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“Logistic is the process of planning, implementing and controlling the efficient, effective flow of goods storage of goods, services and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirements”
Logistics exists to satisfy customer requirements by facilitating relevant manufacturing and marketing operation. The main responsibility of logistic is the geographical positioning of raw materials, work in process and finished inventories at the lowest possible cost.
Creating logistics value is costly. Logistics accounts for one of the highest costs of doing business. Logistics expenditure normally ranges from 5% to 35% of sales depending on the type of business. Thus logistics even though very important for any business success is expensive.
VARIOUS DEFINITIONS OF LOGISTICS MANAGEMENT
Logistic management encompasses all materials flows management, from the inflow of purchased materials into works (i.e. materials planning of raw materials components and other products, transport of materials from suppliers to works, receiving and inspection and storage of materials) materials flow through manufacturing processes (i.e. materials issues and materials handling) and material (flow to customers (physical distribution (Refer fig.1 for these relationships)
Materials Logistics physical distribution
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(Relationship between logistics and other)
Schmidt describes logistics management as:
“The management (i.e. the planning, execution and control) of all factors that affect the material flow and the information about it, seen from the perspective of customer’s requirements for the purpose of achieving a high reliability,
A high degree of completeness and a short delivery time”
Institute of purchasing and supply define logistics as:
“Logistics is the concept which seeks provide for the management and co-ordination of the activities within the supply chain from sourcing and acquisition through production, where appropriate, and on through distribution channels to the customer. The goal of logistics is the creation of competitive advantages through the simultaneous achievement of high customer service levels, optimum investment and value for money.”
According to Bowersox and Closs:
“Logistics management includes the design and administration of systems to control the flow of materials work in progress and finished inventory to support business unit strategy”
From the above definitions, we conclude that--
(1) Logistics management is the function of managing the total flow of materials which includes movement of raw materials from suppliers, in process within the firm, and movement of finished goods to the customer.
(2) Logistics management covers both physical flow of products as well as information flow covering reports and documentation relating to goods movement.
(3) Logistics management evolves procedures that meet customer service at the minimum cost.
(4) Logistic management achieves cost reduction by speeding the flow of materials, work-in-progress and finished products.
ACTIVITIES OF THE LOGISTICS FUNCTIONS
Logistics function consists of following sets of activities:
(1) Order processing. Though this activity does not contribute much to
Total costs, yet it is treated important because of its contribution to lead time.
(2) Transportation Management. Transportation involves---
• Firm’s own transport (if goods are to be collected)
• Hiring of transport (if services of external firm are to be used)
• Routing and load planning.
• Selection of the most suitable of transport (i.e. rail, road, sea or air).
• Packaging needed (i.e. loose, pallets or special).
• Documentation required (especially if goods are arriving from overseas.)
(3) Inventory management. Inventories require to be maintained to take care of needs between the time of demand and time of supply. Inventory management involved decisions concerning.
• Buffer stocks.
• Lead time.
• Replenishment of stocks.
(4) Warehousing. Is concerned with management of space to hold inventories and it involves such problems as:
• Site selection.
• Space determination.
• Layout and design.
• Receipts and issues and storage.
(5) Materials handling is concerned with movement of product at the stocking point and it involves such decision as :
• Smoothening of materials flow.
• Selection of materials handling equipment.
• Maintenance of materials handling equipment.
(6) Packaging is concerned with design of packing of the product that ensures damage free movement of the product and is conducive to efficient handling and storage.
(7) Acquisition is concerned with sourcing, planning and ordering of the product in order to ensure its availability in the right quantity, at the right time, at the right place and at the right cost. Acquisition, however, dose not includes other purchasing activities such as price negotiation, vendor rating etc.
(8) Product scheduling is concerned with preparation of aggregate quantities to be produced in accordance with demands, actual as well as projected. Product scheduling, however, dose not include day-to-day detailed scheduling carried out by production planner.
(9) Information system is a must for the successful implementation of logistics function. Database on customer location, sales volume, inventory levels, lead times etc. must be maintained.
IMPROVING EFFECTIVESS OF LOGISTICS MANGEMENT:
Five pillars to the effective logistics are: (i) Logistical network, (ii) Transport (iii) information, (iv) Inventory and (v) Warehousing, materials handling and packaging.
(1) Logistical network include facilities such as manufacturing, warehouse, dealers and retail stores. The larger the geographical spread, the more complex the film’s logistical network. Superior logistical network, based on systematic analysis and determination of number of each type of facilities, their geographical location, specific work allocations etc. can be a very big competitive tool.
(2) Information. Accurate forecasting and good order management are essential for the systematic inventory management JIT and Contingency Replenishment (CR) and quick response (QR) to the customer. Timely information thus is the key to the logistical performance. Modern information technology, in the form of both hardware (faxes, mobile phones, e-mail) and software (Enterprise Resource Planning) have removed the deficiencies in information.
(3) Transport. Cost, speed and reliability are key determinants of the effectiveness, whether it is a war or business. Since time is the essence, quality of transport performance becomes the critical factor. Further, as speed and cost of transport are inter-related, careful selection of the transport becomes essential for optimum cost. For example, faster transport costs mean more money but reduce inventories and improve customer service.
(4) Inventory management. Good inventory management system must be put into place to achieve desired customer service with minimum inventory investment. Inventory policies must be carefully devised. Excessive inventories hide deficiencies (e.g. deficiencies of logistics network, poor quality of suppliers, interior purchase order management etc.) while too low inventories cause delay in order execution, slow response and deficient customer service. Selective treatment based on following principles generally lead to effective inventory management:
• Enough quantity of high profit high volume products, demanded by the core customer, may be carried in stock while or negligible inventory may be kept of low-profit-low volume products purchased by a fringe of customers.
• Core customers may be serviced by fast reliable air service while orders of other customers may be dispatched by surface transport.
• Commitment to deliver product rapidly and timely (say within the declared period) must be preceded by enhanced capabilities of logistic network.
• Commitment of rapid and consistent delivery should be intended to gain customer service advantage and to neutralize the strength that a competitor enjoys.
(5) Warehousing, materials handling and packaging. The choice and location of the warehouse should be with a view to get closer to the core customers. Materials handling within the warehouse should be planned to ensure safe and speedy receipt, movement, storage and packaging of customer’s requirements.
Logistics management is the management of all factors that affect the materials flow and the information about it, seen from the perspective of customer requirement, for the purpose of achieving a high delivery, a high reliability, a high degree of completeness and a short delivery time.
Logistics functions include following:
(i) Order processing
(ii) Transport management
(iii) Inventory management
(v) Materials handling
(vii) Production scheduling
(viii) Information system
Some examples of the Logistics decisions taken by the Organizations-
A manufacturer of large molded plastic water tanks has transport costs as a significant portion of the product cost. The is due to the fact that the weight based capacity of the trucks are underutilized by the large volume tanks. In order to build a competitive edge by reducing the product cost attempts are being made to change the product design in which the lid is a separate piece. It enables small size tanks to go into the large sized ones, resulting in the reduction of the transportation cost. Since at present the results of the research are uncertain, a location decision has been taken to manufacture the products in products in four regions regions rather then at one place.
A few cement manufacturers are modifying their production structure in response to the non-availability of covered railway wagons. Cement has been sent to the distribution centers in the granulated forms so that the open wagons can be used. Fine grinding is being done prior to the secondary distribution. Packaging decisions to whether cement should be transported in bulk or in a jute bag or HDPE bags are also under consideration.
A two wheeler manufacturer is re-examining its distribution network design as well as its warehouse location to ensure better response to satisfy customer requirements and lower total product cost by cost by optimizing on cost relating to primary distribution, secondary distribution, warehouse operations and sales tax.
A manufacturer of sponge iron in western India is deciding on a movement plan for both its incoming raw materials and outgoing finished products. The significant issues are the transportation mode choice, shipment size and stocking levels especially since water, rail and road are possible alternatives. The issues are more complicated since the port serving the plant is minor one with limitations of vessel draft and movement being inhibited during the monsoon. Possibilities of cost saving by coordinating inbound and outbound movement add another dimension to the problems.
Certain pharmaceuticals and chemical industries could examine their production planning with respect to their production batch size by considering the profile of orders from the dealers, thereby optimizing on set up costs, work-in-process inventory cost and finished goods inventory cost. In such industries choices can also be made regarding transportation of some products in liquid, paste or powder form. There are implications on transportation costs, conversion energy costs and packing costs.