The Role of Logistics in the Economy and Organization

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

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Logistics activities

• Customer service
• Demand forecasting
• Logistics information systems
• Inventory control
• Material handling
• Order processing
• Parts and service support

• Plant and warehouse site selection
• Procurement
• Packaging
• Reverse logistics
• Traffic and transportation
• Warehousing and storage

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The Five Rights of Logistics

• Right Items, needed for consumption or
  production,
• Right Place
• Right Time
• Right Condition
• Right Cost,

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Factors Impacting the Development of Logistics

• Military logistics developments
• Transportation deregulation
• Competitive pressures
• Information technology
• Channel power
• Profit leverage

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1.Military Logistics

• Throughout the history wars have been won and
  lost through logistics strengths and capabilities
  or the lack of them.

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1.Military Logistics

• Following the World War II, logistics began to
  receive increased recognition and emphasis.
• In the Persian Gulf War in 1990-1991, the ability
  to efficiently and effectively distribute and
  store supplies and personnel were key factors in
  the success of the US Armed Force.

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2.Deregulation

• Deregulation of the transportation industry in
  the late 1970s and early 1980s gave organizations
  many more options and increased the competition
  within and between transportation modes.
• Carriers become more creative, flexible,
  customer-oriented, and comparative in order to
  succeed.
• They can focus on negotiation of rates, terms,
  and services, with their overall attention
  directed toward getting the best transportation
  buy.

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3. Competitive Pressures

• Globalization and competition
• With rising interest rates and increasing energy
  costs during the 1970s, logistics received more
  attention as a cost driver-emphasis on cost
  control
• WHY?
• Local firms versus overseas competitors
• Increased offshore buying and selling
  activities, more complex and more costly global
  supply chains

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4.Information Technology

• Information technology gave organizations the
  ability to better monitor transactions intensive
  activities such as ordering, movement of goods...
• Computerized quantitative models for controlling
  and optimization
• MRP,MRP II,DRP,DRP II,JIT link material
  management from order processing to inventory
  management, forecasting and production.

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5.Channel Power

• Shifting channel power from manufacturers to
  retailers, wholesalers, and distributors has also
  had a profound impact on logistics.
• Lower brand loyalty decreases a manufacturers
  power-increases retailers power

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6. Profit Leverage

• 1 saved in logistics costs has a much greater
  impact on the organizations profitability than a
  1 increase in sales.
• There are costs associated with sales ( cost of
  goods sold) 1 increase in sales does not
  result in 1 dolar increase in profit

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Logistics Is Relevant to All Types of
Organizations

• The definition of logistics includes the flow of
  materials and services in both the manufacturing
  and service sector.
• The service sector includes entities such as the
  government, hospitals, banks, retailers and
  wholesalers.

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• It is only in the recent past that business
  organizations have come to recognize the vital
  impact that logistics management can have in the
  achievement of competitive advantage.

• Martin Christopher

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Competitive Advantage

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

Christopher s.5
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Components ofLogistics Management
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Management actions
Inputs into logistics
Implementation
Control
Planning
Outputs oflogistics
Naturalresources(land, facilities, and
equipment)
Competitiveadvantage
Logistics management
Timeand placeutility
Humanresources
Rawmaterials
In-processinventory
Finishedgoods
Suppliers
Customers
Efficientmovementto customer
Financialresources
Proprietaryasset
Informationresources
Logistics activities

• Customer service
• Demand forecasting
• Distribution communications
• Inventory control
• Material handling
• Order processing
• Parts and service support

• Plant and warehouse site selection
• Procurement
• Packaging
• Reverse logistics
• Traffic and transportation
• Warehousing and storage

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The Outputs of the Logistics System

• The outputs of the logistics system are
• competitive advantage,
• time and
• place utility,
• efficient movement to the customer, and
• providing a logistics service mix such that
  logistics becomes a proprietary asset of the
  organization.

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PETER DRUCKERS stated that

• Logistics is one of the last frontiers of
  opportunity for organizations wishing to improve
  their corporate efficiency.