Unit 7 logistics and Supply Chain

Lesson Notes 1
Content to Cover:

 Explain the term logistics and supply chain operations;

 Identify advantages and challenges of supply chain operations;
 Explain the impact of logistics and supply chain operations on the competitiveness of
business;
 Outline the impact of information technology on logistics and supply chain operations.

Logistics is the function responsible for the flow of materials from suppliers into an
organisation, through operations within the organisation, and then out to customers.

Logistics is the process of managing the movement and storage of raw materials, parts and
finished products from the suppliers through the firms and on to the customers.

Logistics is about getting the right product, to the right customer, in the right quantity, in the
right condition, at the right place, at the right time, and at the right cost.

The supply chain is a system of organizations, people, activities, information, and resources
involved in the planning, moving, or storage of a product or service from supplier to customer.
Supply chain activities transform natural resources, raw materials, and components into a
finished product that is delivered to the end customer.

The components of Logistics are outlined in the diagram below.

Customer service is a multi-dimensional and very important part of any organization's logistics
effort. In a broad sense, it is the output of the entire logistics effort; that is, customer service and
some resulting level of satisfaction are what the logistics system ultimately provides the buyer.

Inventory management deals with balancing the cost of maintaining additional products on
hand against the risk of not having those items when the customer wants them (i.e. the cost of
lost sales).
Transportation refers to the physical movement of goods from a point of origin to a point of
consumption. It can involve raw materials being brought into the production process and/or
finished goods being shipped out to the customer.

Storage and materials handling addresses the physical requirements of holding inventory.
Storage encompasses the tasks necessary to manage whatever space is needed; materials
handling is concerned with the movement of goods within that space.

Packaging focuses on protecting the product while it is being shipped and stored. Too much
packaging increases costs while inadequate protection can result in merchandise damage and
ultimately, customer dissatisfaction.

Information processing is what links all areas of the logistics system together. The growth of
reasonably priced computers and software has put sophisticated management information
systems within the reach of even the smallest organization.

Demand forecasting addresses the need for accurate information on future customer needs. The
logistics system ensures the right products and / or services are available to meet customer
requirements. Logistics requirements necessitate going beyond market sales forecasting to obtain
specific data on the timing, mix, and quantity of benefits desired by buyers. Without this
information, the logistics system runs the risk of compromising customer satisfaction rather than
enhancing it.

Production planning can be included under logistics because manufacturing needs components
and raw materials in order to make finished goods that are, in turn, demanded by a customer.
Thus, production planning is arguably at the center of the entire logistics process, yet it is often
viewed as a stand-alone entity with its own objectives and agenda. The risk here is that
production rather than customer needs becomes the primary focus, a situation that can lead to
customer dissatisfaction.

Purchasing deals with the buying of goods and services that keep the organization functioning.
Since these inputs can have a direct impact on both the cost and quality of the final product /
service offered to the consumer, this activity is vital to the overall success of the logistics effort.

Facility location addresses the strategic placement of warehouses, plants, and transportations
resources to achieve customer service objectives and minimize cost. Although not necessarily
made often, these decisions can have long term and potentially costly implications for the
organization.

Other Components of Logistics:

 Forward and reverse flow of goods

 Services such as insurance and related information between destinations
Forward Flow
Logistics has been defined as that part of the supply chain process that plans, implements, and controls
the efficient, effective flow and storage of goods, services, and related information from the point-of
origin to the point-of-consumption in order to meet customers’ requirements

Reverse Flow
Logistics has been defined as the movement of product or materials in the opposite direction for the
purpose of creating or recapturing value, or for proper disposal

Insurance
This provides coverage against physical damage or loss of goods during shipping, whether by land, sea or
air or even during storage.

Activities Involved in Supply Chain Operations

 Transformation of natural resources – This involves the extraction of raw materials
from the earth and preparing of these raw materials to be converted to inputs for the
manufacturing process.
 Movement and storage of raw materials –This involves the movement of raw materials
from the point of extraction to warehousing facilities where it can be stored and used at
later time in the manufacturing process
 Processing of raw materials and components into finished goods – The final product
is eventually made from the conversion of the raw materials to final product eg. Bakery
products such as cakes and desserts.
 Storage of work-in-progress and finished goods – After the goods are made they must
be stored before they can be distributed to wholesalers or retailers.
 Delivering the finished product from point of origin to the point of destination – this
involves getting the final product from the manufacturer through the distribution chain to
the consumer.

Advantages and Challenges of Supply Chain Operations

Advantages: better quality of life; wealth creation; new and innovative job opportunities including
entrepreneurship, for example, telemarketing.

1. Expanded sourcing opportunities. A world market offers businesses opportunities to secure a

diverse selection of workers, materials, and products. This larger selection of goods and services
often means the opportunity to select higher-quality or lower-cost options.

2. The opportunity to reach new customers in new markets. Just as globalization offers more
materials and laborers, it also offers new customers in new locations with new needs.

3. More room to grow. New technologies and a shrinking globe mean that it is easier for
companies to grow generally: to produce more, offer more, and sell more. Expanding borders also
means expanding businesses and corporations.
 4. More opportunities to save money. Globalization’s biggest benefit is that increases options:
options for source materials, options for workers, and options for transportation. More options
mean more chances to save on spending and increase profits.

Disadvantages: globalization, counterfeiting, product complexity, rapid product obsolescence, regulatory

complexity, management blunders, changing market conditions, natural disasters, and political instability.

1. Large-scale management issues. The opportunity to grow business goes hand-in-hand with the
issue of greatly increased supply chain complexity when it comes to management. Companies
must scale up all aspects of their business as it grows across borders, which can cause problems
that stretch the globe. Inventory issues and distribution issues are high on the list of problems
encountered by going global.

2. Greater risk. Having materials, factories, and customers all over the world means being at the
mercy of global events, from natural disasters, to port closures, to political uprisings.
Globalization requires that supply chain managers have detailed risk management plans in place
and that they are prepared when disaster strikes.

3. Global competition. You are not the only entity with access to supplies, products, and labor
around the world – you now have a lot of competition scattered across the globe. Globalization
necessitates that supply chains are highly efficient and and well-run in order to stay competitive
in a global market.

4. Information collection challenges. With different aspects of your supply chain scattered around
the world, and with an increasingly complex process for getting products to customers, data
collection and oversight can be huge new challenges. While big data analytics is helping some
supply chain managers tackle the issue of information collection, it is still a large problem that
has emerged alongside globalization.

5. Legal issues. Operating across borders means operating in countries that very likely have
different laws and regulations. For example, secret product details may not be safe in China,
where they have less stringent intellectual property laws. In another example, a country where
you have a factory may have very different employment laws than another where you have an
identical factory.

The Impact of Logistics and Supply Chain Operations on the Competitiveness Of Business

Here are a number of solutions that if used will help a company gain the competitive advantage:

 Shipper Associations / Consortiums: By being a part of a shippers association, a

business can benefit from lower transportation rates due to the competitive negotiations
and economies of scale.

 Transportation Management Systems (TMS): Such platforms allow a business to

manage their data flow more efficiently and allows for visibility of performance and cost.
Keeping an eye on costs, transit times, delivery performance, freight claims, and
compliance will allow for strategic thinking and put a company a step in front of its
competitors.
  Auto-Tender Functionality: This feature allows freight to be tendered directly to
carriers, greatly reducing the time spent scheduling a shipment. When set up using a
least cost carrier, the savings combined with the efficiency gain provide a great
advantage.

 Advanced Tracking: Visibility and transparency are becoming more and more important
in business. Advanced tracking features have been adopted to give customers real-time
information on where their goods are.

 Comparative cost advantage outsourcing through:

2PL - A second-party logistics provider is an asset-based carrier, which actually owns the
means of transportation. Typical 2PLs would be shipping lines which own, lease or charter their
ships; airlines which own, lease or charter their planes and truck companies which own or
lease their trucks.

3PL - A third-party logistics provider is a business which provides more than one type of
logistics services e.g. trucks and planes

4PL - A fourth-party logistics provider is a specialist who is usually a contractor performing

all the logistics functions for a firm from beginning to end.

The Impact of Information Technology on Logistics and Supply Chain Operations

Global Positioning Systems (GPS)

Logistics management, when distracted driving is an issue, helps fleets locate vehicles to update
vendors and customers regarding shipments. Updated GPS systems are able to accurately direct a
driver on a safe route, without showing roadways that don’t really exist or roadways that are not
complete.

Geographic Information System (GIS)

GIS as a tool can be used to map manufacturing, warehouse locations, clients, supplier locations
and distribution centers, showing product supply or manufacturing facilities. Geographic
Information Systems helps in analyzing and representing the information visually, allowing for
greater understanding of the operating environment around the corporate. GIS can be used to
analyze the routes. Route analysis helps us to generate the most efficient route (best route /
shortest route) that the vehicle should take between the company and it supply chain link.
Alternative routes can also be generated and analyzed. Alternative routes help in rerouting of the
supplies in case of problems (either man –made or natural) on one route. GIS helps in identifying
the locations of new depots and warehouses based on the factors like source of incoming
materials and the target market to which the stocks will move that is the different links in the
supply chain.

Portnet

The National Single Window for Foreign Trade Procedures, this is a computer tool which
enables the e-processing of authorizations, permits, certificates, customs documents and other
deliveries by the competent organizations of the State, to undertake specific import and export
operations. The developed system guarantees the technological and legal security of different
documents upon the integration of a digital signature and e-payment.
Benefits of Portnet

 Increasing the efficiency of the logistics chains of economic operators and public and
private service providers.
 Speeding up cross-border movement of exported and imported goods
 Providing an environment favorable to the competitiveness of economic operators with
the possibility to deliver just in time.
 Reducing uncertainty regarding timeframes and logistic costs.
 Improving business climate, good governance and increasing transparency in company-
administration relationships.
 Simplifying and speeding up procedures and formalities of the entry and withdrawal of
goods.
 Improving the traceability of operations at any time, anticipation and planning capacities
due to the quality and good flow of information.
 Saving paper costs. ·
 Saving costs of transports and archiving documents. ·
Telemarketing, e-commerce

 Increasing transparency into all operations through the internet and mobile devices.
 Omni channel retailing, keeping customers involved in management decisions and
reducing downtime by using all the resources of the company to fill more orders.
 Enhanced reverse logistics, increasing customer service and giving warehouse managers
a means of handling returns regardless of their origin.
 Automated inventory systems, ensuring stock levels are appropriate, and self-optimizing
slotting systems that can tell warehouse managers what needs to be moved, as well as
when and where.
Global logistics providers such as Fedex, DHL, and Amazon Logistics

Global logistic providers now allow for logistical services to be provided at a much lower cost
than in previous decades and encourages businesses to outsource their logistic needs to these
global providers. These firms have enhanced their technically capabilities and economies of
scale to offer global logistical services at competitive rates. They have also utilized efficient
systems that would for large scale, complex logistical task to be undertaken with relative ease.

Logistics Hub

A Logistics Centre is the hub of a specific area where all the activities relating to
transport, logistics and goods distribution – both for national and international transit – are
carried out, on a commercial basis, by various operators.

Logistics hubs, for example, Jamaica is a premier logistics node within the Americas set up to
capitalize on the trade and business opportunities that will emanate from the expansion of the
Panama Canal.

With strategic investment and global partnerships, the Jamaica logistics hub will include:

 maritime and air cargo logistics hubs;

 strategic storage, handling and processing points for bulk commodities;
expansive special economic zones facilitating assembly, warehousing, sorting, distribution
and other value-added services, particularly for industries catering to time-sensitive and high-
value cargo;
 aviation-related maintenance repair and overhaul, ship repair and dry-docking;
 a robust digital network to support efficient global value chain tracking and tracing as well as
e-commerce operations.