Introduction to Logistics Management - Logistics Management | Logistics Management - B Com PDF Download

Definition
A dictionary definition of logistics is

The branch of military science having to do with procuring, maintaining, and transporting material, personnel, and facilities.
Definition of the Council of Logistics Management (CLM) Logistics is the process of planning, implementing, and controlling the efficient, cost-effective flow and storage of raw materials, in-process inventory, finished goods and related information from point of origin to point of consumption for the purpose of conforming to customer requirements. The mission of logistics is to get the right goods or services to the right place, at the right time, and in the desired condition, while making the greatest contribution to the firm.

Objectives
Rapid Response: Rapid response is concerned with a firm’s ability to satisfy customer’s requirement in a timely manner. Instead of stocking the goods and supplying on demand, orders are executed on shipment-to-shipment basis. Here IT helps to postpone the logistical operations to the latest possible time and then execute rapid delivery as when needed by customer.

Minimum Variance: Variance is any unexpected event that disrupts system. Logistical operations are disrupted by events like delays in order receipt, disruption in manufacturing, goods damaged at customer’s location and delivery to an incorrect location etc. Traditional solution to deal with variance was to keep safety stock or use high cost transportation. Such practices were expensive and risky and thus have been replaced by information technology to achieve positive logistics control.

Minimum Inventory: The objective of minimum inventory involves asset commitment and inventory turnover. Asset commitment is the financial value of inventory developed throughout the logical system and inventory turnover is the rate of inventory usage over time. The objective is to reduce the inventory without sacrificing customer satisfaction.

Movement Consolidation: One of the most significant logistical costs is transportation. Transportation cost depends on type of product, size of shipment and distance. Movement consolidation means grouping small shipments together in order to reduce transportation cost.

Quality Improvement: Logistics is a prime part of developing and maintaining continuous TQM improvement. If the quality of product fails, logistics will have to ship the product out of customer’s premises and repeat the logistical function again. This adds to cost and customer dissatisfaction.

Life-Cycle Support: Life cycle support is also called cradle-to-cradle logistical support. It means going beyond reverse logistics and recycling to include the possibility of after sale services, product recalls and product disposal. This means that firms must consider how to make a product and its package (cradle) and the how to remake and reuse them (to cradle). E.g. Cold drink industries use their glass bottle again and again whereas the cans are reused in making of paper dishes.

Types of Logistics
1. Reverse Logistics 
Reverse logistics is also known as Product Recall. It may be defined as a process of moving goods from their place of use, back to their place of manufacture for re-processing, refilling, repair, and recycling or waste disposal.

Reasons for Reverse Logistics

1. Rigid quality standards- it is critical in case of contaminated products, which can cause environmental hazard.

2. Rigid laws prohibiting unscientific disposal of items

3. Rigid laws making recycling mandatory

4. Transit damage – e.g. leaking containers containing hazardous material.

5. Product expiration.

6. Erroneous order processing by supplier

7. Exchange of new product for the old ones.

8. Return for repair or refill.

Drivers in Reverse Logistics 

The success of reverse logistics depends upon the efficiency of following subsystems:

1. Product Location: For product recall it is necessary to identify the product location in the physical distribution system of the firm. It is difficult in case of consumer goods but easier in case of industrial goods.

2. Product Collection System: After the product location is identified, product collection is to be done through company’s field force or third party.

3. Recycling / Disposal Centers: This may be company’s plant, warehouse or any other location. Called back products must be inspected before recycling or disposal etc.

4. Documentation System: Proper documents should be maintained at each level, this would help in tracing the product location.

2. Inbound Logistics 

• All the activities related to the material movement till the dispatch of the products out of the factory gate are called as inbound logistics activities.

• Creation of value in the products depends upon availability of inputs on time. Making available these inputs on time at minimum cost is the essence of Inbound Logistics.

• Activities of a procurement performance cycle come under the scope of Inbound Logistics. They are transportation during procurement operation, storage, handling and overall management of inventory of inputs.

3. Outbound Logistics 

• All the activities in which the value added goods are to be made available in the market for customers are called as outbound logistics activities.

• Success of the firm depends upon the supply of products to the customer on time. Supplying the products of firm at marketplace at minimum cost is the essence of Outbound Logistics.

• Activities of distribution performance cycle come under the scope of Outbound Logistics. They are order management, transportation, warehousing, packaging, handling etc.

4. Third-Party Logistics (3PL)

In order to keep the costs of inbound and outbound logistics activities under control, an outside agency appointed to perform these logistics functions is called “Third Party Logistics”.

5. Forth-Party Logistics (4PL)

Forth Party Logistics is a complete outsourcing of manufacturing and logistics functions including selection of Third Party service provider.

Need for 4PL:

1. Ever-increasing customer requirements.

2. Competitive and complex market scenario

3. Rising globalisation, liberalization and privatisation.

4. Rising accessibility of supply chain technology.

5. Inclination of companies to enter into higher margin business.

Services provided by 4PL

1. Procurement and storage of materials.

2. Manufacturing of products.

3. Selection of 3PL companies

4. Transportation and warehousing management

5. Collection of payment and cash flow management

6. Risk management and insurance.

7. Sharing of information, IT solution.

Logistics Functions
MRP 1 

Material Requirement Planning is an integrated approach to the inventory management, taking into the account purchase and production programme. This is software that converts the Master Schedule to the requirement of raw material, components, subassemblies, etc.

Structure of MRP1

• Three types of information are fed to the computer.

Master Schedule – This is made up from sales forecast by marketing department and the actual orders already received by the company. It indicates which product is required to be delivered to the customer and when.

Bill of Material – This is prepared from product design documents

Inventory details – of each item

• The MRP software processes the data and releases the output for ready use of the management in the following way:

1. For purchase components it releases Purchase Request, Purchase Order etc in the form of soft copy

2. For in-house manufactured components it releases Production Order

3. It prepares different types of reports for the use of management as required

Benefits of MRP1

1. All the documents like purchase order, production order get ready as per required time.

2. All information is ready on the screen at any time, which is duly updated.

3. Making changes manually in Master Schedule is difficult task; this is done by MRP easily and accurately.

4. It prepares the reports related to inventory status, production outputs, latest sales figures.

5. MRP calculates and maintains an optimum-manufacturing plan, which will reduce cash flow and increase profitability.

6. Reduced inventory levels

7. Reduced shortage of components

8. Reduced overtime on shop floor and offices

9. Improved shipping schedule

10. Improved production schedule

11. Improved calculation of material requirements

12. Better manpower planning on shop floor

13. Reduction in lead time

14. Less scrap and rework

Closed-Loop MRP: When MRP extended to include feedback from vendors and production operations it is called Closed-loop MRP

MRP II (Manufacturing Resource Planning): When closed-loop MRP extended to include financial accounting, personnel, engineering and marketing information, it is called MRP II

DRP 

Distribution Resource Planning is concerned with the distribution of material, warehouses, and transport arrangements. It is logically evolved from MRP and hence it is more recent concept. DRP needs demand forecasts for each warehouse and their current inventory level. MRP is concerned with inbound logistics whereas DRP is concerned with outbound logistics activities.

Benefits of DRP

1. Reduce distribution center freight costs resulting from coordinated shipments.

2. Reduce inventory level.

3. Coordinate inventory with organisational functions.

4. Decrease warehouse space requirements because of inventory reduction.

5. Improve service level by on time deliveries.

Role of planning in Logistics

• Role of planning is central to logistics management
• Mission of logistics management is to plan and coordinate all those activities necessary to achieve desired levels of service and quality at lowest possible cost.
• Logistics is fundamentally a planning concept that seeks to create a framework through which needs of the marketplace can be translated into a manufacturing strategy and plan.
• To match the changing environment in the logistics due to the changes in the markets, competitors, suppliers and technology, there is a need for a systematic planning.

Difference between Logistics and Supply Chain Management