Unit 1 – Basic Concepts & Goal of Logistics
SU 1 pg. 2; par. 1.2 & TB Ch. 1 pg.4,7
Logistics & the Supply Chain
Supply chain management [SCM] definitions:
"Firms collaborating to leverage strategic positioning & improve operating efficiency"Bowersox, Closs, Copper (2013:4)
"Encompasses planning & management of all activities involved in sourcing & procurement, conversion, all
logistics management activities, coordination & collaboration with channel partners (i.e. suppliers /
intermediaries/third party service providers/customers). Essentially integrates supply & demand
management within & across companies" CSCMP: Council of Supply Chain Management Professionals (2010)
Supply Chain: "Alignment of firms bringing products/services to the market”. Supply chain therefore consists of the
key business processes (from original supplier to end-user) that provide products/services/information which add
value for customers & stakeholders (Stock & Lambert 2001:54).
Supply chain concept envisions new business arrangements offering potential to improve competitiveness & highly
effective business relationships that serve to improve efficiency by eliminating duplicate & non-productive work.
Logistics: Process of planning, implementing & controlling procedures for efficient & effective transportation and
storage of goods (services & related information) from point of origin to point of consumption for the purpose of
conforming to customer requirements. Definition includes in-, outbound, in- & external movementsCSCMP (2010).
The work required to move & position inventory throughout a supply chain.
Logistics is the process that creates value by timing and positioning inventory and it is the combination of a firm’s
- order management & information - inventory - transportation
- warehousing - materials handling - packaging
In firm’s SCM, logistics is the work required to move & geographically position inventory throughout supply chain.
Thus logistics is a subset of and occurs within the broader framework of a supply chain.
Integrated Logistics: serves to link & synchronize overall supply chain as continuous process essential for effective
supply chain connectivity. Integrating activities to achieve particular level of customer service at lowest total cost.
Logistics SU 1 pg. 2; par. 1.3 & TB Ch. 1 pg.28-29
Is about satisfying customer expectations/adds value by ensuring required quantity of a particular product (raw
materials/ semi-finished/finished products) is available at place and time required at the lowest total cost. It involves
a number of processes/activities that cut across various functional departments and even other participants in the
supply chain.
Goal: "to support procurement, manufacturing & customer accommodation operational requirements"Bowersox (2013:29)
with two important elements: service & cost.
Renaissance: Because logistics is both old & new, term characterizes the rapid change taking place in best practice.
SU 1 pg. 6; par. 1.4 & TB Ch. 1 pg.29-30
Logistical Competency
Logistical competency refers to a business’s level of performance with regard to logistics & customer requirements at
a realistic total cost expenditure. Superior logistical performance can be essential for business success, resulting in a
competitive advantage.
To gain competitive advantage, customer value needs to be created. Creation of customer value depends largely on
effective logistics/logistical competency - a relative assessment of the capability of a business to provide superior
customer service at the lowest total cost. Effective logistics requires the integration of various basic work and
functional areas, as well as logistical temporal/spatial integration.
When Malfunction (something going wrong) occurs, competency can be measured in terms of recovery time
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SU 1 pg. 6-7; par. 1.5 & TB Ch. 1 pg.30-33
Logistical Mission
Attributes of basic logistics service describes level of service a firm provides to all established customers. Give
particular attention to the following customer requirements in which logistical service is measured:
Availability: probability of having inventory to consistently meet customer material/product requirements.
Operational performance: time required to deliver customer's order; involves speed, consistency, flexibility
Service reliability: requires quality (accurate measurement of availability & operational performance)
Main point of total cost concept is that minimisation of costs within each individual business function or logistics
activity can result in a higher total cost (all expenditures necessary to perform logistical req.) than could otherwise
be achieved if functions/activities were integrated. Lowest total cost approach requires integration of various
functions & activities, and certain trade-offs.
Logistics value proposition: matching operating competency & commitment to key customer expectations &
requirements; a unique commitment of a firm to an individual/selected customer groups.
SU 1 pg. 7-9; par. 1.6
Logistical Trade-Offs
The Nature of Trade-Offs:SU 1 pg. 7; par 1.6.1
Trade-off: simply a balance between two/more logistics functions to achieve total lowest cost. Occurs when
increased cost in one area is more than matched by cost reduction in other areas, resulting in lower total cost.
SU 1 pg. 8; par 1.6.2
Trade-Off Levels:
1) INTER-ORGANISATIONAL TRADE-OFFS: mainly occur when using intermediaries (selecting wholesalers & retailers) in
marketing channel. For example may cost more to make use of various wholesalers, but sales may increase,
thus resulting in a better overall position.
Involve selecting least total cost supply chains - chains mostly comprising different institutions (intermediaries
i.e. wholesalers/retailers/third-party logistics providers). N.B. to use the correct intermediaries.
If none were used, there would be:
close contact with the marketplace
proper control over key areas such as customer (end-user) service policy
Use of intermediaries has distinct advantages:
Intermediaries in the channel specialise in particular activities which may result in economies of
specialisation through the division of labour, for example, specialised sales staff.
Intermediary may achieve economies of scaleby means of high volume at high throughput levels.
Results in reduction in contact costs, which are the costs of the contacts that need to be made
between buyers and sellers in order to distribute a product.
2) INTER-FUNCTIONAL (INTERDEPARTMENTAL) TRADE-OFFS between different management functions/departments. May
be necessary for some/all individual functional departments to operate sub-optimally in order for whole
logistics system to minimise total logistics costs.
Example: marketing manager may have to prepare to accept lower level of service/narrower product range;
production manager may have to schedule shorter runs/forfeit economies of scale; transport manager may
have to make more frequent deliveries if this will contribute to efficiency of the total logistics system.
3) INTERACTIVITY TRADE-OFFS: among various logistics activities constitute contributing factor to the achievement of
lowest total cost. The most obvious trade-offs at this level are the following:
Warehouse cost/transport cost trade-offsExample: SG page 8
Transport (mode) cost/inventory cost trade-offsExample: SG page 9
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4) INTRA-ACTIVITY TRADE-OFFS: within particular logistics activity. Following are the most common:
Trade-offs within a warehouse: Materials handling done manually/mechanically/automated. High
capital costs of automated warehouses traded off against human resources cost of manual handling.
Inventory trade-offs: Advantage of ordering large quantities traded off against costs of carrying stock
Trade-offs regarding transport: cost of owning & operating own fleet vs. freight tariffs charged by
professional carriers.
SU 1 pg. 10; par 1.8
Self-Evaluation Questions - References
1)
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