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Introduction to Logistics
The management of the flow of things which lie between producers and the consumers for the
purpose of meeting the requirements of the consumers or corporations is known as logistics. The
topics elaborated in this chapter will help in gaining a better perspective about the components
and elements of logistics.

Logistics refer to the overall process of managing how resources are acquired, stored, and trans-
ported to their final destination. Logistics management involves identifying prospective distrib-
utors and suppliers and determining their effectiveness and accessibility. Logistics managers are

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referred to as logisticians.

“Logistics” was initially a military-based term used in reference to how military personnel ob-
tained, stored and moved equipment and supplies. The term is now used widely in the business
sector, particularly by companies in the manufacturing sectors, to refer to how resources are han-
dled and moved along the supply chain.

In simple terms, the goal of logistics management is to have the right amount of a resource or input
at the right time, getting it to the appropriate location in proper condition and delivering it to the
correct internal or external customer.

For example, in the natural gas industry, logistics involves managing the pipelines, trucks, storage
facilities and distribution centers that handle oil as it is transformed along the supply chain. An
efficient supply chain and effective logistical procedures are essential to reduce costs and to main-
tain and increase efficiency. Poor logistics leads to untimely deliveries, failure to meet the needs of
clientele, and ultimately causes the business to suffer.

The concept of business logistics has been transformed since the 1960s. The increasing intricacy
of supplying companies with the materials and resources they need and the global expansion of
supply chains has led to a need for specialists known as supply chain logisticians.

In the modern era, the technology boom and the complexity of logistics processes have spawned
logistics management software and specialized logistics-focused firms that expedite the move-
ment of resources along the supply chain. Manufacturing companies may choose to outsource the
management of their logistics to specialists or manage logistics internally if it is cost-effective to
do so.

The tasks for which a logistician is responsible vary depending on the business. Primary respon-
sibilities include overseeing and managing inventory by arranging for appropriate transportation
and adequate storage for the inventory.

A qualified logistician plans out these and other aspects of the logistics process, coordinating the
steps as inventory and resources move along the supply chain.

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Components and Elements of Logistics

In the picture figure are shown the components of a logistics system.

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Logistics Components.

The logistics system consists of the following components: Customer service, Inventory manage-
ment, Transportation, Storage and materials handling, Packaging, Information processing, De-
mand forecasting, Production planning, Purchasing, Facility location and other activities.

Other activities for a specific organization could include tasks such as after-sales parts and service
support, maintenance functions, return goods handling and recycling operations.

Clearly any one organization is unlikely to require all these specific tasks to be accomplished. For
example, a service firm such as an airline might combine elements from the information process-
ing, maintenance, demand forecasting, customer service, and purchasing functions into a logistics
system designed to reach its customers. On the other hand, a manufacturer of consumer goods
may draw from transportation, inventory management, storage, materials handling and packaging
in addition to customer service, purchasing and demand forecasting for their logistics support.

The point is that every organization, be it manufacturer or service provider, for-profit or non-prof-
it, has customers that it wants to reach. By integrating the appropriate functions into a custom-
er-focused logistics system, the enterprise can develop a sustainable advantage that is very diffi-
cult to be imitated by a competitor. Sorne of these activities have traditionally had a well-defined
stand-alone role within a company (purchasing, production, information processing), while others
have generally been more closely associated with logistics (transportation, warehousing, packag-
ing). What ties all of these functions together is their ability to improve customer satisfaction. This
is not to say that production, for example, should be subordinate to logistics. Rather top manage-
ment should utilize logistics as a way to integrate these corporate activities and keep them focused
on the customer rather than on internal processes.

Elements
Logistics and Maintenance Support Planning
Interactive planning, organisation and management activities are necessary to ensure that logistics
requirements for any given program are properly coordinated and implemented. Initial ­planning

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Introduction to Logistics 3

and analysis lead to the establishment of requirements for logistics and the overall support of the
system throughout its life cycle.

Maintenance planning for those activities related to the reverse flow convinces with the definition
of maintenance concept and continues through supportability analysis to the ultimate develop-
ment of a maintenance plan.

A comprehensive logistics plan needs to be implemented through the establishment and control
functions to ensure that the plan is properly carried out.

Logistics Maintenance and Support Personnel

The personal required to perform unique logistics and system maintenance activities are covered
in this category.

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Such activities include the initial provision and procurement of items of support, production related
logistics functions, the installation and checkout of the system and its elements at the user’s opera-
tional sites customer service functions, the sustaining support of the system throughout its planned
period of use, and those functions required for the retirement and recycling or disposal of material.

Personnel at all levels of maintenance mobile teams, and operation or maintenance at special test
facilities and calibration laboratories are included. It is important to include only those who can be
directly attributed to the support of that system in evaluation of a particular system.

Training and Training Support

This category includes all personnel, equipment, facilities data or documentation and associated
resources necessary for the training of operational and maintenance personnel to include both
initial and replenishment or replacement training.

Training equipment say simulators, mock-ups, special devices, training manuals and computer
resources Software are developed and utilized as necessary to support the day-to-day-site training,
distance education of a more formal nature.

Supply Support—Spares or Repair Parts and Associated Inventories

This elements covers all spares say, repairable units, assemblies, modules and the like, repair parts
say, non-repairable pasts or components, Censurable, liquids, lubricants, gases disposable items
special supplies, and related inventories needed to maintain the prime mission related equipment
computers and software, test and support equipment, transportation and handling equipment,
training equipment, communications equipment and facilities or utilities.

Spares or repair parts are required throughout the system operational share and in support of the
retirement and recycling or disposal of system components.

Computer Resources
This category covers all computers, associated software connecting components, networks, and in-
terfaces necessary to support the day-to-day flow of information for all logistics functions, ­scheduled

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4 Logistics: Managing Trade Operations

and unscheduled maintenance activities and special monitoring and reporting ­requirements such
as those pertaining to CAD/CAM/CAS data the implementation of condition monitoring programs
and in support of system diagnostic capabilities.

Technical data, Reports and Documentation

Technical data may include system installation and check out procedures operating and main-
tenance instructions inspection and calibration procedures, overhaul instruction, facilities data,
system modification’s engineering data such as specifications, drawings, materials and parts list,
CAD/CAM/CAS data, special reports Logistics provisioning and procurement data, Supplier data,
system operational and maintenance data, and supporting data bases. Included in this category is
the on-going and interactive process of data collection, analysis and reporting covering the system
throughout its life- cycle.

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Maintenance and Support Facilities and Utilities
This category covers all special facilities that are unique and are required to support logistics activ-
ities, to include storage buildings and warehouses and maintenance facilities at all levels.

Physical plant, portable buildings, mobile vans, personnel housing structures, intermediate level
maintenance shops, calibration laboratories and special repair shops such as depots, overhaul ma-
terial suppliers are considered.

Capital equipment and utilities heat, power, energy requirements, environmental controls, com-
munications, safety and security provisions and the like are generally included as the part of facil-
ities.

Packaging, Handling, Storage or Ware Housing and Transportation

This category logistics includes all materials, equipment special provisions, containers both re-
sistible and disposable and supplies necessary to support the packages, safety and preservation,
storage, handling and or transportation of the prime mission related elements of the system, per-
sonnel spares and repair parts, test and support equipment technical data, computer resources
and mobile facilities.

Covered in this group are the initial and sustaining transportation requirements for the distribu-
tion of materials and for the maintenance and support activities throughout the system life cycle.
The primary modes of transportation—air, highways, pipelines railways and water ways and inter-
modal, truck, rail, truck, waters, rail, water, truck, air and the like are considered.

Test, Measurement, Handling and Support Equipment

This category includes all tools, condition monitoring equipment, diagnostic and checkout equip-
ment, special test equipment, metrology and calibration equipment, maintenance fixtures and
stands and special handling equipment required to support operational and maintenance func-
tions through-out the forward and reverse flows, Test and support equipment requirements at
each level of maintenance must be considered as well as the overall traceability of test requirement
or measures to a secondary standard, a transfer standard and finally to a primary standard.

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Introduction to Logistics 5

Logistic Information
This refers to the resources necessary to ensure that an effective and efficient logistics information
flow is provided throughout and to the organizations responsible for all the activities that come
within its focus. This flow includes the necessary, communication links among the customer, pro-
ducer or prime contractor, sub-contractors, sup- priors and supporting maintenance organisa-
tions.

It is but essential that the proper type and amount of information be provided to the appropriate
organisational elements, in proper formats and in a reliable and timely manner with the necessary
security provisions included.

Inherent within this category is the utilisation of the latest EC methods, EDI capabilities e-mail
and the Internet.

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This capability not only tends to facilitate the integration of the organisations participating in a
given project but aids in the integration of SC and maintenance activities and the various logistic
elements identified for this propose.

Reasons for the Rise of Logistics

Changes in Customer Demand Patterns

Increased affluence has shifted customers towards more services and has also contributed to ma-
jor geographical changes in population concentrations and to a general proliferation of products
and product types offered by marketers to consumers.

These changes encouraged migration of population to metropolitan cities in search of higher pay-
ing jobs. This expanded the effective size of metropolitan regions.

The result has been an increase in retail outlets. This resulted in marketing of products through
a number of departmental stores, rather than relying on only one. This reflected in complexity of
functions and additional costs. The combined effect of competition and consumer affluence is the
fundamental reason for proliferation of product lines.

It is observed by experts that as more and more product line variety is needed to satisfy the
growing range of customer tasks and requirements, stock levels in both field and factory rise
inevitably.

For the vast majority of production facilities that have not yet installed computer aided man-
ufacturing systems, the cost of assembly line changes and small batch productions escalate in
tandem.

It is equally true that replacing one product with three that generate same level sales would in-
crease inventories by 60 per cent. This upward pressure on costs suggests the need for more care-
ful management.

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Economic Pressures on Industry

Two economic forces are instrumental in encouraging the movement towards a re-organisation for
business logistics.

First logistics costs are recognised take significant proportion of total costs.

Second reduced profit margins encouraged the firms to look for more efficiently organisational
patterns.

Fragmentation of logistic activities among various departments of an organisation tended to mask

the total cost of logistic activities. Further, fragmentation of activities under different heads led to
conflicts on the organsation.

According to Professor Heskett J.L. the physical distribution cost at macro-economic level, ac-
counted for 14.9 percent of the US GNP in 1960. In 1962, Mr. Peter Drucker the Management Guru

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in his article published in Fortune said that almost 50 cents out of energy dollar that the consumer
spends on goods goes to the activities that occur after the goods are made.

Technological Changes and the Application of Quantitative Techniques to

Business Problems
Technological innovation is not only unique to logistics but it has increased complexity of logistic
problems leading to the need for careful and cautions management.

The technological innovation has led to the problems namely:

1. Contraction of product life- cycle,

2. Decrease in the cost of value addition and simultaneous rise costs of materials and distri-
bution,

3. Greater proliferation of logistical choices,

4. Growth of scientific management techniques and computer technology side by side with
logistics system components.

Development in Military Logistics

Military is the rich source of experience where business world is to learn a lot. Military logis-
tics problems are mammoth and enormous. By solving these problems military reinforces faith of
business community in logistics.

For instance in the early 1991 during gulf war the US and allied forces were faced with the
problem of moving half a million people and over a half a million tons of material and supply
by air.

That is 12000 kms and 2.3 million tons of equipment by sea in a matter of months. It was logistics
that made this mission difficult possible.

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Introduction to Logistics 7

Logistics Goals and Strategies

At the highest level, logistics management shares the goal of supply chain: “to meet customer re-
quirements.” There are a number of logistics goals that most experts agree upon:
• Respond rapidly to changes-in the market or customer orders.
• Minimize variances in logistics service.
• Minimize inventory to reduce costs.
• Consolidate product movement by grouping shipments.
• Maintain high quality and engage in continuous improvement.
• Support the entire product life cycle and the reverse logistics supply chain.

An effective logistics management strategy depends upon the following tactics:

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• Coordinating functions (transportation management, warehousing, packaging, etc.) to cre-
ate maximum value for the customer.
• Integrating the supply chain.
• Substituting information for inventory.
• Reducing supply chain partners to an effective minimum number.
• Pooling risks.

Coordinating Functions
Logistics can be viewed as a system made up of interlocking, interdependent parts. From this
perspective, improving any part of the system must be done with full awareness of the, effects on
other parts of the system. Before the advent of modern logistics management, however, the various
operations contributing to the movement of goods were usually assigned to separate departments
or divisions, such as the traffic department. Each area had its own separate management and pur-
sued its own strategies and tactics.

Decisions made in any one functional area, however, are very likely to affect performance in oth-
er areas, and an improvement in one area may very well have negative consequences in another
unless decisions are coordinated among all logistics areas. Adopting more efficient movement of
goods, for example, may require rethinking the number and placement of warehouses. Different
packaging will almost certainly affect shipping and storage. You may improve customer service to
a level near perfection but incur so many additional expenses in the process that the company as
a whole goes broke.

You need a cross-functional approach in logistics, just as you do in supply chain management as
a whole. Teams that cross functions are also very likely to cross company boundaries in a world of
international supply chains with different firms focused on different functions.

The overall goal of logistics management is not better shipping or more efficient location of ware-
houses but more value in the supply network as measured by customer satisfaction, return to

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shareholders, etc. There is no point, for instance, in raising the cost of shipping—thus, the price
to the customer—to make deliveries faster than the customer demands. Paying more to have a
computer delivered today rather than tomorrow may not be a tradeoff customers want to make.
Getting a still-warm pizza delivered in less than 20 minutes, however, might be worth a premium
price (and a tip). Fast delivery, in other words, is not an end in itself, and the same is true of any
aspect of logistics management or supply chain management.

Integrating the Supply Chain

Integrating the supply chain requires taking a series of steps when constructing the logistics net-
work. In a dynamic system, steps may be taken out of order and retaken continuously in pursuit of
quality improvements; the following list puts the steps in logical order.

Locate in the Right Countries:

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• Identify all geographic locations in the forward and reverse supply chains.
• Analyze the forward and reverse chains to see if selecting different geographic locations
could make the logistics function more efficient and effective. (Not all countries are equal
in terms of relevant concerns such as infrastructure, labor, regulations, and taxes).

Develop an Effective Import-Export Strategy:

• Determine the volume of freight and number of SKUs (stockkeeping units) that are imports
and exports.
• Decide where to place inventory for strategic advantage. This may involve deciding which
borders to cross and which to avoid when importing and exporting as well as determining
where goods should be stored in relation to customers. (Some shipping companies now add a
“war risk surcharge” if they’re required to pass through or near a nation with civil unrest or at
war.) Both geographic location and distance from the customer can affect delivery lead times.

Select Warehoue Location:

• Determine the optimal number of warehouses.
• Calculate the optimal distance from markets.
• Establish the most effective placement of warehouses around the world.

Select Transportation Modes and Carriers:

• Determine the mix of transportation modes that will most efficiently connect suppliers,
producers, warehouses, distributors, and customers.
• Select specific carriers.

Select the Right Number of Partners:

• Select the minimum number of firms’ freight forwarders and 3PLs or a 4PL to manage for-
ward and reverse logistics. In selecting logistics partners, also consider their knowledge of
the local markets and regulations.

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Develop State-of-the-Art Information Systems:

• Reduce inventory costs by more accurately and rapidly tracking demand information and the
location of goods. Developing state-of-the-art information systems may be difficult in some
regions. Such situations make defining the processes and information flows even more critical.

Substituting Information for Inventory

Physical inventory can be replaced by better information in the following ways:
• Improve communications. Talk with suppliers regularly and discuss plans with them.
• Collaborate with suppliers. Use HT to coordinate deliveries from suppliers. Remove obso-
lete inventory. Use continuous improvement tools and share observations about trends.
• Track inventory precisely. Track the exact location of inventory using bar codes and/or

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RFID (radio frequency identification) with GPS (global positioning systems).
• Keep inventory in transit. It’s possible to reduce system wide inventory costs by keeping in-
ventory in transit. One method of keeping inventory in motion the maximum amount of time
is a distribution strategy called cross-docking. Used with particular success by Wal-Mart,
cross-docking involves moving incoming shipments directly across the dock to outward-bound
carriers. The inventory thus transferred may literally never be at rest in the warehouse.

Another example of cross-docking can be taken from the airline industry. When a passenger trav-
els from Seattle to New York, he or she might be cross-docked in Chicago. The airline has config-
ured their network in this way as opposed to having direct flights from city to city. Passengers are
not warehoused per se but simply pass through the airport in an hour or two, getting off of one
plane and onto another. At the end of the day, ideally the airport should be empty, as should all
cross-docking locations.

A trailer, railcar, or barge can be considered a kind of mobile warehouse. Rolling inventory should
be closely tracked by GPS to facilitate rapid adjustments if a shipment is delayed or lost or if a cus-
tomer changes an order at the last minute.
• Use postponement centers. Avoid filling warehouses with the wrong mix of finished goods
by setting up postponement centers to delay product assembly until an actual order has
been received.
• Mix shipments to match customer needs. Match deliveries more precisely to customer needs
by mixing different SKUs on the same pallet and by mixing pallets from different suppliers.
• Don’t wait in line at customs. Reduce the time spent in customs by clearing freight while
still on the water or in the air.

Reducing Supply Chain Partners to an Effective Number

Though you have to watch out for tradeoffs in effectiveness when knowing what is logistics and
reducing the number of logistics partners, you can generally increase efficiency by doing so. If pos-
sible, look for an entire echelon (tier) you can do without such as all the wholesale warehouses or
factory warehouses.

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The more partners there are in the chain, the more difficult and expensive the chain is to manage.
Handoffs among partners cost money and eat up time. Having many partners means carrying more in-
ventories. Reducing the number of partners can reduce operating costs, cycle time, and inventory hold-
ing costs. There is, however, some lower limit below which you create more problems than you solve. If
you eliminated all partners other than your own firm, you’d be back to the vertical integration strategy
pursued in a simpler marketplace during the early 20th century by U.S. auto-maker Henry Ford.

Pooling Risks
In regard to inventory management, pooling risks is a method of reducing stockouts by consol-
idating stock in centralized warehouses. The risk of stockouts increases as supply chains reduce
the safety stock held at each node and move toward Just-in-Time ordering procedures. With every
entity attempting to keep inventory costs down in this manner, the risk of stockouts rises if buying
exceeds expectations. Statistically speaking, when inventory is placed in a central warehouse in-

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stead of in several smaller warehouses, the total inventory necessary to maintain a level of service
drops without increasing the risk of stockouts. An unexpectedly large order from any one customer
will still be small in relation to the total supply available.

Risk pooling also works with parts inventories. Risk pooling is defined as follows:
• A method often associated with the management of inventory risk. Manufacturers and re-
tailers that experience high variability in demand for their products can pool together com-
mon inventory components associated with a broad family of products to buffer the overall
burden of having to deploy inventory for each discrete product.
• By using a central warehouse to hold parts common to many products, a supply network
can reduce storage costs and the risks of stockouts that would be experienced in smaller,
decentralized warehouses.
• There are tradeoffs to consider. Because the central warehouse may be further away from
some production facilities than the smaller warehouses would be, lead times and transpor-
tation costs are likely to go up. Again, logistics has to be managed from the point of view of
improving the value of the overall system, not just one part of the system.

Logistics Management
Logistics management is a supply chain management component that is used to meet customer
demands through the planning, control and implementation of the effective movement and stor-
age of related information, goods and services from origin to destination. Logistics management
helps companies reduce expenses and enhance customer service.

The logistics management process begins with raw material accumulation to the final stage of de-
livering goods to the destination.

By adhering to customer needs and industry standards, logistics management facilitates process
strategy, planning and implementation.

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Logistics management involves numerous elements, including:

• Selecting appropriate vendors with the ability to provide transportation facilities,
• Choosing the most effective routes for transportation,
• Discovering the most competent delivery method,
• Using software and IT resources to proficiently handle related processes.

In logistics management, unwise decisions create multiple issues. For example, deliveries that
fail or are delayed lead to buyer dissatisfaction. Damage of goods due to careless transportation
is another potential issue. Poor logistics planning gradually increases expenses, and issues may
arise from the implementation of ineffective logistics software. Most of these problems occur due
to improper decisions related to outsourcing, such as selecting the wrong vendor or carrying out
delivery tasks without sufficient resources.

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To resolve these issues, organizations should implement best logistic management practices. Com-
panies should focus on collaboration rather than competition. Good collaboration among trans-
portation providers, buyers and vendors helps reduce expenses. An efficient and safe transporta-
tion provider is also vital to business success.

Classification of Logistical Activities

Logistics (or Logistical Activities) may be Broadly Classified into Two Categories:

1. Inbound logistics; which is concerned with the smooth and cost effective inflow of materi-
als and other inputs (that are needed in the manufacturing process) from suppliers to the
plant. For proper management of inbound logistics, the management has to maintain a
continuous interface with suppliers (vendors).

2. Outbound logistics (also called physical distribution management or supply chain manage-
ment); is concerned with the flow of finished goods and other related information from the
firm to the customer. For proper management of outbound logistics, the management has
to maintain a continuous interface with transport operators and channels of distribution.

Scope of logistical activities.

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