What is Logistics?
Logistics has always been a central and essential feature of all economic activities. The concept of logistics as an integrative activity in business has developed within the last twenty years. Logistics management is a process of strategically managing the movement and storage of materials, parts, and finished inventory from suppliers through the firm and on to customers.
Logistics is thus concerned with the management of the physical distribution of material. It begins from sources of supply and ends at the point of consumption. It is, therefore, much wider in its reach than simply a concern with the movement of finished goods – a commonly held view of physical distribution.
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Logistics deals with all activities that facilitate product flow from the point of raw material acquisition to the point of final consumption as well as the information flow that set the production in motion for the purpose of providing adequate levels of customer service at a reasonable cost.
Logistics management involves two issues namely, the movement of raw materials to the plant known as physical supply or material management, and second, the flow of finished products from the plant to the customers, known as physical distribution. Logistics management activities can be grouped as primary and secondary activities.
Types of Logistics
There are different kinds of logistics systems or subsystems used in organizations. They can be classified as supplier logistics, organizational or corporate logistics, and customer logistics.
- Supplier Logistics
- Production/Corporate Logistics
- Components of Market Linkage Production System
- Replenishment Production System (RPS)
- Customer Logistics
Supplier logistics takes care of the flow of supplies and raw materials from a vendor to the company; corporate logistics takes care of the flow of goods to the customer point whereas customer logistics takes care of how customers handle the product from the company’s source to their consumption point.
The key issue in supplier logistics is to buy the right things. This needs to address two critical issues i.e. supplier evaluation and order of the final product. The manager should be able to evaluate the quality of the supplier, prior to issuing purchase orders and he should be able to clearly describe the products to be ordered in order to make sure that the supplier knows exactly what the firm wants.
For physical distribution management, product transportation and delivery services have to be evaluated. The company may procure transportation and product storage services from the supplier. The suppliers should be evaluated on their capability to provide required services of acceptable quality level. The marketing manager should ask the following questions while evaluating the supplier logistics system.
- Do they have sufficient and reliable equipment?
- Do they have enough resources including manpower, storage space, etc.?
- Are their resources and equipment well managed?
- Do they have the system to allocate their resources?
While placing an order with the supplier, one should make sure that he has included a desired date, time, and routing of the required transportation service and has mentioned about required storage conditions of the merchandise.
To cater to growing market needs, the company needs to establish a new production system for logistics as well as modified production systems to accomplish the true ‘real-time sales’ system.
For this, a new revolutionary production project team should be formed whose sole purpose is to establish a ‘production, sales, and logistics total linkage system’ that will eventually eliminate overstock and shortage problems. This kind of production system is called the Market Linkage Production System (MLPS).
The following are the components of the market linkage production system. They are a replenishment production system and purchase support system.
For an effective market linkage production system, the marketing manager should have documented procedures defining the number of processes; he should use suitable equipment and working environment; monitor suitable process parameters, and develop systems for the maintenance of equipment.
Replenishment Production System (RPS)
RPS analyses the trends of all outgoing shipments from distribution centers to all dealers and of inventory movements at the factory warehouse. It then generates ‘actual demand/from marketing information’ from which the most suitable production plan by model/line is established.
It then creates the optimal production level and decides the production order for days (2 and 3) by the day simulation process. The production would exist just for a specified number of days. This means that the company possesses a production plan in terms of days rather than in terms of months.
It also means that the daily market changes are represented on production plans since the system relies on Actual demand marketing information’ instead of on the ‘more sales plan’.
Purchase Support System (PSS)
This system consists of a single resource plan, ordering, and payment system that makes it possible to work successfully. Such standard purchase support systems can re-establish the business process that will cut down the ‘total cycle time’ from customers to vendors.
This process will expedite the process of responding to customer needs, prevent shortage problems and reduce unnecessary cost, which arises from overstock.
The firm should establish some procedures or instructions to define the proper manner of handling, transporting, storing, and delivering products. Transportation equipment and storage equipment should be periodically serviced to ensure proper functioning. The company should have three stages of inspection as mentioned under
- Receiving, inspection, and testing: It ensures that the product arrives in the company in good shape.
- In-process inspection and testing: It ensures that the product is handled properly during the manufacturing process.
- Final inspection and testing: It is usually performed before dispatching the product to the customer.
It is required that the firm should define the training needs of its employees and provide training in the areas of operation of material handling equipment and customer care so that the right product is delivered to the customers at the right time and in the right shape.
Customer logistics involves a seven ‘R’ framework namely, it should be a process of the right quantity of the right product or service to the right place in the right conditions at the right cost and at the right time with the right impression.
If these seven aspects are taken care of, the customer logistics process will be able to create higher levels of customer satisfaction. It will also show that the company is concerned about the customers and their logistics requirements.
The focus of customer logistics should be on speedy and timely delivery, shorter lead time, the safety of goods and users, and lowering of distribution costs. The objective of this process should be to achieve on-time delivery and realize higher customer satisfaction by implementing a flexible and swift customer logistics system. The following diagram shows the components of the customer logistics system.
Difference Between Logistics and Distribution
On the basis of meaning, goal, and function there is a difference between logistics and distribution which is shown in Table.
|Meaning||Logistics involves the planning, design, coordination, management, and improvement of the processes of moving goods and resources.||Distribution encompasses the ways in which a business makes goods available to its customers. It also involves the actual physical movement of goods through a distribution channel.|
|Goal||The primary goal of logistics is to improve the efficiency of internal warehousing and transportation functions and to collaborate with distribution partners to maximize efficiency in the movement of information and goods.||Its goal is to enable each company to find the most affordable ways to move goods to its customers. It is the physical execution of transportation logistics.|
|Function||Logistics includes a significant flow of information, which contrasts the physical movement of goods pervasive in distribution. Developing automated inventory systems is a key element of logistics.||It serves the function of warehousing and outbound transportation of goods to customers wherein a product goes through from manufacturer to wholesaler to retailer and finally, to the end consumer.|