BUSINESS LOGISTICS

I-BASICS OF LOGISTICS

Introduction - Satisfying customers’ demands are of critical importance to any organization. A

process need to be there to facilitate to meet the demand with supply. The manufacturer undertakes
the process which consists of three stages namely,
(i) Procurement
(ii) Manufacturing and
(iii) Distribution of goods to customers through supply
Also the manufacturers need to supply the quality goods due to the factors like,
(a) Recession in the markets;
(b) New sources of competition, and
(c) Emergence of value conscious customers

If manufacturers strive to produce the goods at lower cost, the customers demand them at lesser
price with added value. They expect ‘perceived benefit’ (tangible and intangible) from every
product.

Logistics management is essentially an integrative process that seeks to optimize the flow of
material through organization to customers.

Origin of the concept Logistics - The concept ‘Logistics’ originated from the Greeks which mean
“science of correct reasoning by means of mathematics”. It was used by them in military to identify
the process of planning and coordinating the movement of army and weapon support system.
Logistics derived from the Greek word ‘logos’ meaning – ratio, word, calculation, reason, speech
and oration.
If used in business, the goods could reach to the customers – at right time, at right place, at right
quality and at lowest cost.

Greeks and Roman empires titled their military officers as ‘Logistikas’ who were responsible for
financial and supply distribution matters. Logistikas means “skilled in calculation”.
Oxford English Dictionary defines Logistics as “the branch of military science to procure, maintain
and transport material, personnel and facilities.
This concept evolved into business only 1950s, due to increasing complexity of business and
supply of goods.

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Definition
• LOGISTICS is the function responsible for the flow of materials from suppliers into an
organisation, through operations within the organisation, and then out to customers.
(Christopher M)

• Logistics is the process of planning, implementing and controlling the efficient, cost-
effective flow and storage of raw materials, in-process inventory, finished goods and
related information from point of origin to point of consumption for the purpose of
conforming to customer requirements. (Council of Logistics Management)

Main Objectives of Business Logistics

1. To establish a solid foundation to function and to pull together the various forces and
expertise to offer most efficient dedicated and cost effective “Total Logistics Services”.
2. To develop an organization that pulls together all the marketing tools into one smooth and
timely flow of operation and information aimed at the principal and customers.
3. To meet the ongoing demand of the trade with market economy, personalized and effective
services.

Organization of Logistics
1. The work of management can be looked upon as performing the tasks of planning,
organizing, and controlling to achieve the objectives of the firm. Planning refers to deciding
on the goals for the firm, organizing refers to collecting and positioning the resources of
firm to accomplish the company goals, and controlling refers to measuring company
performance and taking corrective action when performance is not in line with goals.

2. Managers, whether at entry level or top level, spend a great deal of time in the planning
activity. To do effective planning, it is useful to have a vision of the goals of the firm, to
have concepts and principles for guidance on how to get there, and to have tools that help
to sort among alternative courses of action. Especially for logistics management, planning
follows a primary decision triangle of location, inventory and transportation, with customer
service being the result of these decisions.

3. Contemporary issues such as global logistics, service industry logistics, collaborative

logistics, and reverse logistics are given due important and recognized in the flow of the
benefits to the final customers. New opportunities for logistics management, brought about
by growth in the service sector, environmental issues, and information technology, will
continue to support the vital nature of logistics for many years to come.

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Scope of Logistics
Procurement or purchasing - The flow of materials through an organisation is usually initiated
when procurement sends a purchase order to a supplier. This means that procurement finds suitable
suppliers, negotiates terms and conditions, organises delivery, arranges insurance and payment,
and does everything needed to get materials into the organisation. In the past, this has been seen
as a largely clerical job centred on order processing. Now it is recognised as an important link with
upstream activities, and is being given more attention.

Inward transport or traffic - It actually moves materials from suppliers to the organisation’s
receiving area. This has to choose the type of transport (road, rail, air, and so on), find the best
transport operator, design a route, make sure that all safety and legal requirements are met, get
deliveries on time and at reasonable cost, and so on.

Receiving - It makes sure that materials delivered correspond to the order, acknowledges receipt,
unloads delivery vehicles, inspects materials for damage, and sorts them.

Warehousing or stores - It moves materials into storage, and takes care of them until they are
needed. Many materials need special care, such as frozen food, drugs, alcohol in bond, chemicals
that emit fumes, animals, and dangerous goods. As well as making sure that materials can be
available quickly when needed, warehousing also makes sure that they have the right conditions,
treatment and packaging to keep them in good condition.

Stock control - It sets the policies for inventory. It considers the materials to store, overall
investment, customer service, stock levels, order sizes, order timing and so on.

Order picking - It finds and removes materials from stores. Typically materials for a customer
order are located, identified, checked, removed from racks, consolidated into a single load,
wrapped and moved to a departure area for loading onto delivery vehicles.

Materials handling - It moves materials through the operations within an organisation. It moves
materials from one operation to the next, and also moves materials picked from stores to the point
where they are needed. The aim of materials handling is to give efficient movements, with short
journeys, using appropriate equipment, with little damage, and using special packaging and
handling where needed.

Outward transport - It takes materials from the departure area and delivers them to customers
(with concerns that are similar to inward transport).

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Physical distribution management - It is a general term for the activities that deliver finished
goods to customers, including outward transport. It is often aligned with marketing and forms an
important link with downstream activities.

Recycling, returns and waste disposal - Even when products have been delivered to customers,
the work of logistics may not be finished. There might, for example, be problems with delivered
materials – perhaps they were faulty, or too many were delivered, or they were the wrong type –
and they have to be collected and brought back. Some materials are not reused, but are brought
back for recycling, such as metals, glass, paper, plastics and oils. Finally there are materials that
cannot be used again, but are brought back for safe disposal, such as dangerous chemicals.
Activities that return materials back to an organisation are called reverse logistics or reverse
distribution.

Location - Some of the logistics activities can be done in different locations. Stocks of finished
goods, for example, can be held at the end of production, moved to nearby warehouses, put into
stores nearer to customers, passed on to be managed by other organisations, or a range of
alternatives. Logistics has to find the best locations for these activities or at least play a significant
role in the decisions. It also considers related questions about the size and number of facilities.
These are important decisions that affect the overall design of the supply chain.

Communication - Alongside the physical flow of materials is the associated flow of information.
This links all parts of the supply chain, passing information about products, customer demand,
materials to be moved, timing, stock levels, availability, problems, costs, service levels, and so on.
Co-ordinating the flow of information can be very difficult, and logistics managers often describe
themselves as processing information rather than moving goods.

Critical linkages in the manufacturing process

Procurement Manufacturing Distribution

• Co-makership • Master scheduling • Demand management

• Requirements • JIT management • Quick response
planning • Flexibility • postponement
• Schedule coordination

The new competitive framework in Logistics

Reliability – In most markets and commercial environments today, customers are to reduce their
inventory holdings. Just-in-time practices can be found in industries as diverse as car assembly
and retailing. In such situations it is essential that suppliers can guarantee complete order-fill
delivered at agreed times. Hence a prime objective of any logistics strategy must be reliability.

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Responsiveness – Very closely linked to the customers’ demands for reliability is the need for
responsiveness. Essentially this means the ability to respond in ever-shorter lead times with the
greatest possible flexibility. Quick response, as we have seen, is a concept and a technology that
is spread rapidly across industries. For the foreseeable future, speed will be a prime competitive
variable in most markets. The emphasis in logistics strategy will be upon developing the means to
ship smaller quantities, more rapidly, direct to the point of use or consumption.

Resilience – Today’s supply chains are more complex and vulnerable to disruption than ever
before. In many cases, as a result of outsourcing and the increasingly global nature of supply
chains, the likelihood of interruption to product and information flows has increased significantly.
As uncertainty in the business environment continues to increase, organizations need to adopt a
more systematic and structured approach to supply chain risk management. One way in which this
can be achieved is by creating a supply chain continuity team whose job is to audit risk across
supply chain and to develop and implement strategies for the mitigation of any identified risk.

Relationship – The trend towards customers seeking to reduce their supplier base has already been
commented upon. The concept of ‘strategic sourcing’ is now receiving widespread support.
Strategic sourcing is based on the careful selection of suppliers whom the customer wishes to
partner. The benefits of such an approach include improved quality, innovation sharing, reduced
costs and the integrated scheduling of production and deliveries. Underlying all of this is the idea
that ‘buyer – supplier relationships’ should be based upon partnership. More and more companies
are discovering the advantages that can be gained by seeking out mutually beneficial, long-term
relationships with suppliers.

Current Trends in Logistics

Improving communications - Logistics continually meets new challenges, and is changing faster
now than at any time in the past. Perhaps the most obvious change is the increasing use of
technology. Some of this appears directly in the movement of goods – such as electronic
identification of packages, satellite tracking of lorries and automatic guidance systems – but the
greatest impact has come with communications. When a company wants to buy something, it
typically has to generate a description of the goods, request for price, purchase order, order
confirmation, contract terms, shipping papers, financial arrangements, delivery details, special
conditions, invoices, and so on. In the past, all of these – and mountains of other paperwork – had
to be printed and posted between organisations. This could make even a simple transaction seem
complicated and time consuming.

Improving customer service - It is normally in everyone’s interests to make logistics costs as

low as possible. Logistics managers want low costs so that they remain competitive, and their users
want to pay as little as possible. Many organisations have reduced their logistics costs to levels

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that affect their whole operations. Lower transport costs, for example, make it feasible to sell
products over a wider geographic area. The cost of transport for, say, Japanese manufacturers is
so low that they can offer goods at prices that are comparable to those offered by domestic
companies. Similarly, efficient transport can move products quickly over long distances, so there
is no need to build traditional warehouses close to customers.

Other significant trends - Apart from increasing technology and emphasis on customer
satisfaction, there are several other important trends in logistics. The following list includes some
of the most significant:

Globalisation: Improved communications and better transport mean that physical distances are
becoming less significant. Organisations can become global in outlook, buying, storing,
manufacturing, moving and distributing materials in a single, worldwide market. As a result,
international trade and competition are continuing to rise. Organisations used to look for
competitors in the same town, but now they are just as likely to come from another continent.
Efficient logistics makes a global market feasible, and other factors that encourage international
trade include less restricted financial systems, consumer demand for imported products, removal
of import quotas and trade barriers and the growth of free trade areas.

Reduced number of suppliers: In the past, organisations have used a large number of suppliers.
This encouraged competition, ensured that they got the best deal and maintained secure deliveries
if one supplier ran into difficulties. The current trend, however, is to reduce the number of suppliers
and develop long-term relationships with the best.

Concentration of ownership: Large companies can get economies of scale, and they have come to
dominate many supply chains. There are, for example, many shops and transport companies – but
the biggest ones continue to grow at the expense of small ones. The result is a continuing
concentration of ownership, which you can see in many logistics sectors ranging from food
wholesalers to cruise lines.

Outsourcing: More organisations realise that they can benefit from using specialized companies to
take over part, or all, of their logistics. Using a third party for materials movement leaves an
organisation free to concentrate on its core activities. McKinnon says that, ‘Outsourcing has been
one of the dominant business trends of the 1980s and 1990s’17 and surveys suggest that around
30 per cent of logistics expenditure is outsourced in the EU.

Postponement: Traditionally, manufacturers move finished goods out of production and store them
in the distribution system until they are needed. When there are many variations on a basic product,
this can give high stocks of similar products. Postponement moves almost-finished products into

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the distribution system, and delays final modifications or customisation until the last possible
moment.

Cross-docking: Traditional warehouses move materials into storage, keep them until needed, and
then move them out to meet demand. Cross-docking co-ordinates the supply and delivery, so that
goods arrive at the receiving area and are transferred straight away to a loading area, where they
are put onto delivery vehicles. This dramatically reduces stock levels and associated
administration.

There are two basic forms of cross-docking. In the first, packages are moved directly from arriving
vehicles and onto departing ones. This does not really need a warehouse and a simple transfer point
is enough. In the second form there is some additional work as materials arrive in larger packages
which are opened, broken into smaller quantities, sorted, consolidated into deliveries for different
customers and transferred to vehicles. Cross-docking can develop to the point where nothing
actually moves through a warehouse. Any stock is kept within vehicles, giving stock on wheels.

A related arrangement uses drop-shipping, where wholesalers do not keep stock themselves, but
co-ordinate the movement of materials directly from upstream suppliers to downstream customers.
As warehousing is expensive and time-consuming, these methods can give much more efficient
flows, and allow methods such as quick response and efficient customer response.

Direct delivery: More customers are buying through the Web, or finding other ways of trading
earlier in the supply chain, such as mail order or buying directly from manufacturers. This has the
benefits of reducing lead times, reducing costs to customers, having manufacturers talking directly
to their final customers, allowing customers access to a wider range of products, and so on. It also
means that logistics has to move small deliveries quickly to final customers.

Other stock reduction methods: Keeping stock is expensive, so organisations continually look for
ways of reducing the amount stored in the supply chain. There are many ways of doing this. One
approach uses just-in-time operations to co-ordinate activities and minimise stock levels. Another
approach has vendor managed inventory, where suppliers manage both their own stocks and those
held further down the supply chain. Improved co-ordination reduces overall costs and can give
economies of scale.

Increasing environmental concerns: There is growing concern about air pollution, water pollution,
energy consumption, urban development and waste disposal. Logistics does not have a good
reputation for environmental protection – demonstrated by the emissions from heavy lorries, use
of green field sites for warehouses, calls for new road building, use of extensive packaging, ships
illegally flushing their fuel tanks, oil spillages from tanker accidents, and so on.

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On the positive side, logistics is moving towards ‘greener’ practices. Operators use more energy
efficient vehicles, control exhaust emissions, reuse packaging, switch to environmentally friendly
modes of transport, increase recycling through reverse logistics, add safety features to ships,
develop brown-field sites, and so on. They increasingly recognize that careful management can
bring both environmental protection and lower costs. A fair assessment might be that logistics is
making progress on environmental issues, but it has some way to go.

More collaboration along the supply chain: Organisations in a supply chain increasingly recognise
that they have the same objectives – which are satisfied final customers. They should not, therefore,
compete with each other, but should co-operate to get final customer satisfaction. This is an
important point. It means that competitors are not other organisations within the same supply
chain, but are organisations in other supply chains.

Role of Logistics consultant

Framing policies – A logistics consultant is a professional who understands the needs of the
organization and its business goals. He has expertise to enable the organization to achieve its goals
in an effective and efficient manner. He is also responsible for preparing blueprints and solutions
for existing and future prospects of the organization.

Minimising capital employed through outsourcing – Business studies shows that a significant cost
attached to the process of running a distribution and warehousing network for outbound logistics.
The consultant can follow a strategic approach to reduce operating expenditure by outsourcing
distribution and warehousing to the third party logistics (3PL).

Designing solutions – The consultant can assist the clients in handing challenges through the
preparation and implementation of material handling system. He can help in designing layer and
handling stores.

Maximising gross margin and customer retention – A logistics consultant helps in minimizing
redundancy of inventory and maximization of gross margin contribution. He plans and implements
for fostering the allocation of plenty of resources in the existing supply chain to help in contributing
the optimum gross margin.

Training – The consultant may also be responsible for providing structured training, in addition to
possible mentoring.

Warehouse design – The logistics consultant is responsible for preparation of layouts to optimize
volume utilization and thereby supporting effective design of various warehousing systems. The
logistics consultant works closely with the distribution and warehousing team of professionals.

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Process Re-engineering – The consultant is a vital part of the process of reengineering and helps
in the elimination of useless activities to derive fast deliveries with low cost.

Pressures to improve logistics - Customers are more knowledgeable, and demand higher quality,
lower costs and better service.
1) Competition is getting fiercer, and organisations must look at every opportunity to remain
competitive.
2) Changes in retail markets include the growth of 24-hour opening, home deliveries, out-of-
town malls, retail parks, telephone and on-line shopping.
3) International trade continues to grow. This is encouraged by free trade areas such as the
European Union and North American Free Trade Area.
4) Organisations are introducing new types of operation, such as just-in-time, lean opera tions,
time compression, flexible manufacturing, mass customisation, virtual operations,
and so on.
Some organisations are turning from a product focus (where they concentrate on the end
products) to a process focus (where they concentrate on the way products are made). This
encourages improvement to operations, including logistics.
5) There have been considerable improvements in communication. These allow electronic
data interchange (EDI), item coding, electronic fund transfer (EFT), e-commerce, shared
knowledge systems, and other new practices.
6) Organisations are outsourcing peripheral activities and concentrating on their core opera-
tions. Logistics is a useful area for third-party operators, with specialised companies
offering a range of services.
7) Organisations are increasing co-operation through alliances, partnerships, and other
arrangements. This integration is important for logistics, which is usually the main link
between organisations in a supply chain.
8) Managers are recognising the strategic importance of the supply chain.
9) Attitudes towards transport are changing, because of increased congestion on roads,
concerns about air quality and pollution, broader environmental issues, government poli
cies for the real cost of road transport, privatisation of rail services, deregulation of trans
port, and a host of other changes.

Third-Party Logistics (3PL) Service Providers

Being a major contributor in the success of logistics and supply chain system, third-party logistics
providers should –

1) Recognise the importance of logistics and supply chain management by appraising the
trade-off between logistics cost and value addition;
2) Identify the significance of customer service components affected by logistics;
3) Put continuous efforts for reduction in the logistics costs and improvement of customer
service;

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 4) Coordinate with other supply chain members because they act as a link between the buyer
and the seller;
5) Continuously identify scope for further reduction of costs.

Outsourcing and 3PLs - Outsourcing is one of the important features of the supply chain
management. The concept of outsourcing is not a new one. It existed in the past also in one form
or the other. Companies were and are still using the services of third parties, be it a transporter for
shipment of goods from a production plant to warehouses / distributors or a consultant for
improvement of productivity. Even in manufacturing, third-parties (contract manufacturers) are
used by most of FMCG companies.

This model has been around for a long time. In logistics and supply chain management too, firms
have been outsourcing the activities of transportation, warehousing, clearing and forwarding to
different operators. But the entire package of services – transportation, warehouses management,
bills and order processing was something that was not offered by many companies. With the
current global recession, the focus has shifted to logistics as firms recognized that there is scope
for core competency by means of logistical services as it ensures best customer services, cost
reduction and control, and productivity enhancement.

Outsourcing has not picked up in India the way it has in the US. But increasingly, today, logistics
providers around the world as well as in India, are offering a suite of services that includes logistics
planning, developing customized consolidation, carrier selection, rate negotiation, fleet
management, logistics information systems, reverse logistics, order fulfillment and processing,
inventory tracing or the shipment, relebelling / repacking, product assembly and testing, supply
chain management, freight forwarding, consultancy, etc.

Advantages of Outsourcing and 3PLs

1) Cost Reduction – 3PL providers are specialized service providers with core competency
in managing logistics operations. Just as an auto or a consumer durable company has
manufacturing expertise, a 3PL provider offers benefits of economies of scale and lesser
cost of services. They are able to do this because of pooling in idle time of resources that
translates into reducing operating costs and interest costs. Cost control benefits may not be
immediately visible, but the experiences of the advanced countries in the use of 3PLs over
the past 10 years do suggest clear, direct and indirect cost benefits.

2) Maximising Revenues – By outsourcing the logistics function, companies are able to

concentrate on their core areas and can utilize both financial and non-financial resources
where it can maximize returns. The 3 PL providers take care of routine work that frees
human resources and time spent on routine functioning.

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 3) Facilities – Timely flow of information from production center to the shop floor is as
important as the physical flow, because ultimately, the sourcing and production depends
on the raw materials and production availability. Providers have entered into specialized
operational research models to quantify the impact on the cost for different patterns for the
distribution chain for any combination of multi-model movement under given cost
parameters. In this way, the customer can consider all possible scenarios before choosing
the optimal supply chain.

4) Cost Control – Controlling costs is distinct from reducing costs. A company’s primary
concern is to control costs and then think of reduction. Nowadays, it is quite visible efforts
by almost all the companies at the shop floor and at stores that are driven towards
controlling costs. So, while individually, these ‘kaizen’ or cost-control measures may not
transform into tangible results but collectively, all the companies stand to gain in the long
run.

5) Working Models – Outsourcing for companies in India has different meanings. From an
organizational structure point of view, three distinct models may be visualized.
➢ First and the most widely used model in India even today is of internal purchase,
sales and dispatch departments that handle all the commercial and sourcing
functions for the company. This has been the traditional way of working with its
own hierarchy and controls. However, over the past few years, we are seeing these
functions getting integrated and controlled by what companies term as the ‘supply
chain’ or ‘logistics’ division headed by senior personnel such as vice presidents and
general managers. It is evident that logistics and supply chain management has
assumed an important role in companies.
➢ The second model is that of a separate logistics department that handles all the
logistics activities of transport, inventory, warehouse management and
coordinating with suppliers and its client – which may be the company itself.
➢ The third option is of outsourcing the entire logistics function to a third-party that
specializes in logistics management.

Fourth-Party Logistics (4PLs)

In today’s industrial scenario, there has been an unprecedented increase in customer’s demand –
for better service and on-time deliveries at reduced cost. This has put extra pressure on the area of
logistics and supply chain management. The expectations of customers from the suppliers are
continually increasing. This expectation and demand has been further augmented by the
proliferation of internet and the web-based technologies and the emergency of the latest
phenomenon called ‘convergence’.

Traditionally, suppliers and big corporations have been meeting the demands by increased
inventory, speedier transportation solutions, posting on-site service engineers and many times
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employing a third-party service provider. Today, they need to meet increased levels of services
due to e-procurement, complete supply visibility, virtual inventory management and requisite
integrating technology. To meet these demands, the general trend has been to outsource the service
providers – better known as third-party service providers. However, these service providers, many
a times, lack broad set of skills, integrating technologies, strategies and global reach.

To build up this strength, many third-party service providers are going for collaborations, mainly
with consultancies and technology providers. Now, corporations are outsourcing their entire set of
supply chain process from a singly organization which will assess, design, make and run integrated
comprehensive supply chain solutions. This evolution in supply chain outsourcing is called
‘Fourth-Party Logistics’ – the aim being to provide maximum overall benefit.

The 4PL is a supply chain integrator that assembles and manages the resources, capital, technology
and capabilities of its own organization and other organizations who provide complementary
services to design, build and deliver a comprehensive supply chain solutions. The typical 4PL
would eliminate complexity, shares benefits of scale and capital and can drive innovation due to
its overall and comprehensive approach and view towards it.

Two key distinctions make the concept of 4PL unique and set in apart from other supply chain
outsourcing options available in the market today. Firstly, a 4PL delivers a comprehensive supply
chain solution and secondly, a 4PL delivers value through the ability to have an impact on the
entire supply chain. In both these concepts, 4PLs have evolved because of constraints faced by the
3PLs. It leverages the competencies of 3PLs and business manages to delivery a supply chain
solution through a centralized point of contact. As the 4PL caters to multiple clients, the investment
is spread across clients, thus, taking the advantage of economies of scale.

Stages of Fourth-Party Logistics Solutions

1. Reinvention – At the highest level of Fourth-Party Logistics is reinvention. Reinvention

takes advantage of the traditional supply chain management consulting skills, aligns
business strategy with supply chain strategy and is facilitated by technology that integrates
and optimizes operations both within the across participating supply chains.

2. Transformation – The second level of Fourth-Party Logistics solutions is transformation.

It focuses on improving the supply chain functions. This includes sales and operation
planning, distribution management, procurement strategy and customer support.
Technological leadership and excellence is leverage with strategic thought, process
redesign and organization change management in order to improve and integrate these
supply chain activities by bringing about the best breed solution.

3. Implementation – The Fourth-Party Logistics solution provider implements

recommendations for an efficient use of supply chain management. This includes business

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 process realignment, technology and system integration across the client organization and
service providers, and transition of the operators to the delivery team.

4. Execution – The Fourth-Party Logistics provider takes the operational responsibility for
multiple supply chain functions and processes. It covers transportation management,
warehouse operations, manufacturing, procurement, supply chain, information technology,
demand forecasting, network management, customer service management, inventory
management and administration.

In summary, the Fourth-Party Logistics 4PL responds effectively to the broad complicated
needs of today’s organizations by delivering a comprehensive supply chain solution. This
solution is focused on all elements of supply chain management, continuously updated and
optimized technology and is tailored to specified client needs.

With the advent of IT’s role, the effectiveness of Fourth-Party Logistics can be greatly
enhanced by implementing systems at all levels – ERP, DSS – transactional and functional.
It provides current information, allowing an organization to redirect the product flow, if
desired, and forecasting the volumes. It also allows the user to track performance
accountability at all levels within the supply chain line while monitoring continuous
performance opportunities.

Cost Effectiveness of Fourth-Party Logistics

a) Revenue growth by enhanced product quality, product availability, and improved

customer service – all facilitated by the application of leading technology.
b) Operating cost reduction can be achieved through operational efficiencies, process
enhancements and procurements. Savings will be achieved by complex outsourcing
of supply chain functions and not just selected components.
c) Fixed capital reductions will result from capital asset transfer and enhanced asset
utilization. The Fourth-Party Logistics organization will own its physical assets
through freeing up the client organization to invest in core competencies.

Logistical Information System (LIS)

The central purpose of a management in general and logistics and supply chain in particular is to
provide value to the customer. The information delivered from an LIS can be as valuable as the
base product or service which the firm provides to its customers. In simple terms, a LIS is an
integrated approach for providing interpreted and relevant data that can help managers make
decisions for the smooth flow of logistical functions. In other words, LIS refers to act of
interrelated and interdependent functions for collection, storage, analysis and retrieval of
information in required format so as to facilitate a smooth flow of input goods from other sources,
to the processing facilties and outputs to their final destination of use. LIS is a subset of the firm’s
total information system, commonly known as MIS.
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The major purpose of LIS is to collect, process, store and manipulate data within a firm, facilitating
the decision to overcome any logistical problems.

LIS is a set of computer hardware of software that gathers, organizes, summaries and reports any
information for use by managers, customers and others. A generic LIS design consists of four
distinct elements –

1) The Inputs – The first element of LIS is sources of data which, after processing in the
information system, assists the decision-making process. The major sources of data needed
for planning and operating the logistics system are customers, company records, published
data and management. Customers provide a lot of useful data while placing an order, which
helps in forecasting and operating decisions, such as sale volume, timing and location of
sales, and order size. Furthermore, freight bills, purchase orders and invoices are additional
sources of this type of data. The qualitative logistical decisions always require a lot of data
pertaining to a company’s past demand pattern and other accounting and status reports
which are made available from the company records. These selected items of data are
captured by the information system, to be manipulated at a later stage.

Published data from external sources are very important sources of data for any LIS. A
valuable set of data are made available from research sponsored by the government as well
as trade association, along with professional journals and trade magazines. The
management and personnel of the company can also be a valuable source of data. Their
prediction of future sales, close monitoring and scanning of environmental scenario,
competitors’ strategies, etc., are very relevant sources of data for any information system.

2) Database Management – Database Management is the heart of any information system

which converts data into information and its interface with decision-assisting methods. It
refers to selection and identification of data to be stored and retrieved, choice of methods
of analysis to include, and choice of the basic data processing procedures for
implementation.

The design of the data base determines the nature of the data to be retained or stored in a
computer memory for quick access. The selection of data to be stored in the computer are
judged on the following four points of facts –
- how critical the information is to the decisions the logistician must make in a particular
firm;
- how rapidly the information needs to be retrieved;
- how fragrantly it is to be accessed; and
- how much effort may be required to manipulate the information into the form needed.

Normally, operational information are required for more frequent and ready access whereas
strategic logistical information are required infrequently.
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3) The Outputs – The third element of LIS is the output which has a final interface with the
logistical decision makers. The output of any LIS is the processed and manipulated form
of input data. These output data (information) facilitates decision-makers to optimize the
logistical resources and ensures a smooth flow of total logistics system. The outputs are
the summary presentation of data in a required format, generally called summary reports,
status reports, exception reports, etc. Furthermore, the output may be in the form of
documents such as invoices, purchase orders, transportation bills, freight bills, etc.

4) The Resources – In any LIS, there are four types of resources required –
a. Human Resources – it includes –
i. specialists – system analysts, programmers and computer operators
ii. end users – anyone who uses an information system.
b. Hardware Resources – it includes –
i. machines – computers, video monitors, magnetic disk drivers, printers,
optical scanners
ii. media – floppy disks, magnetic tape, optical disks
c. Software Resources – it includes –
i. programmes – operating system programmes, spread sheet programmes,
word processing programmes, SCM & ERP solutions
ii. procedures – data entry procedures, data processing procedures, error
correction procedures, procedure for interface of LIS with MIS
d. Data Resources – it includes product descriptions, customer records, inventory
databases.

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