Topic 2 – Logistics Processes
Outline
1.1
Customer Service
1.2
Demand Forecasting
1.3
Inventory Management
1.4
Logistics Communications
1.5
Materials Handling
1.6
Order Processing
Topic 2 – Logistics Processes
Outline (con’t)
1.7
Packaging
1.8
Parts & Service Support
1.9
Plant & Warehouse Site Selection
1.10
Procurement
Topic 2 – Logistics Processes
Outline (con’t)
1.11
Reverse Logistics
1.12
Traffic & Transportation
1.13
Warehousing & Storage
1.14
Integration of Logistics Activities
1.1 Customer Service
★ The logistics function is the final phase of the buyer-seller
sales transaction - the one involving the physical transfer of
goods.
-- There is no value to a product until it is in the hands of the
customer or consumer.
★ Coyle, Bardi and Langley (1992) dichotomized logistics into (i)
supply chain logistics and (ii) service response logistics.
-- While supply chain logistics is the traditional process
associated with the acquisition and distribution of goods,
service response logistics is the process of coordinating nonmaterial activities necessary to the fulfillment of the service in
a cost and customer-service-effective way.
1.1 Customer Service
Good logistical customer service is contingent
upon
a.
b.
c.
Cycle time
Dependability - of lead-time, safe
delivery
and correct orders
Communication
d. Convenience - flexibility
1.2 Demand Forecasting

Demand forecasting involves determining the quantity of product
and accompanying service that customers will require at some
point in the future.

Such forecasts determine:
a. Production schedules
b. Purchasing & acquisition strategies
c. In-plant inventory
d. Finished goods inventory positioning
e. Allocation of resources to logistics activities in order to service
forecasted demand
1.3 Inventory Management

Inventory management involves trading off the level of inventory
held to achieve high customer service levels with the cost of
holding inventory, including capital tied up in inventory,
warehousing and obsolescence.

Main categories of inventory:
a. Raw materials
b. Work-in-process
c. Finished goods

Inventory consumes physical space, personnel time and capital –
significant opportunity costs
1.4 Logistics Communications

Effective communication must take place among:
a. An organization, its suppliers and its customers
b. Major functions within an organization such as logistics and
engineering,
c. All the individual logistics activities
d. Various aspects within each logistics activity, e.g. coordinating
warehousing of materials, work-in-process and finished goods
e. Various members of the supply chain, including those not
directly linked to the organization, e.g. intermediaries and
secondary customers or suppliers

Accurate and timely communication is fundamental to successful
logistics management
1.5 Materials Handling

Materials handling covers every aspect of the movement or flow of
raw materials, in-process inventory and finished goods within a
plant or warehouse.

Effective logistics management strives to minimize the amount of
handling performed on an item since handling adds no value to a
product.

Objectives to support this:
a.
Eliminate handling wherever possible
b.
Minimize travel distance
c.
Minimize work-in-process
d.
Provide uniform flow that is free of bottlenecks
e.
Minimize losses from waste, breakage, spoilage and theft
1.6 Order Processing


Components of order processing:
a.
Operational elements – order entry/editing, scheduling,
shipping, invoicing, etc.
b.
Communication elements – order modification, order status
enquiries, tracing & expediting and product information
requests, etc.
c.
Credit & collection elements – credit checking, accounts
receivables processing/collection, etc.
Speed and accuracy of order processing have a big impact on
customer’s perception of an organization’s service level because it
is a key area of a customer’s interaction with the organization.
1.7 Packaging


Packaging performs 2 basic functions:
a.
Marketing – the package’s size, weight, colour and printed
information acts as a form of communication or advertising
b.
Logistics – the package performs 2 roles:
i.
Protects the product from damage while being stored or
transported
ii.
Makes it easier to store and move products, and therefore
reduce handling costs
Packaging requirements for export are more stringent than those
for domestic markets because of longer distances travelled and
more physical handling.
1.8 Parts & Service Support

Logistics’ responsibility does not end when the product is
delivered to the customer.

An organization’s product offering includes providing
customers with after-sales service involving repair and parts
replacement.

Logistics is responsible for making sure that spare and
replacement parts are available:
a. When and where the customer needs them.
b. When and where the repair process needs them.

Overall objective is to reduce equipment downtime for customers
1.9 Plant & Warehouse Site Selection

Plant & warehouse selection affects logistics’ ability to effectively
manage inbound movement and storage of materials and products,
as well as outbound flows.

Considerations in site selection:
a.
Location of target markets
b.
Location of raw materials, component parts and subassemblies
c.
Availability & cost of land
d.
Availability & cost of labour
e.
Availability of transportation services and links
f.
Security
g.
Local taxes, legal concerns and regulations, e.g. environmental
issues
1.10 Procurement

Procurement is the process of acquiring materials and services to
ensure the operating effectiveness of an organization’s
manufacturing and logistics processes.

Includes:
a.
selection of suppliers
b.
timing of purchases
c.
pricing
d.
transportation modes and carriers
e.
packaging
f.
quality control
1.11 Reverse Logistics

Reverse logistics covers:
a.
Handling of return goods
b.
Salvage & scrap disposal for return goods
c.
Removal and disposal of waste materials from the
production, distribution and packaging processes
d.
Transportation of reusable or recyclable materials to
remanufacturing or reprocessing locations

Product can be returned from customers due to defects, overages,
shipping errors and trade-ins etc.

Logistics must have effective procedures for collection,
transportation, handling, sorting, storage and disposal of returned
products and waste materials.
1.12 Traffic & Transportation

Traffic and transportation covers the movement or flow of goods
from point-of-origin to point-of-consumption, and includes the
return flow as well.

Involves:

a.
Movement of products
b.
Selection of shipment method – air, rail, sea, truck, pipeline,
intermodal
c.
Routing – choosing a specific path for the movement
d.
Ensuring compliance with local, national and international
transportation regulations
Often the single largest cost item in logistics
1.13 Warehousing & Storage

Warehousing and storage involves the management of the space
needed to hold or maintain inventories

Activities include:
a.
Decisions on whether storage facilities should be owned,
leased or rented
b.
Layout and design of storage facilities
c.
Decisions on what products should be stored where
d.
Operating procedures for handling and moving products
within the warehouse
e.
Safety and maintenance procedures
f.
Personnel training
g.
Productivity measurement
1.14 Integration of Logistics Activities

Integrated
logistics
management
refers
to
the
administration of various logistics processes as an
integrated system.

The objective of integrating logistics activities is to
achieve an orderly flow of materials, personnel and
information within an organization, and among the
organization, its customers, suppliers and service
providers.
1.14 Integration of Logistics Activities

Critical Business Interfaces
Integration is crucial at the following business interfaces
in order to prevent inventory buildup.
a. Supplier-Purchasing
b. Purchasing-Production
c. Production-Marketing
d. Marketing-Distribution
e. Distribution-Intermediary (wholesaler and/or retailer)
f.
Intermediary-Customer
1.14 Integration of Logistics Activities

Inventory Buildup
Without effective integration, inventory buildup can occur for one
or more of the following reasons:
a.
Purchasing management is rewarded for achieving lowest
unit purchase price for raw materials and supplies.
b.
Production management is measured solely on lowest
possible per-unit production costs.
c.
Sales force tries to achieve market presence by positioning
large inventories of product in close proximity to customers.
d.
Transportation managers ship products by truckloads or by
sea in order to obtain the lowest possible freight rates.
e.
Customers and intermediaries purchase and ship in small
lots to minimize their inventories.
1.14 Integration of Logistics Activities

Benefits of Integration
a.
generally Improves flow of inventory
b.
Transportation economies
i.
Consolidation of shipping requirements for both
inbound and outbound materials and products
ii.
Using fewer carriers
iii. Better planning and coordinating of shipping
schedules
c.
Improves warehouse asset utilization
d.
Eliminates duplication of effort
e.
Cost trade-offs can be made between and among the
various logistics activities
Topic 2
Summary
and
Conclusion
1. Logistics is network of related processes and
activities.
2. Integration of these processes and activities improves
customer service for an organization while reducing
overall logistics costs.