2

Logistics Management

Concerned specificallywith inventory and

product flow

Channel Management

Concerned with managing the structure and

relationships within the channel

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Planning, implementing, and controlling the

physical flows of materials and final goods

from points of origin to points of use to

meet customers’ needs at a profit.

5

Logistical systems that emphasize close

cooperation and comprehensive

interorganizational management to integrate the

logistical operations of the different firms in the

channel

A series of value

adding steps

Physically locating

the product

Product

accessibility for the

customer

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The movement of the

right amount of the right

products to the right place

at the

right time

Earlier logistics was equated mainly with

transportation Now with growing complexities, various factors like

transportation, material handling, inventory control,

warehousing and packaging of goods are seen as

interrelated components of a system. Optimum combination of logistics components to meet

customer service demands

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In a commercial or profit making context –

which, of course involves most business

situations – the logistics manager also

attempts to achieve the desired level of

customer service at the lowest cost by

applying the total cost approach

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Satisfied/Loyal Customers

Time and Place utilities

Dependable product or service

Competitive Advantage

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Specialize in performing most or all of the

logistical tasks that manufacturers

or other channel members

would normally perform themselves

Currently growing rapidly into a major industry

How can we measure customer service created by

the logistics system?

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• Inventory Availability

• Service Capability

• Service Quality

Lead TimeQuick responseEfficient consumer response

DependabilityCommunicationConvenience

Lead TimeQuick responseEfficient consumer response

DependabilityCommunicationConvenience

In-stock or out-of-stock percentages

Order fill rate

Orders shipped complete

Orders arriving in good condition

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Speed of Service

Order cycle time

Order Cycle Consistency

Order Fulfillment Flexibility

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Ability of a firm to perform all order related activities

error free Firms with high service quality tend to:

implement mechanisms that facilitate customers’

access to information

have ways to resolve customer requests without

excessive delays

exhibit “brilliant recoveries” when faced with a

crisis

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Any logistics system consists of six basic

components1. Transportation 2. Material Handling3. Order Processing4. Inventory Control5. Warehousing6. Packaging

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Most fundamental and necessary component of any

logistics system - Highest % of the total cost of

logistics Physical movement of products from one location to

another location Very complex and technical task – Many questions… Overriding issue facing the firm: Choosing the

optimum mode of transportation to meet customer

service demands

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Often the most

expensive component

Considerations

include:

carrier ownership

Rate vs. service offered

reliability

cost vs. speed

competition28

Rail

Motor Carrier

Air

Water

Pipeline

Intermodal

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Range of activities & equipment involved in the placement & movement of products in storage areas

Issues: 1. Minimizing the distances products are moved within the warehouse during the course of receiving, storage, & shipping2. Choosing the kinds of mechanical equipment that should be used3. Making the best use of labor when receiving shipping, & handling products

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The key is order cycle time – the time between an

order is placed and when it is received by the

customer.

Lack of efficiency negatively impacts customer

service. Routine Vs Customized assortment

Lack of efficiency can negatively impact logistics costs

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The firm’s attempt to hold the lowest level of inventory that will still enable it to meet customer demand

Issue: Keeping inventory at the lowest possible level while concurrently placing orders for goods in large

quantities ▪ EOQ

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Goods-in-Transit

Safety Stock

Seasonal Stock

Promotional Stock

Speculative Stock

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Capital costs (Opportunity Costs)

Storage space costs

Inventory service costs

Inventory risk costs

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Transportation savings Production economies (tradeoff is lower product

costs vs. increased inventory costs) Seasonal demand (tradeoff is warehousing costs vs.

inventory costs Customer service (tradeoff is inventory costs vs.

threat of missed business)

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All members want to reduce their inventory levels

Expense may be passed on to customers

Relationships among members allows for

collaborative search for ways to reduce costs

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The holding of products until they are ready to be sold

Issues: 1. The location of warehouse facilities2. The number of warehousing units3. The size of the units4. The design of the units5. The question of ownership

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Packaging & its associated costs can affect the other

components of the system, types of transport used

Issue:

Using packaging to make a significant

difference in the effectiveness & efficiency of the

logistics system

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Forecasting demand

materials requirements planning sourcing

Goal is to minimize transaction and production costs

while maximizing transaction and product quality

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Interrelatedcomponents

of asystem

Warehousing

OrderProcessing

MaterialsHandling

InventoryControl

Transportation

Packaging

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SystemsConcept

Total Cost Approach

Addresses all the costs oflogistics together;

seeks to minimize thetotal cost

Views the costs of all components together in an attempt to find the lowest cost for the highest level of service

Consider all costs visible hidden cost tradeoffs zero sub optimization

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consider the impact of optimizing individual

components

When logistics components are coordinated via the

total systems concept, we move toward zero

suboptimization.

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