Logistics & SCM
Week 1 – Topic: Overview of Logistics and Supply Chain Management – Chps 1, 2 and 3
Introduction
Plan – what products are going to sell to the consumer market, idea generation
Source – which raw materials are needed
Make – where and how to produce the products, to what markets
Distribute – transport and delivery of products all across the world to different consumers
Understanding logistics & supply chain management
The term logistics has become much more widely recognized by the general public. In the last 20 years,
television, radio, and print advertising have lauded the importance of logistics. Transportation firms, such as
UPS, DHL, and FedEx, frequently refer to their organisations as logistics companies and stress the importance
of their service to overall logistics success.
Logistics management, as defined in this text, encompasses logistics systems not only in the private business
sector but also in the public/government and non-profit sectors. In addition, service organisations such as
banks, hospitals, restaurants, and hotels have logistics challenges and issues, and logistics management is an
appropriate and growing activity for service organisations.
For the purposes of this text, the definition offered by the Council of Supply Chain Management Professionals
(formerly the Council of Logistics Management) is the most appropriate. It states that logistics is ´ It states that
logistics is “The art and science of management, engineering, and technical activities concerned with
requirements, design, and supplying and maintaining resources to support objectives, plants, and operations.”
Logistics management is the most widely accepted term and encompasses logistics not only in the private
business sector but also in the public/government and nonprofit sectors. For the 21st century, logistics should
be viewed as part of organizational management and has four parts: business, military, event, and service
logistics. Each of these subdivisions has some common characteristics and requirements such as forecasting,
scheduling, and transportation:
1. Business logistics: That part of the supply chain process that plans, implements, and controls the efficient,
effective flow and storage of goods, service, and related information from point of use or consumption in
order to meet customer requirements.
2. Military logistics: The design and integration of all aspects of support for the operational capability of the
military forces (deployed or in garrison) and their equipment to ensure readiness, reliability, and
efficiency.
3. Event logistics: The network 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.
4. Service logistics: The acquisition, scheduling, and management of the facilities/ assets, personnel, and
materials to support and sustain a service operation or business.
All four subdivisions have some common characteristics and requirements such as forecasting, scheduling, and
transportation, but they also have some differences in their primary purpose. All four, however, can be viewed
in a supply chain context; that is, upstream and downstream other organisations play a role in their overall
success and long-run viability.
,Value-Added Roles of Logistics
Five principle types of economic utility add value to a product or service. Included are form, time, place,
quantity, and possession. Generally, production activities are credited with providing form utility; logistics
activities with time, place, and quantity utilities; and marketing activities with possession utility. Each will be
discussed briefly:
• Form or Transformation Utility: Form utility refers to the value added to goods through a manufacturing
or assembly process.
• Place Utility: Logistics provides place utility by moving goods from production surplus points to points
where demand exists.
• Time Utility: The economic value added to a good or service by having it at a demand point at a specific
time when it is needed.
• Quantity Utility: Today’s business environment demands that products not only be delivered on time to
the correct destination but also be delivered in the proper quantities.
• Possession Utility: Possession utility is primarily created through the basic marketing activities related to
the promotion of products and services.
Key Logistical Activities
The logistics definition indicates activities a logistics manager could be responsible for. Below are some of
those activities and what it encompasses:
• Transportation – involves the physical movement or flow of raw materials or finished goods and involves
the transportation agencies that provide service to the firm.
• Storage – involves two closely related activities: inventory management and warehousing. A direct
relationship exists between transportation and the level of inventory and number of warehouses
required. It is important to examine the trade-offs related to the various alternatives in order to optimize
the overall logistics system.
• Packaging – involves the necessary packaging needed to move the product to the market safely and
securely. Logistics managers must analyze the trade-offs between the type of transportation selected and
its packaging requirements.
• Materials Handling – is important to efficient warehouse operation and concerns the mechanical
equipment for short-distance movement of goods through the warehouse.
• Inventory Control – includes assuring appropriate levels of materials are available and certifying inventory
accuracy.
• Order Fulfilment – consists of the activities involved with completing customer orders. Order fulfilment
concerns the total lead time from when the order is placed to actual delivery in satisfactory condition.
• Forecasting – involves the prediction of inventory requirement and materials and parts essential to
effective inventory control.
• Production Planning – concerns the determination of the number of units necessary to provide market
coverage. The integration of production planning into logistics has become increasingly popular in large
companies to effectively forecast and control inventory.
• Procurement – concerns the availability for production of needed parts, components, and materials in the
right quantity, at the right time, at the right place, and at the right cost including within the logistics area if
it more effectively coordinates and lowers costs for the firm.
• Customer Service – levels play an important part in logistics by ensuring the customer gets the right
product, at the right time and place. Logistics decisions about product availability and inventory lead-time
are critical to customer service.
,• Facility Location – is concerned with optimizing the time and place relationships between plants and
markets, or between supply points and plants. Site location impacts transportation rates and service,
customer service, inventory requirements, and possible other areas.
• Other activities: Parts and service support is concerned with maintaining an adequate channel to
anticipated repair needs. Salvage and scrap disposal deals with reverse logistics systems and channels in
order to effectively and efficiently dispose of containers and other scrap at the end of the distribution
channel.
A Supply Chain Network:
Logistics in the Economy
The overall, absolute cost of logistics on a macro basis will increase with growth in the economy. In other
words, if more goods and services are produced, logistics costs will increase. To determine the efficiency of the
logistics system, total logistics costs need to be measured in relationship to gross domestic product (GDP),
which is a widely accepted barometer used to gauge the rate of growth in the economy
The reduction in logistics cost as a percent of GDP has resulted from a significant improvement in the overall
logistics systems of the organisations operating in the economy. This reduction in relative cost allows
organisations to be more competitive since it directly impacts the cost of producing goods.
Some additional understanding of logistics costs can be gained by examining the three major cost categories –
warehousing and inventory costs, transportation costs, and other logistical costs. Warehousing costs are those
associated with the assets used to hold inventory. Inventory costs are all the expenses associated with holding
goods in storage. Carrying costs include interest expense (or the opportunity cost associated with the
investment in inventory), risk-related costs (obsolescence, depreciation), and service-related costs (insurance,
taxes). The third category of logistics costs is the administrative and shipper-related costs associated with
managing logistics activities and personnel.
The declining trend for logistics cost relative to GDP is very important to recognize. It was related to the
deregulation of transportation, which permitted much more flexibility for carriers to purchase transportation
services and allowed more flexibility for carriers to adjust their freight rates and service in response to
, competition. A second factor contributing to the trend has been the improved management of inventory levels
with more attention being focused on inventory investment and the technology available to managers to make
more effective inventory decisions. Finally, the focus by many organisations on cash flow resulted in more
emphasis on inventory turnover.
Logistics in the Firm
The micro dimension of logistics examines the relationships between logistics and other functional areas in an
organization – marketing, manufacturing or operations, finance and accounting, and others.
Logistics Interfaces with Manufacturing or Operations
Manufacturing efficiency is often based upon long production runs or scale with infrequent manufacturing line
setups or changeovers. The long run can result in higher inventory levels of inventory for some finished
products and limited supplies of others. The best or optimal manufacturing decisions require managers to
analyze the cost trade-offs of longer production runs and their impact on inventory cost. Shorter production
runs with more efficient set-ups can provide flexibility to meet short run changes in demand.
Logistics and manufacturing also interface on the inbound side of production. For example, a shortage or
stock-out could result in the shutdown of a manufacturing facility and an increase in production costs. The
logistics manager should ensure that available quantities of raw materials and components are adequate to
meet production schedules yet are conservative in terms of inventory carrying costs. Another activity at the
interface of logistics and manufacturing is industrial packaging, which many organizations treat as a logistics
responsibility. In the context of manufacturing or logistics, the principal purpose that industrial packaging
serves is to protect the product from damage.
The interface between logistics and manufacturing is becoming more critical, given the growth in procurement
of raw materials and components from offshore sources and sustainability issues. Also, many organizations
today are making arrangements with third-party manufacturers, “co-packers,” or contract manufacturers to
produce, assemble, or enhance some or all of the organization’s finished products.
Logistics Interfaces with Marketing
Logistics has an important relationship with marketing that also necessitates collaboration. The rationale is
that physical distribution, or the outbound side of an organisation’s logistics system, plays an important role in
the sale of a product. In some instances, order fulfilment may be the key variable in the continuing sales of
products; that is, the ability to provide the right product at the right time to the right place in the right
quantities and the right cost can be the critical element in making a sale. This section discusses the interfaces
between logistics and marketing activities in each principal area of the so-called marketing mix – price,
product, promotion, and place.
• Price: From a logistics perspective, adjusting quantity prices to conform to shipment sizes appropriate for
transportation organizations might be quite important.
• Product: Another decision frequently made in the marketing area concerns products, particularly their
physical attributes. These changes impact container size and hence container utilization and storage space
requirements.
• Promotion: Firms often spend millions of dollars on national advertising campaigns and other promotional
practices to improve sales. An organization making a promotional effort to stimulate sales should inform
its logistics manager so that sufficient quantities of inventory will be available for distribution to the
Week 1 – Topic: Overview of Logistics and Supply Chain Management – Chps 1, 2 and 3
Introduction
Plan – what products are going to sell to the consumer market, idea generation
Source – which raw materials are needed
Make – where and how to produce the products, to what markets
Distribute – transport and delivery of products all across the world to different consumers
Understanding logistics & supply chain management
The term logistics has become much more widely recognized by the general public. In the last 20 years,
television, radio, and print advertising have lauded the importance of logistics. Transportation firms, such as
UPS, DHL, and FedEx, frequently refer to their organisations as logistics companies and stress the importance
of their service to overall logistics success.
Logistics management, as defined in this text, encompasses logistics systems not only in the private business
sector but also in the public/government and non-profit sectors. In addition, service organisations such as
banks, hospitals, restaurants, and hotels have logistics challenges and issues, and logistics management is an
appropriate and growing activity for service organisations.
For the purposes of this text, the definition offered by the Council of Supply Chain Management Professionals
(formerly the Council of Logistics Management) is the most appropriate. It states that logistics is ´ It states that
logistics is “The art and science of management, engineering, and technical activities concerned with
requirements, design, and supplying and maintaining resources to support objectives, plants, and operations.”
Logistics management is the most widely accepted term and encompasses logistics not only in the private
business sector but also in the public/government and nonprofit sectors. For the 21st century, logistics should
be viewed as part of organizational management and has four parts: business, military, event, and service
logistics. Each of these subdivisions has some common characteristics and requirements such as forecasting,
scheduling, and transportation:
1. Business logistics: That part of the supply chain process that plans, implements, and controls the efficient,
effective flow and storage of goods, service, and related information from point of use or consumption in
order to meet customer requirements.
2. Military logistics: The design and integration of all aspects of support for the operational capability of the
military forces (deployed or in garrison) and their equipment to ensure readiness, reliability, and
efficiency.
3. Event logistics: The network 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.
4. Service logistics: The acquisition, scheduling, and management of the facilities/ assets, personnel, and
materials to support and sustain a service operation or business.
All four subdivisions have some common characteristics and requirements such as forecasting, scheduling, and
transportation, but they also have some differences in their primary purpose. All four, however, can be viewed
in a supply chain context; that is, upstream and downstream other organisations play a role in their overall
success and long-run viability.
,Value-Added Roles of Logistics
Five principle types of economic utility add value to a product or service. Included are form, time, place,
quantity, and possession. Generally, production activities are credited with providing form utility; logistics
activities with time, place, and quantity utilities; and marketing activities with possession utility. Each will be
discussed briefly:
• Form or Transformation Utility: Form utility refers to the value added to goods through a manufacturing
or assembly process.
• Place Utility: Logistics provides place utility by moving goods from production surplus points to points
where demand exists.
• Time Utility: The economic value added to a good or service by having it at a demand point at a specific
time when it is needed.
• Quantity Utility: Today’s business environment demands that products not only be delivered on time to
the correct destination but also be delivered in the proper quantities.
• Possession Utility: Possession utility is primarily created through the basic marketing activities related to
the promotion of products and services.
Key Logistical Activities
The logistics definition indicates activities a logistics manager could be responsible for. Below are some of
those activities and what it encompasses:
• Transportation – involves the physical movement or flow of raw materials or finished goods and involves
the transportation agencies that provide service to the firm.
• Storage – involves two closely related activities: inventory management and warehousing. A direct
relationship exists between transportation and the level of inventory and number of warehouses
required. It is important to examine the trade-offs related to the various alternatives in order to optimize
the overall logistics system.
• Packaging – involves the necessary packaging needed to move the product to the market safely and
securely. Logistics managers must analyze the trade-offs between the type of transportation selected and
its packaging requirements.
• Materials Handling – is important to efficient warehouse operation and concerns the mechanical
equipment for short-distance movement of goods through the warehouse.
• Inventory Control – includes assuring appropriate levels of materials are available and certifying inventory
accuracy.
• Order Fulfilment – consists of the activities involved with completing customer orders. Order fulfilment
concerns the total lead time from when the order is placed to actual delivery in satisfactory condition.
• Forecasting – involves the prediction of inventory requirement and materials and parts essential to
effective inventory control.
• Production Planning – concerns the determination of the number of units necessary to provide market
coverage. The integration of production planning into logistics has become increasingly popular in large
companies to effectively forecast and control inventory.
• Procurement – concerns the availability for production of needed parts, components, and materials in the
right quantity, at the right time, at the right place, and at the right cost including within the logistics area if
it more effectively coordinates and lowers costs for the firm.
• Customer Service – levels play an important part in logistics by ensuring the customer gets the right
product, at the right time and place. Logistics decisions about product availability and inventory lead-time
are critical to customer service.
,• Facility Location – is concerned with optimizing the time and place relationships between plants and
markets, or between supply points and plants. Site location impacts transportation rates and service,
customer service, inventory requirements, and possible other areas.
• Other activities: Parts and service support is concerned with maintaining an adequate channel to
anticipated repair needs. Salvage and scrap disposal deals with reverse logistics systems and channels in
order to effectively and efficiently dispose of containers and other scrap at the end of the distribution
channel.
A Supply Chain Network:
Logistics in the Economy
The overall, absolute cost of logistics on a macro basis will increase with growth in the economy. In other
words, if more goods and services are produced, logistics costs will increase. To determine the efficiency of the
logistics system, total logistics costs need to be measured in relationship to gross domestic product (GDP),
which is a widely accepted barometer used to gauge the rate of growth in the economy
The reduction in logistics cost as a percent of GDP has resulted from a significant improvement in the overall
logistics systems of the organisations operating in the economy. This reduction in relative cost allows
organisations to be more competitive since it directly impacts the cost of producing goods.
Some additional understanding of logistics costs can be gained by examining the three major cost categories –
warehousing and inventory costs, transportation costs, and other logistical costs. Warehousing costs are those
associated with the assets used to hold inventory. Inventory costs are all the expenses associated with holding
goods in storage. Carrying costs include interest expense (or the opportunity cost associated with the
investment in inventory), risk-related costs (obsolescence, depreciation), and service-related costs (insurance,
taxes). The third category of logistics costs is the administrative and shipper-related costs associated with
managing logistics activities and personnel.
The declining trend for logistics cost relative to GDP is very important to recognize. It was related to the
deregulation of transportation, which permitted much more flexibility for carriers to purchase transportation
services and allowed more flexibility for carriers to adjust their freight rates and service in response to
, competition. A second factor contributing to the trend has been the improved management of inventory levels
with more attention being focused on inventory investment and the technology available to managers to make
more effective inventory decisions. Finally, the focus by many organisations on cash flow resulted in more
emphasis on inventory turnover.
Logistics in the Firm
The micro dimension of logistics examines the relationships between logistics and other functional areas in an
organization – marketing, manufacturing or operations, finance and accounting, and others.
Logistics Interfaces with Manufacturing or Operations
Manufacturing efficiency is often based upon long production runs or scale with infrequent manufacturing line
setups or changeovers. The long run can result in higher inventory levels of inventory for some finished
products and limited supplies of others. The best or optimal manufacturing decisions require managers to
analyze the cost trade-offs of longer production runs and their impact on inventory cost. Shorter production
runs with more efficient set-ups can provide flexibility to meet short run changes in demand.
Logistics and manufacturing also interface on the inbound side of production. For example, a shortage or
stock-out could result in the shutdown of a manufacturing facility and an increase in production costs. The
logistics manager should ensure that available quantities of raw materials and components are adequate to
meet production schedules yet are conservative in terms of inventory carrying costs. Another activity at the
interface of logistics and manufacturing is industrial packaging, which many organizations treat as a logistics
responsibility. In the context of manufacturing or logistics, the principal purpose that industrial packaging
serves is to protect the product from damage.
The interface between logistics and manufacturing is becoming more critical, given the growth in procurement
of raw materials and components from offshore sources and sustainability issues. Also, many organizations
today are making arrangements with third-party manufacturers, “co-packers,” or contract manufacturers to
produce, assemble, or enhance some or all of the organization’s finished products.
Logistics Interfaces with Marketing
Logistics has an important relationship with marketing that also necessitates collaboration. The rationale is
that physical distribution, or the outbound side of an organisation’s logistics system, plays an important role in
the sale of a product. In some instances, order fulfilment may be the key variable in the continuing sales of
products; that is, the ability to provide the right product at the right time to the right place in the right
quantities and the right cost can be the critical element in making a sale. This section discusses the interfaces
between logistics and marketing activities in each principal area of the so-called marketing mix – price,
product, promotion, and place.
• Price: From a logistics perspective, adjusting quantity prices to conform to shipment sizes appropriate for
transportation organizations might be quite important.
• Product: Another decision frequently made in the marketing area concerns products, particularly their
physical attributes. These changes impact container size and hence container utilization and storage space
requirements.
• Promotion: Firms often spend millions of dollars on national advertising campaigns and other promotional
practices to improve sales. An organization making a promotional effort to stimulate sales should inform
its logistics manager so that sufficient quantities of inventory will be available for distribution to the
