At the end of this chapter, students should be able
to:
• Understand industrial logistics management
concept
• Describe the elements and role of logistics in
operations
• Explain achievement of competitive advantage
through logistics
• Definition of Logistics
• Logistics Management Concepts
• The Work / Element of Logistics
1.
2.
3.
4.
5.
6.
Order Processing
Inventory Management
Facility Network Design
Materials Handling and Packaging
Warehousing
Transportation
• Logistics and Competitive Advantage
Logical
Thinking
Statistics
Logistics
“the detailed coordination of a complex operation
involving many people, facilities or supplies”
[ New Oxford American Dictionary]
Logistics concept was introduced due to need for planning
and coordinating the materials flow from source to user as
an integrated system, rather than managing the flow of
goods as a series of independent activities.
Materials Flow
Suppliers
Procurement
Operations
Distribution
Information Flow
Customers
Objective
• The purpose of logistics management is to plan and coordinate all those activities necessary to achieve
desired levels of delivered service and quality at lowest
possible cost.
Scope
• From the total systems viewpoint, the scope
encompasses management of raw materials and other
inputs through the delivery of the final product in
order to satisfy a customer.
“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 customer
requirements”
• Specific customer requirements flow into a firm in the
form of orders.
• Processing of orders including initial order receipt,
delivery, invoicing and collection.
• Orders may arrive by phone, mail, fax etc.
• Once received, they must be edited and entered into a
company’s information system.
• Failures and errors in order processing impact the cost of
logistics as well as the speed and accuracy of service
provided to customers.
• Order processing is a key element of order fulfillment.
Order processing operations or facilities are commonly
called "distribution centers".
• Order processing is the term generally used to describe
the process or the work flow associated with the picking,
packing and delivery of the packed item(s) to a shipping
carrier.
• The specific order fulfillment process or the operational
procedures of distribution centers are determined by
many factors. Each distribution center has its own
unique requirements or priorities.
Example of Order Processing Control System
• Inventory is an important element in operational
effectiveness and often appears on the balance sheet as
the biggest of current assets.
• Inventory is created when the receipt of materials, parts
or finished goods exceeds their disbursement.
• Issues in managing inventory:
– How much inventory of each material item to hold?
– Where in the system to hold each item and in what
form (raw material, work in process, finished goods)?
– How often to replenish each item?
High inventories will hide problems
Less inventories will expose problems
Types of
Inventory
Different inventory control procedures are appropriate depends on the types
Functions of Inventory
 Provide a stock of goods to meet anticipated customer
demand and provide a “selection” of goods
 Provision for fluctuations in sales or production
 Mistakes in planning
 Allow one to take advantage of quantity discounts
 To provide a hedge against inflation
 To protect against shortages due to delivery variation
 To permit operations to continue smoothly with the use
of “work-in-process”
Classification of Inventory
• Inventory classification helps allocate time and money .
• This system allows firms to deal with multiple product
lines and multitude of stock keeping units.
ABC Analysis
• Based on Pareto principles – created by Juran
• The main idea of ABC is to focus resources on the critical
few and not on the trivial many.
• (Annual Dollar Volume of An Item)
= (Its Annual Demand) x (Its Cost per unit)
ABC Analysis
• Divides on-hand inventory into 3 classes
– A class, B class, C class
• Policies based on ABC analysis
– Develop class A suppliers more
– Give tighter physical control of A items
– Forecast A items more carefully
Class
Percentage of Total Items in
Inventory
Percentage of Total Dollars
Tied up in Inventory
A
10
70 – 80
B
10 – 20
10 – 15
C
70 - 80
10 - 20
ABC Analysis Example
Class
A
B
C
% Annual RM Usage
100
80
A
60
40
B
20
% RM Vol. % Items
80
15
15
30
5
55
C
0
0
50
% of Inventory Items
100
Inventory Control
•
Concerned with achieving a balance between two
competing objectives:
1. Minimizing the cost of maintaining inventory
2. Maximizing service to customers
•
Two different inventory control systems are required:
1. Order point systems – for independent demand
items
2. Material requirements planning – for dependent
demand items
Types of Demand
1. Independent Demand
•
•
Demand or consumption of the item is unrelated to
demand for other items
Eg.: end products and spare parts
2. Dependent Demand
•
•
Demand for the item is directly related to demand
for something else, usually because it is a
component of a product subject to independent
demand
Eg.: tires on new automobiles
Independent Demand
•
Two related issues encountered when controlling
inventories of independent demand items:
1. How much to order - often decided by means of
economic order quantity (EOQ) formula
2. When to order - accomplished using reorder points
(ROP)
Model of inventory level over time in the typical make to stock situation
EOQ Assumptions
•
•
•
•
•
•
•
Demand rate is constant
Known and constant lead time
Instantaneous receipt of material
No quantity discounts
Only relevant costs are set-up (ordering) and holding
No constraints on lot size
Decisions for items are independent from other items
Annual
cost ($)
Total Cost
Slope = 0
Holding Cost =
(Carrying)
Minimum
total cost
Set-up Cost =
(Ordering)
Optimal order
Qopt
HQ
2
SD
Q
Order Quantity, Q
EOQ Cost Model
Why Holding Costs Increase?
Purchase Order
Description Qty.
Microwave
1
Order
quantity
Purchase Order
Description Qty.
Microwave 1000
Order
quantity
More units must be stored if more ordered
Why Order Costs Decrease?
1 Order (Postage $ 0.32)
1000 Orders (Postage $320)
Purchase Order
Description
Qty.
Microwave
1000
PurchaseOrder
Order
Purchase
PurchaseOrder
Order
Description
Qty.
Purchase
Description
Qty.
Description
Qty.1
Microwave
Description
Qty.
Microwave 11
Microwave
Microwave
1
Order
quantity
Cost is spread over more units
S - set-up (ordering) cost
H – holding (carrying) cost
D - annual demand
Q - order quantity
1. Total annual cycle-inventory cost
TIC
= Holding Cost + Set-up Cost
HQ
=
+
2
2. Economic (Optimal) Order Quantity, EOQ =
SD
Q
2× D × S
H
3. Expected Number of Orders, N =
4. Expected Time Between Orders, T =
D
EOQ
Working Days / Year
N
EOQ Calculation Example
H = $0.75 per yard
Qopt =
Qopt =
S = $150
2SD
H
2(150)(10,000)
(0.75)
Qopt = 2,000 yards
No. of orders,N = D/Qopt
= 10,000/2,000
= 5 orders/year
TIC =
TIC =
D = 10,000 yards
SD
Q
+
HQ
2
(150)(10,000)
(0.75)(2,000)
+
2,000
2
TIC = $750 + $750 = $1,500
Order Cycle Time,T = 311 days/ N
= 311/5
= 62.2 store days
Faris Haikal is the logistics executive for the headquarters of a
large insurance company chain with a central inventory
operation. His fastest-moving inventory item has a demand of
120 units per week. The cost of each unit is RM100 and the
inventory carrying cost is RM10 per unit per year. The average
ordering cost is RM30 per order. It takes about 5 days for an
order to arrive and there are 250 working days per year.
Calculate the:
a. EOQ
b. total cost
c. expected number of orders
d. expected time between orders
e. reorder point
Reorder Point System
(ROP)
• When the inventory level for a given stock item
declines to some point defined as the reorder point, this
is the signal to place an order to restock the item
• Reorder point is set at a high enough level so as to
minimize the probability that a stock out will occur
during the period between when the reorder point is
reached and a new batch is received
• Reorder point policies can be implemented using
computerized inventory control systems
Operation of a reorder point inventory system
d =
D
Working Days
/ Year
ROP = d × L
D = Demand per year ; d = Demand per day ; L = Lead time in days
EOQ and ROP
Material Requirements Planning (MRP)
• Computational procedure to convert the master
production schedule for end products into a detailed
schedule for raw materials and components used in the
end products
• The detailed schedule indicates the quantities of each
item, when it must be ordered, and when it must be
delivered to achieve the master schedule
• Capacity requirements planning coordinates labor and
equipment resources with material requirements
• The master schedule specifies the production of final
products in terms of month-by-month deliveries
• Each product may contain hundreds of components
– These components are produced from raw
materials, some of which are common among the
components (e.g.: sheet steel for stampings)
– Some of the components themselves may be
common to several different products
• These materials and components are called common use
items in MRP
Lead Times in MRP
• The lead time for a job is the time that must be
allowed to complete the job from start to finish.
• Two kinds of lead times in MRP:
– Ordering lead time - time required from initiation of
the purchase requisition to receipt of the item from
the vendor
– Manufacturing lead time - time required to produce
the item in the company's own plant, from order
release to completion
Inputs to the MRP System
• For the MRP processor to function properly, it must
receive inputs from several files:
– Master production schedule
– Product design data, as a bill of materials file
– Inventory records
– Capacity requirements planning
MRP Output Reports
• Order releases - authorize placement of orders planned
by MRP system
• Planned order releases in future periods
• Rescheduling notices, indicating changes in due dates
for open orders
• Cancellation notices - indicate that certain orders are
canceled due to changes in the master schedule
• Inventory status reports
• Exception reports, showing deviations from schedule,
overdue orders, scrap, etc.
Dependent Demand
A
Ladder-back
chair
F (2)
Back
legs
B (1)
Ladder-back
subassembly
C (1)
Seat
subassembly
D (2)
Front
legs
G (4)
Back
slats
H (1)
Seat
frame
I (1)
Seat
cushion
J (4)
Seat-frame
boards
E (4)
Leg
supports
Bill of Materials
Master Production Schedule
A part of the material requirements plan that details how many
end items will be produced within specified periods of time.
April
1
Ladder-back chair
2
May
3
Aggregate
production plan
for chair family
5
150
6
7
8
150
120
Kitchen chair
Desk chair
4
200
200
670
120
200
200
670
Inventory Record
Item: C
Description: Seat subassembly
Lot Size: 230 units
Lead Time: 2 weeks
Week
1
2
3
4
5
6
7
8
Gross
requirements
150
0
0
120
0
150
120
0
Scheduled
receipts
230
0
0
0
0
0
0
0
Projected
on-hand
inventory
37
Planned
receipts
Planned order
releases
Inventory Record
Item: C
Description: Seat subassembly
Lot Size: 230 units
Lead Time: 2 weeks
Week
1
2
3
4
5
6
7
8
Gross
requirements
150
0
0
120
0
150
120
0
Scheduled
receipts
230
0
0
0
0
0
0
0
Projected
on-hand
inventory
37
Planned
receipts
Planned order
releases
Explanation:
Gross requirements are the total demand for
the two chairs. Projected on-hand inventory
in week 1 is 37 + 230 – 150
Inventory Record
Item: C
Description: Seat subassembly
Lot Size: 230 units
Lead Time: 2 weeks
Week
1
2
3
4
5
6
7
8
Gross
requirements
150
0
0
120
0
150
120
0
Scheduled
receipts
230
0
0
0
0
0
0
0
Projected
on-hand
inventory
37
Planned
receipts
Planned order
releases
117
Explanation:
Gross requirements are the total demand for
the two chairs. Projected on-hand inventory
in week 1 is 37 + 230 – 150 = 117 units.
Inventory Record
Item: C
Description: Seat subassembly
Lot Size: 230 units
Lead Time: 2 weeks
Week
1
2
3
4
5
6
7
8
Gross
requirements
150
0
0
120
0
150
120
0
Scheduled
receipts
230
0
0
0
0
0
0
0
Projected
on-hand
inventory
37
Planned
receipts
Planned order
releases
117
Inventory Record
Item: C
Description: Seat subassembly
Lot Size: 230 units
Lead Time: 2 weeks
Week
1
2
3
4
5
6
7
8
Gross
requirements
150
0
0
120
0
150
120
0
Scheduled
receipts
230
0
0
0
0
0
0
0
Projected
on-hand
inventory
37
117
Planned
receipts
Projected on-hand
inventory balance
Planned order
releases at end of week t
=
Inventory on
hand at end of
week t - 1
+
Scheduled
or planned
receipts in
week t
–
Gross
requirements
in week t
Inventory Record
Item: C
Description: Seat subassembly
Lot Size: 230 units
Lead Time: 2 weeks
Week
1
2
3
4
5
6
7
8
Gross
requirements
150
0
0
120
0
150
120
0
Scheduled
receipts
230
0
0
0
0
0
0
0
117
117
117
–3
–3
–153
–273
–273
Projected
on-hand
inventory
37
Planned
receipts
Projected on-hand
inventory balance
Planned order
releases at end of week t
=
Inventory on
hand at end of
week t - 1
+
Scheduled
or planned
receipts in
week t
–
Gross
requirements
in week t
Planned Orders
Explanation:
Item: C
Without
a new order in week 4,
Description: Seat subassembly
there will be a shortage of three
units: 117 + 0 + 0 – 120 = – 3
units.
Lot Size: 230 units
Lead Time: 2 weeks
Week
1
2
3
4
5
6
7
8
Gross
requirements
150
0
0
120
0
150
120
0
Scheduled
receipts
230
0
0
0
0
0
0
0
117
117
117
–3
–3
–153
– 273
– 273
Projected
on-hand
inventory
37
Planned
receipts
Planned order
releases
Planned Orders
Item: C
Description: Seat subassembly
Lot Size: 230 units
Lead Time: 2 weeks
Week
1
2
3
4
5
6
7
8
Gross
requirements
150
0
0
120
0
150
120
0
Scheduled
receipts
230
0
0
0
0
0
0
0
117
117
117
Projected
on-hand
inventory
37
Planned
receipts
Planned order
releases
Planned Orders
Explanation:
Item: C
Description:
Seat subassembly
Adding
the planned
receipt
brings the balance to
117 + 0 + 230 – 120 = 227 units.
Lot Size: 230 units
Lead Time: 2 weeks
Week
1
2
3
4
5
6
7
8
Gross
requirements
150
0
0
120
0
150
120
0
Scheduled
receipts
230
0
0
0
0
0
0
0
117
117
117
227
Projected
on-hand
inventory
37
Planned
receipts
Planned order
releases
230
Planned Orders
Explanation:
Item: C
Description:
Seat subassembly
Adding
the planned
receipt
brings the balance to
117 + 0 + 230 – 120 = 227 units.
Lot Size: 230 units
Lead Time: 2 weeks
Week
1
2
3
4
5
6
7
8
Gross
requirements
150
0
0
120
0
150
120
0
Scheduled
receipts
230
0
0
0
0
0
0
0
117
117
117
227
Projected
on-hand
inventory
37
Planned
receipts
Planned order
releases
230
Planned Orders
Explanation:
Item: C
Description:
subassembly
Offsetting
for Seat
a two-week
lead time
puts the corresponding planned
order release back to week 2.
Lot Size: 230 units
Lead Time: 2 weeks
Week
1
2
3
4
5
6
7
8
Gross
requirements
150
0
0
120
0
150
120
0
Scheduled
receipts
230
0
0
0
0
0
0
0
117
117
117
227
Projected
on-hand
inventory
37
Planned
receipts
Planned order
releases
230
230
Planned Orders
Explanation:
Item: C
Description:
subassembly
Offsetting
for Seat
a two-week
lead time
puts the corresponding planned
order release back to week 2.
Lot Size: 230 units
Lead Time: 2 weeks
Week
1
2
3
4
5
6
7
8
Gross
requirements
150
0
0
120
0
150
120
0
Scheduled
receipts
230
0
0
0
0
0
0
0
117
117
117
227
Projected
on-hand
inventory
37
Planned
receipts
Planned order
releases
230
230
Planned Orders
Explanation:
Item: C
Seat order
subassembly
TheDescription:
first planned
lasts
until week 7, when projected
inventory would drop to – 43.
Lot Size: 230 units
Lead Time: 2 weeks
Week
1
2
3
4
5
6
7
8
Gross
requirements
150
0
0
120
0
150
120
0
Scheduled
receipts
230
0
0
0
0
0
0
0
117
117
117
227
227
77
–43
Projected
on-hand
inventory
37
Planned
receipts
Planned order
releases
230
230
Planned Orders
Explanation:
Item: C
Description:
Seat subassembly
Adding
the second
planned
receipt brings the balance to
77 + 0 + 230 – 120 = 187.
Lot Size: 230 units
Lead Time: 2 weeks
Week
1
2
3
4
5
6
7
8
Gross
requirements
150
0
0
120
0
150
120
0
Scheduled
receipts
230
0
0
0
0
0
0
0
117
117
117
227
227
77
Projected
on-hand
inventory
37
Planned
receipts
Planned order
releases
230
230
230
Planned Orders
Explanation:
Item: C
Description:
Seat subassembly
Adding
the second
planned
receipt brings the balance to
77 + 0 + 230 – 120 = 187.
Lot Size: 230 units
Lead Time: 2 weeks
Week
1
2
3
4
5
6
7
8
Gross
requirements
150
0
0
120
0
150
120
0
Scheduled
receipts
230
0
0
0
0
0
0
0
117
117
117
227
227
77
187
Projected
on-hand
inventory
37
Planned
receipts
Planned order
releases
230
230
230
Planned Orders
Explanation:
Item: C
Seat subassembly
TheDescription:
corresponding
planned
order release is for week 5.
Lot Size: 230 units
Lead Time: 2 weeks
Week
1
2
3
4
5
6
7
8
Gross
requirements
150
0
0
120
0
150
120
0
Scheduled
receipts
230
0
0
0
0
0
0
0
117
117
117
227
227
77
187
Projected
on-hand
inventory
37
Planned
receipts
Planned order
releases
230
230
230
230
Planned Orders
Item: C
Description: Seat subassembly
Lot Size: 230 units
Lead Time: 2 weeks
Week
1
2
3
4
5
6
7
8
Gross
requirements
150
0
0
120
0
150
120
0
Scheduled
receipts
230
0
0
0
0
0
0
0
117
117
117
227
227
77
187
187
Projected
on-hand
inventory
37
Planned
receipts
Planned order
releases
230
230
230
230
• Determining the number and type of facility required,
their geographic locations and the work to be
performed at each is an important part of network
design
• Typical logistic facilities are manufacturing plants,
warehouses, cross-dock operations and retail stores
• It also determines the inventory type and the quantity
to be stocked at each facility and the assigning of
customer orders for shipment
• The network also must integrates information and
transportation capabilities
Factors that directly impact the number of facilities and
their location in a network:
Transportation cost
Inventory cost
Total network cost
• Important factors influence location decisions:
1. Labor (availability and cost)
2. Proximity of suppliers or customers
3. Construction costs
4. Land costs
5. Taxes
6. Regulations
7. Incentive packages
8. Transportation infrastructure
9. Quality of life for employees
• The factors influencing modification of network design
are:
– Change in demand and supply
– Product assortments
– Changes in suppliers’ supplies
– Manufacturing requirements
• Managing logistics must plan the best ways to load,
offload, move, sort and select products
• Work closely with engineers to design or select
packaging materials that facilitate materials handling
Packaging and materials handling decisions affect value in
many ways:
• Material handling costs can be substantial, and
improved labor and equipment productivities can
significantly improve profits
• Materials handling is usually the number one cause of
product damage and loss in logistics – poor handling
practices and improperly packaged items lead to
scratched, dented and broken products
Packaging
Packaging protects the product and facilitate ease of
handling in a number of ways:
a. Create one large container out of several smaller units
(known as containerization / unitization)
– Eg.: individual soft drinks are frequently packaged in
six-packs
b. Packages contain information about the products they
contain (useful when sorting products and processing
orders)
– Eg.: Automated Storage and Retrieval System
(AS/RS), Radio frequency identification (RFID)
c. Packaging concern is the relationship between the boxes
size, order quantity and retail display quantity
The determination of final package design requires a
great deal of testing to assure that both marketing and
logistics concerns are satisfied
Materials Handling
Principles of Materials Handling
1.
2.
3.
4.
5.
6.
Equipment for handling and storage should be as standardized as
possible
When in motion, the system should be designed to provide
maximum continuous product flow
Investment should be in handling rather than stationary equipment
Handling equipment should be utilized to the maximum extent
possible
In handling equipment, selection the ratio of dead weight to
payload should be minimized
Whenever practical, gravity flow should be incorporated in system
design
Classification of Handling Systems:
Mechanized
• Lift trucks
• Towlines
• Tractor
Trailers
• Conveyors
• Carousels
• Rider
Trucks
SemiAutomated
Automated
• Automated
guided
Vehicles
(AGV)
• Robotics
• Live Racks
• Potential to
Automate
• Automated
Storage /
Retrieval
(AS/RS)
InformationDirected
• RF Wireless
• Pick-toLight
• Nowadays, warehouse are more properly viewed as
places where products may be stored and assortments of
products created in accordance with customer
requirements
• Distribution Center term are being used to emphasize
the difference between the storage activity and the
strategic role of warehouses
• For an ideal logistics system – storage is held to a
minimum
and
inventory
moves
continuously
throughout the supply chain on its destination to fill
customer needs
Primary Functions of Warehousing
1. Trans-Shipment Point
– A facility where products are received, sorted,
sequenced and selected into loads consistent with
the customers’ needs
2. Stockpiling
– The storage of inventories in warehouses to protect
against seasonality either in supply or demand
3. Production Support
– A warehouse dedicated to storing parts and
components needed to support a plant’s operations
4. Break-Bulk
– Splitting a large shipment into individual orders and
arranging for local delivery to customers
5. Warehouse Consolidation
– Combining shipments from a number of sources into
one larger shipment going to a single location
6. Cross-Docking
– Combines break-bulk and consolidation warehouse
activities
7. Reverse Logistics Support
– The logistics needed to send products or packaging
materials back to disassembly, reclamation or
disposal sites
– Returned products can be remanufactured or
updated for resale
8. Value-Added Services
– Any work that creates greater value for customers
– Services may change the physical features or
configuration of products so they are presented to
customers in a unique or customized manner
Warehouse Operations
1. Receiving and Unloading
– Inbound shipments must be received and unloaded from
the transportation vehicles
– Part of this activity may also involve checking the
shipment for the correct quantities and for potential
damage to products
2. In-Storage Handling
– Once unloaded the goods must be moved to the desired
destination within the facility, whether this is an actual
storage location or a shipping area in the case of a crossdock facility
3. Storage
– Products are held, even if for only a few minutes in a
storage area
4. Order-Picking
– The products are removed from storage and assembled into
appropriate quantities and assortments to fill customer
orders
5. Staging
– The assembled orders are moved to an area in the
warehouse in readiness for loading into a transportation
vehicle bound for customer locations
6. Shipping
– Involves verifying that the assembled orders are correct and
the actual loading of the transportation vehicles
Warehouse Ownership
1. Private Warehouse
– Facility that is owned and operated by the firm that
own the products
2. Public Warehouse
– A firm that offers warehouse services to the public for
a fee based on the amount of spaced used and the
number of shipments into or out of the facility
3. Contract Warehouse
– Companies offer to build, own and operate
warehouse facilities for the benefit of clients who do
not want to undertake those responsibilities
themselves
Transport Functionality
Product Movement
• Basic value provided by transportation is to move
inventory to specified destination
Product Storage
• While a product is in a transportation vehicle, it is
being stored – storage at shipment origin or destination
Transport Principles
There are 2 fundamental economic principles that impact
transportation efficiency:
1. Economy of scale – is the cost per unit of weight
decreases as the size of a shipment increases
2. Economy of distance – refers to decreased
transportation cost per unit of weight as distance
increase
– Eg.: a shipment of 800km will cost less to perform
than 2 shipments of the same weight each moving
400km
• Consolidation is one of the strategy used by logistics
management to reduce transportation cost by
combining small orders or shipments into one larger
shipment.
1. Market Area Consolidation – combining several small
shipments from one shipper that are going to the same
market area into one shipment
2. Pooled Delivery Consolidation – combines small
shipments from different shippers that are going to the
same market area; normally handled by independent
transportation companies
3. Scheduled Delivery Consolidation – establishing specific
times when deliveries will be made to customers
Modes of Transportation
Rail
Highway
Water
Pipeline
Air
Truck
Rail
Water
Pipe
Air
Speed
2
3
4
5
1
Availability
1
2
4
5
3
Dependability
2
3
4
1
5
Capability
3
2
1
5
4
Frequency
2
4
5
1
3
Cost to
Shippers**
2
3
4
5
1
Typical Uses
medium &
light mfg.;
wholesale &
retail
distribution
heavy bulk
commodities
bulk
commodities;
agriculture
products
petroleum;
natural gas
small
shipments;
emergency
shipments
Operating
Characteristics*
* 1 = best; 5 = worst
** 1 = highest cost; 5 = lowest cost
Carrier Types
1. Common carriers – transportation companies that
provide service to the public
2. Contract carriers – carriers that have specific contracts
with a limited number of shippers
3. Private carriers – companies that own and operate
transportation equipment to transport their own
products
The success in the marketplace is based around the
triangular linkage of the company, customers and its
competitors.
Customers
Seek Benefits at Acceptable Cost
Value
Asset Utilization
Value
Cost
Differential
Asset Utilization
Commercial Success
Cost Advantage
Value Advantage
• Logistics management provides for the flow and storage
of information and products between the firm and its
suppliers (inbound), the firm and its customers
(outbound) and the various plants, divisions and units of
the firm.
• The objectives of logistics management is to provide
customers with their required service benefits at the
lowest total logistics cost
• A complete logistics management system comprises 6
major decision areas: facility network design, inventory
management, order management, transportation
management, warehousing management and packaging
and materials handling management.