Logistics Management and Its Functions
What is logistics management?
Logistics management is a detailed process of organizing and implementing an operation. When it comes to business, that process is the flow of work from the beginning to the end, in order to fulfill customer expectations as well as those of your organization.
Types of Logistics Management
There are four main types of logistics management, each emphasizing a different aspect of the supply process.
1. Supply Management and Logistics
This involves the planning, procuring and coordinating materials which are needed at a certain time at a particular place for the production of a task. This includes transportation of the materials as well as a place to store them. Additionally, evaluating the level of supply at the different stages of the process is required to make sure the needs of the customer are met, for example delivering materials to a construction site or parts for a manufacturing plant.
2. Distribution and Material Movement
This takes stored materials and transports them to where they need to go. The issues in this involve moving materials; including loading, unloading and transportation, as well as keeping track of the stock and how it is used. This type of management controls the movement of supplies from a central warehouse to the stores that sell the product to the public.
3. Production Logistics and Management
This manages the stages of combining distributed supplies into a product, such as coordinating what is needed to make or put together something. This involves the staging of materials at the right time to work with the building of a product. This type of logistics management falls in the realm of product management.
4. Reverse Logistics and Product Return
This is about the management of reclaiming materials and supplies from production. For example, on a construction site it involves the removal of excess material and returning those materials to one’s stock. It can also refer to the return of unwanted or unused products from the end customer seeking a refund.
For more info on types of Logistics Management click here.
The various links and points of distribution in a logistics management network include the following:
Factories that manufacture products
Warehouses that store products
Distribution centers to receive and return items for clients
Transport to deliver product
Retail locations, from small to larger stores to sell product
These are the major hubs for the logistics of a product, though there can be vendors and intermediaries operating between these points.
What are Logistics management functions ?
To varying degrees, logistics management functions include customer service, sourcing and procurement, production planning and scheduling, packaging, and assembly. Logistics management is part of all the levels of planning and execution, including strategic, operational and tactical.
Further, it coordinates all the logistics activities, and it integrates logistics activities with other functions, including marketing, sales, manufacturing, finance and information technology.
Basic concepts of Logistics and SCM or its functions
Inventory Planning
Organizations want to minimize the inventory levels due to its almost linear relationship with the cost. Yet if the demand is forecasted accurately, there would ideally be no need for inventory and the goods will move seamlessly from warehouses to customers.
That would have been awesome, but it is deep into the ideal world zone. In the real world, the forecasted numbers can only take you so far and some inventory has to be maintained to satiate any surges in demand; the cost of unhappy consumers who are not serviced is often huge, and is immeasurable in most cases.
Yet overstocks lead to increase in working capital requirements, insurance costs and blocked resources which could have been productive someplace else.
Making a business forecast has largely been a gut-based process, but is changing rapidly in the era of data-based decision making. The forecast depends on the historical baseline for sales, seasonality (soft drinks have higher sales volume in May), recent trends (Samsung is losing out to competitors when it comes to phones, a declining trend), business cycles (economies go through expansion and contraction every few years), promotional offers (up to 50% off can drive the average fashionista mad) etc.
Transportation
The kind of transportation employed by an organization is a strategic decision (it usually accounts for around 1/3rd of the total logistics cost) based on the required level of risk exposure, customer service profiles, geographic area covered etc. Truck shipments take more time for delivery compared to air transport (customers with relaxed turnaround times); is cheaper but necessitates maintenance of higher inventory levels.
Transportation serves the purpose of not just product movement, but storage as well (not very intuitive). Time spent for delivery means saved time for warehousing, and many times the cost to offload and reload shipments can be greater than the cost of letting the goods stay in the transportation vehicles itself.
The factors which determine the economies of transportation decisions include but are not limited to: distance between the starting and destination points, and density (higher density products take less space — space constraints outweigh weight constraints by a huge margin), stow ability (spherical packaging will lead to more empty spaces compared to cubical) and volume of the goods. Different modes of transport serve different strategic ends (rail, road, air, water etc).
Two basic thumb rules apply for transportation decisions: truck load (TL) shipments are better than less-than-truckload (LTL) shipments as storage space is a perishable commodity (just like a commercial airline does not want to fly with empty seats), and the cost per kilometer decreases as the distance increases (two 500 km shipments is usually more expensive than a single 1000 km shipment). FlipKart has eKart for its logistical operations and warehousing, whereas smaller e-commerce players generally outsource their operations to specialized logistics players such BlueDart, DHL and now Delhivery. Packaging
The end goals differ: can either be done for end consumers or for logistical considerations. The packaging will then depend on the end goal; form factor plays the lead role when packaging goods for the end consumers, while function plays the lead role in packaging for logistical operations.
Warehousing
It is the back-end building for storing goods. Based on the needs of the organization, it can be in-house or outsourced.
Primary functions of a warehouse are product movement and storage. Activities such as offloading of the goods coming from the suppliers, the intermediate packaging (if required), and shipping to other destinations (retailers or end consumers) are handled in the warehouse. Similarly, they can also serve as a storage house for handing peak consumer demand to avoid stock out of items, and acts as a buffer between the starting point (usually manufacturing plant) and ending point (think about a typical retail outlet).
Different distribution strategies can be adopted by an organization based on its needs and infrastructure in place, namely: Cross-Docking: Relies on minimal processing at the warehouse level and facilitate seamless connection between “incoming” and “outgoing” goods through technologies such as bar code scanners; becoming increasingly important due to established structured communication between retailers and manufacturers; best for high velocity goods with predictable demand patterns.
Hub and Spoke Model: Hub serves as the central node for nearby places, and the spokes depend on the hub for their needs (think of a metropolitan and various tier-2 cities in its proximity).
Milk Runs: The delivery guy is out to deliver items from a single supplier to multiple retailers or to pick up items from multiple suppliers for a single retailer (An Indian Doodhwala can literally teach a thing or two about this, hence the naming we think).
Direct Shipping: A supplier directly ships to a particular retailer without any intermediaries. Mostly happens with big-name stores with huge good volumes, and very frequent replenishments. Big savings on time.
Pooled Distribution: Region is the most important factor driving this strategy. Delivers to every destination point in a geographical area, smart for handling peak time loads and LTL shipments. Plus one for the planet as a bonus!
Logistics management involves a lot of planning: the more steps, the better. By considering every stage of the product, its distribution and the return of materials and supplies, you’re more likely to increase efficiencies and increase revenues.
Green Supply Chain Management: Lean Practices
Functions of Logistics Management To varying degrees, logistics management functions include customer service, sourcing and procurement, production planning and scheduling, packaging, and assembly. Logistics management is part of all the levels of planning and execution, including strategic, operational and tactical. Further, it coordinates all the logistics activities, and it integrates logistics activities with other functions, including marketing, sales, manufacturing, finance and information technology.
Tips for Smart Logistics Management
Make a Plan B: No matter how good your initial plan is there can always be something that comes along that it cannot manage. That’s why you need a contingency plan for every element of your logistics plan to respond to unforeseen problems that might arise. But it’s important to also know when to give up the original plan and move on to the secondary one.
The larger the operation, the more complex and difficult the logistics management. Therefore, the more you need a strong logistics management plan. In order to be prepared and have the best plan possible, the following are some tips to follow. Have a Strong Plan: Like any management, it succeeds or fails on the strength of the plan. The more thorough your plan, the less you’ll have to think on your feet. There will always be issues, and only so much potential risks you can plan ahead for, but planning early and in detail can help mitigate delays and other obstructions to the clear flow of materials and supply.
Learn from Mistakes: This goes for most everything. You’ll take missteps on your journey of managing logistics. That’s a given. What’s not assured is that you’ll learn from those mistakes, so they don’t happen again. Therefore, take time to look back on what you’ve done, where it worked and where it didn’t, and get feedback from your team.
Hire a Manager: It’s critical that this process has a leader who is experienced and able to work with a variety of different parties, all of who are involved in the logistics of the materials and supplies. That means interpersonal skills are a must. They should also have strong industry contacts in order to deal with any last-minute logistics changes in suppliers, etc.
Automate: It goes without saying that automation is a built-in way to make workflow more efficient. The are so many processes that can be helped through task automation, from tracking to monitoring delivery to fleet and inventory management software.
CHALLENGES LOGISTICS HELPS TO OVERCOME IN SUPPLY CHAIN MANAGEMENT
Given the above list of tasks that logistics performs in supply chain management, we can single out a number of advantages provided by its correct implementation:
Minimization of enterprise expenses : The main role of logistics in supply chain management is primarily to increase the overall value of each delivery, which is identified by customer satisfaction. This means that the reduction and optimization of labor resources must be tied in with keeping up a certain level of quality customer service. This problem is solved both by reducing the total labor resources (primarily by eliminating unnecessary chain links), and by introducing automation solutions;
Consolidation of traffic volumes : Transportation costs are one of the largest expense categories in logistics management. In general, transportation costs increase depending on the distance, batch size, and product exposure to damage. On the other hand, the transportation cost per unit of weight decreases as the lot size increases on long runs. Thus, the maximum consolidation of transportation volumes can help reduce transportation costs. Enlargement can be achieved by combining small lots into a single large one, intended for a long run (i.e., for a longer distance);
Improving the quality of service : With regard to the quality of service, it is largely influenced by the speed of delivery of the goods to the end-user, as well as its transportation in proper conditions (for example, many products today are supplied with RFID tags so that both the manufacturer and the end customer could track whether all storage conditions are being observed during the transportation of the goods) and within the allowed time limits (this refers primarily to perishable goods);
Reduction of actual losses and reduction of possible risks : As you know, a business is profitable if the value it creates exceeds the costs associated with the implementation of activities. To achieve a competitive advantage, a company must either carry out these activities at lower costs or carry them out in a way that will lead to differentiation and price increment. The first thing to be done to effectively solve this problem is reducing the losses that are associated with the return of goods. It is very important to plan not only the routes on the way to the distributor or the end-user but also the routes by which the goods are delivered back to the warehouse or to the establishments for their disposal. The second factor affecting risk reduction is the correct planning of enterprise resources, which minimizes the likelihood of damage or loss of goods or manufacturing components on the way from the extraction of raw materials to delivery of the finished product/service to the end-user;
Minimization of the need for intermediary services : Intermediary services (transportation, storage, marketing, recycling, etc.) take up the lion’s share of the cost of the implementation of supply chains. Experienced logisticians plan routes so as to minimize the need for involving third-party services for efficient logistics management; Supporting goods with the necessary documentation. Insurance and support of documentation are two fundamental tasks of logistics, solving which helps to eliminate any problems associated with legal restrictions in the storage, transportation, and marketing of goods; Timely response to changing market demands. Advanced logistics scenarios also help to quickly adapt to changing market requirements and, thereby, maintain top positions against the backdrop of competitors and remain in demand for the target audience.
SUMMARY
The purpose of logistics management is obviously about finding more efficient and effective ways to move resources and products from conception to completion and, finally, to the customer. But the driving force of these actions is to meet customer demand and provide the best service possible to retain customers and maintain their satisfaction by meeting their requirements.
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.
Therefore, logistics management helps drive up revenue. It improves customer service, adds to the company’s good reputation and brand, which in turn creates new and more business. With more visibility into the supply chain there is the opportunity to save costs in operations, by controlling inbound funds, keeping inventory at the right level and organizing the reverse flow of goods.
But that’s not the only benefit of logistics management. It also helps to create visibility in the business’ supply chain. By analyzing the historical data and tracking the real-time movement of goods, logistics managers can better the flow of materials and avoid any potential disruptions.
Authors: Sanket Kawade, Vishal Khandate, Harsh Kulkarni, Prathamesh Kulkarni, Chetan Lohkare.
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