MKT203

Distribution
& Logistics
Management

TOPIC 1

Introduction to
Logistics Management

Course Co-Ordinator:
Mr. Jacob Kulleh
HELP University
 What is Logistics Management?
• According to the CSCMP, “Logistics management is that part of supply chain management
• 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.” “That part of the supply chain process that plans,
implements, and controls the efficient, effective flow and storage of goods, services, and related
information from the point-of-origin to the point-of-consumption in order to meet customers’
requirements.”

Council of Logistics Management

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 Supply Chain, Logistics
• Supply Chain Management
– Consists of firms collaborating to leverage
strategic positioning and to improve operating
efficiency
• Supply Chain Strategy
– Is a channel and business organizational
arrangement based on acknowledge
dependency and collaboration
• Logistics
– The work required to move and geographically
position inventory
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 The Importance of Logistics
 Contributes about 10% of GDP, leads to higher
level of employment, greater economic growth.
 Affects rate of inflation, interest rates,
productivity, energy costs, currency valuation,
availability of investment capital.
 Creates competitive advantage – place and time
utility, customer satisfaction, proprietary asset.
 Effective cost cutting and cost control function –
a dollar saved in cost is a dollar increase in
profits.
4
 Cost Trade-offs in Marketing
and Logistics

Product

MARKETING
Price Promotion

Place/customer
service levels
LOGISTICS

Inventory Transportation
carrying costs costs

Lot quantity costs Warehousing costs

Order processing
and information
costs
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 Example of Cost Trade-Off

LOW PRICE STRATEGY IMPACT OF STRATEGY

• Reduce product quality • Attractiveness of product

• Eliminate product features drops
• Reduce breadth of product • Customer dissatisfaction
offerings • Customer defection
• Reduce customer service • Negative word-of-mouth
• Reduce warranty support • Reduction in long-term
• Increase time between profits
model changes

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 Discussion Question
1. Management decides to use air freight
instead of other modes of transportation.
What is the impact on:
(a) transport costs ?
(b) inventory costs ?
(c) warehousing costs ?
(d) other costs ?

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 Key Logistics Activities
 Customer Service
 Order Processing
 Inventory Management
 Production Management
 Transportation
 Warehousing & Storage
 Materials Handling & Packaging
 Procurement
 Global Logistics*

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 An Overview of Logistics Management
Management actions
• Plan • Implement • Control

Logistics management
SUPPLIERS Raw In-process Finished CUSTOMERS
Materials inventory goods

Logistics activities
• Customer service
Logistics issues:
• Order processing & info-system • Speed
• Production management • Accuracy
• Inventory management • Consistency
• Materials handling & packaging
• Cost-effectiveness
• Warehousing & storage
• Transportation management • Customer satisfaction
• Procurement

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 Conceptual Issues
 Systems approach
- look at the big picture; understand the
interdependency of functions & activities, e.g.
high inventory levels → customer satisfaction →
high storage costs & obsolescence.
 The total cost concept
- aims at reducing total costs rather than
individual activity cost; cost trade-offs.
 Time and place utility
- focus on speed, accuracy and consistency;
computerisation, info-systems, software, etc.
 Innovative technology and practices
- QR, EDI, JIT, TQM, ERP, MRP, DRP, etc.
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 Key Logistics Activities
 Customer Service – customer receives the right
product, at the right place, at the right time, in
the right condition and at the right cost (The 5
Rs).
 Order Processing – involves order transmittal,
processing, warehouse picking & packing,
transportation, and delivery.
 Inventory Management – reasons for holding
inventory, inventory carrying costs, production &
inventory levels and managing inventory.

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 Key Logistics Activities

 Production Management – managing materials

flow, forecasting, TQM, JIT systems, MRP
systems & DRP systems.
 Transportation – its roles in logistics, transport
modes & intermodal combination
 Warehousing & Storage – types and functions;
size, location, layout and design; warehouse
productivity.

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 Key Logistics Activities
 Materials Handling & Packaging – automated
and non-automated materials handling systems;
JIT warehousing; role of packaging in logistics.
 Procurement – supplier selection & evaluation;
international sourcing; JIT purchasing;
purchasing research and planning; purchasing
cost management; strategic sourcing.
 Global logistics – international supply chain
channel strategies; factors affecting global
logistics; exporting organisations; global logistics
terminologies.
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 Logistics and Corporate Profit
Performance
 Managing assets and cash flow are two
important concerns of management.
 Two common strategies used: reducing
accounts receivable and reducing investment
in inventory.
 Need to consider impact of change on all
supply chain members, e.g. reduction in term
of sales (faster invoices payment) → cash
flow problems for customers → place smaller,
more frequent orders → increased logistics
costs → stock-outs at distributors.
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 The Strategic Profit Model
 Used to determine how a proposed systems
change will influence profit performance and
return on assets.
 Shows that return on net worth (RONW) is a
function of financial leverage and return on
assets (net profit margin and asset
turnover)
* net worth = capital stock + retained earnings

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 Sales
$
Strategic Profit Model Gross margin
-
Cost of
goods sold
Net profit $
$
Net profit $ Variable
margin - expenses
÷
% Sales Total expenses $
Return on Financial Return on Net profit $ $ +
net worth leverage assets Net sales Fixed
expenses
-
= x % x Income taxes $
Sales
Inventory
Net profit Total assets x Net profit Asset $
= turnover
$ $
Net worth Net worth Total assets
÷ Current assets +
Accounts
Total assets receivable
Net sales $
Total assets $ $
+ +
Fixed assets Other current
Net worth = Capital stock + Retained earnings assets
$
$ 16
 Sales
$ 100
Strategic Profit Model Gross margin
-
Cost of
goods sold
For L & S Incorporated Net profit $ 45
($million) $ 55
Net profit $5 Variable
Income tax is 50% of margin - expenses
profit before tax ÷
5 % Sales Total expenses $ 15
Return on Financial Return on Net profit $ 100 $ 35 +
net worth leverage assets Net sales Fixed
expenses
-
20% = 2 x 10 % x Income taxes $ 20
Sales
Inventory
Net profit Total assets x Net profit Asset $ 5
= turnover
$100 $ 15
Net worth Net worth Total assets
2 ÷ Current assets +
Accounts
Total assets receivable
Net sales $ 25
Total assets $ 50 $8
+ +
Fixed assets Other current
Net worth = Capital stock + Retained earnings assets
$ 25
$2 17
 Sales
$ 107
Strategic Profit Model Gross margin
-
Cost of
For L & S Incorporated goods sold
after a sales increase Net profit $ 48.15
$ 58.85
of 7% ($million) Net profit $ 6.05 Variable
margin - expenses
÷
5.65 % Sales Total expenses $ 16.05
Return on Financial Return on Net profit $ 107 $ 36.05 +
net worth leverage assets Net sales Fixed
expenses
-
24.1% = 2 x 12.1 % x Income taxes $ 20
Sales
Inventory
Net profit Total assets x Net profit Asset $ 6.05
= turnover
$107 $ 15
Net worth Net worth Total assets
2.14 ÷ Current assets +
Accounts
Total assets receivable
Net sales $ 25
Total assets $ 50 $8
+ +
Fixed assets Other current
Net worth = Capital stock + Retained earnings assets
$ 25
$2 18
 Sales
$ 100
Strategic Profit Model Gross margin
-
Cost of
For L & S Incorporated goods sold
Net profit $ 45
after reducing current $ 55
assets by $6m* and Net profit $ 5.36 Variable
paying off debt at 12% margin - expenses
interest ($million) ÷
5.36 % Sales Total expenses $ 15
Return on Financial Return on Net profit $ 100 $ 34.28 +
net worth leverage assets Net sales Fixed
expenses
-
21.4% = 1.76 x 12.17 % x Income taxes $ 19.28
Sales
Inventory
Net profit Total assets x Net profit Asset $ 5.36
= turnover
$100 $ 11
Net worth Net worth Total assets
2.27 ÷ Current assets +
Accounts
Total assets receivable
Net sales $ 19
Total assets $ 44 $6
+ +
Fixed assets Other current
Net worth = Capital stock + Retained earnings assets
$ 25
* Inventory reduced by $4m, acc. receivable by $2m $2 19
 Future Challenges and Areas for
Performance Improvement
 Supply Chain  Logistics as a boundary-
Management spanning activity
 Strategic Planning  Global logistics
 Total Quality  Increasing skill
Management (ISO) requirements
 Just-in-Time  Logistics information
 Quick Response (EDI) systems (EDI, bar-code)
 Efficient Consumer  Strategic alliances,
Response partnerships, and
 Logistics as a outsourcing
Competitive Weapon  Green marketing and
 Accounting for logistics reverse logistics
costs (SAP)
THE END 20