OVERVIEW OF LOGISTICS

MANAGEMENT
Darrel Jake Macalawa, MBA
Logistics
Logistics
• According to the CSCMP, Council of Supply Chain Management Professionals (CSCMP) one of the
world’s most prominent organizations for logistics professionals, “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
• Logistics is part of supply chain management. Logistics is part of a bigger picture in the sense that
supply chain management focuses on coordination among business functions (such as marketing,
production, and finance) within and across organizations. The fact that logistics is explicitly
recognized as part of supply chain management means that logistics can affect how well (or how
poorly) an individual firm—and its associated supply chain(s)—can achieve goals and objectives.
The Increased Importance of Logistics
• The formal study of business logistics, and predecessor concepts such as traffic management and
physical distribution, has existed since the second half of the twentieth century. Quite frankly, from
approximately 1950 to 1980, limited appreciation was shown for the importance of the logistics
discipline. Since 1980, however, increasing recognition has been given to business logistics, in part
because of tremendous—and rapid—changes in the discipline.
The Systems and Total Cost
Approaches to Logistics
• Logistics is a classic example of the systems approach to business problems. From a companywide
perspective, the systems approach indicates that a company’s objectives can be realized by
recognizing the mutual interdependence of the major functional areas of the firm, such as
marketing, production, finance, and logistics.

• The key to the total cost approach is that all relevant logistical cost items are considered
simultaneously when making a decision.
The Systems
and Total
Cost
Approaches
to Logistics
The Systems and Total Cost
Approaches to Logistics
• Materials management - movement into and storage of materials in a firm

• Physical distribution - storage of finished product and movement to the customer

The Systems and Total Cost
Approaches to Logistics
• For example, expedited transportation, such as air freight, will increase a company’s transportation
costs. At the same time, expedited transportation leads to a faster order cycle, which allows the
receiving company to hold lower levels of inventory, thus reducing both its inventory carrying costs
and warehousing costs. The total cost approach evaluates if the decreased inventory and
warehousing costs are greater than the increased costs of expedited transportation. If so, the
company might consider using expedited transportation (assuming that customer satisfaction isn’t
negatively impacted), because the total logistics costs (consisting, in this example, of transportation,
inventory, and warehousing costs) are less than the total costs of the existing system.
Logistical Relationships within
the Firm
• FINANCE

• The finance staff is often charged with the responsibility of allocating the firm’s funds to projects
desired by the various operating departments. As such, the finance department is often
instrumental in approving capital budgeting decisions that affect logistics, such as the
acquisition of materials handling equipment (e.g., forklifts) and packaging equipment (e.g., a
shrink-wrap machine). In such situations, finance personnel may decide between purchasing or
leasing the relevant equipment, assuming they have approved the decision to acquire it.
Logistical Relationships within
the Firm
• PRODUCTION

• One of the most common interfaces between production and logistics involves the length of
production runs. In many cases, the production people favor long production runs of individual
products because this allows the relevant fixed costs to be spread over more units, thus resulting
in a lower production cost per unit. Having said this, long production runs generate large amounts
of inventory, and it is often the logistician’s responsibility to store and track the inventory. It’s
generally much easier to store and track 5 unit of a product than to store and track 500 units of a
product.
Logistical Relationships within
the Firm
• PRODUCTION

• Increasing utilization of the postponement concept (the delay of value-added activities such as
assembly, production, and packaging until the latest possible time) also influences the interface
between production and logistics. More specifically, some value-added activities (e.g., case
packing, case labeling) that were traditionally performed at a production plant are now performed
in warehousing facilities. As a result, warehousing facilities are adding new types of equipment
and being configured differently to allow specific value-added activities to take place.
Logistical Relationships within
the Firm
• MARKETING

• Contemporary marketing places a heavy emphasis on customer satisfaction, and logistics

strategies can facilitate customer satisfaction by reducing the cost of products, which can
translate into lower prices as well as bringing a broader variety of choices closer to where the
customer wishes to buy or use the product.
Logistical Relationships within
the Firm
• MARKETING

The following discussion about the interactions between logistics and marketing focuses on the
marketing mix, sometimes referred to as the four Ps of marketing (place, price, product, and
promotion).
Place decisions. Logistics decisions concern the most effective way to move and store the
product from where it is produced to where it is sold.
Price Decisions. A key price-related decision for marketers involves how a product’s
transportation costs should be reflected in its selling price, and this has proved to be a particularly
vexing issue for some online merchants.
Logistical Relationships within
the Firm
• MARKETING

Product Decisions. Marketers often prefer to carry higher quantities of particular items because
this reduces the likelihood of stockouts (being out of an item at the same time there is demand for
it). However, from a logistics perspective, higher quantities of inventory (1) necessitate additional
storage space and (2) increase inventory carrying costs.
Product design, which is often the purview of marketers, can also have important implications for
logistical effectiveness and efficiency. For example, long-necked glass beverage containers might
be more distinctive than aluminum cans; however, from a logistics perspective, long-necked
bottles take up more space and are more likely to be damaged than aluminum cans.
Logistical Relationships within
the Firm
• MARKETING

Promotion Decisions. Many promotional decisions require close coordination between

marketing and logistics. One important situation concerns the availability of highly advertised
products, particularly when a company is running pricing campaigns that lower the price of certain
items. Few things are more damaging to a firm’s goodwill than being stocked out of items that are
heavily promoted in a sales campaign.
Activities in the Logistical Channel
To successfully apply the systems and total cost approaches to logistics, it is essential to understand
the various logistics activities. Keep in mind that because one logistics system does not fit all
companies, the number of activities in a logistics system can vary from company to company. Activities
that are considered to be logistics related include, but are not limited to, the following:

▪ Customer service ▪ Inventory management ▪ Procurement

▪ Demand forecasting ▪ Materials handling ▪ Reverse logistics
▪ Facility location decisions ▪ Order management ▪ Transportation management
▪ International logistics ▪ Packaging ▪ Warehousing management
Activities in the Logistical Channel
• Customer service

There are many definitions of customer service, such as “keeping existing customers happy.”
Customer service involves making sure that the right person receives the right product at the right
place at the right time in the right condition and at the right cost.

• Demand Forecasting

Demand forecasting refers to efforts to estimate product demand in a future time period. The growing
popularity of the supply chain concept has prompted increasing collaboration among supply chain
partners with respect to demand forecasting. Such collaboration can enhance efficiency by reducing
overall inventory levels in a supply chain.
Activities in the Logistical Channel
• Facility Location Decisions

It’s often said that the success of a retail store depends on three factors: location, location, and
location. It can also be said that the success of a particular logistics system is dependent on the
location of the relevant warehousing and production facilities. Facility location decisions are
increasingly important as the configuration of logistics systems is altered due to the impacts of
multinational trade agreements.

• International Logistics

International logistics, which refers to the logistics activities associated with goods that are sold across
national boundaries, is much more costly and challenging than domestic logistics.

•
Activities in the Logistical Channel
• Inventory Management

Inventory refers to stocks of goods that are maintained for a variety of purposes, such as for resale to
others, as well as to support manufacturing or assembling processes. When managing inventory,
logisticians need to simultaneously consider three relevant costs—the cost of carrying (holding)
product, the cost of ordering product, and the cost of being out of stock.

• Materials Handling

Materials handling refers to the short-distance movement of products within the confines of a facility
(e.g., plant, warehouse).
Activities in the Logistical Channel
• Order Management

Order management refers to management of the activities that take place between the time a
customer places an order and the time it is received by the customer. As such, order management is a
logistics activity with a high degree of visibility to customers.

• Packaging

Packaging can have both a marketing (consumer packaging) and logistical (industrial packaging)
dimension. Industrial (protective) packaging refers to packaging that prepares a product for storage
and transit (e.g., boxes, crates). Packaging has important interfaces with the materials handling and
warehousing activities.
Activities in the Logistical Channel
• Procurement

Procurement refers to the raw materials, component parts, and supplies bought from outside
organizations to support a company’s operations.

• Reverse Logistics

Products can be returned for various reasons, such as product recalls, product damage, lack of
demand, and customer dissatisfaction. The challenges associated with reverse logistics can be
complicated by the fact that returned products often move in small quantities and may move outside
forward distribution channels.
Activities in the Logistical Channel
• Transportation Management

Transportation can be defined as the actual physical movement of goods or people from one place to
another, whereas transportation management refers to the management of transportation activities by
a particular organization. Transportation can account for up to 50 percent of a firm’s total logistics
costs and thus represents the most costly logistics activity in many organizations.

• Warehousing Management

Warehousing refers to places where inventory can be stored for a particular period of time.
Logistics and Supply Chain
Careers
• The job market for logisticians and supply chain managers continues to be strong at both the
undergraduate and MBA levels. Entry-level jobs include logistics (supply chain) analyst,
consultant, customer service manager, and fulfillment supervisor. Second-level positions
include international logistics manager, supply chain software manager, purchasing manager,
transportation manager, and warehouse operations manager. There are a variety of possible
career paths available. Because of the growing importance of logistics and supply chain
management, a number of professional organizations are dedicated to advancing the professional
knowledge of their members. One rationale for these professional associations is that the state of
the art is changing so rapidly that professionals must educate and re-educate themselves on a
regular basis.
Assignment
Interview a person working in logistics and ask the following questions:
• Position / Nature of Work
• What is his/her role and its importance in the overall logistics process?
• What are the common challenges of his/her work in logistics?
• How is he/she able to address the challenges encountered?
End of Presentation