Meaning, Basic Concepts of logistics Management

Logistics is derived from a Greek word “logistike” which means the “science of computing and calculating.”

Logistics is one of the important activities of business today. Logistics is basically concerned with making the products and services available to the users rightly. In past, ‘logistics’ concept was used by military organisations. It implied the movement of men and other physical resources required during war by military troops to achieve them. However after world war-II concept of logistics was associated with industries and that paved the way for business logistics.

Logistics management is a business function that generates heaps of benefits for the firms through proper management of logistical activities. It is concerned with effective flow of materials, with all aspects i.e. inflow of material purchased, flow of materials through manufacturing process and outflow i.e. flow of materials to customers. The aim is to satisfy customer’s requirements.

According to Phillip Kotler, “Market logistics involve planning, implementing and controlling physical flow of material and final (finished) goods from the point of origin to the point of use to meet customer requirements, at a profit.”

Logistics management consists of the process of planning, implementing and controlling the efficient flow of raw-materials, work-in-progress and finished goods and related information-from point of origin to point of consumption; with a view to providing satisfaction to the customer.

Components of Logistics Management

Logistics management consists of three major components:

1. Order processing or Input

This component is the first process of logistics where information about the resources and production is gathered based on which the products are manufactured. In the case of freight forwarding, order processing refers to the step where the various source of vendors and transportation are gathered for the importing or exporting of goods.

2. Inventory Management

Inventory management plays an important role in the supply chain management system. As the name suggests, inventory management helps the logistics company in allocating the resources like transport vehicles, labour and other resources according to the order received by the client. This helps in making sure that no orders or freights are being left out or are being delayed for delivery.

3. Freight transportation

This is the last and the major component of logistics management. After the order is processed and the resources are allocated in order to transport the freight to the destination. Various routes and types of transportation are analysed to check which transportation and the routes will deliver the product on or before the delivery time. There are tools and software which analyse these factors with the help of artificial intelligence and machine learning tools and provide the best plans to the logistics company.

These components together help in delivering the best quality goods to the consumers and is delivered on time. These components help in reducing the additional costs and increasing the productivity of the work, therefore the logistics company will be able to provide the best services with great quality to their clients and consumers.

Functions of Logistics Management

(i) Network Design

Network design is one of the prime responsibilities of logistics management. This network is required to determine the number and location of manufacturing plants, warehouses, material handling equipment’s etc. on which logistical efficiency depends.

(ii) Order Processing

Customers’ orders are very important in logistics management. Order processing includes activities for receiving, handling, filing, recording of orders. Herein, management has to ensure that order processing is accurate, reliable and fast.

Further, management has to minimize the time between receipt of orders and date of dispatch of the consignment to ensure speedy processing of the order. Delays in execution of orders can become serious grounds for customer dissatisfaction; which must be avoided at all costs.

(iii) Procurement

It is related to obtaining materials from outside suppliers. It includes supply sourcing, negotiation, order placement, inbound transportation, receiving and inspection, storage and handling etc. Its main objective is to support manufacturing, by providing timely supplies of qualitative materials, at the lowest possible cost.

(iv) Material Handling

It involves the activities of handling raw-materials, parts, semi-finished and finished goods into and out of plant, warehouses and transportation terminals. Management has to ensure that the raw-materials, parts, semi-finished and finished goods are handled properly to minimize losses due to breakage, spoilage etc. Further, the management has to minimize the handling costs and the time involved in material handling.

(v) Inventory Management

The basic objective of inventory management is to minimize the amount of working capital blocked in inventories; and at the same time to provide a continuous flow of materials to match production requirements; and to provide timely supplies of goods to meet customers’ demands.

Management has to maintain inventories of:

• Raw-materials and parts
• Semi-finished goods
• Finished goods

(vi) Packaging and Labeling

Packaging and labeling are an important aspect of logistics management. Packaging implies enclosing or encasing a product into suitable packets or containers, for easy and convenient handling of the product by both, the seller and specially the buyer.

Packaging facilities the sale of a product. It acts as a silent salesman. For example, a fancy and decorative packaging of sweets, biscuits etc. on the eve of Diwali, makes for a good sale of such items.

Labeling means putting identification marks on the package of the product. A label provides information about – date of packing and expiry, weight or size of product, ingredients used in the manufacture of the product, instructions for sale handling of the product, price payable by the buyer etc.

(vii) Warehousing

Storage or warehousing is that logistical activity which creates time utility by storing goods from the time of production till the time these are needed by ultimate consumers.

Here, the management has to decide about:

• The number and type of warehouses needed and
• The location of warehouses.

(viii) Transportation

Transportation is that logistical activity which creates place utility.

Transportation is needed for:

• Movement of raw-materials from suppliers to the manufacturing unit.
• Movement of work-in-progress within the plant.
• Movement of finished goods from plant to the final consumers.

Operational Objectives of Logistics

Logistics aims at providing the goods to the customers at the right time and at right price.

Considering the same, operational objectives of logistics can be listed and explained as follows:

• Quick response:

(a) One of the important objectives of the logistics is to quickly response to the customer requirements.

(b) Logistics ensures the customers’ demands are met as and when they arise; in order to keep them satisfied.

(c) Quickly responding to the customers’ requirements through right logistics mix is essential in order to make them goods available rightly.

(d) It increases the customer loyalty and enhances the business values.

• Managing and improvement quality:

(a) Customer satisfaction is associated with getting the right delivery with apt quality.

(b) Right logistics mix ensures enhanced quality and thereby leads to customer satisfaction.

(c) Failure to meet customers’ expectations in terms of quality results in increased cost.

(d) Thus, the objective is to achieve zero defect logistics performance in order to augment business profits.

• Minimum inventory:

(a) As stated earlier, in order to control the total cost, it is quiet significant to control and manage the inventory.

(b) High inventory leads to high inventory carrying costs

(c) Logistics management aims at maintaining reasonable levels of inventory that shall not increase the cost.

(d) Using modern techniques in logistics like JIT, Kanban, etc. is solution for the same.

• Minimum variance:

(a) Variance in logistics refers to the difference between the expected and the actual logistical performance.

(b) This difference between the expected and actual logistical performance may arise on account of inefficient logistics mix.

(c) Variance may lead to the inefficiencies leading to increase in cost.

(d) However, minimum the variance, maximum the logistical improvement.

5. Movement consolidation:

(a) Movement consolidation is associated with logistical function: transportation.

(b) Movement consolidation refers to grouping smaller shipments into larger one.

(c) This helps in reducing the overall transportation costs.

(d) Logistics thus aims at movement consolidation and thereby enhances logistical performances and reduces logistics costs.

6. Logistical lifecycle support:

(a) Logistics function does not end with delivery of goods to customers. It also includes support mechanisms that form the lifecycle.

(b) Lifecycle support mainly includes after sale service and reverse logistics.

(c) After sales can include all such activities like guarantees, warranties, maintenances, repairs, etc. that enables providing support to customers, after goods are sold and subsequently used by consumer.

(d) Reverse logistics may include all activities which involve flow of goods from customer to the manufacturer. It may arise on account of quality issues, defects, and damage in transit, product expiry, incorrect order, reusability, recycle. etc.

7. Other miscellaneous objectives:

(a) Minimum damage to products

(b) Efficiency in order processing

(c) Making right delivery

(d) Enhancing Customer satisfaction.