Logistics

Definitions of Logistics:
Logistics is a diverse and dynamic field that continues to be
redefined as constraints and the changing environment affect the
discipline. So any single definition of the term will seem incomplete
to some and too broad to others.
There is, realistically, no ‘true’ name or ‘true’ definition that can
be pedantically applied to these different names, because the elements
that are covered can be so variable. Every industry has its own
characteristics, and for each company in that industry there can be
major variations in strategy, size, range of product, market coverage,
etc.
The question of what is the most appropriate definition of logistics
and its associated namesakes is always an interesting one. There are a
multitude of definitions to be found in textbooks and on the internet.
A selected few are: Logistics is…as follows:
● Logistics = Materials Management + Distribution
● The positioning of resources at the right time, in the right
place, at the right cost, at the right quality. (Chartered
Institute of Logistics and Transport (UK), 2012)
 ● In a supply chain management context, it is the subset of supply
chain management that controls the forward and reverse movement,
handling, and storage of goods between origin and distribution
points.
● In an industrial context, the art and science of obtaining,
producing, and distributing material and product in the proper
place and in proper quantities.
● In a military sense (where it has greater usage), its meaning can
also include the movement of personnel.

• Warehousing
• Material handling
• Packaging
• Inventory management
• Logistics information systems

Sustainability Performing activities in a manner that meet the needs

of the present without compromising the ability of future generations
to meet their needs.

Strengths and Weaknesses of the Major Transportation Modes

Logistics strategy A functional strategy which ensures that an

organization’s logistics choices—transportation, warehousing,
information systems, and even form of ownership—are consistent with
its overall business strategy and support the performance dimensions
that targeted customers most value.

Perfect order A term used to refer to the timely, error-free

provision of a product or service in good condition
Landed cost The cost of a product plus all costs driven by logistics
activities, such as transportation, warehousing, handling, customs
fees, and the like.

Supply Chain:
The network of suppliers that deliver products from raw materials to
end customers through either an engineered or transactional flow of
information, goods, and money.
A supply chain is dynamic and involves the constant flow of
information, product, and funds among different stages.
A typical supply chain may involve a variety of stages, including the
following:
● Customers
● Retailers
● Wholesalers/distributors
● Manufacturers
● Component/raw material suppliers

Supply Chain Management:

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.
Cross-Functional and Interorganizational Linkages none of the major
operations and supply chain activities takes place in a vacuum.
Rather, these activi-ties require the input and feedback of other
functions within a firm, as well as suppliers and customers.

Professional Organizations:
APICS—The Association for Operations Management. (www.apics.org)
ISM—The Institute for Supply Management (www.ism.ws) .
CSCMP—The Council of Supply Chain Management Professionals (www
.cscmp.org) .
ASQ—The American Society for Quality (www.asq.org).
The Objective of a Supply Chain:
The objective of every supply chain should be to maximize the overall
value generated. The value (also known as supply chain surplus)

Supply Chain Surplus = Customer Value - Supply Chain Cost

Supply chain success should be measured in terms of supply chain

surplus and not in terms of the profits at an individual stage.
A focus on growing the supply chain surplus pushes all members of the
supply chain toward growing the size of the overall pie.
For any supply chain, there is only one source of revenue: the
customer.
The customer is the only one providing positive cash flow. All other
cash flows are simply fund exchanges that occur within the supply
chain.

Decisions in Supply Chain Management:

Supply chain decision phases may be categorized as DESIGN (STRATEGY),
PLANNING, or OPERATIONAL, depending on the time frame during which the
decisions made apply. Design decisions constrain or enable good
planning, which in turn constrains or enables effective operation.

We have a strong focus on analyzing all supply chain decisions in

terms of their impact on the supply chain surplus.

Supply chain design, planning, and operation decisions play a

significant role in the success or failure of a firm. To stay
competitive, supply chains must adapt to changing technology and
customer expectations.
5 supply chain main functions :

Supply chain management involves five main functions: aligning flows,

integrating functions, coordinating processes, designing complex
systems, and managing resources.

● Aligning flows: As money, materials, and information are passed

between customers and suppliers, supply chain management keeps
them flowing up and down a supply chain.
● Integrating functions: Supply chain management connects the
activities of logistics, purchasing, and operations to ensure
they focus on goals that benefit overall performance.
● Coordinating processes: Supply chain management increases
profitability by aligning the processes used to plan, source,
make, deliver, and (when necessary) return a company’s products
and services.
● Designing complex systems: Simulation tools can predict how a
supply chain will behave and show how small changes can cause
major disruptions in the flow of materials.
● Managing resources: Supply chain managers are responsible for
using people, processes, and technology to meet the needs of
customers.

Process views of a Supply Chain:

1. Cycle view: The processes in a supply chain are divided into a

series of cycles, each performed at the interface between two
successive stages of the supply chain.This view is useful when
considering operational decisions because it specifies the roles and
responsi-bilities of each member of the supply chain and the desired
outcome for each process.
● Customer order cycle
 ● Replenishment cycle
● Manufacturing cycle
● Procurement cycle
2. Push/Pull view: Pull processes may also be referred to as reactive
processes because they react to customer demand. Push processes may
also be referred to as speculative processes because they respond to
speculated (or forecasted), rather than actual, demand. The push/pull
boundary in a supply chain separates push processes from pull
processes.

Supply Chain macro processes:

Within a firm, all supply chain activities belong to one of three
macro processes: CRM (Customer relationship management), ISCM
(Internal Supply Chain management), and SRM (Supplier relationship
management). Integration among the three macro processes is crucial
for successful supply chain management.

Supplier Firm Customer

SRM ISCM CRM

● Source ● Strategic ● Market

● Negotiate Planning ● Price
● Buy ● Demand Planning ● Sell
● Design ● Supply Planning ● Call Center
Collaboration ● Fulfillment ● Order Management
● Supply ● Field Service
Collaboration

Total Cost Concept and Tradeoffs:

Rather than addressing logistics as a series of components whose costs
should be individually minimized while providing a targeted level of
customer service, it is important that logistics professionals
optimize the function as a whole. Part of the reason for needing to
take a system wide view is that minimizing one function’s cost or
maximizing some element of its service often causes a different
function to suffer from inefficiencies or service problems. These are
called tradeoffs
systems concept as an attempt to create the most efficient complete
system as opposed to the most efficient individual parts. A “whole
process” or “whole company” operating system that is driven by cause
and effect.
"A trade-off means that more of one thing necessitates less of
another".

Supply chain strategy:

According to Narasimhan et al. (2008): “supply chain strategy can be

viewed as the pattern of decisions related to sourcing products,
capacity planning, conversion of raw materials, demand management,
communication across the supply chain, and delivery of products and
services.”

managers apply a variety of perspectives while running their supply

chain:
• Internal perspective: understand structure, economics and
requirements of the logistics systems as well as constraints and
components
• Interfunctional perspective: interact constantly with other
functional managers in areas such as marketing, production, and
finance
• Channel perspective: think in terms of maximizing the total channel
benefit, considering that the firm’s decisions affect and is affected
by channel partners
• Strategic perspective: well-designed logistics management can
influence company’s strategy and has the potential to “advance a
company’s strategic goals”

Two strategic roles for the supply chain:

● As input to formulate new overall strategy
● As enabler of an existing overall strategy

Performance Dimensions:
Operations and supply chains can have an enormous impact on business
performance. Experience suggests that four generic performance
dimensions are particularly relevant to operations and supply chain
activities:
1. Quality
2. Time
3. Flexibility
4. Cost

1. Quality
Reliability quality A sub dimension of quality that addresses whether
a product will work for a long time without failing or requiring
maintenance.

2. Time
● Speed
● Reliability
Delivery speed A performance dimension that refers to how quickly the
operations or supply chain function can fulfill a need once it has
been identified.
Delivery reliability A performance dimension that refers to the
ability to deliver products or services when promised.
Delivery window The acceptable time range in which deliveries can be
made.

3. Flexibility
● Flexibility A performance
● Mix flexibility
● Changeover flexibility
● Volume flexibility
Flexibility A performance dimension that considers how quickly
opera-tions and supply chains can respond to the unique needs of
customers.
Mix flexibility The ability to produce a wide range of products or
services.
Changeover flexibility The ability to provide a new product with
minimal delay.
Volume flexibility The ability to produce whatever volume the customer
needs.

4. Cost

● Labor costs
 ● Material costs
● Engineering costs
● Quality-related costs (including failure costs, appraisal costs,
and prevention costs)

Cross-Functional and Interorganizational Linkages

None of the major operations and supply chain activities takes place
in a vacuum. Rather, these activities require the input and feedback
of other functions within a firm, as well as suppliers and customers.
Procurement:

The procurement process is a good fit for expensive, strategic,

long-term projects because it is more detailed than the purchasing
process. Accordingly, it takes longer and is more complex, but does a
better job of controlling cost and exposing potential risk. On the
other hand, the purchasing process is fast and delivers results
quickly. It’s a good fit for projects with minimal spend and risk. And
finally, sourcing is the process of researching, identifying and
vetting prospective vendors for future procurement and purchasing
projects.

The Price Iceberg while we tend to only see the price paid upfront,
there are many aspects that determine the total cost to our business
of making the purchase.
But how does a particular firm know when it needs to team up with an
outside manufacturer or service provider or with whom it should
partner? And even if a buying firm has identified a potential partner,
what steps are required to formally establish and then manage the
relationship?

Financial Impact

When much of a firm’s revenue is spent on materials and services,

supply management represents a major opportunity to increase
profitability through what is known as the profit leverage effect

to realize that to compete globally, companies need to source

globally.

THE STRATEGIC SOURCING PROCESS

Strategic sourcing is concerned with identifying ways to improve

long-term business performance by better understanding sourcing needs,
developing long-term sourcing strategies, selecting suppliers, and
managing the supply base.

how much effort a company spends on each step will differ greatly from
one situation to the next. companies can often gain a competitive
advantage by performing these steps better than their competitors do.

Step 1: Assess Opportunities

Step 2: Profile Internally and Externally

Step 3: Develop the Sourcing Strategy

Step 4: Screen Suppliers and Create Selection Criteria

Step 5: Conduct Supplier Selection

Step 6: Negotiate and Implement Agreements

In the vast majority of cases, the strategic sourcing process is

conducted to improve the performance of a firm’s existing sourcing
activities.

Spend analysis The application of quantitative techniques to

purchasing data in an effort to better understand spending patterns
and identify opportunities for improvement.

• What categories of products or services make up the bulk of company

spending? • How much are we spending with various suppliers? • What
are our spending patterns like across different locations?

decision makers often need to develop a more detailed picture, or

profile, of the internal needs of the organization, as well as the
characteristics of the external supply base.

The main objective of a category profile is to understand all aspects

of a particular sourcing category that could ultimately have an impact
on the sourcing strategy. This might include a breakdown of the total
category spend by subcategories, suppliers, and locations. It could
also involve understanding how the purchased components or services
are used and how demand levels in the organization will change over
time.

While category profiling seeks to provide a better picture of

internal needs,
Industry analysis Profiles the major forces and trends that are
impacting an industry, including pricing, competition, regulatory
forces, substitution, technology changes, and supply/demand trends.

For example, how many potential suppliers are there? Who are the major
suppliers? Is the supply base growing or shrinking? What are the
technological trends facing the industry? Where does negotiating power
lie—with the suppliers or with the customers?

Insourcing The use of resources within the firm to provide products or

services.

Outsourcing The use of supply chain partners to provide products or

services.
Make-or-buy decision A high-level, often strategic, decision
regarding which products or services will be provided internally and
which will be provided by external supply chain partners.
Core competencies Organizational strengths or abilities, developed
over a long period, that customers find valuable and competitors find
difficult or even impossible to copy

Total cost analysis A process by which a firm seeks to identify and

quantify all of the major costs associated with various sourcing
options.

Portfolio analysis A structured approach used by decision makers to

develop a sourcing strategy for a product or service, based on the
value potential and the relative complexity or risk represented by a
sourcing opportunity.

While portfolio analysis can help identify the appropriate sourcing

strategy for a product or service, the buying firm still needs some
way to evaluate potential and current suppliers. Identifying the
“best” supplier for a new product or service or evaluating past
supplier performance is a difficult task.

The objective of the supplier selection step is to identify a short

list of suppliers with whom the buying firm will engage in competitive
bidding or negotiations.
The Weighted-Point Evaluation System. A common multicriteria
decision model is the weighted-point evaluation system. In this model,
the user is asked up front to assign weights to the performance
measures (WY), and rate the performance of each supplier with regard
to each dimension (PerformanceXY). The total score for each supplier
is then calculated as follows

Request for information (RFI) An inquiry to a potential supplier

about that supplier’s products or services for potential use in the
business. The inquiry can provide certain business requirements or be
of a more exploratory nature.

Request for quotation (RFQ) A formal request for the suppliers to

prepare bids, based on the terms and conditions set by the buyer.
Description by market grade/industry standard A description method
that is used when the requirements are well understood and there is
common agreement between supply chain partners about what certain
terms mean. Description by brand A description method that is used
when a product or service is proprietary or when there is a perceived
advantage to using a particular supplier’s products or services.
Description by specification A description method that is used when an
organization needs to provide very detailed descriptions of the
characteristics of an item or a service. Description by performance
characteristics A description method that focuses attention on the
outcomes the customer wants rather than on the precise configuration
of the product or service.

Fixed-price contract A type of purchasing contract in which the

stated price does not change, regardless of fluctuations in general
overall economic conditions, industry competition, levels of supply,
market prices, or other environmental changes. Cost-based contract A
type of purchasing contract in which the price of a good or service is
tied to the cost of some key input(s) or other economic factors, such
as interest rates.

Once the buyer and supplier have agreed to enter into a relationship
and a contract has been signed, the buyer will signal to the supplier
that delivery of the product or service is required. This begins what
is known as the procure-to-pay cycle,

Procure-to-pay cycle The set of activities required to first

identify a need, assign a supplier to meet that need, approve the
specification or scope, acknowledge receipt, and submit payment to the
supplier

The five main steps of the procure-to-pay cycle are described next: 1.
Ordering

2. Follow-up and expediting

3. Receipt and inspection

4. Settlement and payment

5. Records maintenance

Purchase order PO A document that authorizes a supplier to deliver a

product or service and often includes key terms and conditions, such
as price, delivery, and quality requirements

Warehouse Management:
Warehouse management encompasses the principles and processes involved
in running the day-to-day operations of a warehouse

Types of warehouses:
● Raw materials storage
● Intermediate, postponement, customization
● or sub-assembly facilities
● Finished goods storage
● Consolidation centers and transit warehouses
● Transhipment or break-bulk centers
● Cross-dock centers
● Sortation centers
● Fulfillment centers
❖ integrated fulfillment, where internet sales are carried
out alongside
❖ existing retail operations;
 ❖ e dedicated fulfillment, carried out in a purpose-built
facility; and
❖ e store fulfillment, which involves picking online orders
from existing
❖ retail shelves for separate delivery ex store.
● Reverse logistics centers

Warehouse location:
The following are specific factors that need to be taken into account
when deciding on a warehouse location:
● cost of land, rent and rates;
● availability of affordable skilled labor;
● access to transport networks;
● transport links for staff;
● The Role of the Warehouse
● availability of funding, grants, etc;
● availability of existing buildings;
● availability and cost of utilities including telecoms;
● availability of finance and resources;
● goods traffic flows;
● proximity to ports and airports;
● location of suppliers and manufacturing points; and
● the potential neighbors (eg proximity to oil storage depots can
be
● a negative factor).

Major trade-offs include:

● cost versus service;
● storage capacity versus speed of retrieval;
● speed versus accuracy;
● lower inventory versus availability;
● efficiency versus responsiveness; and
● volume purchases versus storage cost and availability.

Warehouse processes:
● Receiving
● Pre-receipt
● Put-Away
 ● Storage
● Picking
● Packing
● Dispatching
● Value Added Services
➔ Kitting/Dekitting(re)
➔ Labeling
➔ Pricing
➔ tagging and kimballing
➔ (re)packing
➔ bundling, as in ‘buy one, get one free’ (BOGOF) offers
➔ Reconfiguration
➔ subassembly
➔ repair and refurbishment.
● Returns

ISO Pallets

Pick preparation:
The annual demand is multiplied by the number of times the product
appears on a pick list to give a weighted volume

Picking strategies:
Picker to goods:
● Pick to order
 ● Cluster picking
● Batch picking
● Zone picking
● Wave picking
Goods to picker:
● Compact picking system
● Order distribution system
● Ergonomic workstations
Automated picking

Handling equipment:
● Trolleys/cages
● Hand pallet truck, pallet jack, powered pallet truck, manual
stacker truck
● Forklift trucks
● Low-level order pickers (LLOP) and towing tractors
● High-level order pickers (HLOP)
● Conveyors
● Mini-load AS/RS systems

Storage equipment:
● Floor/bulk storage
● Standard and narrow aisle pallet racking
● Very narrow aisle pallet racking
● Carton flow racking
● Shelving
● Mobile shelving
● Carousels
● A-frames

Order-picking methods:
● paper pick lists
● pick by label
● pick by voice
● barcode scanning
● radio frequency identification
● pick by light/pick to light
● put to light
 ● automated picking.

Break-bulk warehousing A specialized form of cross docking in which

the incoming shipments are from a single source or manufacturer.

Hub-and-spoke system A form of warehousing in which strategically

placed hubs are used as sorting or transfer facilities. The hubs are
typically located at convenient, high traffic locations. The “spokes”
refer to the routes serving the destinations associated with the hubs

Postponement warehousing A form of warehousing that combines

classic warehouse operations with light manufacturing and packaging
duties to allow firms to put off final assembly or packaging of goods
until the last possible moment. Assortment warehousing A form of
warehousing in which a wide array of goods is held close to the source
of demand in order to ensure short customer lead times. Spot stock
warehousing A form of warehousing that attempts to position seasonal
goods close to the marketplace. At the end of each season, the goods
are either liquidated or moved back to a more centralized location.

logistics information systems fall into three major categories:

decision support tools, planning systems, and execution systems.

Weighted center of gravity method A logistics decision modeling

technique that attempts to identify the “best” location for a single
warehouse, store, or plant, given multiple demand points that differ
in location and importance.
The different types of logistics centers and facilities compared

Not all logistic centers and facilities are equal. There are a variety
of logistics centers that offer different capabilities, from
warehousing services to order fulfillment solutions.

On-demand warehousing

dark store is a retail store (e.g., grocers, home goods retailers,

and clothing brands) converted into a micro-fulfillment center, and
its layout is organized and optimized for retail fulfillment for
online orders, often for local orders (e.g., to service the
neighborhood in an urban area).

Dark stores are not open to shoppers but instead provide more space to
store inventory and fulfill online orders for customers.

Transfer center

Its main function is to classify goods and send them immediately to

the next destination.
Distribution center

Its purpose is to store and manage inventory, classifying goods by

region, type of product, etc.

Processing and distribution center

We could say that it works as a distribution center, but better.

As an example, they are used to process and distribute meat and fish,
as well as assemble and install pieces.

Fulfillment centers

These centers receive the final consumer’s order and, automatically,

put it into shipment.

Transshipment terminals

Their purpose is to carry basic products between different kinds of

means of transport. They work as a means of transporting bulk
products, such as wood, cereals or oil.

City terminals

Urban terminals offer different services to truck fleets that

transport bulk goods, such as the maintenance and cleaning of these
vehicles.

They also offer storage (for a limited quantity of products), catering

and convenience services for drivers, etc.

Logistics hubs

Logistics platforms:
• Warehouses are spacious buildings in which large quantities of goods
are stored, often long term. Goods stored in warehouses are usually
supplied to manufacturers or wholesalers rather than directly to
consumers. It's uncommon for warehouses to actively handle order
processing and fulfillment tasks in their day-to-day operations.

• Distribution centers are more like all-in-one logistics operations

that store, pick, pack and ship products to fulfill customer orders —
either to retail locations or directly to individual consumers.
Distribution centers are commonly used by online retailers and
ecommerce companies. Compared with warehouses, distribution centers
tend to focus less on long-term storage and more on the flow of goods.
This calls for processes that can keep fulfillment speeds up and costs
down.

What are the differences between groupage and consolidation?

The key difference between groupage and consolidation is the number of

senders involved. Groupage involves several senders, while
consolidation only involves one.

Groupage is also used for smaller shipments that cannot fill an entire
container, while consolidation is used for larger shipments that
require an entire container.

Another difference between both is the level of control that the

sender has over the shipment. With groupage, the sender has less
control over the shipment as its goods are combined with other
shipments. With consolidation, the sender has more control over the
shipment, since it is the only sender involved.

There are also differences regarding the final destination of the

goods. Groupage may involve several destinations, with there being
separate distribution and delivery of each shipment after arriving at
the place of destination. In consolidation, all the combined goods
have the same final destination, which facilitates distribution after
arriving at the place of destination or large distribution center.
Mixing Center – multi-order truck loads and LTL shipped in, mostly
cross-docked or staged for short time out to retailers, inbound
pallets already built per order

Consolidation Centres: A consolidation center is a facility where

multiple shipments are combined into a single shipment. This can be
done to save on shipping costs or to improve the efficiency of the
shipping process.

Mixing centers and consolidation centers are both types of facilities

used in logistics and supply chain management, but they serve
different purposes:

1. **Mixing Center:**
- A mixing center, also known as a cross-docking facility, is a
distribution center where products from multiple suppliers are
received, sorted, and combined (mixed) into outgoing shipments based
on customer orders.
- The primary function of a mixing center is to facilitate the
rapid transfer of goods from inbound to outbound transportation
vehicles without the need for long-term storage or inventory holding.
- Mixing centers are often used in industries with high turnover
rates or perishable goods, where speed and efficiency in distribution
are critical.

2. **Consolidation Center:**
- A consolidation center, on the other hand, is a facility where
smaller shipments from multiple origins are combined (consolidated)
into larger, more efficient shipments destined for a common
destination.
- The main purpose of a consolidation center is to reduce
transportation costs and improve supply chain efficiency by optimizing
the use of transportation capacity.
- Consolidation centers are particularly useful in situations where
multiple suppliers or distribution centers serve the same geographic
region or customer base, allowing for more cost-effective
transportation arrangements.

In summary, while both mixing centers and consolidation centers

involve the combining of goods from multiple sources, mixing centers
focus on sorting and mixing products for outgoing orders, while
consolidation centers focus on aggregating shipments from various
origins to achieve economies of scale in transportation.

Break-bulk warehousing A specialized form of cross-docking in which

the incoming shipments are from a single source or manufacturer.

Hub-and-spoke system A form of warehousing in which strategically

placed hubs are used as sorting or transfer facilities. The hubs are
typically located at convenient, high-traffic locations. The “spokes”
refer to the routes serving the destinations associated with the hubs.

consolidation and cross-docking operations tend to be located close to

the source of goods or to final customers.)

Assortment warehousing A form of warehousing in which a wide array

of goods is held close to the source of demand in order to ensure
short customer lead times

Spot stock warehousing A form of warehousing that attempts to

position seasonal goods close to the marketplace.
At the end of each season, the goods are either liquidated or moved
back to a more central-ized location.

Sortation center