Understanding Logistics Management

How Logistics & Supply Chain Management Organizations can achieve

Competitive Advantage using Value Chain Analysis ?
 Contents
1. Historical Perspective of Logistics.
2. What are the growing demands of the 21st century?
3. What is Logistics Management & what are the components?
4. What is Logistics Management Process?
5. How do we create a Logistics Vision Statement?
6. What is the mission of Logistics Management?
7. Objectives and Goals of Logistics
8. Functions of Logistics
9. Decision Making in Logistics
10. What do you understand by competitive advantage ?
11. Competitive Advantage and Three C
12. Competitive Advantage Through Logistics
13. What is Value Chain Analysis & Management ?
14. What are the components of Value Chain Analysis?
15. Reverse Logistics
16. Trends in Logistics Management
 Historical Perspective of Logistics
• Logistics has existed since the beginning of civilization. Raw material and finished products had always to be moved, though
on a small scale. Things began changing with the advance in transportation. Population began moving from rural to urban
area’s and to business center. No longer did people live near production center, nor did production take place near residence
center. The geographical distance between the production point and consumption point increased and logistics gained
importance.

• Originally, logistics was referred as the branch of military operations that dealt with the procurement, distribution, maintenance
and replacement of material and personnel.

• The impact of logistics on operational readiness is very important and built into battle plans at an early stage.

• Military Logistics is the science of planning and carrying out the movement and maintenance of forces, including the design
and development , acquisition, storage, movement, evacuation , hospitalization of personnel, acquisition of construction,
maintenance, operation and disposition of facilities.

• Business Logistics is that in which the planning, implementation and control of the efficient and effective flow and storage of
goods, services and related information from the point of origin to the point of use or consumption in order to meet customer
requirements.

• Event Logistics is that in which the network of activities, facilities and personnel required to organize, schedule and deploy the
resources for an event to take place and to efficiently withdraw after the event.
 Business Environment in 21st Century

• The transition is accompanied by turbulence in the business environment.

• Many organizations who were market leaders a decade ago have encountered reversals of fortune.

• Mergers and takeovers, the advent of European and global competition have changed the rule of the
game .

• Higher levels of Service & Quality. “ The need to be Responsive” organization.

 Hence, responsive organizations not only seeks to put the Customer at the centre of the centre of the
business, but it designs all its systems and procedures with the prime objective of improving the speed of
response and the reliability of that response.

 “ De-layering , Flat & Lean” organization.

 Physical Distribution Costs

Category Percent of sales $/cwt.

Transportation 3.34% $26.52
Warehousing 2.02 18.06
Order entry 0.43 4.58
Administration 0.41 2.79
Inventory carrying 1.72 22.25

Total 7.65% $67.71

Add one-third for inbound supply costs Logistics cost
are about 10% of
sales w/o
Source: Herb Davis & Company purchasing costs
 What is Logistics Management?

Logistics Management is the process of –

• Planning,
• Implementing, and
• Controlling
the efficient, cost – effective forward and reverse flow and storage of raw materials, in – process inventory,
finished goods, services and related information from the point of origin to the point of consumption for the
purpose of confirming customer satisfaction.

(Council of Logistics Management)

 The Purpose of Logistics Management

The purpose of the logistics management is to provide

• Right quantity of the

• Right goods to the

• Right place at the

• Right time in the

• Right condition at the

• Right cost

to the customer for it’s need and consumption.

 Significance of Logistics
• Costs are high
− About 10.5% of GDP domestically
− About 12% of GDP internationally
− A range of 4 to 30% of sales for individual firms, avg. about 10%
− A high as 70-80% of sales if purchasing and production are
included
• Customers are more demanding of the supply chain
− Desire for quick response
− Desire for mass customization
• An integral part of company strategy
− Generate revenue
− Improve profit
• Logistical lines are lengthening
− Local vs. long distance supply
• Logistics is a key to trade and an increased standard of living
− Law of comparative economic advantage applies
• Logistics adds value
− Time and place utilities
 Components of logistics Management
Management actions
Outputs of
Control logistics
Planning Implementation
Inputs into logistics
Natural resources Marketing
(land, facilities, and Logistics management orientation
equipments) Suppliers Customers (competitive
Raw In-process Finished
material inventory goods advantage)
s
Human resources Time and
Logistics Activities place utility
Financial resources •Customer Service •Plant and warehouse Efficient
•Demand forecasting site selection movement to
•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
 A Simple Logistics Channel

Raw materials Market

supply points Customers

Production Market
Facilities Customers

Raw materials Market

supply points Customers

Product Flow
 A Multi – Echelon Logistics Channel

Retailer
Raw materials
supply points
Warehouse Retailer

Retailer
Raw materials Production
supply points Facilities
Retailer

Warehouse Retailer
Raw materials
supply points
Retailer

Product Flow
LOGISTICS MANAGEMENT PROCESS
Scope of Logistics
 Inbound Logistics

 Sourcing and vendor selection for supply of raw materials and manufacturing parts
 Inbound transportation and procurement planning
 Raw materials warehousing including consolidation warehousing
 Management of Inventory
 Information system for effective support strategic alliances with the supplies and transporters

Internal Logistics

• Capacity Planning Operational planning Production planning

• Materials Requirement planning
• Shop floor control
• Management of in-process inventory
• Supporting material handling facilities planning and their deployment etc.
 Outbound Logistics

 Outbound logistics system is concerned with the flow of finished products from factory warehouse to the
customers through a distribution network comprising

• The Wholesale
• Distributors
• Retailers
• Regional warehouses
• Transporters
• The inventory at all levels
• Sales order processing
• Sales return processing
• Accounts receivable realization and
• Counter flow of information from the customers to the factory
 Vision and Mission Statement of Logistics Management

• “ What activities do we excel in?”

• “ What is that differentiate us from our competitors”.
• “ Better, Faster, Cheaper” , summarized the ways in which logistics management can provide value for
customers.
• The purpose of the logistics vision statement is to provide the road map as to how these three goals can be
achieved.

The mission of logistics management is to plan and co-ordinate all activities (inbound logistics, design,
procurement, production, outbound logistics, marketing, research and development), necessary to achieve
desired levels of delivered service and quality at lowest possible cost
 Logistics Activities

Transportation Customer Service

rate and contract negotiation
mode and service selection
determining customer wants
routing and scheduling determining customer response to service
Inventories changes
finished goods policies Materials Handling
supply scheduling equipment selection
short term forecasting equipment replacement
Warehousing order picking procedures
private vs. public Packaging design
space determination Order Processing
warehouse configuration
Stock layout and dock design
order procedure determination
stock placement Production Scheduling
Cross-docking aggregate production quantities
Facility Location sequencing and timing of production runs
determining location, Procurement
number and size of facilities Reverse Logistics
allocating demand to facilities Parts and Service Support
• Logistics Information Systems
Demand Forecasting
• Parts and Service Support
 Objectives and Goals of Logistics Management
The primary objective of logistics management is to move the inventory in a supply chain effectively and efficiently and to extend the desired level
of customer service at the minimal cost. To achieve this, the following subsets of the above broader objective, need to be achieved in Logistics
Management.
 Inventory Management - Inventory Management is the biggest culprit that is adversely affecting the objectives of logistics management at
the bottom line of any enterprise.
 Reliable and consistent delivery performance - On-time delivery is crucial to the customer to maintain his production schedule. The
customer is not interested in a faster delivery of the material ahead of the production schedule. This area of operation is subject to variance.
However, proper planning on transportation modes and inventory availability, along with a variation factor, will reduce the variance.
 Freight economy - Freight is a major cost element in logistics cost. This can be reduced by adopting measures such as freight consolidation,
transport mode selection, route planning, load unitizing and long distance shipments.
 Adopting Lean Practices - Focus your attention on making the Logistics supply lean and efficient, which strives to make continuous
improvement in the supply chain and you will identify opportunities to streamline work and minimize waste.
 Real-Time Visibility - If we want the supply chain to function smoothly, we must be able to track and manage the inventory in real-time. If we
don’t have the ability to alert any potential shortage of inventory and relay information about bottlenecks in the Logistics supply chains, we can
expect costly delays and expensive expedited shipments / Containers. When you have the ability to adapt to demand and inventory changes
in real-time, you can manage events like seasonal fluctuations, unforeseen shipping delays and competitor launches more efficiently
 Setting Clear KPI
 Setting the right key performance indicators (KPIs) depends on the needs of the business, the target market segment, the product, the
total cost of production and the stability of supply for basic and critical products
 KPIs can serve as a good incentive to the supply chain personnel to work towards increasing the value of the business and protect it
against risks
 The KPIs help in guiding the Customer towards the required goals. Don’t set ambiguous KPIs and unimportant metrics to customers.
Keep it clear and simple. It is extremely easy to set up appropriate Business metrics to customer / end users with the help of “Store’n
Ship Fast” Team.
 Logistics Management Decisions

• Supply chain design

Strategic • Resource acquisition
• Broad scope, highly aggregated data
• Long-term planning horizons(1year+1)

• Production/distribution planning
Tactical • Resource allocation
• Medium-term planning horizons (monthly, quarterly)

• Shipment routing and scheduling

Operational • Resource routing and scheduling
• Narrow scope, detailed data
• Short-term planning horizons (daily, real-time)
 How a manufacturing company can draw up a sound strategic logistics plan ?

• Minimizing the landed cost of inputs through strategic sourcing, consolidation warehousing and carrier selection

• Minimizing the procurement lead time and raw materials inventory through better information and procurement
systems.

• Increasing the productivity of the manufacturing unit through appropriate choice of technology, balancing of facilities
and optimization of internal logistics support including material handling facilities

• Decreasing the finished goods inventory through reduced manufacturing response time.

• Minimizing the assets including inventory deployed in the distribution channel

• Minimizing the delivery lead-time through efficient customer response, quick response logistics and customer specific
support services.
Important Logistics Activities and Their Relations to Key Business Goals

24
Key Business  Growth Return on
Goals  Market Share Capital Employed
 High level of service

Major
Variables Sales Fixed
Other Working Capital
Volume Asset
Costs

Customer Purchasing Production Logistics

Inventory Facilities
Service Costs Costs Costs

Important Logistics Structure and Functions

Activities of
Logistics

Logistics has been recognized not only as a group of important functions,

but as functions that have important strategic impacts as well
 WHAT DO YOU UNDERSTAND BY COMPETITIVE ADVANTAGE ?

• The source of competitive advantage is found firstly in the ability of the organization to differentiate
itself , in the eyes of the customer from its competition and secondly by operating at a lower cost and
hence at greater profit.

The Competitive Advantage and Three C’s

Gaining Competitive Advantage Through Logistics
Investing in Process Excellence Yields Greater Benefits
 WHAT IS VALUE CHAIN ANALYSIS?
• Activities that takes place in a business and relate them to an analysis of the competitive strength of the
business.
• Describes the flow of materials from raw material to finished goods and disposal and the associated flow of
value.
(E.g.: Cost incurred, Value created, Value recovered)
• Assists in the decision-making processes at work at each level in the value chain, as well as explaining the basis
upon which purchasing, and supplier selection decisions are made.
• The aim is to create value that exceeds the cost of providing the product or service , thus generating a profit
margin.
• Value Chain is the entire series of organizational activities that add value at each step beginning with the
processing of raw materials and ending with the finished product.

• Value Chain Management ensures all the integrated activities and information about the product flows are
carried effectively and efficiently .
 Michael Porters Value Chain Analysis

Human resource
management

Firm infrastructure Margin

Support
Technology development
activities
Procurement

Inbound Operations Outbound Marketing Service

logistics logistics and sales
Margin

Primary activities
 Support activities

(Inbound logistics)
Capability to purchase
superior quality

(Operations)
Careful inspection for
better quality products
and low defect rates

(Outbound logistics)
JIT coordination
+Delivery

(Marketing)
The Value Chain- Examples

(Procurement) Online suppliers

Primary30 activities

Informative, expensive
marketing promoting
brand image)
(HR) Developing self-managed teams in the lower levels

(Service)
Location of
geographically close
(Infrastructure) Reduced levels of management – cutting corporate overheads

technicians
 A Value Chain Analysis includes Requirements of Value Chain
• A breakdown of all the activities Analysis
• Identification of core activities and their relationships to core • Organizational Culture and
competences and current organisational strategies Attitudes

• Identification of the effectiveness and efficiency of the individual • Employees

activities • Leadership
• Examination of linkages between activities for additional added • Coordination and Collaboration
value • Technology Investment
• Identification of blockages that reduce organisation’s competitive • Processes
advantage
(Campbell et al, 2004

CONCLUSION – VALUE CHAIN

Obstacles to Value Chain Analysis
• Value Chain Analysis examines the process and costs related to
each element of the chain.
• Organizational barriers
• It provides the management with:
• People
• Cultural Attitudes “Why a company does or does not possess a competitive
advantage.
• Required Capabilities &
Identifies potential opportunities that may improve its
competitive positing”.
 Reverse Logistics
The products move back from customers to distributors or manufacturers. For example, if the purchased product is defective,
the customer would return the product. This will make the product travel in reverse through the supply chain network to reach
the distributor or the manufacturer and it would require the same process of shipping and warehousing. This is called as reverse
logistics.
Reverse logistics also include testing of the returned product, dismantling, repairing, recycling or disposing of the product. In
other words, any process that takes place after the sale of a product, in order to return to its point of origin is called reverse
logistics.
Reverse logistics is not just limited to returning of goods. Reusing, recycling, refurbishing, and remanufacturing activities are also
part of reverse logistics. Here are the different aspects of reverse logistics:
• Eco-friendly aspects – Packaging materials such as air pillows, wooden pallets, fuel drums, foams, crates, cartons etc. can all
be reused for next load of shipment. Hence, reuse of these materials will lessen the burden of waste on the planet.
• Business implication – “The challenge for retailers and vendors is to process returns at a proficiency level that allows quick,
efficient and cost-effective collection and the return of merchandise. Customer requirements facilitate demand for a high
standard of service that includes accuracy and timeliness. It’s the logistic company’s responsibility to shorten the link from return
origination to the time of reselling.” (Wikipedia). It becomes essential for retailers to follow a returns management system to
address both operational and customer retention issues related to returns of products. In order to retain or recover the value of a
returned product, the goods can be sent back to the supplier or manufacturer for re-manufacturing or refurbishing the returned
cargo.
• Return of refused goods – Many e-commerce businesses offers the option of cash on delivery for a purchased product
without any ‘no return’ policy. In such a case, customers may refuse the product at the time of delivery. This will require the
logistics service provider to follow the process of reverse logistics on the refused product, and the e-commerce company will add
the product back to their inventory after a standard quality check.
Recent Trends in Logistics Management

Analytics