LOGISTICS MANAGEMENT

1. INTRODUCTION TO BUSINESS
LOGISTIC AND PLANNING
 BUSINESS LOGISTICS
• Logistics is also known as Physical Distribution
management. Logistics is an activity carried out by many
different companies for the physical distribution of goods.
FMCG, consumer durables, and many other industries
regularly manufacture goods. These goods have to be
transported to the distributors and dealers and lastly to the
end consumer. Logistics is the means to transport the goods
from the company to the middlemen or the end consumer.

• However, Logistics does not mean “transport” only. There

are many different logistics activities or functions of logistics
which are used by a company.
• For example – If you have to deliver a good from your
warehouse to a dealer, then you need to adjust the inventory
that you have in your warehouse (because goods are
leaving). Similarly, you need to have entries that the goods
have left from your warehouse and reached the dealer. In
between, you also need to ensure that goods are handled in
the appropriate manner and they reach in the desired
condition to the dealer. If there are any returns from the
dealer, they have to be accounted too.

• From the above example, we can understand there are many

logistics activities which have to be taken care of. 6 such
functions of logistics.
1) Order processing
• The Logistics activities start from the order processing which might be the work
of the commercial department in an organization. The commercial department
is the one who ensures that the payment terms and the delivery terms have
been met and then processes the order from within the company.

• Basically, the commercial team accepts the order from the customer and places
the order to the warehouse. If the customer has given the payment, a
commercial team makes the entry into the system and tells the warehouse that
the customer has given an order of 10 units so the warehouse needs to deliver
10 units.

• In many companies, the entry from commercial also deducts the inventory in
the warehouse. So if the commercial team has given the go-ahead for a
purchase order of 10 units, the available inventory will automatically be
deducted by 10 units so that double ordering does not happen. This is an
important step in logistics activities because any mistake in this step (wrong
entries of quantity, delivery address etc) can affect the whole logistics process.
2) Materials handling
• Material handling is the movement of goods within the warehouse. It involves
handling the material in such a way that the warehouse is able to process orders
efficiently. Although it may sound a mundane task, it is an important one and an
on going activity in any warehouse.

• For a small shop with 100 products, it is very easy to move one product from one
place to another. But IF this small shop was not sure WHERE the products are kept,
the shopkeeper will have to search for the order and the product every time he
receives the order. He will have to search this in all the 100 products that he has
and then he will have to move the other products so that he can give the ordered
product to the customer.
• Now multiply this scenario by 100 times. Warehouses of large companies are
sometimes half a mile or more in size. Imagine the amount of material stored
in the warehouse. If the warehouse manager does not know where the
material is stored and how he is going to bring it to the dispatch center of the
warehouse, he will be in big trouble and his productivity and efficiency will
take a big hit. That is why materials handling is an important function of
logistics.

• Arranging material within the warehouse properly so as to allow easy movement

and dispatch material is an important activity in logistics management. This
becomes more important as the warehouse grows in size. Amazon, for example,
uses the combination of robotics, AI, and humans for material handling. It is
estimated that Amazon ships 16 lakh package a day. Which is equal to 70,000
packages every hour. Imagine the confusion if Amazon did not employ the best
material handling equipment and strategies.
3) Warehousing
• If we take the example of LG or Samsung, these are consumer durable companies
which are present in multiple countries. Their manufacturing might be at one
point, but the distribution is all across the world. Thus, warehousing plays a huge
role and is one of the important Logistics activities.

• The important point in warehousing is that the warehouse should be nearby to the
dealer or the distributors’ place and it should facilitate the easy delivery of goods.
If there was a product which was from a branded company, but which takes 1
week to deliver, then this product might not move as much in the market as
another product which is taking 2 days to deliver even though it is unbranded.
• Thus, it makes sense for the branded company to have a closer
warehouse so that can immediately deliver the goods. Once a brand
 establishes itself in a new territory, the first thing it does is to lease a
new warehouse so that It can be closer to the territory and closer to
the end customers.

• The location of warehouses also reduces the pressure on mother

warehouse (large warehouses which stock most of the products).
When there is a peak in demand or if there is a drop in production,
these warehouses can take the pressure of deliveries and they can
become interdependent to ensure delivery of goods to consumers.
4) Inventory control
• If a firm has 100 units of a product in stock, but the demand is only of 10 units,
then the company has uselessly invested in 90 units. This is money which can be
used as a working capital and it is money on which banks are applying interest.

• On the other hand, another firm had a demand of 500 units, but they have
manufactured only 200 units thinking that demand will be less. Now they have lost
the orders which is an opportunity cost.  The perfect firm will be one, which has
manufactured 100 units, knows there will be 50 units of demand and is ready even
if demand doubles. But they are continuously monitoring the demand and are
ready for it without investing much in manufacturing.

• With the above example, you understood the importance of Inventory control in
Logistics activities. Inventory management is one of the most important functions
of logistics especially after the adoption of various production techniques such as
Just in time manufacturing, lean manufacturing or other manufacturing processes
where the cost of inventory management is brought down.
5) Transportation
• Now we come to one of the major logistics activities which is one of the most
resources heavy and revenue heavy segment of logistics. There is a single reason that
transportation is costly – Fuel. Be it petrol, Diesel or gas, fuel is costly, and it is mostly
consumed in transportation activities. This is why companies spend lakhs to control
the transportation expenses because it is one of the highest variable expense to any
company.

• Transportation involves the physical delivery of goods from the company to the
distributor or dealer and from the dealer to the end customer. Generally, companies
are involved only till the point delivery happens to the distributor or the dealer. The
distributor is then responsible for the delivery to the end customer. However,
transportation is a cost to the dealer as well and reduces his profit – due to which the
company has to give higher profits to the dealer – to negate his costs.

• The better the warehousing and the inventory management of a company, the lower
is the transportation cost for the company. Economies of scale play a major role in the
cost-effectiveness of transportation. FMCG adopted “breaking the bulk” method to
reduce the cost of transportation and also to improve functions of logistics as a whole.
6) Packaging
• There are two types of packaging – One which the customer sees on the shelf of
supermarkets or hypermarkets where the package appears attractive and makes
the customer buy the packages. The other is transport packaging where the
products are packed in bulk so as to avoid any breakage or spillage and yet allow
them to transfer huge volumes of the product safely from one place to another.

• Packaging the product is a responsibility of the logistics team because otherwise

the product will reach damaged to the end customer and this is a huge cost to the
company. This is why, especially in export markets, a huge amount is spent in the
packaging of the product. The packaging may cost only 1-2% of the value of the
product, but if it is not right during transportation, it will result in 100% cost due to
the damage and loss of the product.
• The above were all the functions of logistics and the logistics activities
which have to be taken care of in any major company. Management
looks at logistics in two different ways.

• In one way, management looks at logistics as interdependent systems. So

transportation may be one system and warehousing may be other. In this
case, the cost of systems as individuals is controlled and they are
calculated as individual costs in the books of accounts.

• In other management styles, possibly where the products are large and
robust and not small units, the management considers logistics as a
whole and it is given its own individual header in the books of accounts.
The different logistics activities are clubbed together as one cost and the
cost is brought down as the whole.
 Supply Chain Management
• In commerce, supply-chain management (SCM), the management of the flow
of goods and services,[2] involves the movement and storage of raw materials, of work-in-
process inventory, and of finished goods from point of origin to point of consumption.
Interconnected or interlinked networks, channels and node businesses combine in the
provision of products and services required by end customers in a supply chain.[3] 
• Supply-chain management has been defined [4] as the "design, planning, execution,
control, and monitoring of supply-chain activities with the objective of creating net value,
building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply
with demand and measuring performance globally."[5] 
• SCM practice draws heavily from the areas of industrial engineering, systems
engineering, operations management, logistics, procurement, information technology,
and marketing [6]and strives for an integrated approach.[citation needed] Marketing
channels play an important role in supply-chain management.[6] Current research in
supply-chain management is concerned with topics related to sustainability and risk
management,[7] among others. Some suggest that the “people dimension” of SCM,
ethical issues, internal integration, transparency/visibility, and human capital/talent
management are topics that have, so far, been underrepresented on the research agenda.
[8]
 Material Management
• Materials management is a core supply chain function and includes supply chain
planning and supply chain execution capabilities. Specifically, materials
management is the capability firms use to plan total material requirements. The
material requirements are communicated to procurement and other functions for
sourcing. Materials management is also responsible for determining the amount
of material to be deployed at each stocking location across the supply chain,
establishing material replenishment plans, determining inventory levels to hold
for each type of inventory (raw, WIP, Finished Goods), and communicating
information regarding material needs throughout the extended supply chain.
• Typical roles in Materials Management include: Materials Manager, Inventory
Control Manager, Inventory Analyst, Material Planner, Expediter and emerging
hybrid roles like "buyer planner".
• The primary business objective of Materials Management is assured supply of
material, optimum inventory levels and minimum deviation between planned and
actual results.
• Goals
• The goal of materials management is to provide an unbroken chain of components for
production to manufacture goods on time for customers. The materials department is
charged with releasing materials to a supply base, ensuring that the materials are delivered
on time to the company using the correct carrier. Materials is generally measured by
accomplishing on time delivery to the customer, on time delivery from the supply base,
attaining a freight, budget, inventory shrink management, and inventory accuracy. The
materials department is also charged with the responsibility of managing new launches.

• In some companies materials management is also charged with the procurement of materials
by establishing and managing a supply base. In other companies the procurement and
management of the supply base is the responsibility of a separate purchasing department.
The purchasing department is then responsible for the purchased price variances from the
supply base.

• In large companies with multitudes of customer changes to the final product there may be a
separate logistics department that is responsible for all new acquisition launches and
customer changes. This logistics department ensures that the launch materials are procured
for production and then transfers the responsibility to the plant materials management
• Materials management
• The major challenge that materials managers face is
maintaining a consistent flow of materials for production.
There are many factors that inhibit the accuracy of inventory
which results in production shortages, premium freight, and
often inventory adjustments. The major issues that all
materials managers face are incorrect bills of materials,
inaccurate cycle counts, un-reported scrap, shipping errors,
receiving errors, and production reporting errors. Materials
managers have striven to determine how to manage these
issues in the business sectors of manufacturing since the
beginning of the industrial revolution.
Reverse / Inverse Logistics
• Reverse logistics is for all operations related to the reuse of products and
materials. It is "the process of moving goods from their typical final destination
for the purpose of capturing value, or proper
disposal. Remanufacturing and refurbishing activities also may be included in the
definition of reverse logistics."[1] 
• Growing green concerns and advancement of green supply chain management
concepts and practices make it all the more relevant.[2] The number of
publications on the topic of reverse logistics have increased significantly over the
past two decades. The first use of the term "reverse logistics" in a publication
was by James R. Stock in a White Paper titled "Reverse Logistics," published by
the Council of Logistics Management in 1992.[3] 
• The concept was further refined in subsequent publications by Stock (1998) in
another Council of Logistics Management book, titled Development and
Implementation of Reverse Logistics Programs,[4] and by Rogers and Tibben-
Lembke (1999) in a book published by the Reverse Logistics Association titled
Going Backwards: Reverse Logistics Trends and Practices.[5] The reverse logistics
process includes the management and the sale of surplus as well as returned
equipment and machines from the hardware leasing business.
• Normally, logistics deal with events that bring the product towards
the customer. In the case of reverse logistics, the resource goes at
least one step back in the supply chain. For instance, goods move
from the customer to the distributor or to the manufacturer.[6]
• When a manufacturer's product normally moves through
the supply chain network, it is to reach the distributor or
customer. Any process or management after the delivery of the
product involves reverse logistics. If the product is defective, the
customer would return the product. The manufacturing firm
would then have to organise shipping of the defective product,
testing the product, dismantling, repairing, recycling or disposing
the product. The product would travel in reverse through the
supply chain network in order to retain any use from the defective
product. The logistics for such matters is reverse logistics.