distortions?
Are you the victim of false orders and subsequent
cancellations?
Do transportation incentives cause demand lumps?
Have you developed partnerships based on trust with your
customers?
Cracking the Bullwhip effect
Minimize the cycle time in receiving projected and actual
demand information.
Establish the monitoring of actual demand for product to as near
a real time basis as possible
Understand product demand patterns at each stage of the
supply chain
Increase the frequency and quality through shared information
Eliminate information queues that create information delays
Eliminate incentives for customers that directly cause demand
accumulation such as volume transportation discounts.
Identify and preferably eliminate the cause of customer
order reductions or cancellations.
Provide vendor-managed inventory (VMI) services by
collaboratively planning inventory needs with the
customer to projected demand and then monitor
actual demand to fine tune the actual VMI levels.