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Principles of Logistics - summary block 1
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Principles of LogisticsChapter 1: Logistics and the Supply chain.
Council of logistics management definition:
‘’ Logistics is that part of the supply chain process that plans, in implements and controls the efficient
effective forward and reverse flow and storage of goods, services, and related information between
the point of origin and the point of consumption in order to meet customers’ requirements
Economic impact on micro level:
Economic utility: is the value or usefulness of a product in fulfilling customer needs or wants. Four
types:
1) Possession utility: refers to the value or usefulness that comes from a customer being able to
take possession of a product. It can be influenced by the payment terms associated with a
product, like debit and credit.
2) Form utility: refers to a product’s being in a form that (1) can be used by the customer and
(2) is of value to the customer.
Allocation: logistics can break the thousands of cases of diet cola into the smaller quantities
that are desired by customers.
3) Place utility: refers to having products available where they are needed by customers:
products are moved from points of lesser value to the points of greater value.
4) Time utility: refers to having products available when they are needed by costumers. It’s
important to recognize that different products have different sensitivities to time.
Mass logistics (logistics approach): some customers being over served while other are underserved,
because every customer gets the same type and levels of logistics
Tailored logistics: groups of customers with similar logistical needs and wants are provided with
logistics service appropriate to these needs and wants.
The systems approach: indicates that a company’s objectives can be realized by recognizing the
mutual interdependence of the major functional areas of the firm, such as marketing, production,
finance, and logistics.
- One implication: that the goals and objectives of the major functional areas should be
compatible with the company’s goals and objectives.
- Second implication: decisions are made by one functional area should consider the potential
implications on other functional areas.
Business logistics is made up of material management (movement and storage of materials into a
firm) and physical distribution (storage of finished product and movement to the customer).
The total cost approach: used to coordinate materials management and physical distribution in a
cost-efficient manner. Is built on the premise that all relevant activities in moving and storing
products should be considered as a whole.
Cost trade – offs have to be made: it changes to one logistics activity cause some costs to increase
and others to decrease.
,Logistical Relationships within the firm.
Finance: charged with the responsibility of allocating the firm’s limited funds to projects desired by
the various operating departments.
- Capital budgeting: decisions that affect logistics, such as material handlings equipment and
packaging equipment.
- Inventory (Asset valuation LIFO or FIFO): Cash flow associated with holding inventor.
Inventory cost versus inventory units.
Marketing (4 p’s)
1) Place decisions: involve two types of networks: logistics and the marketing channel.
Branding alliance: allows customers to purchase products from two or more name-brand
retailers at one store location:
- 1)it offer potential customers convenience ( satisfying multiple needs in one place
- 2)increase customer spending per transaction
- 3) Boost brand awareness.
2) Price decisions: how a products transportation cost can be reflected in the selling price.
- landed cost: refers to the price of a product at the source plus transportations costs of
destination.
- Phantom fright
- Freight absorption
3) Product decisions: if the market increase in product offerings, it creates logistical challenges in
terms of identification, storage, and tracking.
- Marketers often prefer to carry higher quantities of particular items because this reduces the
likelihood of Stock outs: (being out of an item at the same time there is demand for it). However
higher quantities of inventory necessitate additional storage space and increase inventory
carrying costs.
- Sustainable products: products that meet present needs without compromising the ability of
future generations to meet their needs. Can also impact logistical decisions.
4) Promotion decisions: require close coordination between marketing and logistics. One
important situation concern the available of highly advertised products, particularly when a
company is running pricing campaigns that lower the price of certain items. Once a decision is
made for promoting a new product, the product has to be there on the release date, not earlier
or later +.
Production: most common interfaces between logistics and production:
- Length of production runs: allows the relevant fixed costs to be spread over more units, thus
resulting in a lower production cost per unit. But also runs generate large amount of
inventory.
- Postponement concept (delay of the value added activities such as assembly, production, and
packaging until the latest possible time) also influences the interface between production
and logistics.
Marketing channels: refer to ‘’ a set of institutions necessary to transfer the title to goods and to
move goods from the point of production to the point of consumption and, as such, which consists of
all the institutions in the marketing process, the traditional institutions are manufacturer, the
wholesaler, and the retailer.
, - Ownership channel: covers movement of the title to the goods.
- Negotiations channel: is the one in which buy and sell agreements are reached. For example
face to face transactions, by phone, e-mail.
- Financing channel: handles payments of goods. More importantly, it handles the company’s
credit.
- Promotions channel: is concerned with promoting a new or an existing product and can be
related to the financing channel because monetary allowances are often part of the
promotions effort.
- The most significant contribution that the Logistics channel makes to the overall channel
process: is the sorting function, which bridges ‘’ the discrepancy between assortment of
goods and services generated by the producer and the assortment demanded by the
consumer. 4 steps
1) Sorting out is sorting a heterogeneous supply of products into stocks that are homogenous
2) Accumulating is bringing together similar stocks from different sources
3) Accolating is breaking a homogeneous supply into smaller lots
4) Assorting is building up assortments of goods for resale, usually to retail customers.
Activities in the logistical channel: activities are considered to be logistics related include, but are
not limited to
- Customer service : involves making sure that the right person receives the right product at
the right place at the right time in the right condition and at the right cost
- Demand forecasting: refers to efforts to estimate product demand in a future time period.
- Facility location decisions: increasingly important as the configuration of logistics systems is
altered due the impacts of multinational trade agreements.
- International logistics: international logistics, which refers to the logistics activities associated
with goods that are sold across national boundaries, is much costly and challenging than
domestic logistics.
- Inventory management: refers to stocks of goods that are maintained for a variety of
purposes, such as for resale to others, as well as to support manufacturing or assembling
processes.
- Materials handling: refers to short-distance movement of products within the confines of a
facility, like plant, warehouse.
- Order management: refers to management of the activities that take place between a time a
customer’s places an order and the time it is received by the customer.
- Packaging: can have both a marketing (consumer packaging) and a logistical (industrial
packaging) dimension. Refers to packaging that prepares a product for storage and transit,
and packaging has important interfaces with materials handling and warehousing activities.
- Procurement: refers to raw materials, component parts, and supplies bought from outside
organizations to support a company’s operations.
- Reverse logistics: products, can be returned for various reasons, such as product recalls,
product damage, lack of demand, and customer dissatisfaction.
- Transportation management: can be defined as the actual physical movement of goods from
one place to another, whereas transportation management refers to management of
transportation activities by a particular organizations.
- Warehousing management: refers to places where inventory can be stored for a particular
period of time.
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