2 – Introduction to Logistics

Introduction

Logistics is a critical component of the phenomenon of business marketing. Supply Chain Management is a subset of it. In the business functioning, the trader gets an order for the supply of his goods or services through his marketing executives or directly from customers, and then to execute the order to the satisfaction of the customer, the trader or his supplier company prepares the logistics, i.e., procures the product or services, puts labels on them, or gives some identification trademark name to them, makes necessary packing and packaging to save them from damage of any kind during loading, unloading, handling, transportation, etc., till it is supplied to the end customer. Simply put, it is a collection of things ready to be delivered to the buyer. All elements contributing until the final step, when the items or service is eventually given to the consumer, are methodically researched in logistics research.

2.1 Definition and Concept of Logistics 

The term “logistics” comes from the French word “loger,” which means “the art of war about the movement and supply of forces.”

1. A military concept
2. Fighting a war requires:
(i) Setting an objective
(ii) Meticulous planning to achieve the objective
(iii) Proper deployment of troops
(iv) Supply lines consisting of weaponry, food, etc.
3. A logistics plan should be such that there is minimum loss of men and material.

Marketing managers, like soldiers on the battlefield, devise a proper logistics strategy capable of profitably meeting the company’s target customer demand.

Inbound logistics + Material Management + Physical Distribution = Logistics

• Inbound logistics refers to the transportation of materials received from suppliers.
• Material management refers to the movement of materials and components inside a company.
• Physical distribution is the flow of items from the production line’s end to the customer.
• Supply-chain management encompasses more than logistics; it connects logistics directly inside the user’s communication network and with the firm’s technical staff. It encompasses manufacturers, suppliers, transporters, warehouses, merchants, and customers.
• According to the Council of Logistics Management: “Logistics is the process of planning, implementing and controlling the efficient, effective flow and storage of goods, services and related information from the point of origin to the point of consumption to conform to the customer requirement”.

 2.1.1  Concept of Logistics

Logistics is the process of planning, implementing, and controlling the effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption to meet the customer’s needs.

Logistics Operations

1. Customer service
2. Demand forecasting
3. Distribution communication
4. Inventory control
5. Material handling
6. Order processing
7. Part and service support
8. Plant and warehouse side selection
9. Procurement
10. Packaging
11. Return goods handling
12. Salvage and scrap disposal
13. Traffic and Transportation
14. Warehousing and storage

Few business disciplines are as complex or encompass as much territory as logistics. The importance of logistics cannot be overstated; they want things to be available and fresh. Without logistical support, imagining any marketing or manufacturing isn’t easy.

Logistics has been practised since the dawn of civilisation—it is not a new concept. Implementing excellent logistics practices, on the other hand, has become one of the most fascinating and complex operational areas of company and public sector management.

Logistics is the design and management of a system to govern material flow across an organisation. Because of geographical barriers, logistics is a critical component of a multinational company. An international company’s logistics involve the movement of raw materials, coordinating flows into and out of multiple countries, transportation options, transportation costs, packaging the product for export, storing the goods, and managing the entire process.

Supply Chain Management is the systematic, strategic coordination of traditional business operations and techniques within a specific firm and across businesses within the supply chain. The goal is to improve the long-term performance of individual companies and the whole supply chain.

Logistics is involved at various stages of a supply chain, such as from the supplier to the plant, the plant to the distribution centre, the distribution centre to the store, the store to the customer, or any combination of these stages. Logistics is moving materials and products into, through, and out of a company.

2.2 Logistics Value Proposition

So far, it has been established that logistics should be managed as a unified effort to achieve customer satisfaction at the lowest possible overall cost. Logistics done in this manner adds value. This section examined the elements of the logistical value proposition—service and cost minimization—in greater detail.

2.2.1 Service Advantages

Almost any level of logistical service is possible if a company is willing to spend the necessary resources. In today’s operational environment, economics, not technology, is the limiting element. For example, a dedicated inventory can be kept near a large customer. A truck fleet can be kept in a constant state of delivery readiness. Dedicated real-time connections between a client and a supplier’s logistical operation can be established to expedite order processing. Given this level of logistical preparedness, a product or component might be delivered within minutes of discovering a client’s need.

2.2.2 Cost Minimization

This decision is based on cost-cutting factors. The least-total-cost system design considers both transportation and inventory expenses. The concept is depicted in Figure 2.2. The chart’s ‘Total transportation cost’ curve is low at eight facilities. The ‘total inventory cost’ curve, on the other hand, rises with each new warehouse. The best system network for the total system is expressed by the ‘total cost network,’ which is shown in this picture as having six locations.

While transportation costs dictate the number of economically viable locations, inventory expenses modify the number and size of the warehouses. The system’s minimal total cost point is not at the lowest cost for transportation or inventory, reflecting the methodology of integrated logistical analysis.

Logistics costs are a significant component of any organization’s overall cost structure. The emphasis should be on renegotiating freight and shipping prices, lowering overall freight expenses, and streamlining operations. Today, logistics management has received particular attention due to a strong emphasis on the quality of goods and services and intense pricing rivalry, which forces businesses to limit expenses to compete in the market.

The ratio of logistics costs to total value added denotes the cost importance of logistics-related activities. It is high for makers of bulk items but low for consumer goods manufacturers. For bulk commodities, total logistics costs as a percentage of value addition are around 70%, with transportation expenses accounting for nearly two-thirds of the total.

Procurement, transportation, transhipment, and storage of commodities are the four primary aspects of logistics management. Depending on the industry, supply chain logistics costs range from 5% to 50% of the entire cost of a product. The following are some cost-cutting suggestions for these four areas:

Procurement

Streamlining sourcing techniques: Recognize the actual sourcing costs, including Freight Duty Inventory carrying expenses. Brokerage involved in obtaining Order management: It entails understanding numerous specs and design order needs with each supplier, which will aid in identifying cost-cutting opportunities and lowering price structure. Other methods include switching to lower-cost substitutes, implementing just-in-time deliveries from suppliers, which can reduce a company’s inventory and internal logistics costs, and allowing suppliers to save on shipping, warehousing, and production scheduling costs, which can benefit both.

Transportation

Mode Selection: Because each mode has advantages and disadvantages in terms of costs, speed, capacity, flexibility, and safety, selecting the optimal mode of transportation (air, water, rail, road, and through pipeline) that best suits the quantity and quality of goods to be supplied and required during delivery time reduces the opportunity costs involved due to unavailability of goods at the right time.

It is possible to avoid losses due to damage to products in transportation.

Vehicle routing and scheduling optimization can help reduce in-transit inventory. Several mathematical and analytical methods, such as the shortest route method, transportation method, and so on, can be applied to optimise accompanying costs.

Freight consolidation might also help cut transportation costs. It entails combining smaller volumes of inventory to make a larger quantity for shipment. The following sections discuss all of these strategies in greater detail.

Transhipment

It mainly entails regulating express shipping costs, which are often incurred when a corporation has an entire package dispatched at a higher price on an express service level basis. These costs can be decreased through appropriate planning, assessing the goods needed for immediate delivery via express service, and distributing the costs accordingly.

Inventory

Sufficient capital must be committed for an extended period to build inventory. Thus, properly analysing demand and supply patterns and the nature of the product will result in cost savings, which will also aid in managing inventory levels.

2.2.3 Logistics Value Generation

Mastering the art of combining operational expertise and dedication to essential customer expectations and requirements is the key to achieving logistical leadership. The logistics value proposition is this customer commitment within a strict cost framework. It is a firm’s one-of-a-kind devotion to individual or select groups of its clients. The average business attempts to design and implement an overall logistical capability that meets consumer expectations while maintaining a reasonable total cost expenditure. The primary logistics strategy will rarely be the lowest total cost or the best possible customer service. Similarly, the best combination will differ depending on the buyer.

A well-planned logistics effort must maximise customer response and capability while minimising operational volatility and inventory commitment. Most importantly, it must be relevant to specific clients. Significant progress has been made in creating tools to assist managers in calculating cost/service trade-offs. A solid plan necessitates the ability to predict the operating costs required to achieve various service levels. Similarly, different degrees of system performance are meaningless unless considered in the context of broader business unit marketing, production, and procurement plans. Leading companies understand that a well-designed and well-managed logistics system can help them gain a competitive advantage. Indeed, as a general rule, enterprises that gain a strategic edge through logistical skills define the nature of their industry’s competitiveness.

2.3 The Work of Logistics

Logistics is the movement and positioning of inventory to accomplish desired time, place, and possession benefits at the lowest overall cost in supply chain management. Inventory has limited value until it is positioned at the correct time and place to allow ownership transfer or the development of value added. If a company fails to meet time and location requirements consistently, it has nothing to sell. The full range of functional work must be integrated for a supply chain to realise the most significant strategic benefit from logistics. Decisions in one functional area will affect the costs of others. This interdependence of functions makes the successful implementation of integrated logistical management difficult. The capabilities required to deliver logistical value are created through integrated activities relating to these functional domains.

2.3.1 Order Processing

Historically, the importance of precise information in achieving excellent logistical performance has been undervalued. While several information elements are crucial to logistics operations, order processing is the most important. Failure to fully realise this significance stems from a lack of awareness of how order processing distortion and operational problems affect logistical operations. Today’s information technology can meet even the most stringent client expectations. Order information can be exchanged between trade parties if desired.

2.3.2 Inventory

A company’s inventory needs are directly related to its facility network and the quality of customer service needed. Theoretically, a company might stock every item sold in each facility dedicated to serving each consumer. Few businesses can afford such a lavish inventory strategy since the risk and total cost are prohibitively expensive. An inventory strategy aims to provide desired customer service while committing to the least inventory. Excessive inventories may compensate for inadequacies in a logistic system’s basic architecture, but they will ultimately result in a higher-than-necessary total logistics cost. Logistical techniques should be devised to keep inventory costs as low as possible. The main goal is to maximise inventory turnover while meeting service commitments. A good inventory plan combines five components of selective deployment:

(1) core customer segmentation,

(2) product profitability,

(3) transportation integration,

(4) time-based performance, and

(5) competitive performance.

2.3.3 Transportation

Transportation is the operational element of logistics that moves and arranges inventory geographically. Transportation has typically received significant administrative attention due to its relevance and evident expense. Almost all businesses, large and small, have transportation managers. Transportation requirements can be met in three ways. To begin, a private fleet of equipment may be used. Second, contracts with specialised transportation specialists might be arranged. Third, an organisation may use the services of a wide range of carriers to provide various transportation services on a per-cargo basis.

From the standpoint of the logistical system, three elements are critical to transportation performance:

(1) cost,

(2) speed, and

(3) consistency.

The cost of transportation includes the payment for shipment between two geographical locations and the expenses associated with keeping in-transit inventory. Transportation should be used in logistical systems to reduce total system costs. This could imply that the cheapest mode of transportation does not always result in the lowest total cost of logistics. The time required to execute a particular movement is called transportation speed. Transportation speed and cost are linked in two ways. For starters, transportation companies that can provide speedier service often charge more. Second, the shorter the period when inventory is in transit and unavailable, the faster the transportation service. Thus, balancing speed and service cost is vital in selecting the ideal mode of transportation. The differences in the time necessary to accomplish a specific movement over several shipments are called transportation consistency. Consistency demonstrates the dependability of transportation.

2.3.4 Warehousing, Materials Handling, and Packaging

The first three logistics functional domains – order processing, inventory, and transportation – can be built into various operating configurations. Each arrangement can contribute to a certain level of customer service at a cost. These functions, in essence, combine to form a system solution for integrated logistics. The fourth logistics functionality – warehousing, materials handling, and packaging – is essential to a logistics operating system. These functions, however, do not have the same independence as those. Other logistics areas include warehousing, materials handling, and packaging.

Example: Typically, inventory must be warehoused at specific intervals during logistics.

Materials handling is required for efficient loading and unloading of vehicles. Finally, individual products are best handled when packaged together into shipping cartons or other unit loads.

2.3.5 Facility Network Design

Classical economics overlooked the significance of facility placement and overall network design in ensuring efficient business operations. When economists first analysed supply-and-demand connections, they believed that facility location and transportation cost differentials between competitors were either non-existent or equal. However, in commercial operations, the number, size, and geographical proximity of facilities that undertake logistical operations directly impact customer service capabilities and cost. Because a company’s facility structure is utilised to distribute products and resources to consumers, facility network design is a fundamental obligation of logistical management. Typical logistics facilities include manufacturing plants, warehouses, cross-dock operations, and retail storefronts.

2.4  Logistical Operations

The shaded portion of the picture below depicts the conception of integrated logistics. Logistics is regarded as the skill that connects a company to its consumers and suppliers. Customer information travels through sales activity, predictions, and orders across the firm. The data is processed into detailed manufacturing and purchasing strategies. As products and materials are acquired, a value-added inventory flow is established, eventually leading to the transfer of ownership of finished products to customers. As a result, the process is considered as two interconnected efforts: inventory flow and information flow. Two remarks are in order before delving deeper into each flow.

Integrated Logistic

Example: Because traditional manufacturing is unnecessary, retail or wholesale enterprises generally link physical distribution and purchase. However, retailers and wholesalers must finish the logistics value-added process. The same applies to all public-sector enterprises that produce goods or offer services.

 2.4.1 Inventory Flow

Logistics operational management concerns the transfer and storage of commodities and final products. Logistical activities begin with the initial shipment of a material or part from a supplier and conclude with the delivery of a produced or processed product to a client.

The logistical process adds value to acquiring a commodity or component by moving inventory when and where it is needed. If everything goes smoothly, a material increases its value at each stage of its translation into completed inventory. In other words, once a part is integrated into a machine, its value increases. Similarly, once delivered to a buyer, the machine has increased in value.

Logistics operations for a significant manufacturer may include thousands of moves that end in the delivery of products to an industrial user, retailer, wholesaler, dealer, or other customers. A major retailer’s logistical operations may begin with acquiring products for resale and end with consumer pickup or delivery.

For instance, in a hospital, logistics begins with procurement and finishes with complete patient surgery and recovery support.

The critical idea is that logistics is vital regardless of the size or kind of business and necessitates continual managerial attention. To better understand logistics operations, they can be divided into physical distribution, manufacturing support, and procurement.

2.4.2 Physical Distribution

Physical distribution concerns the movement of a finished product to clients. In physical distribution, the consumer is the final destination of a marketing route. The product’s availability is critical to each channel participant’s marketing campaign.

The time and space of customer service become an intrinsic aspect of marketing due to the physical distribution process. As a result, physical distribution connects a marketing channel to its clients. Many diverse physical distribution networks support the enormous diversity of marketing systems in a highly commercialised nation. Every physical distribution system has one thing in common: they connect manufacturers, wholesalers, and retailers to marketing channels that supply product availability as an integral part of the marketing process.

2.4.3 Manufacturing Support

Manufacturing support focuses on managing work-in-process inventory as it moves between manufacturing phases. In manufacturing, the primary logistical task is to contribute to the development of a master production schedule and to ensure the timely availability of resources, component components, and work-in-process inventories. As a result, the overall issue of manufacturing support is not how production takes place but rather what, when, and where things will be created. When compared to physical distribution, manufacturing support has one significant difference. Physical distribution seeks to satisfy customer demands and, as a result, must accommodate the uncertainty of consumer and industry demand. Manufacturing support entails movement requirements that the manufacturing firm manages. Most manufacturing operations do not have the uncertainties introduced by random customer ordering and erratic demand accommodated by physical distribution. The separation of manufacturing support from outbound (physical distribution) and inbound (procurement) activities gives chances for specialisation and enhanced efficiency from the standpoint of overall planning.

2.4.4 Procurement

Procurement involves purchasing and coordinating inbound material, part, and finished inventory movement from suppliers to manufacturing or assembly factories, warehouses, or retail outlets. The acquisition process typically goes by various names, depending on the circumstance. In the industrial industry, the purchase process is commonly called purchasing. The acquisition has generally been referred to as procurement in government circles. In retail and wholesale, buying is the most often used phrase. The procedure is known as inbound logistics in various circles. Although there are variances in acquisition scenarios, the term procurement is used here to refer to all sorts of purchases. Material relates to inventory moving inbound to an enterprise, regardless of its resale readiness. The term product refers to inventory that is available for purchase by consumers. In other words, materials add value through manufacturing, whereas products are finished goods. The fundamental contrast is that goods are created by adding value to raw materials through manufacturing, sorting, or assembling.

Procurement is concerned with the availability of desired material assortments when and where they are required. Purchasing focuses on inbound materials, sorting, or assembly, whereas physical distribution concerns outgoing product delivery. In most consumer product marketing situations, such as a grocery manufacturer shipping to a retail food chain, the manufacturer’s physical distribution is the same procedure as a retailer’s procurement activities. Although similar or identical transportation requirements may be involved, the degree of managerial control and risk associated with performance failure vary significantly between physical distribution and procurement.

The three logistics areas commonly overlap within a typical enterprise. When each is viewed as an intrinsic component of the broader value-adding process, there is a potential to capitalise on the unique characteristics of each while facilitating the overall process. An integrated logistics process aims to coordinate total value-added inventory movement. The three areas work together to provide integrated management of resources, semi-finished components, and products flowing between the enterprise’s sites, supply sources, and customers. Logistics, in this sense, is concerned with the strategic management of overall movement and storage.

2.4.5 Information Flow

The flow of information identifies specific areas in a logistical system with requirements. Information also integrates the three operating sectors. The fundamental requirement development and specification goal is to design and execute integrated logistical operations. Different movement requirements exist within specific logistical zones based on order size, inventory availability, and urgency. The fundamental goal of information sharing is to reduce these disparities. It is critical to emphasise in the following discussion that information requirements parallel the actual labour performed in physical distribution, manufacturing support, and procurement. While these regions house the actual logistical work, information allows for better coordination of planning and control of day-to-day operations. The effort involved in the logistical system can be squandered if appropriate information is not provided.

There are two sorts of logistical information flows: coordination and operational.

The goal at this point is to provide an overview of the information requirements required to run an integrated logistics system.

2.4.6 Planning and Coordination Flows

Coordination among value chain actors is the backbone of overall information system architecture. As a result of coordination, plans are developed, and they include

(1) strategic objectives,

2) capacity restrictions,

(3) logistical requirements,

(4) inventory deployment,

(5) production requirements,

(6) procurement requirements and

(7) forecasting.

The strategic objectives that result from marketing and financial goals are the key drivers of the total value chain. Strategic objectives specify the kind and location of customers, which are then linked to the products and services that must be provided. The financial aspects of strategic plans explain the resources needed to sustain inventory, receivables, facilities, equipment, and capacity.

Capacity limits help to balance internal and external industrial demands. This type of capacity planning is not essential for non-manufacturing entities in the value chain. Capacity limits identify limitations, hurdles, or bottlenecks within fundamental manufacturing capabilities and define appropriate outsourcing requirements based on strategic objectives.

Planning and Coordination Flows

 

For example, while Kellogg owns the brand and distributes Cracklin Oat Bran, a third party manufactures all of it on a contract basis. The result of capacity restrictions is a plan that places strategic objectives in a time-phased timetable that details facility utilisation, financial resources and personnel requirements.

Logistics requirements define the tasks distribution facilities, equipment, and labour must do to carry out the capacity plan. Logistics criteria specify value chain performance based on forecasts, promotional timing, client orders, and inventory conditions.

Inventory deployments are the interfaces between planning/coordination and operations that describe the schedule and composition of inventory placement. A fundamental deployment concern is the ability to manage timing and consolidation to generate efficiency as inventory passes through the value chain. Inventory is unique because it is an intrinsic part of the logistics planning/coordination and operational processes. Deployment specifies the what, where, and when of the logistical activities from an information standpoint. Inventory management is a day-to-day occurrence from an operational perspective.

Procurement plans materials and components for inbound shipping to support production needs. In retailing and wholesale circumstances, procurement entails managing product supplies. In manufacturing, purchasing must facilitate the receipt of inbound materials and parts from suppliers. Regardless of the circumstances, purchasing coordinates decisions regarding supplier qualifications, intended speculation, third-party arrangements, and the possibility of long-term contracting.

Forecasting uses historical data, present activity levels, and planning assumptions to predict future activity levels. Logistical forecasting generally concerns relatively short-term predictions (i.e., less than ninety days). Forecasts predict periodic (typically monthly or weekly) sales volumes for each product, which are the foundation for logistics and operational strategies.

The ultimate objective of information planning/coordination flow is to combine specific activities inside a corporation and facilitate overall integrated performance. Unless a high level of coordination is maintained, operational inefficiencies and surplus inventories can occur. The sidebar addressing how hospitals use information to improve efficiency and customer experience exemplifies planning/coordination in the healthcare industry.

2.4.7  Operational  Requirements

The second part of information requirements involves directing operations to receive, process, and dispatch inventory to support customers and purchase orders as needed. Operational information requirements cover order management, processing, distribution operations, inventory management, transportation and shipping, and procurement.

The transfer of requirement information between value chain members involved in final product distribution is called order management. Order management’s essential task is the proper entry and qualification of customer orders. Typically, requirements are transferred between value chain partners via phone, mail, facsimile (fax), or electronic data interchange. Information technology has had a significant impact on order management. The emergence of low-cost data transport has transformed the order management process.

Order processing allows inventories and distributes responsibility for meeting client needs. Customers have traditionally been assigned available inventory or planned manufacturing based on predetermined priorities. Two-way communication linkage with consumers is maintained in technology-rich order processing systems to develop a negotiated order that satisfies customers within the restrictions of scheduled logistical operations.

Distribution operations necessitate the flow of information necessary to facilitate and coordinate performance inside logistics facilities. A logistical facility’s principal function is to deliver material or product assortments to meet order requirements. The emphasis is on the scheduled availability of the desired assortment with minor duplication and redundant work effort. The key to distribution operations is holding and managing inventory as little as possible while meeting customer orders.

Inventory management is concerned with using information to carry out the logistics plan as planned. Inventory is deployed and managed using human resources and information technology to meet planned requirements. Inventory management ensures the logistical system has the resources to execute as anticipated.

Inventory movement is guided by transportation and shipping information. To achieve total efficiency, it is essential to consolidate orders to utilise transportation capacity. It is also necessary to ensure that the essential transportation equipment is available when required. Finally, supporting paperwork is vital because ownership is frequently transferred through transit.

Procurement concerns the information required to prepare, modify, and release purchase orders while ensuring overall supplier compliance. In many aspects, procurement information is comparable to order processing information. Both information-sharing types facilitate processes connecting a company to its consumers and suppliers. The main distinction between procurement and order processing is the type of operation that occurs due to requirements transfer.

The overarching goal of operational information is to offer the detailed data required for integrated physical distribution, manufacturing support, and procurement processes. While planning/coordination flows give information about scheduled operations, operational needs are necessary to guide day-to-day logistics tasks. To effectively leverage logistical competency, managers within a business must fulfil some specified goals in the context of information and inventory flows.

2.5 Logistical Operating Arrangements

The ability of logistics services to positively affect clients is closely tied to the design of the operating system. Because of the numerous dimensions of logistical performance needs, operational design is challenging, as an operating structure must balance performance, cost, and adaptability. When one examines the vast array of logistical systems utilised worldwide to serve vastly different markets, it is astounding that any structural resemblance exists. However, keep in mind that all logistical systems share two criteria. First and foremost, they are intended to control inventory. Second, the range of logistics options is constrained by current technology. These two traits tend to produce common operating structures. The three most common structures are echelon, direct, and combination.

2.5.1 Echelon Structured Logistics

An echelon structure in a logistical system means that the flow of products typically passes through a typical arrangement of enterprises and facilities as it progresses from origin to final destination. Using echelons typically suggests that total cost analysis justifies maintaining a specific volume of inventory or conducting specified tasks at successive levels of a supply chain. Echelon systems use warehouses to establish inventory assortments and gain consolidation economies associated with big-volume transportation operations. Warehouse inventories are ready for rapid deployment to fulfil customer demands. Echelon systems typically use either break-bulk or consolidation warehouses. Normally, a break-bulk facility receives large-volume shipments from a variety of suppliers. Inventory is sorted and stored in preparation for future consumer needs. Break-bulk warehouses include food distribution centres run by big retail chains and wholesalers. A consolidation warehouse uses a reserve profile. Consolidation is generally required by industrial enterprises that operate plants in different geographical areas. Products made at various plants are sorted at a single warehouse facility, allowing the company to send full-line assortments to clients. Enterprises that use echeloned systems for full-line consolidation include major consumer product makers.

2.5.2 Direct Structured Logistics

Unlike inventory echeloning, logistical systems are designed to convey products directly to customers’ destinations from one or a restricted number of centrally placed inventories. Direct distribution often combines the expedited services of premium transport with information technology to fulfil customer requests quickly and achieve delivery performance. This combination of capabilities, built into the order delivery cycle, eliminates time delays and overcomes geographical distance from clients. Examples of direct shipments are plant-to-consumer truckload shipments, direct retail delivery, and different forms of direct-to-consumer fulfilment necessary to enable e-commerce shopping. Because the average cargo size is often considerable, direct logistical structures are also commonly employed for inbound components and materials to production plants.

2.5.3 Flexible Logistics System

The optimum logistical layout combines the inherent benefits of echeloned and direct structures into a flexible logistics system. Anticipatory inventory commitment should preferably be postponed for as long as practicable. Inventory techniques frequently place fast-moving products or materials in forward warehouses, while other, more hazardous or expensive things are held centrally for direct distribution to clients. The primary service commitment and order size economics determine the most desirable and inexpensive structure to service a particular customer.

(a) Emergency Flexible Structure: Pre-planned solutions for resolving logistical problems are called emergency flexible operations. A typical emergency arises when a designated shipping facility is out of stock or cannot finish a customer’s order for any other reason. For example, a warehouse may be out of an item, with no restocking inventory due until after the customer’s specified order delivery date. To prevent backorders or product cancellations, a contingency operating policy may assign the entire order, or at least the unavailable goods, for dispatch from an alternate warehouse. The importance of the specific customer or the crucial nature of the goods being requested often drives the usage of emergency flexible operation methods.

(b) Routine Flexible Structure: A flexible logistics capability that has grown in popularity due to enhanced communications consists of procedures for serving specific customers designed as part of the fundamental logistical system architecture. The adaptable logistics rules and decision scenarios define alternate methods of meeting service requirements, such as assigning different shipping facilities. A strategy based on routine flexible operations can be justified in at least four different scenarios.

2.6 Supply Chain Synchronization  

The ability to coordinate, organise, and manage end-to-end supply chain flows — products, services, information, and financials – in such a way that the supply chain functions as a single entity is called synchronisation. The ability to coordinate, organise, and manage end-to-end supply chain flows – encompassing products, services, information, and financials – in such a way that the supply chain functions as a single entity is referred to as supply chain synchronisation. In other words, it is a common goal for supply chain partners willing to collaborate to determine how to complete best the total operations and duties required to meet client demand. The overall purpose of synchronised supply chains is the same as traditional supply chain management.

However, there are three significant variances. One is that businesses collaborate with their vendors to coordinate their processes and achieve simultaneous manufacturing. Another distinction is that the Internet and other forms of technology are included in the process to make it run more smoothly and efficiently. Finally, to support this sort of supply chain management, the purchasing organisation will need to hire, train, and restructure their workforce.

Synchronization enables businesses to anticipate demand disruptions and anomalies in real time, avoiding the dreaded bullwhip effect. It assists firms in transitioning to a demand-driven environment that is more suited to dealing with uncertainty. Typically, supply chain managers deal with uncertainty by buffering—maintaining inventory pools at multiple points along the supply chain. A synchronised supply chain operates by distinguishing baseline demand from demand surges and then placing and utilising capacity and inventory at crucial points in the supply chain.

Organizations that are not synced frequently discover that their expenses are higher than those of firms and supply chains that have some degree of synchronisation. Inefficiencies, from production change orders to expedited transportation fees, might increase expenses. The overall cost of excess inventory held by supply chain participants to cover their risk exposure is a cost that is not generally known due to a lack of synchronisation.

Recognizing that a company is reactive does not guarantee that necessary adjustments will be implemented. Corporations will not necessarily spend on increasing synchronisation until concerns of organisational behaviour, managerial processes, and technology infrastructure are addressed. Changes in these areas will not occur until management is confident that doing so would damage the firm’s well-being. A company must take a larger view to achieve the optimal synchronisation condition. It is not just about what is best for the company but also about what is best for the various supply chain members.

2.6.1  Performance Cycle Structure

The performance cycle represents the work required to complete market distribution, production, or support procurement logistics. It consists of specialised tasks ranging from requirement discovery to product delivery. The performance cycle is the critical unit of study for logistical synchronisation since it includes multiple work components. At the most fundamental level, information and transportation must connect all enterprises involved in a supply chain. Nodes are operational locations that are linked via information and transportation. Inventory assets are included in performance cycles, in addition to supply chain nodes and connections. Inventory is the capital invested to support operations at a node or while a product or material is in transit. Base stock and safety stock are the types of inventory committed to supply chain nodes. Base stock is inventory stored at a node typically half the size of the average shipment received. There is safety stock to protect against variations in demand or operational lead time. Work linked to logistics is done at and between supply chain nodes. Inventory is stocked and flows via nodes, needing a range of materials handling and, if necessary, storage. While some handling and in-transit storage occurs during transportation, it is modest compared to what is generally performed within a supply chain node, such as a warehouse. As input/output requirements change, performance cycles become more dynamic.

A performance cycle’s input is demand, often in the form of a work order that defines the needs for a product or material. A high-volume supply chain usually necessitates a different and broader range of performance cycles than a lower-throughput network. When operating requirements are highly predictable or throughput is relatively modest, the performance cycle structure required to provide supply chain logistical assistance can be simplified. The performance cycle structures necessary to support a sizeable retail enterprise’s supply chain, such as Target or Walmart, are significantly more complex than the operational structure requirements of a catalogue fulfilment company.

The level of performance expected from the integrated logistical operations that support a specific arrangement is referred to as supply chain output. The supply chain’s combined logistical performance cycle structure effectively fulfils its objective to the extent that operational requirements are met. A supply chain’s efficiency measures the resources required for logistical effectiveness. In supply chain management, the efficacy and efficiency of logistical performance cycles are critical factors.

Depending on the operational purpose of a particular performance cycle in a supply chain structure, the accompanying work may be entirely controlled by a single firm or may involve numerous enterprises. For example, Manufacturing support cycles are frequently under a single organisation’s operational authority.

On the other hand, performance cycles connected to market distribution and procurement frequently involve many firms. Understanding that transaction frequency and intensity will fluctuate over performance cycles is critical. Some performance cycles are set up to allow for a one-time purchase or sale. In this example, the corresponding supply chain is designed, implemented, and decommissioned once the transaction is completed. Other performance cycles show long-standing structural configurations. A complicating factor is that any operation or facility in one logistical arrangement may simultaneously involve several performance cycles. For example, a hardware wholesaler’s warehouse facility may receive items from numerous manufacturers and service competing stores daily. Similarly, a motor carrier may participate in various supply chains encompassing multiple sectors.

When one considers a supply chain of national or multinational scope that is involved in marketing a broad product line to numerous customers, engaging in basic manufacturing and assembly, and procuring materials and components on a global basis, the notion of individual performance cycles linking all participating firms’ operations is difficult to comprehend. Estimating how many performance cycles exist in General Motors or IBM’s supply chain structure is practically impossible. Regardless of the number and variety of performance cycles a supply chain deploys to meet its logistical needs, each must be uniquely planned and operationally managed. The significance of performance cycle design and operation cannot be overstated: The logistics performance cycle is the fundamental unit of supply chain design and control. The performance cycle structure, in essence, is the framework for implementing integrated logistics across the supply chain.

2.6.2  Market Distribution Performance Cycles

Market distribution operations process and deliver customer orders. They are critical to sales performance because they ensure timely and cost-effective product availability. The total process of acquiring and retaining clients can be separated into transaction-creating and physical-fulfillment activities. Advertising and selling are transaction-creating activities.

(1) order transmission,

(2) order processing,

(3) order selection,

(4) order transportation, and

(5) customer delivery is all physical fulfilment tasks.

Market distribution performance cycles connect a supply chain to end customers logistically. This interface has the potential to be conflicting.

Marketing is committed to achieving the maximum possible sales penetration through pleasing customers. As a result, most businesses marketing and sales departments apply permissive standards when appeasing clients. This could imply that marketing and sales will typically pursue vast product assortments supported by extensive inventories or that all client requirements will be met, whether small or profitable. The marketing expectation is that there will be zero logistical defects across the supply chain and that customer-focused marketing efforts will be supported.

2.6.3 Manufacturing Support Performance Cycles 

Manufacturing is the supply chain node that generates form value. Industrial efficiency depends heavily on logistical support to develop and maintain an ordered and economical flow of supplies and work-in-process inventory as required by production schedules. The level of specialisation necessary in market distribution and procurement might overshadow the significance of inventory positioning and timing to support manufacturing. Manufacturing logistics is less visible than its counterparts because customers and suppliers are uninvolved.

Manufacturing logistics assistance as a separate working area is a relatively recent concept. Flexible manufacturing strategies’ unique requirements and operational constraints justify focusing on performance cycles to support production. Traditional manufacturing processes connected to economies of scale are being re-evaluated to support quick product switchovers and shorter production runs to provide maximum flexibility. Supply chain actors must provide precise logistical support to perfect such time-sensitive manufacturing techniques. It is critical to emphasise once more that logistical manufacturing assistance aims to facilitate the what, where, and when of production rather than the how.

The purpose is to support all manufacturing requirements as efficiently as possible. Manufacturing support operations are very different from market distribution or procurement. Manufacturing support logistics is often confined to a single company, but the other two performance areas must cope with behavioural unpredictability throughout the supply chain. Even when contract manufacturing is utilised to supplement internal capacity, total control of a single enterprise is more robust than in the other two operational sectors. The advantages achieved from using this control opportunity are the primary basis for classifying manufacturing logistical support as a separate operating region.

2.6.4 Procurement Performance Cycles

To ensure an orderly flow of materials, parts, or finished inventory along a supply chain, several operations or tasks are required:

(1) sourcing,

(2) order placing and expediting,

(3) transportation, and

(4) receipt.

These actions must be completed to complete the procurement process. Once materials, components, or finished products are obtained, other performance cycles adequately supply the additional storage, processing, and transportation required to support either manufacturing or market distribution. Because of the emphasis on foreign supply, this aspect of procurement is known as inbound logistics.

2.6.5 Performance Cycle Uncertainty

Reduced performance cycle uncertainty is a primary goal of logistics in all operating domains. However, the structure of the performance cycle, operating conditions, and the quality of logistical operations all randomly interact to generate operational variance.

The illustration of the performance cycle is confined to completed goods inventory delivery. The show time distributions statistically reflect performance history for each task of a typical performance cycle. The diagram depicts the historical minimum to the maximum time necessary to complete each task and the corresponding time distribution for the entire performance cycle. The vertical dashed line represents the average time required to complete each job.

The nature of the job required determines the variance in individual activities. Order transmission is highly reliable when employing electronic transfer (EDI) or Web-based communications, but telephone or regular postal transmission is more irregular. Regardless of the level of technology used, operational variance will arise due to daily workload changes and the resolution of unforeseen events.

Order processing time and variance are affected by workload, degree of automation, and credit approval criteria. Capacity, materials handling sophistication, and human resource availability directly impact order selection, speed, and associated delay. When a product is out of stock, the time it takes to select an order involves manufacture scheduling. The distance determines the time required for transportation travelled, the size of the shipment, the mode of transportation used, and the operating circumstances. Customers’ final delivery times may vary depending on allowed reception times, delivery appointments, manpower availability, and unique unloading and equipment requirements.

REVIEW QUESTIONS:

1. Can you illustrate a common trade-off that frequently occurs between different areas of logistics management?
2. Could you discuss and elaborate on the significance of the statement: “The selection of a superior location network can create substantial competitive advantage”?
3. Describe the logistics value proposition, focusing on accommodating customer needs while managing costs effectively.
4. Can you outline the fundamental similarities and differences in terms of logistical control between the performance cycles of procurement, manufacturing support, and market distribution?
5. Discuss the concept of uncertainty and its impact on the overall performance cycle within logistics management, considering factors such as demand variability, supply chain disruptions, and risk mitigation strategies.
6. Discuss and illustrate strategies for controlling performance cycle variance within logistics management, considering factors such as demand forecasting, inventory management, lead time reduction, and process optimization.
7. What is the rationale behind designing echeloned logistical structures, and can echeloned structures be effectively combined with direct structures within supply chain management?
8. Differentiate between Performance Cycle Structure and Market Distribution Performance Cycles, highlighting their respective roles and functions within logistical operations.
9. Please provide a brief overview of Echelon Structured Logistics, outlining its key principles, advantages, and applications in supply chain management.
10. Define Order Management and its significance in logistics and supply chain operations, emphasizing its role in efficiently coordinating and processing customer orders.
11. Elucidate the statement, “Coordination is the backbone of the overall information system architecture among value chain participants,” highlighting its importance in facilitating seamless information flow and collaboration across the supply chain.
12. Discuss the phases included in Integrated Logistics, outlining the steps involved in integrating various logistical functions and processes to achieve operational efficiency and alignment with strategic objectives.
13. Differentiate between Performance Cycle Structure and Market Distribution Performance Cycles, highlighting their respective roles and functions within logistical operations.
14. Provide a brief overview of Echelon Structured Logistics, outlining its fundamental principles, advantages, and applications in supply chain management.
15. Define Order Management and its significance in logistics and supply chain operations, emphasizing its role in coordinating and processing customer orders efficiently.
16. Elucidate the statement, “Coordination is the backbone of the overall information system architecture among value chain participants,” highlighting its importance in facilitating seamless information flow and collaboration across the supply chain.
17. Discuss the phases included in Integrated Logistics, outlining the steps involved in integrating various logistical functions and processes to achieve operational efficiency and alignment with strategic objectives.