PRINCIPLES OF BUSINESS

SECTION 7
L OGISTICS AND SUPPLY CHAIN

NAME:_________________________________________________________

GRADE:_________________________________________________________

Objectives

i. explain the term logistics and supply chain operations

ii. describe the links in the chain of distribution

iii. distinguish between multimodal and intermodal transport

iv. interpret information on transport documents

v. explain the role of transport in marketing;

vi. identify advantages and challenges of supply chain operations;

vii. explain the impact of logistics and supply chain operations on the competitiveness of
business;

viii. identify the problems likely to be encountered in distribution

ix. outline measures to mitigate problems in distribution; and,

x. outline the impact of information technology on logistics and supply chain operations

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 Overview

In this unit you will learn about logistics. Logistics is organising and managing
the flow or movement of goods between businesses and to the final consumer.
it involves the management of supply chains, transportation and distribution
networks. The aim is to ensure that materials and components parts arrive on
time for production and goods are delivered to customers in the right places
and at the right times, quickly, safely and in excellent condition. this unit
explore some of the elements involved in this, the problems that arise and the
potential solutions. This includes how information technology can be used to
improve the efficiency of logistics and supply chain
LOGISTICS AND SUPPLY CHAIN

7.1 LOGISTICS AND SUPPLY CHAIN DEFINITIONS

(a) (i) Logistics Definition

 Logistic is the process by which goods move from the point of origin to the place
they are needed. OR

 Logistics is the process of moving goods from one part of the supply chain to another
to ensure they are available for production when needed so that the product reaches
the customer on time.

(i) Supply Chain Operations (SCO)

 The supply chain is the management of the flow of goods and services. It represents
all the organizations (manufacturer, wholesaler, retailer) and steps involved in
producing a product and delivering it to its final consumer.

(b) Components of Logistics

 Logistics involves the flow of goods, storage of goods and other related services
between businesses within the supply chain between the producer and consumer.

 The components of logistics are as follows:

i) Forward Logistics (forward flow of goods)- deals with the flow of products
from the factory to the consumer. Forwards logistics include direct orders, pick
and pack services (e.g. Pay Pal) and shipping services (e.g. Caribbean Fright
Handlers Ltd).

(ii) Reverse Logistics (reverse flow of goods) - deals with moving the product from
the consumer to the point of origin. E.g. a product may be returned by the
customer due to a defect or product recall. Other examples include recalls, repairs,
refurbishment, recycling, repacking of products for resale and disposal of waste.

(iii) Storage of Goods - involves holding and protecting commodities for later use.
Goods will be kept in a safe and secured place for when needed.

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 (iv) Services - such as insurance and related information between destinations.
Insurance provides coverage for losses caused and protects against risks.

(i) Activities involved in Supply Chain Operations

(i) Transformation of natural resources- involves the processing of raw materials

that can be used in the production of other goods. E.g. wood or timber is created
by cutting down trees.

(v) Movement and storage of raw materials - raw materials must be transported
and stored in a secure location until needed for production. E.g. flour must be kept
dry and secure to prevent pest and spoilage.

(vi) Processing of raw materials and components into finished goods- this involves
processing the raw material into a finished product.

(vii) Storage of work-in-progress and finished goods - partially finished goods will
be stored before completion and the finished goods will also be stored in the
warehouse before distribution to the consumer.

(viii) Delivering the finished product - this involves the movement of the finished
goods from the producer to the final consumer.

7.2 THE LINKS IN THE DISTRIBUTION CHAIN

 A distribution channel is a chain of businesses through which goods and services pass
until they reach the final consumer. It includes manufacturers, wholesalers, retailers, and
even the internet.

(i) Producer
 Their job is to grow or mine raw material and transform the raw material into the
finished product.

(ii) Wholesaler

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  They buy in bulk from the producer or manufacturer and sell in smaller quantities to
the retailers (breaking bulk).

(iii) Retailer
 They buy from the producer or wholesaler and sell in smaller quantities to the
consumer.

(iv) Consumer
 They are the final purchaser of the product that is supplied in a variety of ways such
as by a retailer or online shopping.

Channels of Distribution
Producer Wholesaler Retailer Consumer

Producer Wholesaler Consumer

Producer Retailer Consumer

Producer Consumer

7.3 DIFFERENCES BETWEEN MULTIMODAL AND INTERMODAL TRANSPORT

Multimodal Transport Intermodal Transport

 This is where a single carrier is  This is where multiple carriers are
responsible for getting the goods to its responsible for getting the goods to its
final destination efficiently and on time final destination efficiently and on
using several modes of transport (rail, time using several modes of transport
road, sea, or air) (rail, road, sea, or air).

NB A carrier is a shipping company e.g.

Jamaica Freight & Shipping Company)

Modes of Transport and their Suitability for Different Goods

(a) Air
 It carries goods and passengers through airways by using different aircrafts like passenger
aircraft, cargo aircraft, helicopters, etc.

Advantages Disadvantages
 It is the fastest mode of transport.  It is more expensive than other modes
of transport.
 It is very useful in transporting goods  It is not suitable for transporting heavy
and passengers. and bulky goods.
 It is accessible by any other means.  It is affected by adverse weather
conditions.
 It is the most convenient mode of  It is not suitable for short distance
transport during natural calamities like travel.
earthquake and floods.

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 (b) Rail
 Transportation of goods and passengers on railway lines through trains is called rail
transport.

Advantages Disadvantages
 It is convenient for travelling long  It is expensive for carrying goods and
distances. passengers over short distances.
 It is faster than road transport.  It is not available in remote parts of
the country.
 It is suitable for carrying heavy goods  It has a fixed time schedule and is not
in large quantities over long distances. flexible for loading or unloading of
goods at any place.

(c) Road
 Roads are the means that connect one place to another on the surface of the land.
Advantages Disadvantages
 It is a cheaper mode of transport as  It has limited carrying capacity, this is
compared to other modes. not economical for long distance
transportation of goods.
 Perishable goods can be transported at  Transportation of heavy goods or
a faster speed by road carriers over a goods in bulk by road involves high
short distance. cost.
 It is a flexible mode of transport as  It is affected by adverse weather
loading and unloading is possible at a conditions e.g. floods, rain, landslide,
destination. It provides door-to-door etc.
service.

(d) Marine (sea)

 Water transport refers to movement of goods and passengers on waterways by using
various means like boats, steamers, launches, ships, etc.

Advantages Disadvantages
 It is used for transporting bulky and  It is reliant on other forms of transport
heavy goods to deliver its cargo from the port
 It is a safe mode of transport as  It is a slow- moving mode of
accidents are rare transport, not suitable for perishable
goods
 The cost of maintaining and  It is adversely affected by weather
constructing routes is very low conditions

(e ) Pipelines
 In modern times, pipelines are used for various purposes. This is the most convenient as
well as economical mode of transport for petroleum as well as natural gas in comparison
to road and rail transport.

Advantages Disadvantages
 Safe method of transport.  Maintenance and installation cost are
high (expensive to build)
 Best to transport water, natural gas, and  Only certain type of goods can be
oil transported.

 It can be erected on land or underwater  Risk of damaging pipe lines due to

road repairs

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Pipeline on land Crude oil pipe line under the sea

(f) Digital Delivery

 The term digital delivery refers to the electronic delivery or distribution of data such as
audio, video and software games via a variety of devices such as the web or mobile
phone.

 It also applies to the practice of completing and submitting forms online and making
payment to purchase items such as passport, driving licence and renewal and hotel
reservations.

7.4 TRANSPORT DOCUMENTS

Import licence
 This is issued by the importing country giving permission for the import of certain
products in certain quantities.
 It contains the name of the importing country, exporting country and quantity imported.

Bill of Lading
 These are documents used when transporting goods by sea, it contains details of the
goods, port of destination and carriage terms
 Purpose of the bill - a document of title of ownership of goods, it serves as a receipt for
goods shipped, and it indicates the conditions of the goods shipped.
 Three copies are made for importer, exporter and the ship’s captain.

Airway Bill
 These are documents used when goods are sent by air transport containing details of the
goods and its port of destination.
 Purpose of the bill- it serves as a receipt for goods sent by air.

7.5 THE ROLE OF TRANSPORT IN MARKETING

 Transportation is the means to carry people and goods from one place to another. The
functions of transport in marketing will be discussed as follows:

(i) Fast- Track the Sourcing of Commodities

 Transport plays a very important role in the making of the products, it ensures that the
raw materials required in the production process can be transported to the manufacturer
quickly.

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 (ii) Security of Supply

 An organized transport system in the supply chain will ensure security of supplies to
businesses in that goods will arrive safely and on time.

(iii) Cost Reduction

 When transportation is organized efficiently, transportation cost will be less thus enabling
a business to be more competitive.

(iv) Mobility of Labor

 Transportation provides mobility of labor that is transport takes the workers to and from
the factory so that production can proceed smoothly.

(v) Transport in Domestic, Regional and Foreign Trade

 The type of transportation used in the domestic market (locally) utilizes various forms of
road and rail transportation methods. Transport allows person to trade locally and
provides locals with a wide range of goods and services.

 Regional trade will include road, rail, sea and air transport.

 Foreign trade utilises various modes of transport that involves road, air, rail and sea. It
involves importing and exporting and helps a country get goods that may not be available
locally.

7.6 ADVANTAGES AND DISADVANTAGES OF THE SUPPLY CHAIN

OPERATIONS(SCO)

Advantages

Improved Quality of life

 The supply chain allows people to access things that will improve their quality of life,
such as televisions, cars, refrigerators, medical supplies etc.

Employment Opportunity
 The supply chain has created more business and job opportunities in transportation and
distribution services, warehousing, inventory management, telesales and marketing.

More Shipping Options

 SCO helps a company to determine the best way to ship their products, while also
reducing costs at the same time.

Disadvantages

Globalization

 The supply chain allows a firm to operate globally that is, it allow a business to operate
on an international level.
 If the supply chain is not highly efficient and well run, a business will not be able to stay
competitive in the global market.

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 Natural Disasters and Political Instability

 Globalization involves having customers and factories in other countries, this mean that
your business will be impacted by events in other countries such as natural disasters and
political instability.

Regulatory Complexity
 Businesses in the supply chain must be aware of the different laws and regulations which
they must comply with. These regulatory practices in other countries can disrupt the
supply chain and production resulting in increased cost.

Product Obsolescence
 Many products have shorter life span than in the past and this may lead to product
obsolescence (outdated). A business will not be able to stay competitive in the global
market with outdated products.

Management blunders
 Management blunders such as not having enough information about a customer in terms
of when and where they want a delivery.

7.7 THE IMPACT OF LOGISTICS AND SUPPLY CHAIN OPERATIONS ON THE

COMPETITIVENESS OF BUSINESS

(a) Logistic Improve Competitiveness

 An efficient logistics and supply chain can boost the sales, profitability and reputation of
a business. It helps a business to deliver its products to the market faster, cheaper and in
better condition than its competitors.

(b) Logistics Gives Competitive Advantage

 A well-managed logistics and supply chain can provide a business with better quality and cheaper
materials. This give a business the competitive edge over its competitors by lowering prices
without reducing profits.

(c) Logistics gives Comparative Cost Advantage Outsourcing

 Comparative cost advantage is being able to produce a commodity at a lesser cost than
other businesses. Logistics can achieve this aim through outsourcing.
 Outsourcing is a situation in which a company employs another organization to do some
of its work, rather than using its own employees to do it. Business outsourcing includes
transportation or storage of good etc.
 Companies may handle logistics on their own (first party logistic) i.e. they use their own
trucks and warehouses to store and deliver goods to their customers. However, many are
turning instead to second party, third party and forth party also known as logistic service
providers (LSP).

(i) Second Party Logistics(2PL)

 After expanding a firm may use the services of a second party logistics provider(2PL)
Second party logistic providers offer basic functions such as transportation and
warehousing. E.g. shipping companies, warehousing companies and courier companies.

(ii) Third Party Logistics (3PL)

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  3PL offers a variety of logistics activities services such as, warehousing, consultancy,
and delivery to various destinations. E.g. FedEx and DHL

(iii) Forth Party (4PL)

 Fourth-party logistics offers a comprehensive service in the supply chain, that is, they
offer the same services as 3PL providers as well as more for a client. E.g. Amazon
 Activities include sorting out transport requirements, storage, insurance, delivery,
custom clearance etc.
Benefits of Outsourcing
 Saves on time and cost – this reduces your need to invest in transportation, warehouse
and storage facility.

 Use of experts – logistic providers use the latest developments in logistics software,
technology and other techniques to assist a client.

 Freedom to focus on your core business - using a professional third party can remove
some unneeded stress.

7. 8 PROBLEMS IN DISTRIBUTION
(a) The Relationship Between the Availability of Airport, Habour and Docking Facility

 Seaport and airports are vital for a country’s international trade. A country must have the
necessary infrastructure such as road and railway lines that can be connected to seaports
and airports to enable effective distribution to take place.

(b) Problems Encountered in Distribution

 Even though some countries have appropriate infrastructures in place there are some factors that
they may encounter that causes problems in distribution. These include:
 Delayed shipment
 Spoilage of goods
 Misdirection of goods
 Inadequate warehousing facilities
 Lack of proper security measures
 Ineffective communication
 Industrial unrest

7.9 MEASURES TO MITIGATE THE PROBLEMS IN DISTRIBUTION

Government intervention
 The government may issue legislations related to distribution and employ inspectors to
ensure that they are being observed or they can also publish recommendations of good
practices to be observed.
Creating a Communication Network
 Delayed deliveries can be reduced by using a range of internet communication
technology that facilitates better management of distribution routes.

Insurance
 Insurance provides protection against a risk that may or may not occur, distribution
problems can be overcome by insurance as it provides monetary compensation to the
sender of the goods if they are destroyed or damaged.

Choosing the Right Channel of Distribution

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  When choosing the distribution route a number of factors must be considered such as the
nature of the product. E.g. perishable goods require a fast channel and items such as
jewelries would require a secure channel.

Other Measures
 Other measures that can be used to mitigate problems in distribution include: using a
cargo handling service that has a good reputation, ensure careful labeling and
documentation of goods, avoid holding large stocks, employing a security company or
use of security cameras.

7.10 THE IMPACT OF TECHNOLOGY ON LOGISTICS AND SUPPLY CHAIN

OPERATIONS
 Choosing the right technology for various logistics activities is very crucial to any
business to gain competitive advantage in today’s competitive market.

 Forms of technology include: GPS, GIS, Portnet, Telemarketing, Ecommerce, Logistic

providers such as; FedEx, DHL, Amazon, and Logistics hub.
Global Positioning System (GPS)
 Global Positioning system (GPS) can tell where you are, and where your most important
assets are located.

 GPS as a part of the supply chain management will allow a company to plan the shortest
and best possible route for the vehicle to follow, this reduces fuel cost and time wasted.

(a) Geographical Information Systems (GIS)

 Geographical information systems (GIS) is a software that provides an advanced visual
picture or geographical data such as street maps and location tags via social media. It
allows the user to make intelligent and strategic decisions.

 E.g. It will have the location of your school your school as well as other information scu
has the name of the school
(c ) Portnet
 Portnet is an online portal which enables the electronic processing of all documents for
release and clearance of all goods in international transactions.

 Portnet aims to help ports and shipping company to manage the complexity of the entire
shipping process via the internet. E.g. tracking their vessels and cargos

(d)Telemarketing /Ecommerce

 E-commerce allows customers to shop using online stores rather than physical stores. As
a result, the delivery of goods and packages are delivered by distributing companies.

 The impact of E-commerce on the supply chain is significant as distribution centers

will now take over services of the retail shop due to customers not buying from the
physical stores but rather from online stores.

(e) Global Logistic Providers

 Global logistic providers such as FedEx, DHL, and Amazon play a vital role in
transportation in the supply chain operations. These companies are responsible for goods
and materials going across international borders.

FedEx

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  FedEx provides an express delivery service carrying packages around the world in rapid
delivery time.
 Accessing the FedEx site allows a customer to book a delivery slot, find out the cost, find
out delivery time and any other information.

DHL (Dalsey, Hillblom and Lynn - founders of DHL Worldwide Express)

 A pioneer in global express shipping, DHL's international network is linked to over 220
countries and territories.
 DHL supply chain provides a detailed on-line website that offers delivery services to its
customers.

Amazon
 Amazon has built an effective delivery system. Amazon’s success lies in having:
(i) An expert warehousing strategy (ii) a number of delivery options offered
(iii)manufacturing its own products and (iv) utilizing automation and robots to pick and
pack orders as well as stacking and storing inventory.

(f) Logistic Hub

 A logistic hub is a location that acts as a center to deal with activities related to shipment,
storage, collection and distribution of goods for national and international trade. It is
usually located near a port or an airport.

Benefits of Logistic Hubs

 it provides warehouse facilities, vehicles for loading and unloading and other
services for logistic companies to use or hire.
 it helps to support job creation generating income for individuals that will be used
to enhance their standard of living.
 it generates foreign exchange for a country, this income is used for economic
growth and development.
 it provides access to larger market and connect to other international hubs

 In the Caribbean Jamaica is emerging and developing as an important logistic hub. It will
be the 4th hub comparable to Singapore, Dubai and Rotterdam.

Review Question #1
(a) Define the following terms.
(i) Logistics (2 marks)

(ii) Supply chain (2marks)

(b) Figure 1 shows a traditional chain of distribution for a certain product.

Figure 1. Traditional chain of distribution

Identify EACH link in the chain by placing the correct name in EACH box above. (4 marks)

(c) List TWO problems that are likely to be encountered in the distribution of goods.
(4 marks)

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(d) Suggest ONE appropriate mode of transportation for each of the following products.
(i) Fresh meat from processing plant to supermarket (1 mark)

(ii) Cement from factory to construction site (1 mark)

(iii) Oil from oilfield to refinery (1 mark)

(iv) Bauxite from mine to processing plant (1 mark)

(e) (i) Define the term outsourcing. (2 marks)

(ii) Outline TWO benefits of a logistic hub to your country. (4 marks)

[Total 20 marks]

Review Questions#2

1 (a) (i) Explain the terms logistics and supply chain operations [ 4 marks]
(ii) Identify FOUR components of logistics [4 marks]

(b)) Differentiate between forward and reverse logistics [4 marks]

c) State the activities of the supply chain [5 marks]

d) Describe TWO links in the distribution chain. [4 marks]

e) Differentiate between Multimodal Transport and Intermodal Transport [4 marks]

[TOTAL 25 MARKS]

Review Questions#3

3. a) Explain the purpose of the following documents

(i) Bill of lading [2 marks]
(ii) Airway bill [2 marks]

b) Explain the roles of transport in marketing under the following headings

i) Fast - Track the Sourcing of Commodities [2 marks]
(ii)Mobility of Labor [2 marks]

c) (i) Identify TWO advantages and TWO challenges of

supply chain operations [4 marks]

d) (i) Define the term outsourcing [2 mark]

(ii) Identify THREE benefits of outsourcing [3 mark]
(iii)State TWO examples of 3PL [[2 mark]

[TOTAL 20 MARKS]

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