EAST AFRICA COLLEGE

College of Business & Economics

Department of Logistics & Supply Chain Management

Well come to the COURSE HUMAN Fundamental logistics

MANAGMENT

Course manager : Dr. Assefa Balda

 COURSE CONTENTS

Chapter 1: Over view of logistics and supply chain management

Chapter 2: Logistics and customer service
Chapter 3: Logistics planning and strategy
Chapter 4: Logistics system design and administration
Chapter 5: Integrated logistics activities
Chapter 6: Logistics performance and financial assessment
 CHAPTER ONE:
OVER VIEW OF LOGISTICS AND SUPPLY CHAIN
MANAGEMENT

1.1. Introduction
1.2. Evolution of Logistics
1.3. The Logistics Mission
1.4. SCM Over View
1.5. Logistics and SCM
1.6. Inbound and outbound logistics
1.7 Key Logistics Activities
1.8. Increasing Significance of Logistics
 Chapter Objective

After completing this chapter, you will be able to:

 Define the term logistics and logistics management
 Recognize the historical development of logistics
 Differentiate logistics and supply chain management
 Differentiate Outbound Logistics and Inbound logistics
 Identify different logistics activities
 Understand the importance of logistics
 1.1 INTRODUCTION

 Logistics is a broad, far-reaching function which has a major impact on

society’s standards of living.
 From the building of the pyramids to the relief of hunger in different
parts of the world, the logistics principles support the effective flow of
materials and information to meet the requirements of customers.
 Logistics refers to the movement of materials, services, cash, and
information in a supply chain.
 Logistics includes movement within a facility, overseeing incoming and
outgoing shipments of goods and materials, and information flow
throughout the supply chain.
What is logistics?
The most well known definitions for logistics are the following:
 Logistics is ... the management of all activities which facilitate
movement and the coordination of supply and demand in the
creation of time and place utility.
 Logistics is... the positioning of resources at the right time, in the
right place, at the right cost, at the right quality.
 Jomini defined logistics as “the practical art of moving armies” and
included a vast range of functions involved in moving and sustaining
military forces.
Logistics Definitions
 What is Logistics management?

 The Council of Supply Chain Management Professionals

(CSCMP, 2016) defines logistics management is that part of
SCM that plans, implements, and controls the efficient and
cost effective forward and reverses flow and storage of goods,
services and related information between the point of origin
and the point of consumption for the purpose of conforming or
to meet customers’ requirements.
12 Components of Logistics Management

Management actions
Inputs into Planning Implementation Control
logistics Outputs of
Natural logistics
resources
(land, facilities, Competitive
and equipment) advantage
Logistics management Time
Human and place
resources Suppliers Raw In-process Finished Customers
materials inventory goods utility
Efficient
Financial movement
resources to customer

Information Proprietary
resources Logistics activities asset
Customer service Plant and warehouse site
Demand forecasting selection
Distribution Procurement
communications Packaging
Inventory control Reverse logistics
Material handling Traffic and
Order processing transportation
Parts and service Warehousing and storage
support
 21st century view of logistics:
 Business logistics: supply chain process that plans, implements, and
controls the efficient and effective flow of goods, services, and related
information from the point of origin to the point of use or consumption in
order to meet customers requirements.
 Logistics is the total management of the key operational functions in the
Sc i.e., procurements, production and distribution.

 Military logistics: design and integration of all aspects of support for the
operational capacity of the military forces, and their equipment to ensure
readiness, reliability, and efficiency.
“The science of planning and carrying out movement and maintenance of
forces” (NATO)
 Event logistics: networks of activities, facilities, and personnel required
to organize, schedule, and deploy the resources for an event to take place
and to efficiently withdraw after the event.

 Service logistics: acquisition, scheduling, and management of the

facilities or assets, personnel, and materials to support and sustain a
service operation or business.
 1.2. Evolution of Logistics
 Many people believe that logistics is a word, but from a semantics point of
view its origin was from ancient Greek and meant the “science of
computation.”

 Logistics has an ancient history. Its history dates to the wars of the Greek
and Roman empires in which the military officials called logistiks were
responsible for supplying and distributing needed resources and services.

 The concept of logistics can be traced back to the wars of the Greek and
Roman empires, when specific military officers were assigned the duties of
providing services related to supply and distribution of troops and other
resources.
 In fact, it is originally from combat environments and not from business
or academia.
 It seems the ancient Greeks referred the word logistikos to military
officers who were expert in calculating the military needs for
expeditions in war.
 As a science, it seems the first book written on logistics was by Antoine-
Henri Jomini (1779-1869), a general in the French army and later in the
Russian service, titled Summary of the Art of War (1838).
 The practice of logistics in the military sector has been in existence for as
long as there have been organized armed forces.
 But logistics systems developed extensively during World War II (1939-
1945).
 Throughout this war, the United States and its allies’ armies were more
efficient than Germany’s.

 That means the United States military ensured that the required personnel,
services and supplies were provided at the right time and at the right place.

 German army stores were damaged extensively, but Germany could not
impose the same destruction on its enemies’ stores.
 The elements of distribution and logistics have, always been fundamental
to the manufacturing, storage and movement of goods and services.

 It is recently that distribution and logistics have come to be recognized as

vital functions within the business and economic environment.

 In today’s business environment, logistics is a competitive strategy for the

companies that can help them meet the expectations of their customers.
 In modern industries, the task of logistics managers is to provide
appropriate and efficient logistics systems.

 They guarantee that the right goods will be delivered to the right customers,
at the right time, at the right place, and in the most economical way.

 Logistics does not consist of one single component but involves a group of
various activities and disciplines typically it includes, purchasing, inbound
and outbound transportation management, warehousing, materials handling,
order fulfilment, customer service, logistics network design, inventory
management, supply/demand planning, and management of third-party
logistics (3PL) service providers etc.
 In general the practice of logistics in the business sector, starting in the late
half of the twentieth century, has been increasingly recognized as a critical
discipline.

 The first professional association of logisticians was formed in 1963, when

a group of practitioners and academicians formed the National Council of
Physical Distribution Management (NCPDM), which in 1985 became the
Council of Logistics Management (CLM), and then in 2004 the Council of
Supply Chain Management Professionals (CSCMP).
 Stages in the development of distribution and logistics:
 1950s and early 1960s: Distribution systems were unplanned and
unformulated.
 There was little positive control and no real liaison between the various
distribution-related functions.

 1960s and early 1970s: Recognition of interrelated physical activities were

linked together and managed more effectively.

 1970s: Recognition of the need to include distribution in the functional

management structure of an organization.
 There was a decline in the power of the manufacturers and suppliers and
increase in retailers.
 1980s: In 1980s rapid cost increases and the clearer definition of the true
costs of distribution contributed to increase in professionalism within
distribution.
 Late 1980s and early 1990s: Linked to advances in information technology.
 Organizations began to combining of materials management with physical
distribution
 1990s: The process was not encompass only key functions within an
organization's own boundaries but also emphasizes functions outside
functions . This is known as supply chain management.
 2000 and beyond: Business organizations face many challenges as they
Endeavour to maintain or improve their position against their competitors.
 This has led to the development of many new ideas for improvement, in the
redefinition of business goals and the re-engineering of entire systems.
 1.3. The Logistics Mission (a Bill of “rights”) and objectives
 Getting the right goods or services to the right place, at the right time, and in
the right condition at the lowest cost and highest return on investment.
 The objective of logistics process is to get the right quantity and quality of
materials (or services) to the right place at the right time, for the right client,
and at the right price.
 As customers, many people tend to neglect the direct or indirect effects of
logistics on almost every sphere of their lives until one of these “rights” goes
wrong.

 Logistics is the only function in the supply chain that is required to operate
24/7/365-there are no days off.
 That is why customers often take it for granted; they've come to expect that
product delivery will be performed as promised.
 Logistics objectives

At the highest level, logistics shares the objective of supply chain

management to meet customer requirements. Other objectives include:
 To respond rapidly to changes in the market or customer orders
 To minimize variances in logistics service
 To minimize inventory to reduce costs
 To consolidate product movement by grouping shipments
 To maintain high quality and engage in continuous improvement
 To support the entire product life cycle, including reverse logistics.
 1.4. Supply Chain Management (SCM) Over View

 SCM is defined as the systemic, strategic coordination of the traditional business activities
and the plans across these business activities within a firm and across the supply chain in
order to enhance the long-term performance of individual companies and the supply chain
as a whole.
 SCM is concerned with the management of the flows of information, product, and funds
between and among supply chain stages to maximize total supply chain profitability.

 SCM is the integration of the activities that procure materials and services, transform them
into intermediate goods and the final product, and deliver them to customers.

 SCM spans all movement and storage of raw materials, work-in-process inventory, and
finished goods from point of origin to point of consumption.

 SCM basically merges the supply and demand management.

1.5. Logistics and Supply Chain Management

 Supply chain management consists of firms collaborating to leverage

strategic positioning and to improve operating efficiency.

 For each firm involved, the supply chain relationship reflects strategic
choice.
 A supply chain strategy is a channel arrangement based on acknowledged
dependency and relationship management.

 Supply chain operations require managerial processes that span across

functional areas within individual firms and link trading partners and
customers across organizational boundaries.
Logistics, in contrast to supply chain management is the work required to
move and position inventory throughout a supply chain.

As such, logistics is a subset of and occurs within the broader framework
of a supply chain.

Logistics is the process that creates value by timing and positioning

inventory; it is the combination of a firm's order management, inventory,
transportation, warehousing, materials handling, and packaging as
integrated throughout a facility network.
Integrated logistics serves to link and synchronize the overall
supply chain as a continuous process and is essential for effective
supply chain connectivity.

Supply chain partners must efficiently and effectively carry out

logistical tasks to achieve competitive advantage.

In managing a supply chain, factors such as partnership and the

degree of linkage and coordination between chain entities are
considered.
 The basic differences between classic logistics and supply chain management
are:
1. The supply chain is viewed as a whole rather than as a series of
distinguished elements such as procurement, manufacturing, and
distribution.
2. Supply chain management is a highly strategic planning process, based on
strategic decisions rather than operational ones.
3. In a supply chain, it is crucial to construct an integrated information system
in which all entities have access to information on demand and stock levels
 Besides the above mentioned difference about logistics and supply chain
management the three views on the relationship between logistics and SCM
were presented in figure in the next slide.
Figure 1. 1. Three views on the relationship between logistics and SCM
 In short the inclusionist view that logistics is a sub set of supply chain
management.
 The evolutionist views that the supply chain management is developed from
the logistics
 And the third view is the intersectionist, they stated that the logistics and SCM
have their common function or share some activities and they do have their
own different functions.
 1.6. Inbound logistics, Materials management and Outbound
Logistics

 Logistics network is the backbone of how your convert materials in to the

products and deliver them to your customers.
 Many people recognize that their logistics networks are critical to the
success of their operations, but they do not have a complete picture of their
logistics network.
 In fact the process of bringing materials to your company and the
delivering finished goods to customers are distinct.
 The entire process of logistics, which deals with the moving of materials
into, through, and out of a firm, can be divided into three parts. These are:
 Inbound logistics, Materials management, and Outbound Logistics.
1. Inbound logistics:

 It represents the movement and storage of materials received from

suppliers.
 It is the network that transports goods or materials to your business.

 It encompasses everything your business operations require to create the

finished product that you will eventually sell.

 It includes the procurement of raw materials, finished goods, and reverse

logistics
2. Materials management:

 It covers the storage and flows of materials within a firm

 It also includes receiving goods and services

 Materials management includes order processing: when an order is

received, it is routed to the warehouse management system (WMS) and
placed in the process queue.

 It also addresses product picking and packing:

3. Outbound logistics or physical distribution :
 Outbound logistics describes the movement and storage of products from
the final production point to the customer.

 The transportation, storage, and delivery systems that bring your products
to your customers are referred to as outbound logistics.

 Outbound logistics refers to the transportation of finished goods to their

final destinations. That means shipping out finished goods

 Outbound logistics networks typically collaborate with different partners

than inbound logistics network.
 Figure 1. 1. boundaries and relationship between logistics and SCM

 This figure clearly shows the inbound logistics, materials management, outbound logistics,
as well as the relationship between logistics and supply chain management.
 Bringing materials or purchased items from suppliers to manufacturing firm is called
inbound logistics
 Internal operations within a firm after martials arrived to the firm is referred as materials
management
 And lastly shipping out finished goods to their destination is called outbound logistics.
 1
6

1.7 Key Logistics Activities

• Customer service  Parts & service support
• Demand forecasting  Plant & warehouse site
• Inventory management selection
• Logistics  Procurement
communications
 Reverse logistics
• Material handling
• Order processing
 Traffic & transportation
• Packaging
 Warehousing & storage

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 Customer service

 Good customer service supports customer satisfaction.

 Customer service is the output of the logistics system.

 It involves getting the right product, to the right customer at the right
place, in the right condition, at the right time and at the lowest total cost
possible.

 The key trade off of customer service: cost of lost sales

 Dissatisfied customer tells to average of nine others

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 Demand forecastıng

• There are many types of demand forecasting such as;

• Marketing forecasts customer demand based on promotions, pricing,
competition and etc. or
• Manufacturing forecasts production requirements based on
marketing sales demand forecasts and current inventory levels.
• Logistics usually becomes involved in forecasting in terms of
how much should be ordered from its suppliers and how much
of finished product should be transported or held in each
market that the organization serves.

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 Inventory management

• Inventory management involves; trading-off the level of inventory

held to achieve high customer service levels with the cost of holding
inventory, including capital tied up in inventory, variable storage
costs and obsolescence.

Logistics communications
• Communications are becoming increasingly automated, complex and
rapid.
• Computerized advance communication systems
• Wal-Mart (supplier link-real time demand data-on time replenishment)
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 Materials handling

• Materials handling is a broad area that encompasses virtually all aspects

of all movements of raw materials, work in process, or finished goods
within a plant or warehouse.
• A primary objective of materials management is to eliminate handling
wherever possible- minimum. travel distance, bottlenecks, inventory levels
and loss.

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 Order processing

Order processing entails the systems:

 getting orders from customers,
 checking on the status of orders
 communicating to customers about them,
 filling the order
 making it available to the customer.
• Advanced order-processing methods (EDI-electronic data
interchange, EFT-electronic funds transfer, barcoding costs.

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 Packaging
• It is used for protection and storage from a logistical perspective.
• Important for protection during storage and transportaion
• Important to be designed for the warehouse configuration and materials
handling equipment

Parts and service support

• Logistics is responsible for providing after-sale service support.
• This may include:
• delivery of repair parts to dealers,
• stocking adequate spares,
• responding quickly to demand for repairs...
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 Plant and warehouse site selection

• Determining the location of the company’s plants and warehouses is a

strategic decision
• Affects the costs of transporting raw materials inbound and finished
goods outbound, but also customer service levels and speed of response.

Procurement
• Procurement is the purchase of materials and service from outside
organizations to support the firm’s operations from production to marketing,
sales, and logistics.
• Supplier selection, negotiation of price, supplier quality assessment…

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 Reverse logistics
• Reverse flow of goods, services and related information because of recycling,
reusing and disposal activities.

• Returns may take place because of a problem with the performance of the
item or simply because of the customer changed his or her mind.

• Return goods handling is complex and costly.

• The cost of moving a product backward nearly as much as nine times as high
as moving the same product forward.

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 Traffic and transportation
• This is the key logistics activity actually provide for the movement of
materials and goods from point of origin to point of consumption and
(disposal as well)
• Selection of mode, routing the shipment, assuring of compliance with
regulations in the region of the country where shipment is occuring, selection
of the carrier…
• Largest logistics cost

Warehousing and storage

• Warehousing supports time and place utility by allowing an item to be

produced and helps for later consumption.
• Warehouse layout, design,ownership, automation…
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 1.8. Increasing Significance of Logistics

Why Is Logistics Management Important?

 The purpose of logistics management is about finding more

efficient and effective ways to move resources and products from
conception/source to completion and, finally, to the customer.
 As customers demand better service, there’s a need to ship faster,
more accurately and with a high level of quality.
 It is through logistics management that customer satisfaction is
achieved.
 Logistics management also helps to create visibility in the business‘
supply chain.
 Therefore, logistics management helps drive up revenue.

 Logistics management improves customer service, adds to the

company‘s good reputation and brand, which in turn creates new and
more business.

 Good logistics management ensures that products are shipped in the

most economical, safe, efficient and timely manner.
 In contrast, poor logistics management can result in damaged or
delayed shipments, which can then lead to dissatisfied customers, returns
and scrapped products.
 The consequences of poor logistics management include higher costs
and customer relation problems.
 In order to avoid these results, effective logistics management includes:
 careful planning,
 proper software system selection,
 proper vetting and selection of outsourced vendors, and
 adequate resources to handle the processes.