CHPT NO 1: INTRODUCTION

1. WHAT IS LOGISTICS?

Ans: All organization move materials. Manufacturers build factories that collect
raw materials from suppliers and deliver finished goods to customers;
retail shops have regular deliveries from wholesalers; a television news service
collects reports from around the world and delivers them to viewers ; most of us
live in towns and cities and eat food brought in from the villages ;when you order
a book or DVD from a website ,a courier delivers it to your door .Every time you
buy , rent , lease, hire or borrow anything at all, someone has to make sure that all
the parts are brought together and delivered to your door. Logistics is that
function that is responsible for this movement .It is responsible for the
transport and storage of materials on their journey between suppliers and
customers

Logistics is the process of strategically managing the procurement, movement and

storage of materials, parts and finished inventory (and the related information
flows) through the organization and its marketing channels in such a way that
current and future profitability are maximized through the cost-effective fulfillment
of orders

LOGISTICS IS A SERVICE OF PROVIDING RESOURCES

Logistics is a support element of the enterprise , and its newness stems from an
integrated approach that began to surface during the 1950s .A working definition
of logistics during this period of emergence would have considered logistics as
managing the movement and storage of-

(A) Material into the enterprise

(B) Goods in process in the enterprise
(C) Finished goods from the enterprise

This concept of logistics has been subject to varying degrees of acceptance and
has produced varied results. What the underlying reasons behind these
performance variations? Let us attempt to evaluate the cause or by analyzing
each action as identified in the definition given above

(A) Managing . Managing is controlling the logistic activity in relation

to an overall plan or strategy
(B) Movement. Raw materials must be moved from the supplier (or
suppliers) into the facility. These same raw materials must be moved
through the facility as they are converted into finished goods .the finished
goods must be moved to the customer.
(C) Storage .Raw materials must be stored until needed for production;
work in process must be stored during various stages of the production
process; finished goods must be stored until requested by the customer

INTEGERATED LOGISTICS MANAGEMENT

Integrated logistics is defined as;

The process of anticipating customer needs and wants ; acquiring the capital
,materials ,people, technologies ,and information necessary to meet those needs
and wants; optimizing the goods-or service producing a network to fulfill
customer requests ;and utilizing the network to fulfill customer requests in a
timely way

Customer

Supply of products Demand for products

Operations

Other inputs
Other outputs
SCOPE/ACTIVITES OF LOGISTICS:

Procurement or purchasing; the flow of materials through an organization is

usually initiated when procurement sends a purchase order to a supplier. This
means that procurement finds suitable suppliers, negotiates terms and conditions,
organizes delivery, arranges insurance and payment, and does everything needed to
get materials into the organization. In the past, this has been seen as a largely
clerical job centered on order processing. Now it is recognition as an important
link with upstream activities, and is being given more attention.

Inward transport or traffic actually moves material from supplier to the

organizations receiving area. This has to choose the type of transport(road, rail,
air, and so on), find the best transport operator, design a route, make sure that all
safety and legal requirements are met, get delivered on time and at reasonable cost,
and so on.

Receiving makes sure that materials delivered correspond to the order,

acknowledge receipt, unloads delivery vehicles, inspects materials for damage, and
sorts them.

Warehousing or stores moves materials into storage, and takes care of them until
they are needed. Many materials needed special care, such as frozen food, drugs,
alcohol in bond, chemicals that emits fumes, animals, and dangerous goods

Stock control sets the policies for inventory. It considers the materials to the store,
overall investment, customer service, stock levels, order sizes, order timing and so
on.

Materials handling moves materials through the operation within an organization

.It moves materials from one operation to the next, and also moves materials pick
from stores to the point where they are needed.

Outward transport takes materials from the departure area and delivers them to
customers (with concerns that are similar to inward transport).
Physical distribution management is a general term for the activities that deliver
finished goods to customers, including outward transport .It is often aligned with
marketing and forms an important links with downstream activities

SUPPLY MANAGEMENT (INBOUND LOGISTICS) CYCLE

Supply management started as a pure purchasing function, subordinate to the more

important function of marketing, finance and operations. Purchasing can be
defined as ,obtaining and knowledge which are necessary for running ,maintaining
and managing the company primary and support activities at the most favorable
conditions ( Aryan J Van Wile)

Materials management is defined as the movement and storage functions

associated with supplying goods to the firm .It normally includes such activities as
purchasing , warehousing, inbound transportation, quality control, inventory
management, receiving , and production planning . In the early 1980s, purchasing
and materials became supply management.

For most organization, supply management means purchasing .That is firms buy
goods to resell, to carry out operations, or to manufacture product. Supply
management is usually given the broadest definition, encompassing any activity
involved in moving goods into a firm. Supply management or purchasing aims at
anticipating requirements, sourcing and obtaining supplies into the organization,
and monitoring the status of supplies as a current asset.

By definition, purchasing and integrated logistics have much in common, primarily

on the inbound flow of products. These two areas must coordinate, to ensure the
continuous flow of products through the channel of distribution. In some firms,
purchasing is part of integrated logistics; in others, purchasing controls and
manages the entire integrated logistics process.
The coordination of activities between purchasing and integrated logistics may
involve number of activities. In bound transportation, raw materials and
components warehousing, and inventory controls are common to purchasing and
integrated logistics in many organizations.

When purchasing and integrated logistics are viewed as a part of a supply chain,
the interdependence becomes clear. That is, one organizations inbound logistics is
another outbound logistics. For example, an engine manufacture sells to a truck
manufacturer who sells to a trucking firm. The engine is outbound for the engine
manufacturer, but inbound for the truck manufacturer.

Several activities or tasks are required to facilitate an orderly flow of materials,

parts or finished inventory into a manufacturing or distribution complex. They are:

(1) Sourcing;

(2) order placement and expediting;

(3) Transportation; and,

(4) Receiving.

MANUFACTURING SUPPORT CYCLE

Within a typical manufacturing organization, procurement provides materials and

externally manufactured components when and where needed. Once a firms
manufacturing operation is initiated, subsequent requirements for interplant
movement of materials or semi-finished products are classified as manufacturing
support. Logistical operations are restricted to dock-to-dock movement within the
firm and any intermediate storage required. When production is completed,
finished inventory is allocated and developed either directly to customer or to
distribution warehouses for subsequent customer shipment. At the time of this
movement, physical distribution operation is initiated.
Operation match production capacity and output to customer demand. The
manufacturing support cycle provides production logistics. Manufacturing can be
viewed as being positioned between physical distribution and procurement
operation of a firm. Manufacturing logistical support has the primary objective of
establishing and maintaining an orderly and economic flow of materials and work
in- process inventory to support production schedules. The movement and storage
of product, materials, and semi-finished parts and components between enterprise
facilities represent the operational responsibility of manufacturing support
logistics.

Manufacturing support is significantly different when compared with physical

distribution or procurement. Manufacturing support logistics typically captive to a
firm, whereas the other two performance areas must deal with the behavioral
uncertainty of external customer and suppliers. Even in situation when contract
manufacturing is used to augment internal capacity, overall control is greater than
in the other two areas. Maximum exploitation of this control is the prime
justification for treating manufacturing support as a separate logistical operational
area.

Physical distribution operations involve processing and delivering customer orders.

The overall process of gaining and maintaining customer can be broadly divided
into transaction-creating and physical fulfillment activities. The transaction
creating activities are related to marketing. Physical distribution performs the
physical-fulfillment activities. The very fact that physical distribution deals with
customer requirements means that related operation may be more erratic than
characteristics of manufacturing support and procurement cycles.

According to Blackwell and Blackwell, demand management may be thought of as

focused efforts to estimate and manage customers demand, with the intention of
using this information to shape operating decisions.

LOGISTICS AND MARKETING

The most important integrated logistics interface is with marketing. Logistics is
sometimes referred to as other half of marketing. The rationale for this definition is
that the physical distribution or outbound side of a firms logistics system is
responsible for the physical movement and storage of goods for customers and thus
play an important role in selling a product In some instances, physical distribution
and order fulfillment may be the key variables in selling a product; that is, your
ability to provide the product at the right time in right quantities may be crucial
element in making the sale. It is for this reason that marketers today have begun to
recognize the strategic value of place in the marketing mix and the increased
revenues and customer satisfaction that may result from high-quality logistical
service. The marketing mix requires that logistical and distributions dovetail with
price, product, place and promotion decisions.

PRICE: Price refers to the time, effort, and money a customer expends to get a
product or service. From the standpoint of the selling firm, price is the amount of
money a firm receives for its product and service. The price should cover the fixed
costs, variable costs, and some margin of profit. Integrated logistics, through its
activities, affects the price that a firm charges, its cost picture, and its profit
margin.

PRODUCT: Product is the sum of the attributes that the customer buys. While
logistics does not usually create the product, logistics takes responsibility for
protecting product attributes through the supply chain. This means packaging.
Packaging protects product attributes, meaning that the product is delivered as its
was manufactured. Packaging can also be one of the attributes in a purchase
decision. Transportation products involve the risk of damage and loss. Packaging
also goes beyond protection. Many firms today involve integrated logistics in
consumer packaging to assist in the sale of the product. Consumer packaging
decisions are concerned with color, size, recyclability and even reusability.
Handling transportation and storability also affects packaging decisions. Overall,
packaging should protect the product, enhance sales, and handle easily to minimize
transportation and storage costs.
PLACE: Integrated logistics is bound up in the place element, the fourth of the four
Ps in the marketing concept. Managing the place element means seeking, gaining,
and sustaining a competitive advantage from market channels. This may come
from careful location of retail stores and service facilities, or from efficient,
effective operation of distribution centers, terminals, and transportation equipment.
It may also come. In part, from strong relationship throughout the supply chain.
Integrated logistics interfaces with marketing through outbound transportation,
warehouse and distribution planning and management, site location of warehouse
and distribution centers, inventory of all types, consumer packaging, order
processing, and demand forecasting. These are all subcategories of the primary
logistics activities. Place or outbound logistics is the final marketing interface.

PROMOTION: Possession utility is primarily created through the basic marketing

activities related to the promotion of products and services. We may define
promotion as the effort, through direct and indirect contact with the customer, to
increase the desire to posses a good or to benefit from a service. The role of
logistics in the economy depends upon the existence of possession utility, for time
and place utility make sense only if demand for the product or service exists.

LOGISTICS AND OPERATIONS:

Manufacturing interfaces with all the logistics activities. The transportation

interaction refers to the inbound and in-plant movement of products. If a material
is unavailable when manufacturing requires it, production may stop. Integrated
logistics should play role in locating a new plant or relocating an existing plant.
Integrated logistics can advice manufacturing on the transportation costs for each
new location and on the potential for economies of scale. Also, integrated logistics
can help configure storage space for Inventory (raw materials, work in process, and
finished goods) and choose equipment for material handling. Finally, integrated
logistics and manufacturing should have communication and information systems
to coordinate production runs and inbound scheduling.

LOGISTICS IN THE VALUE CHAIN:

Economic utility or value is achieved in a product or a service in four ways: form,
time, place and possession utility. Manufacturing activities provide form utility,
logistics activities time and place utility and marketing activities possession utility.
Logistics provides place utility by moving goods from production locations or
markets. Logistics creates place utility by transportation. Time utility makes goods
and service available when consumers demand them. Logistics provides time
utility through strategic inventory positioning and maintenances. For example,
logistics creates time utility by making fresh products available at location of
demand. Porter differentiates between five generic categories of primary activities:

(1) Inbound Logistics;

(2) Operations;
(3) Outbound logistics;
(4) Marketing and sales; and,
(5) Services.
Support activities are grouped into four categories:
(1) Procurement;
(2) Technology development;
(3) Human resources management; and,
(4) Firm infrastructure.

CHPT NO 2: THE SUPPLY CHAIN

INTRODUCTION TO THE SUPPLY CHAIN CONCEPT:

To satisfy the final consumers of products and services, the efficient operation of
an organization depend upon the efficient supply of materials from its suppliers
and its suppliers suppliers as well as the efficient distribution of goods or services
to the organizations, and onto the ultimate customers. This comprises what is
referred to as the supply chain. Supply chain management involves not only
managing materials and production within an organization, but also coordinating
the flow of products and services with suppliers and customers from the beginning,
when the goods and services are merely basic raw materials and ideas, to their final
consumption. In its broadcast sense, a supply chain refers to the way that raw
materials flow through different organization, starting with basic raw materials and
ending with finished products delivered to the ultimate consumer.

Martin Christopher suggests that supply chain management is

The management of upstream and downstream relationship with suppliers and

customers to deliver superior customer value at less cost to the supply chain as a
whole.

Stevens (1989) looks at the supply chain as,

The connected series of activities which is concerned with planning, coordinating

and controlling material, parts and finished goods from suppliers up to the
customers.

COMPARSION BETWEEN LOGISTICS AND SUPPLY CHAIN

MANAGEMENT:

There is a difference between the concept of supply chain management and the
traditional concept of logistics. Logistics typically refers to activities that occur
within the boundaries of a single organization and supply chain refers to networks
of companies that work together and coordinate their actions to deliver a product to
market. In addition, traditional logistics focuses its attention on activities such as
procurement, distribution, maintenance, and inventory management. Supply chain
management acknowledges all of traditional logistics and includes activities such
as marketing, new product development, finance, and customers service. In the
wider view of supply chain thinking, these additional activities are now seen as the
part of the work needed to fulfill customers requests.
Supply chain (sometimes called the value chain or demand chain) management
consists of firms collaborating to leverage strategic positioning and to improve
operating efficiency.

Logistics, in contrasts to supply chain management, is the work required to move

and position inventory throughout a supply chain.

GLOBAL SUPPLY CHAIN SCENARIO AND IMPORTANCE:

The economies of the industrialized nations have matured; that is, their economic
growth rates have slackened, so firms in the those countries are seeking market
opportunities abroad. At the same time the global company has revised its
previously localized focus, manufacturing and marketing its products in individual
countries, and now instead will typically source on a worldwide basis for global;
production and distribution. A global financial network has developed that allows
multinational enterprises to expand their operations. In sum, the world economy is
becoming interdependent. The logic of the global company is clear: is seeks to
grow its business by extending its markets whilst at the same time seeking cost
reduction through scale, economies in purchasing and production through focused
manufacturing and/or assembly operations. Largely because of these policies,
world trade continues to grow. The following list shows some factors that
encourage this international trade:

Growing demand in new markets: Many regions of the world are becoming
more prosperous and are consuming more goods. Foreign companies recognize the
opportunities in these growing markets and expand to sell their products in new
markets.

Demand for foreign products: Customers travel, watch television and use the
web to see products available in different areas. They demand new products that
cannot be supplied by domestic companies.

Convergence of market demands: Centralized manufacturing only works if

different markets accept the same products or at least products with minor
differences in the finishing. There is clear evidence for a convergence in tastes-
which Ohmae calls `Californianisation` which allows Coca-Cola, McDonalds,
Toyota and sony to sell the same products in virtually any country.

Removal of trade barriers: One of the major forces towards global free trade
was the central Agreement on Tariffs and Trade (GATT) which stipulated that all
its members should be treated equally. Countries in several regions have taken this
idea further to create free trade areas. These have encouraged trade easing trade
restrictions and reducing tariffs, and are one reason why the amounts collected as
tariffs fell from 20% of trade in the 1950s, to 7% at the beginning of the 1990s,
and 3% by 2000.

Specialized support: As we have already seen with warehousing and transport,

many organizations are concentrating on their core competencies and are
outsourcing other activities. A major industry has grown of specialized support
companies that can help with, say, exporting, international transport, trade credit,
foreign exchange, customs clearance, and so on.

Integration of the supply chain: Integration of the supply chains works towards
a smooth movement of goods from initial suppliers through to final customers This
only becomes possible when national; frontiers are transparent, and this means that
the same organization has to work on the side of border.

Changing practices in logistics: Development in logistics can make trade easier.

Containerization, for example, made the movement of goods easier, cheaper and
more reliable. This encouraged many companies to move profitability into new
markets. Similarly, `postponement`, allows products to finish manufacture at a
later point in the supply chain and be more flexible to customers demands.

To support non-domestic markets, a company that must have a distribution system

or network that satisfies the particular requirement of those markets. For example,
the distribution systems in the developing countries of Africa, South America, or
Asia are characterized by large numbers of channels intermediaries supplying an
even large number of small retailers. The system in these nations are marked by
inadequate transportation and storage facilities, a large labor force of mainly
unskilled workers, and an absence of distribution support systems. In the
developed countries (e.g., Japan, Canada, United States, and most of Western
Europe), the distribution systems are highly sophisticated, have good transportation
systems, high technology warehousing, and a skilled workforce.

The global business will typically source its materials components in more than
one country. Similarly it will often have multiple assembly or manufacturing
locations geographically dispersed, it will subsequently market its products
worldwide. A classic example is the Singer Sewing Machine Company (SSMC). It
buys its sewing machine shells from a subcontractor in the United States, the
motors from Brazil, the drive shafts from Italy and assembles the finished machine
in Taiwan. It then markets the finished machine in most countries of the world.