Concept of Logistics

The concept of logistics is fairly new in the business world. The theoretical development was not used until 1966. Since then, many business practices have evolved and logistics currently costs between 10 and 25 percent of the total cost of an international purchase. There are two main phases that are important in the movement of materials: material management and physical distribution; Materials management is the timely movement of raw materials, parts, and supplies. The physical distribution is the movement of the firm’s finished products to the customers. Both phases involve every stage of the process including storage. The ultimate goal of logistics is: “To coordinate all efforts of the company to maintain a cost effective flow of goods.”

Word, ’Logistics’ is derived from French word ‘loger’, which means art of war pertaining to movement and supply of armies.

A military concept, fighting a war requires:

• Setting of an objective
• Meticulous planning to achieve the objective
• Troops properly deployed
• Supply line consisting weaponry, food, medical assistance, etc. maintained
• Plan should be such that there is minimum loss to men & material

Objectives of logistics

1. Operating Objectives

In terms of logistical system design and administration, each firm must simultaneously achieve at least six different operational objectives. These operational objectives, which are the primary determinants of logistical performance, include rapid response, minimum variance, minimum inventory, movement consolidation, quality, and life-cycle support. Each objective is briefly discussed.

2. Rapid Response

Rapid response is concerned with a firm’s ability to satisfy customer service requirements in a timely manner. Information technology has increased the capability to postpone logistical operations to the latest possible time and then accomplish rapid delivery of required inventory. The result is elimination of excessive inventories traditionally stocked in anticipation of customer requirements. Rapid response capability shifts operational emphasis from an anticipatory posture based on forecasting and inventory stocking to responding to customer requirements on a shipment-to-shipment basis. Because inventory is typically not moved in a time-based system until customer requirements are known and performance is committed, little tolerance exists for operational deficiencies

3. Minimum Variance

Variance is any unexpected event that disrupts system performance. Variance may result from any aspect of logistical operations. Delays in expected time of customer order receipt, an unexpected disruption in manufacturing, goods arriving damaged at a customer’s location, or delivery to an incorrect location-all result in a time disruption in operations that must be resolved. Potential reduction of variance’ relates to both internal and external operations. Operating areas of a logistical system are subject to potential variance. The traditional solution to accommodating variance was to establish safety stock inventory or use high-cost premium transportation. Such practices, given their expense and associated risk, have been replaced by using information technology to achieve positive logistics Control. To the extent that variances are minimized, logistical productivity improves as a result of economical operations. Thus, a basic objective of overall logistical performance is to minimize variance.

4. Minimum Inventory

The objective of minimum variance involves asses commitment and relative turn velocity. Total commitment is the financial value of inventory deployed throughout the logistical system. Turn velocity involves the rate of inventory usage over time. High turn rates, coupled with inventory availability, means that assets devoted to inventory are being effectively utilized. The objective is to reduce inventory deployment to the lowest level consistent with customer service goals to achieve the lowest overall total logistics cost. Concepts like zero inventories have become increasingly as managers seek to reduce inventory deployment. The reality of re-engineering a system is that operational defects do not become apparent until inventories are reduced to their lowest possible level. While the goal of eliminating all inventories is attractive, it is important to remember that inventory can and does facilitate some important benefits in a logistical system. Inventories can provide improved return on investment when they result in economies of scale in manufacturing or procurement. The objective is to reduce and manage inventory to the lowest possible level while simultaneously achieving desired operating objectives. To achieve the objective of minimum inventory, the logistical system design must control commitment and turn velocity for the entire firm, not merely for each business location.

5. Movement consolidation

One of the most significant logistical costs is transportation. Transportation cost is directly related to the type of product, size of shipment, and distance. Many Logistical systems that feature premium service depend on high-speed, small-shipment transportation. Premium transportation is typically high-cost. To reduce transportation cost, it is desirable to achieve movement consolidation. As a general rule, the larger the overall shipment and the longer the distance it is transported, the lower the transportation cost per unit. This requires innovative programs to group small shipments for consolidated movement. Such programs must be facilitated by working arrangements that transcend the overall supply chain.

6. Quality improvement

A fifth logistical objective is to seek continuous quality improvement. Total quality management (TQM) has become a major commitment throughout all facets of industry. Overall commitment to TQM is one of the major forces contributing to the logistical renaissance. If a product becomes defective or if service promises are not kept, little, if any, value is added by the logistics. Logistical costs, once expended, cannot be reversed. In fact, when quality fails, the logistical performance typically needs to be reversed and then repeated. Logistics itself must perform to demanding quality standards. The management challenge of achieving zero defect logistical performance is magnified by the fact that logistical operations typically must be performed across a vast geographical area at all times of the day and night. The quality challenge is magnified by the fact that most logistical work is performed out of a supervisor’s vision. Reworking a customer’s order as a result of incorrect shipment or in-transit damage is far more costly than performing it right the first time. Logistics is a prime part of developing and maintaining continuous TQM improvement.

7. Life-Cycle support

The final logistical design objective is life-cycle support. Few items are sold without some guarantee that the product will perform as advertised over a specified period. In some situations. The normal value-added inventory flow toward customers must be reversed. Product recall is a critical competency resulting from increasingly rigid quality standards, product expiration dating and responsibility for hazardous consequences. Return logistics requirements also result from the increasing number of laws prohibiting disposal and encouraging recycling of beverage containers and packaging materials. The most significant aspect of reverse logistical operations is the need for maximum control when a potential health liability exists (i.e.. a contaminated product). In this sense, a recall program is similar to a strategy of maximum customer service that must be executed regardless of cost. Johnson & Johnson’s classical response to the Tylenol crisis is an example of turning adversity into advantage. The operational requirements of reverse logistics range from lowest total cost, such as returning bottles for recycling, to maximum performance solutions for critical recalls. The important point is that sound logistical strategy cannot be formulated without careful review of reverse logistical requirements.