LOGISTICS MANAGEMENT

An Overview
Define Logistics
Logistics is a process of strategically managing procurement, movement and stora
ge of materials, parts and finished inventory( and related information flows) th
rough the organization and its marketing channels in such a way that current and
future profitability is maximized through the cost effective fulfillment of ord
ers.
CONCEPT
Logistical management includes the design and administration of systems to contro
l the flow of materials, work-in-progress, and finished inventory. It is not spec
ific to business or public sector. It add value when inventory is correctly posit
ioned to facilitate sales. Creating logistics value is costly.
MILITARY ORIGN

Logistics is considered to have originated in the military's need to supply them
selves with arms, ammunition and rations as they moved from their base to a forw
ard position. In ancient Greek, Roman and Byzantine empires, military officers w
ith the title Logistikas were responsible for financial and supply distribution
matters. The men who provided support to the fighters constituted the first logi
stics organization.


MILITARY ORIGN

Research indicates that its first use in relation to an organized military admin
istrative science the Swiss.In 1838, devised a theory of war, ground tactics, an
d logistics. The American Civil War saw the introduction of railways for transpo
rt of personnel, supplies and heavy field pieces.

LOGISTICAL COMPETENCY

It is the relative assessment of firm¶s capability to provide competitively superi
or customer service at lowest possible total cost, preferably below industrial a
verage. It has to fit into firm¶s overall strategic positioning and then turn into
core competency.

LOGISTICAL MISSION



Balance service expectation and logistic expenditure to achieve business objecti
ves through operational competency. Has two main arenas Logistical service Total
Cost Firms that obtain strategic advantage based on logistical competency estab
lish nature of their industry competition.
Logistical Service
Logistical service is a trade off between service priority and cost.  Logistical
service is measured in terms of 1)availability1)availability- consistently avail
able inventory to meet customer requirements. 2)operational performance- deliver
y speed and performanceconsistency. 3) service reliability ± least possible varian
ce in overall logistic operation.  Cost-benefit impact of logistical failure is d
irectly Costimpacts the customer involve.

Total cost




Total cost concept is a specialized form of break even analysis. Historically ma
nagement disciplines focused on minimizing each functional cost. Total cost conc
ept examines how functional cost interrelate. An organizational understanding ha
s to be developed for the critical need for activity based costing capabilities.
THE WORK OF LOGISTICS
Logistical competency is achieved by coordinating 1. Network design ±  Number , siz
e and geographical relationship of facilities directly effect service capabiliti
es and cost.  Typical logistics facilities are manufacturing plants, warehouses,
cross dock operations and retail stores.  Network design is the process to determ
ine the number and locations of facilities to perform logistics work.
2. Information ±

  
Deficiency in quality of information creates operational problems. Deficiency fa
ll in two broad categories Forecasting errors. Inaccuracy in order processing. C
ontrol concepts like JIT(just in time), QR(quick response) and CR(continuous rep
lenishment) are logistical controls by application on information accuracy.
3. Transportation  It is the most visible cost.  Three forms of transport are priv
ate, contract and common carriage.  Three factors are fundamental to transport pe
rformance : cost, speed and consistency. 4. Inventory  Requirement depends on net
work structure and customer service levels.  Objective- desired customer service,
minimum Objectiveinventory commitment , lowest total cost.

 
Substantial variance in volume and profitability across product lines. 80/20 rul
e also called Pareto principle common. The trap to avoid is high service perform
ance on less profitable items purchased by non core customer.
3.Warehousing, material handling and packaging 3.Warehousing,  Integral part of a
ll other four logistic functions.  Activities essential for logistical process ar
e performed when goods are warehoused.  Examples sorting, sequencing, order selec
tion, transport consolidation and in some cases, product modification and assemb
ly.
OPERATING OBJECTIVES



Rapid response ± firms ability to provide service in timely manner. Shift operatio
nal emphasis from anticipatory posture to shipment to shipment basis. Little tol
erance for deficiencies. Minimum variance- traditional way of handling variancev
ariance was safety stock and premium transportation. With minimized variance, lo
gistical productivity improves due to economics. Minimum inventory- objective in
volves total asset inventorycommitment and relative turn velocity. Zero inventor
y becoming popular.



Movement consolidation- transport cost is consolidationrelated to type of produc
t, size of shipment and distance. Larger the shipment and longer the distance tr
ansported the lower the transportation cost per unit. QualityQuality- seek conti
nuous quality improvement. TQM and zero defect logistical management important a
s costs once dispensed cannot be reversed. Life cycle support- Also known as cra
dle to supportcradle logistic support. Product recall is a critical competency.
Return logistic s requirements increasing. Maximum control over potential health
liability.
Cycle View of Supply Chains
Customer
Customer Order Cycle
Retailer
Replenishment Cycle
Distributor
Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier
SUPPLY CHAIN DRIVERS
Value system of Michael Porter Demanding customers Shrinking product life cycles Pr
oliferating product offerings Growing retailer power in some cases Doctrine of cor
e competency Emergence of specialized logistics providers Globalization Information
technology
Complexities Involved in Supply Chain Management

  
The supply chain is a complex network of facilities and organizations with diffe
rent, conflicting objectives Matching supply and demand is a major challenge Sys
tem variations over time are also an important consideration Many supply chain p
roblems are new and there is no clear understanding of all the issues involved
Supply Chain: The Potential

Procter & Gamble estimates that it saved retail customers $65 million through lo
gistics gains over the past 18 months. According to P&G, the essence of its appr
oach lies in manufacturers and suppliers working closely together . jointly crea
ting business plans to eliminate the source of wasteful practices across the ent
ire supply chain . (Journal of Business Strategy, Oct./Nov. 1997)
Supply Chain: The Magnitude

In 1998, American companies spent $898 billion in supply-related activities (or
10.6% supplyof Gross Domestic Product).
  
Transportation 58% Inventory 38% Management 4%

Third party logistics services grew in 1998 by 15% to nearly $40 billion
Supply Chain: The Magnitude
(continued)

SOME ESTIMATES FOR INDIA
* Logistics Spend « IN Rs. 2,40,000 crores (approx. US $ 50 Billion) * Share of GD
P ««.«« 12-13 % 12* Major Elements are ( Percentage of Total)
* Transportation ««« 35 * Inventories ««« 25 * Packaging ««« 11 * Handling & Warehousing «.
ers & Losses «««
14
Supply Chain:The Magnitude (continued)

It is estimated that the grocery industry in USA could save $30 billion (10% of
operating cost) by using effective logistics strategies.

A typical box of cereal spends 104 days getting from factory to supermarket. A t
ypical new car spends 15 days traveling from the factory to the dealership.

Supply Chain: The Magnitude (continued)

Compaq computer estimates it lost $500 million to $1 billion in sales in 1995 be
cause its laptops and desktops were not available when and where customers were
ready to buy them. Boeing Aircraft, one of America s leading capital goods produ
cers, was forced to announce writewritedowns of $2.6 billion in October 1997. Th
e reason? Raw material shortages, internal and supplier parts shortages . (Wall
Street Journal, Oct. 23, 1997)

Supply Chain: The Potential


In 25 years, NDDB has enabled India to become the largest producer of milk by im
plementing a logistics and supply chain system that has eliminated several inter
mediaries, thereby leading to a much higher remunerative price (yield) for produ
cers and lower price for consumers. As described in the FORBES magazine, the Dab
bawalas of Mumbai has achieved an extremely high level of reliability and precis
ion (SIX SIGMA level in QA parlance) in delivering to their customers the produc
ts earmarked for them.
Supply Chain: The Potential

Dell Computer has outperformed the competition in terms of shareholder value gro
wth over the eight years period, 1988-1996, 1988by over 3,000% (see Anderson and
Lee, 1999) using - Direct business model - Build-to-order strategy. Build-to-
Supply Chain: The Potential

In 10 years, Wal-Mart transformed Walitself by changing its logistics system. It
has the highest sales per square foot, inventory turnover and operating profit
of any discount retailer.