Logistics Management

Definition: Logistics is the process of strategically

managing the procurement movement and storage of
materials, parts and finished inventory (and the related
information flows) through the organization and its
marketing channels in such a way that current and future
profitability are maximized through the cost-effective
fulfillment of orders.
• The scope of the logistics spans the organization, from
the management of raw materials through to the delivery
of the final product.
• It links between the market place and the operating
environment
• Logistics management meets the needs of the customers
through the co-ordination of the materials and
information flows that extend from the marketplace,
through the firm and its operations and beyond that to
suppliers

Material Flow

Suppliers Procurement Operations Distribution Customers

Requirements information flow

Logistics Management Process

• Recent decades the organizations are increasingly
focusing internally to tap the opportunities existing
within the organization to have improved cost
competitiveness and manufacturing management

Functions at Loggerheads
Decades back each function is trying to have their best in
their field. For instance manufacturing priorities and
objectives have typically been focused on operating
efficiency, achieved through long production runs,
minimized set-ups and change-overs and product
standardization. On the other hand marketing has sought to
achieve competitive advantage through variety, high service
levels and frequent product changes. These mutually
destructive disputes are counter-productive to the
achievement of overall corporate goals.

New approaches
Recent decades is a period of rapid introduction of
flexible manufacturing systems (FMS), new
management practices (systems) to inventory
management based on Material Requirement Planning
(MRP), Just-In-Time (JIT) methods, and Lean
production concepts – most recent one is Agile
manufacturing and perhaps most important of all is
sustained emphasize on quality. In the information
integration and planning the organization has gone
further into Enterprise Resource Planning (ERP)
systems.
• Procurement is getting growing recognition and it plays a
critical role in creating and sustaining competitive
advantage
• Leading edge organizations now routinely include
supply-side issues in the development of their strategic
plans
• Major opportunity for leveraging the capabilities and
competencies of suppliers through closer integration of
the buyer’s and supplier’s logistics process
• Logistics seeks an integrative concept that has a system
vide view of the firm
• It is a planning concepts that creates a framework
through which the needs of the marketplace can be
translated into a manufacturing strategy and plan, which
in turn links into a strategy and plan for procurement
• That is, a single plan which replaces the separate plans
for marketing, distribution, production and procurement

Purchasing
Encompasses the essential activities associated with the
acquisition of the material, services, and equipments used
in the operations of an organization.
Major activities:
• Co-ordination with user departments to identify
purchase needs
• Discussions with sales representatives
• Identification of potential suppliers
 • Conduct of market studies for important materials
• Negotiation with potential suppliers
• Analysis of proposals
• Selection of suppliers
• Issuance of purchase orders
• Administration of contracts and resolution of related
problems
• Maintenance of a variety of purchasing records
Procurement
It includes the supply activities such as
• Participation in the development of material and
service requirements of and their specifications
• Conduct of materials studies and management of value
analysis activities
• Conduct of more extensive material market studies
• Conduct of all purchasing function activities
• Management of supplier quality
• Purchase of inbound transportation
• Management of investment recovery activities
(Salvage of surplus and scrap)
Supply Management
Supply management is a process responsible for the
development and management of a firm’s total supply
system – both internal and the external components
It has strategic focus
Activities generally include:
• Early purchasing involvement and early supplier
involvement in product design and subsequent
specifications development for important items,
typically through the use of cross functional teams
• Conduct of all purchasing functions and procurement
process activities
• Heavy use of cross-functional teams in supplier
qualification and selection
• Heavy use of purchasing partnering arrangement and
strategic alliances with suppliers – value chain, cost
and quality-at-source
• Continuous identification of threats and opportunities
in a firm’s supply environment
• Development of strategic, long-term acquisition plans
for all major materials
• Monitoring of continuous improvement in the supply
chain
• Active participation in the corporate strategic planning
process
 Supply Chain Management
• A supply chain consists of all stages involved, directly
or indirectly, in fulfilling a customer request
• Supply chain includes the manufacturer – all functions
involved in filling a customer request, suppliers,
transporters, warehouses, retailers and customers
• A supply chain is dynamic and involves the constant
flow of information, product, and funds between
different stages
• Each stage of the supply chain performs different
processes and interacts with other stages of the supply
chain
An example:
When a customer purchases on-line from Dell
Computers, the supply chain includes, the web page
that take the customer’s order, the Dell assembly
plant, all of Dell’s suppliers and their suppliers
Supply chain is the network of organizations that are
involved through upstream and downstream linkages, in the
different processes and activities that produce value in the
form of products and services in the hands of the ultimate
consumer
• The real competition is not company against company
but rather supply chain against supply chain
• The focus of supply chain management is upon the
management of relationships in order to achieve a
more profitable outcome for all parties in the chain
 • It is different from “vertical integration’ – Ownership
of upstream suppliers and downstream customers
• Organisations are moving from this to ‘core business’
– things organisations can do really well and where
they have a differential advantage
Everything else is ‘out-sourced’ – procured outside the
firm
Distinction Between Logistics and Supply Chain
Management
• Logistics is essentially a planning orientation and
framework that seeks to create a single plan for the
flow of product and information through a business
• Supply chain management builds upon this framework
and seeks to achieve linkage and co-ordination
between processes of other entities in the pipeline, i.e.
suppliers and customers and the organisation itself
An Example:
One goal of supply chain management might be to
reduce or eliminate the buffers of inventory that exist
between organisation in a chain through the sharing of
information on demand and current stock levels – ‘Co-
Managed Inventory’ (CMI)
• Focus of supply chain management is on co-operation
and trust
• Recognition that properly managed ‘the whole can be
greater than the sum of its parts’
 Supply chain management philosophy is

The entire supply chain is single, integrated entity

The cost, quality and delivery requirement of the
manufacturing customer are objectives shared by
every company in the chain

Inventory is the last resort for resolving supply-
and-demand imbalance between the tiers
Core competency
• It is what a company’s customers most recognise about it
• Current trend is that organisations increasingly compete
through their capabilities and competencies
• Organisations create superior value for customers and
consumers by managing their core processes better than
competitors mange theirs
• Core process encompasses such activities as new product
development, supplier development, order fulfilment and
customer management
• Organisations take advantage of supplier’s competencies
and be free to concentrate its own resources on further
developing critical skills and capabilities for its own
areas of competency
• This can be called ‘deintegration’
• This kind of ‘outsourcing’ emphasizes the importance of
supply chain management
• During outsourcing organisations should be careful, as
own core competency can be mistakenly outsourced
 Value Chain
• The value chain is a systematic approach to examine
the development of competitive advantage
• The chain consists of a series of activities that
create and build value
• The value chain concept suggested by Michael Porter
helps in identifying suitable strategies that will
provide superior value in the eyes of the customer
• A firm performs many discrete activities such as
designing, producing, marketing, delivering and
supporting its product
• Each of these activities contributes to a firm’s relative
cost position and create basis for differentiation
• Value chain disaggregates a firm into its strategically
relevant activities in order to understand the behaviour
of costs and potential sources of differentiation
• A firm gains competitive advantage by performing
these strategically important activities more cheaply or
better than its competitors
• Value chain activities can be categorised into two
types – primary activities and support activities (see
fig.)
• Support activities are integrating functions that cut
across the various primary activities within the firm
• Perform all these activities efficiently than the
competitors or perform in a unique way that creates
greater differentiation