Scope and definition
Logistics is a diverse and dynamic function that has to be flexible and has to change according
to the various constraints and demands imposed upon it and with respect to the environment in
which it works
Introduction to logistics and distribution
The nature of logistics is a function made up of many sub-functions and many subsystems,
each of which has been treated as a distinct management operation.
Scope and definition
Logistics is a diverse and dynamic function that has to be flexible and has to change according
to the various constraints and demands imposed upon it and with respect to the environment in
which it works.
Logistics = Materials Management + Distribution
The supply chain covers an even broader scope of the business area. This includes the supply
of raw materials and components as well as the delivery of products to the final customer, thus:
Supply Chain = Suppliers + Logistics + Customers
Supply and materials management represents the storage and flows into and through the
production process; while distribution represents the storage and flows from the final production
point through to the customer or end user.
The supply chain concerns the physical flows and storage from raw material through to the
final distribution of the finished product, and information flows and storage.
Definitions:
Logistics is the management of the flow of things between the point of origin and the
point of consumption in order to meet requirements of customers or corporations.
Logistics management is that part of supply chain management that plans, 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.
Logistics is defined as the time-related positioning of resources. It is also described as
the ‘five rights’. Essentially, it is the process of ensuring that goods or a service is: in the
right place, at the right time, in the right quantity, at the right quality, at the right price
Logistics concerns the efficient transfer of goods from the source of supply through the
place of manufacture to the point of consumption in a cost-effective way while providing
an acceptable service to the customer.
, All of these functions and sub-functions
need to be planned in a systematic way, in
terms both of their own local environment
and of the wider scope of the distribution
system as a whole
Importance of logistics and distribution
Importance in the economy
Logistics is an important activity making extensive use of the human and material resources that
affect a national economy.
Importance of key components
Transport 40%, warehousing 32%, inventory carrying cost 18%, customer service/ order entry
5% and administration 5% of overall costs. The transport cost element of distribution= major
constituent part due to high fuel costs.
Importance in industry
The relative make-up of these costs can vary between different industries. Reasons differences:
Logistics structures differ between companies and industries.
Channels can be short (direct) or long (many intermediate stocking points).
Supply chains may be operated by different players: manufacturers, retailers, specialist
third-party distribution companies, or by a mixture of these.
The relative importance of logistics is measured in relationship to the overall value of the
particular products in question, which has implications for comparing relative importance
between different companies.
Two key factors related to the relative importance of logistics in industry:
1. Small companies- proportionately higher logistics costs than large companies, because
large companies can benefit from economies of scale.
2. Companies with high product values- proportionately lower logistics costs than those
with low product. Because the high value of their goods tends to distort downwards the
importance of the respective logistics costs.
The global logistics market (all in-house and outsourced logistics operations) was dominated by
retail logistics services. The retail sector has been at the forefront of some of the most
advanced and innovative developments in logistics and supply chain thinking for many years.
Logistics and supply chain structure
The fundamental characteristics of a physical distribution structure are illustrated in the first part
of Figure 1.4, and can be considered as the flow of material or product, interspersed at various
points by periods when the material or product is stationary. This flow is usually some form of
transportation of the product. The stationary periods are for storage or to allow some change to
, the product to take place – manufacture, assembly, packing, break-bulk, etc. This simple
physical flow consists of the different types of transport (primary, local delivery, etc) and
stationary functions (production, finished goods inventory, etc).
There is also a cost incurred to enable the distribution operation to take place. It can vary
according to the sophistication of the distribution system used and the intrinsic value of the
product itself. One idea that has been put forward in recent years is that these different
elements of logistics are providing an ‘added value’ to a product as it is made available to the
final user – rather than just imposing an additional cost
Integrated logistics and the supply chain
The various logistics and supply chain functions are part of a flow process operating across
many business areas.
The total logistics concept (TLC)
TLC aims to treat the many different elements that come under the broad category of
distribution and logistics as one single integrated system. It is a recognition that the
interrelationships between different elements, for example delivery transport and storage,
need to be considered within the context of the broader supply chain.
Sub-optimization emphasizes the importance of understanding the interrelationships of the
different logistics elements. A positive action= to measure and interpret these and other
interrelationships using a planned approach to identifying and determining any cost trade-
offs. Such a trade-off may entail additional cost in one function but will provide a greater cost
saving in another. The overall achievement will be a net gain to the system. This type of trade-
off analysis is an important part of planning for logistics. Different levels of trade-off:
1. Within logistics components: within single functions (warehousing)
2. Between logistics components: between the different elements in logistics.
3. Between company functions: number of areas of interface between company functions.
4. Between the company and external organizations: between two companies that are
directly associated with each other.
The need to provide the service level that is required by the customer. This balance of total
logistics cost and customer service level is essential to successful logistics.
Planning for logistics
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