In any organization a huge amount of material is shifted from source to the destination. This indicates that raw material is collected from suppliers and the finished product is delivered to the customers. Logistics is defined as a business planning framework for the management of material, service, information and capital flows. In today’s world companies are facing increasing levels of competitive pressures in sustaining, maintaining and improving profitability and reputation. The management is being forced to apply innovative strategies to have a competitive advantage over other firms. Optimizing the logistic activities can become a core competency and thus many companies now understand the need and are investing time to balance supply chain.
Logistics refers to the management of the flow of goods and services between the point of origin and the point of consumption in order to meet the requirements of customers. Logistics involves the integration of information, transportation, inventory, warehousing, material handling, and packaging, and occasionally security. Logistics is a channel of the supply chain which adds the value of time and place utility. Today the complexity of production logistics can be modeled, analyzed, visualized and optimized by plant simulation software.
Primary logistics activities and decisions
- Helps the marketing department to set customer service levels
- Facilitates taking location decisions
- Helps in performing transportation activities (Example – transportation mode selection, vehicle scheduling, carrier routing, facilitates in maintaining inventory (inventory short-term forecasting, planning and control, cooperate with production to calculate EOQ, sequence and time production)
- Facilitates in collection of information, maintaining flows and order processing
- Helps in warehousing and materials handling
- Helps in performing packaging activities
Logistics involves designing, managing, and improving the movement of products through the supply chain. The supply chain is all the firms that engage in activities necessary to turn raw materials into a product and put it in the hands of the consumer or business customer. The difference between a supply chain and a distribution channel is the number of members and their function. A supply chain consists of those firms that supply the raw materials, component parts, and supplies necessary for a firm to produce a product plus the firms that facilitate the movement of that product from the producer to the ultimate users of the product i.e., the channel members.
Physical Distribution
Logistics has the objective of delivering exactly what the customer wants at the right time, in the right place, and at the right price. In planning for the delivery of goods to customers, marketers have usually looked at a process termed physical distribution, which refers to the activities used to move finished goods from manufacturers to final customers. Physical distribution activities include order processing, warehousing, materials handling, transportation, and inventory control. This process impacts how marketers physically get products where they need to be, when they need to be there, and at the lowest possible cost.
In logistics, the focus is on the customer. When planning for the logistics function, firms consider the needs of the customer first. The customer’s goals become the logistics provider’s goals. With most logistics decisions, firms must compromise between low costs and high customer service.
Components of logistics management
- Input into logistics: Natural Resources (Land, Facilities and Equipment), Human Resources, Financial Resources, Information Resources
- Management Actions: Planning, Implementation, control
- Suppliers: Raw material inventory, in process inventory, finished goods
- Output of logistics: Marketing Orientation (Competitive advantage), efficient movement to customer, proprietary asset, time-place utility
Tasks performed in logistics
- Customer Service
- Forecasting Demand
- Channel the Distribution
- Material Handling
- Inventory Control
- Processing the orders
- Service Support
- Plant and Warehouse Site Selection
- Procurement
The manufacturing and logistics functions must take action optimistically to maintain its competitive position in a dynamic industry, by considering the network of manufacturing/logistics as a whole and work towards continuous improvement coordinated across the various activities like delivery service, production priority control and purchasing to exploit the synergy available.
The primary strategies followed by every organization in the competitive environment are
- Cost leadership: Cost leadership refers to producing lowest-cost goods in the industry
- Meaningful differentiation: This factor is a very important and integral component as it assists the organization to differ from its competitor either in terms of service (delivery time, reliability etc.) or in terms of technical services (superior features, superior product etc). Organizations have evolved new approaches to develop interface between two functions and integration is the driver to achieve competitive advantage in the market
Logistics connects the manufacturing from both characteristics of inputs i.e., suppliers of raw materials and characteristics of market i.e., customers or end users. For a given manufacturing organization there is a production/branch warehouse configuration, which satisfies most constraints or pressures imposed by the inputs or the markets. The primary determinants for an effective operation of manufacturing/logistic interface are as under
- Capacity: Cost associates to location and logistics. Firstly production capacity must correspond in some manner to the market demand and production capacity matching the logistics network as per the requirement such as procurement, storage, order entry and processing, outbound transport, branch warehouse and customer delivery in the end.
- Location: The capacity issues are very crucial decision and are required to change as per the market demand and demand locations. Short-term solutions can be capacity enhancement by overtime, second and third shifts, third party contracting, extension of the existing facility and long-term solution are additional facility in a new location or extensive capacity in new location. Short term decisions possess the least risk, and impact on the logistics network only in terms of the additional capacity requirement where as long term solution demand a re-evaluation of the manufacturing/logistics network not only in terms of the capacity of each component but also the strategic necessity and location of each facility (factory, warehouse) in terms of its contribution to the effectiveness of the total network. In other words, a change in location and capacity of any one facility requires a review of the location and capacities of all other facilities. Clearly, the issues involved in location, capacity and logistics are inextricably linked.
Competitive priorities and manufacturing strategy
The ability of a supply chain to compete based on cost, quality, time, flexibility, and new products is shaped by the strategic focus of the supply chain members. A firm’s position on the competitive priorities is determined by its four long-term structural decisions: facility, capacity, technology, and vertical integration, as well as by its four infrastructural decisions: workforce, quality, production planning and control, and organization. The cumulative impact of infrastructural decisions on a firm’s competitiveness is as important as long-term structural decisions.
Manufacturing strategy focuses on a set of competitive priorities such as cost, quality, time, flexibility, and new product introduction. It classifies production processes to five major types: project, job shop, batch, line, and continuous flow. “Make-to-stock”, “Assemble-to-order”, “Build-to-order” and “Engineer-to-order” are a few of the manufacturing strategies used to address competitive priorities to compete on the market place.
- Make-to-stock: Make-to-stock involves holding products in inventory for immediate delivery, so as to minimize customer delivery times. This is in the category of push system. Demand is forecasted and production is scheduled before demand is there
- Assemble-to-order: Assemble-to-order is the strategy to handle numerous end-item configurations and is an option for mass-customization. Assemble-to order items use standardized parts and components. They require efficient and low cost production in the fabrication process and flexibility in the assembly or configuration stage to satisfy individualized demand from customers
- Build-to-order: Build-to-order, on the other hand, produces customized products in low volume after the manufacturer receives the orders. Build-to-order items are usually in very small volumes and require high technical competency, high product performance design, and effective due date management
- Engineer-to-order: Engineer-to-order produces products that are with unique parts and drawings required by customers. Product volume is very small and typically is one-of-a-kind in a job-shop environment. The cycle time from order to delivery is usually long because of the unique customization nature