OBJECTIVES OF LOGISTICS MANAGEMENT

Rapid Response
Rapid response is concerned with a firms ability to satisfy customer service requirements in a timely
manner. Information technology has increased the capability to accomplish rapid delivery of required
inventory. The result is elimination of excessive inventories traditionally stocked in anticipation of
customer requirements. Rapid response capability shifts operational emphasis from an anticipatory
posture based on forecasting and inventory stocking to responding to customer requirements on a
shipment-to-shipment basis.
Minimum Variance
Variance is any unexpected event that disrupts system performance. Variance may result from any aspect
of logistical operations. Delays in expected time of customer order receipt, an unexpected disruption in
manufacturing, goods arriving damaged at a customers location, or delivery to an incorrect location-all
result in a time disruption in operations that must be resolved. Potential reduction of variance relates to
both internal and external operations. Thus, a basic objective of overall logistical performance is to
minimize variance.

Minimum Inventory
The objective of minimum variance involves asset commitment and relative turn velocity. Total
commitment is the financial value of inventory deployed throughout the logistical system. Turn velocity
involves the rate of inventory usage over time. High turn rates, coupled with inventory availability, means
that assets devoted to inventory are being effectively utilized. The objective is to reduce inventory
deployment to the lowest level consistent with customer service goals to achieve the lowest overall total
logistics cost. The objective is to reduce and manage inventory to the lowest possible level while
simultaneously achieving desired operating objectives. To achieve the objective of minimum inventory,
the logistical system design must control commitment and turn velocity for the entire firm, not merely for
each business location.

Movement consolidation
One of the most significant logistical costs is transportation. Transportation cost is directly related to the
type of product, size of shipment, and distance. Many Logistical systems that feature premium service
depend on high-speed, small-shipment transportation. Premium transportation is typically high-cost. To
reduce transportation cost, it is desirable to achieve movement consolidation. As a general rule, the larger
the overall shipment and the longer the distance it is transported, the lower the transportation cost per
unit. This requires innovative programs to group small shipments for consolidated movement.

Quality improvement
Total quality management (TQM) has become a major commitment throughout all facets of industry.
Overall commitment to TQM is one of the major forces contributing to the logistical renaissance. If a
product becomes defective or if service promises are not kept, little, if any, value is added by the logistics.
Logistical costs, once expended, cannot be reversed. In fact, when quality fails, the logistical performance
typically needs to be reversed and then repeated. Logistics itself must perform to demanding quality
standards. Reworking a customers order as a result of incorrect shipment or in-transit damage is far more
costly than performing it right the first time.

Life-Cycle support
Few items are sold without some guarantee that the product will perform as advertised over a specified
period. In some situations the normal value-added inventory flow toward customers must be reversed.
Product recall is a critical competency resulting from increasingly rigid quality standards, product
expiration dating and responsibility for hazardous consequences. Return logistics requirements also result
from the increasing number of laws prohibiting disposal and encouraging recycling of beverage
containers and packaging materials. The most significant aspect of reverse logistical operations is the
need for maximum control when a potential health liability exists (i.e.. a contaminated product). The
important point is that sound logistical strategy cannot be formulated without careful review of reverse
logistical requirements.

IMPORTANCE OF LOGISTICS MANAGEMENT

Logistics management is a part of supply chain management; it plans, implements and controls the flow
and storage of goods and services in order to meet customers requirements. Logistics management is a
basic factor in the success of any companys operations and has a direct impact on its bottom line. As
freight volume grows and transportation becomes more complicated, the need for logistics management
rises.

Meeting customer demand and providing superior service is one of the most important benefits of good
logistics management. Consumers demand better service and this mandate have ripple effects up the
supply chain, creating a need for shippers to provide fast, accurate and quality service. Logistics
management is responsible for satisfying customer demands.

Logistics management is also important for creating visibility into a companys supply chain. Advanced
transportation management systems (TMS) analyze historical data and track real-time movement of goods
into and out of a business. Logistics managers can use this information for process optimization and
avoiding potential disruptions. TMS data analysis keeps a companys supply chain moving more
efficiently, all while gaining operational insight.

Proper logistics management drives increased revenue. Improved customer service can bring a good
reputation to a companys brand and generate more business, and supply chain visibility creates
opportunity for major cost savings in operations. Logistics management will give a company control
over inbound freight, keep inventory at optimal levels, organize the reverse flow of goods, and utilize
freight moves on the proper transportation modes all of which can cut costs significantly.

With the growing complexity of logistics management, many companies select a 3PL to manage some or
all of their logistics functions. 3PLs have expertise and advanced technology to cut costs and improve
processes much more efficiently than companies can in-house.

FUNCTIONS OF LOGISTICS MANAGEMENT

The following is the list of major logistic functions:
1. Order Processing
2. Warehousing

3. Inventory Management

4. Transportation
1. Order Processing
There are many ways of submitting an order like
By Mail

By Telephone

Through Salesperson

Through Computer and EDI

In some cases, orders are generated by suppliers for their customers.

When an order has been received, it should be quickly and accurately processed by the organization.
When processing is done effectively, both the organization as well as customer is benefited. Now-a-days
sophisticated computerized order processing system is used by most of the companies that speeds up the
cycle of order, shipping and billing. For example a company named General Electric uses a computer
based system in which when a receipt of customer order is received by the system, it checks the credit
standing of the customer as well as the identification of the required stock. Then a set of internal orders is
generated by the system like an order to ship, an order to bill and a production order, etc all of these
systematic activities happen within 15 seconds.
2. Warehousing
Almost every organization is bound to store its products because there is some gap in the production and
consumption. An organization must determine about the important aspects of warehousing function like
How many warehouses are required?

Which kinds of warehouses are needed?

The locations of the warehouses, etc.

Warehousing can take the following two forms.
1. a) Storage Warehouses

2. b) Distribution Centers
Storage Warehouses:
Goods can be stored from average to long periods in storage warehouses.
Distribution Centers:
Distribution centers are much more sophisticated in a way that they are involved more in the movement
of goods and less in the storage. These distribution centers are highly automated and larger that are
designed for the receipt of goods from various suppliers and plants. Orders from customers are received
and processed efficiently and quick distribution of the ordered goods is made in these centers.
In modern technological age, new, highly automated
warehousing replaces the older warehousing system. In these latest warehousing, effective computerized
material handling systems are used that are centralized. There is a very little number of employees
working and most of the work is done through computerized machines and robotics.

3. Inventory Management
The inventory is also one of major logistic function in which the effective level of inventory is
maintained. The major issue in this function is to keep a complicated balance between carrying less
inventory and carry too much of it. Carrying too much inventory is resulted stock obsolescence and
higher inventory carrying costs. On the other hand carrying of little inventory results in costly production
& emergency shipment, stock outs and finally customer dissatisfaction. So, the management of the
organization makes an effective inventory decision by comparing the inventory carrying costs with the
generating sales and profits.

In recent years new Inventory Management System has replaced the old high cost incurring methods.
Just-in-Time is one of the effective inventory systems in which the level of inventory maintained is kept
at a very low level. The inventory has been ordered just after receiving of sales order from customers. The
inventory is arriving quickly and the resulting sales order is effectively completed by the organization. In
this way inventory maintenance cost is reduced, resulting in the profit increase. This JIT system is
effectively used in Japan.

4. Transportation
Major logistic function also includes the transportation in which certain decisions about the transportation
of goods are made in the light of the interests of the organization. Transportation function is important
because it affects the delivery performance, pricing of product, and condition of the arrived goods etc.
This would ultimately affection the satisfaction of the customers.
There are five different transportation modes that can be
adopted by the organization in the delivery of their products to the dealers, warehouses and customers.
These five modes of transportation are as follows.
01- Rail
02- Truck
03- Pipeline
04- Air
05- Water (Shipping)
Rail
The largest carrier of any nation is the railways that deal with the delivery of 26% of total cargo ton miles.
Large amounts of bulk product can be delivered to the distant locations in a cost effective way through
railway transportation mode like sand, coal, farm and forest items and mineral etc. In recent years certain
amendments are made in the railway systems for the effective transportation of goods from one place to
another like
To carry truck trailers by rails, special flat cars are provided.
Provision of in-transit services etc.

Trucks
In recent years in the transportation mode of trucks has played a significant role in transportation of goods
from one place to another with a share of 24% of total cargo ton miles. Within cities transportation, trucks
are considered as the largest transportation mode. The routing and timing schedules of trucks are highly
flexible and their service is much faster than railways. High value goods of short hauls are effectively
transported through trucks.

Pipelines
For the shipment of petroleum, chemicals and natural gas from source markets, specialized means of
transportation is used which is called pipelines. Pipelines are mostly used by the owners for the delivery
of their own products.
Air
The air mode of transportation is the least popular among the business organizations and only about 1%
of the total cargo is transported through the means of air. But still, in this mode of transportation is
becoming very popular. The cost of air transportation is much higher due to high freight rates, but it is the
quickest mode of transporting products, especially perishable goods and smaller quantity of highly
valuable products.
Shipping (Water)
Shipping is the oldest mode of transporting goods from one region to another, but it is time consuming
transportation than other modes. Shipping used together with the other mode of transportation. Following
are some of the combinations of intermodal transportation.
Fishy Backs: Water and Trucks
Transships: Water and Rails
Air trucks: Air and Trucks

LOGISTICS COSTS
INBOUND AND OUT BOUND LOGISTICS

Inbound logistics refers to the transport, storage and delivery of goods coming into a business. Outbound
logistics refers to the same for goods going out of a business. Inbound and outbound logistics combine
within the field of supply-chain management, as managers seek to maximize the reliability and efficiency
of distribution networks while minimizing transport and storage costs. Understanding the differences and
correlation between inbound and outbound logistics can provide insight for developing a comprehensive
supply-chain management strategy.

Supply-Chain Partners

Companies work with different supply-chain partners on the inbound and outbound
side of logistics. The inbound side concerns the relationship between companies and
their suppliers, while the outbound side deals with how companies get products to
their customers. Regardless of the source or destination, companies may work
directly with third-party distributors on either side as well. A wholesaler, for
example, might work with a distributor to receive products from an international
supplier, while using their own fleet to deliver goods to their domestic customers.

Damage and Liability

Transport agreements between suppliers and customers specify which party is financially responsible for
the cost of any damage occurring in transit at different points, according to specific terms. For example,
Free on Board (FOB) shipping terms specify that the recipient -- the one on the inbound side of logistics
-- is responsible for shipping costs after the shipment is loaded onto a transport carrier, or when it reaches
a specified location. The International Chamber of Commerce defines several alternative terms, such as
"Delivered Duty Paid," which specifies that international suppliers deliver goods to buyers after providing
for all import costs and requirements.

Tools and Materials

Inbound logistics cover anything that your company orders from suppliers, which can include tools, raw
materials and office equipment in addition to inventory. Outbound logistics, on the other hand, deals
almost exclusively with your end products. Tools, materials and equipment only fall into the outbound
category if your company sells them as a main line of business. Inbound logistics for a furniture
manufacturer, for example, can include wood, cloth materials, glue, nails and safety glasses, while the
manufacturer's outbound logistics would likely only cover finished furniture products.

Supply-chain Integration
Vertical integration occurs when one company acquires or merges with its own suppliers or customers. A
vertical integration strategy can greatly increase supply-chain efficiency and produce competitive cost
advantages, due to the single source of strategic control over multiple players in the supply chain. A fully
integrated supply chain can synchronize both inbound and outbound logistics with automatic ordering and
order-fulfillment systems, shared fleet vehicles and drivers, and close cooperation between managers at
different child companies on pricing agreements, volume contracts, delivery terms and even custom
product design.

Inbound logistics is one of the primary processes of logistics, concentrating on purchasing and arranging
the inbound movement of materials, parts, and/or finished inventory from suppliers to manufacturing or
assembly plants, warehouses, or retail stores.

Outbound logistics is the process related to the storage and movement of the final product and the related
information flows from the end of the production line to the end user.

Given the services performed by logisticians, the main fields of logistics can be broken down as follows:
Procurement logistics

Distribution logistics

After-sales logistics

Disposal logistics

Reverse logistics

Green logistics
 Global logistics

Domestics logistics

Concierge Service

RAM logistics

Asset Control Logistics

POS Material Logistics

Emergency Logistics

Production Logistics

Construction Logistics

Procurement logistics consists of activities such as market research, requirements planning, make-or-buy
decisions, supplier management, ordering, and order controlling. The targets in procurement logistics
might be contradictory: maximizing efficiency by concentrating on core competences, outsourcing while
maintaining the autonomy of the company, or minimizing procurement costs while maximizing security
within the supply process.

Distribution logistics: The main task is the delivery of the finished products to the customer. It consists
of order processing, warehousing, and transportation. Distribution logistics is necessary because the time,
place, and quantity of production differ with the time, place, and quantity of consumption.

Disposal logistics has as its main function to reduce logistics cost(s) and enhance service(s) related to the
disposal of waste produced during the operation of a business.

Reverse logistics denotes all those operations related to the reuse of products and materials. The reverse
logistics process includes the management and the sale of surpluses, as well as products being returned to
vendors from buyers. Reverse logistics stands for all operations related to the reuse of products and
materials. It is "the process of planning, implementing, and controlling the efficient, cost effective flow of
raw materials, in-process inventory, finished goods and related information from the point of consumption
to the point of origin for the purpose of recapturing value or proper disposal. More precisely, reverse
logistics is the process of moving goods from their typical final destination for the purpose of capturing
value, or proper disposal. The opposite of reverse logistics is forward logistics."

Green Logistics describes all attempts to measure and minimize the ecological impact of logistics
activities. This includes all activities of the forward and reverse flows. This can be achieved
through intermodal freight transport, path optimization, vehicle saturation and city logistics.

RAM Logistics (see also Logistic engineering) combines both business logistics and military
logistics since it is concerned with highly complicated technological systems for
which Reliability, Availability and Maintainability are essential, ex: weapon systems and military
supercomputers.

Asset Control Logistics: companies in the retail channels, both organized retailers and suppliers, often
deploy assets required for the display, preservation, promotion of their products. Some examples are
refrigerators, stands, display monitors, seasonal equipment, poster stands & frames.

Emergency logistics (or Humanitarian Logistics) is a term used by the logistics, supply chain, and
manufacturing industries to denote specific time-critical modes of transport used to move goods or
objects rapidly in the event of an emergency.[6] The reason for enlisting emergency logistics services could
be a production delay or anticipated production delay, or an urgent need for specialized equipment to
prevent events such as aircraft being grounded (also known as "aircraft on ground"AOG), ships being
delayed, or telecommunications failure. Humanitarian logistics involves governments, the military, aid
agencies, donors, non-governmental organizations and emergency logistics services are typically sourced
from a specialist provider.

The term production logistics describes logistic processes within a value adding system (ex: factory or
a mine). Production logistics aims to ensure that each machine and workstation receives the right product
in the right quantity and quality at the right time. The concern is with production, testing, transportation,
storage and supply. Production logistics can operate in existing as well as new plants: since
manufacturing in an existing plant is a constantly changing process, machines are exchanged and new
ones added, which gives the opportunity to improve the production logistics system
accordingly. Production logistics provides the means to achieve customer response and capital efficiency.
Production logistics becomes more important with decreasing batch sizes. In many industries (e.g. mobile
phones), the short-term goal is a batch size of one, allowing even a single customer's demand to be
fulfilled efficiently. Track and tracing, which is an essential part of production logistics due to product
safety and reliability issues, is also gaining importance, especially in
the automotive and medical industries.
Construction Logistics is known to mankind since ancient times. As the various human civilizations
have tried to build the best possible works of construction for living and protection. Now the construction
logistics emerged has vital part of construction. In the past few years construction logistics has emerged
as a different field of knowledge and study within the subject of supply chain management and logistics.

BULLWHIP EFFECTS IN LOGISTICS

Through the numerous stages of a supply chain; key factors such as time and supply of order decisions,
demand for the supply, lack of communication and disorganization can result in one of the most common
problems in supply chain management. This common problem is known as the bullwhip effect; also
sometimes the whiplash effect.

What is the bullwhip effect?

The bullwhip effect is a distribution channel phenomenon in which forecasts yield supply chain
inefficiencies. It refers to increasing swings in inventory in response to shifts in customer demand as one
move further up the supply chain.

The bullwhip effect can be explained as an occurrence detected by

the supply chain where orders sent to the manufacturer and supplier create larger variance then the sales
to the end customer. These irregular orders in the lower part of the supply chain develop to be more
distinct higher up in the supply chain. This variance can interrupt the smoothness of the supply chain
process as each link in the supply chain will over or underestimate the product demand resulting in
exaggerated fluctuations.

What contributes to the bullwhip effect?

There are many factors said to cause or contribute to the bullwhip effect in supply chains; the following
list names a few:

Disorganization between each supply chain link; with ordering larger or smaller amounts of a
product than is needed due to an over or under reaction to the supply chain beforehand.
Lack of communication between each link in the supply chain makes it difficult for processes to
run smoothly. Managers can perceive a product demand quite differently within different links of
the supply chain and therefore order different quantities.
Free return policies; customers may intentionally overstate demands due to shortages and then
cancel when the supply becomes adequate again, without return forfeit retailers will continue to
exaggerate their needs and cancel orders; resulting in excess material.
Order batching; companies may not immediately place an order with their supplier; often
accumulating the demand first. Companies may order weekly or even monthly. This creates
variability in the demand as there may for instance be a surge in demand at some stage followed
by no demand after.
Price variations special discounts and other cost changes can upset regular buying patterns;
buyers want to take advantage on discounts offered during a short time period, this can cause
uneven production and distorted demand information.
Demand information relying on past demand information to estimate current demand
information of a product does not take into account any fluctuations that may occur in demand
over a period of time.
The causes can further be divided into behavioral and operational causes.

Behavioral causes
Misuse of base-stock policies
Mis-perceptions of feedback and time delays
Panic ordering reactions after unmet demand
Perceived risk of other players' bounded rationality

Operational causes
Dependent demand processing
Forecast errors

Adjustment of inventory control parameters with each demand observation

Lead time variability (forecast error during replenishment lead time)

 Lot-sizing/order synchronization

Consolidation of demands

Transaction motive

Quantity discount

Trade promotion and forward buying

Anticipation of shortages

Allocation rule of suppliers

Shortage gaming

Lean and JIT style management of inventories and a chase production strategy
Example of the bullwhip effect

The actual demand for a product and its materials start at the customer, however often the actual demand
for a product gets distorted going down the supply chain. Lets say that an actual demand from a customer
is 8 units, the retailer may then order 10 units from the distributor; an extra 2 units are to ensure they
dont run out of floor stock.
The supplier then orders 20 units from the manufacturer; allowing them to buy in bulk so they have
enough stock to guarantee timely shipment of goods to the retailer. The manufacturer then receives the
order and then orders from their supplier in bulk; ordering 40 units to ensure economy of scale in
production to meet demand. Now 40 units have been produced for a demand of only 8 units; meaning the
retailer will have to increase demand by dropping prices or finding more customers by marketing and
advertising.