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Module 7

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LogisticsLogistics: It is the art & science of managing & controllingthe flow of goods, energy, information and other resources.

Objectives of logistics:

1. Improving the customer service

2. Reduce total distribution cost

3. Minimum product damages

4. Generating additional sales

5. Creating time & place of utilities

6. Price stabilization

7. Quality improvement

8. Inventory reduction

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Logistics in the firm- A macro

dimensiony Logistics plays a very important role in the economy of

a country.

y Two significant ways:1. Logistics is major expenditures for business

2. Logistics supports the movement and f low of manyeconomic transactions.

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Logistics in the firm A micro

dimensiony Firm tend to move through 4 different stages of

development:-

1. View logistics as an area of cost minimization only.2. Firm tend to look upon logistics as a profit center.

3. Utilizing as both a profit center and key marketsegmentation variable.

4. Logistics is seen as a central area of strategic activitywithin the firm.

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Logistical interface with other areasy Interface between finance & accounting with logistics

is straight forward.

y Logistics manager need to prepare the detailed budgetexplaining why & where money is needed.

y Finance responsible for keeping track of costs andprocurement of needed resources.

y Good logistics practice increases gross profit andreduces assets required to sustain the business.

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Approach to Analyzing Logistics Systems

Material managementversus physical

distribution

Logistics channelsNodes versus links

Cost centers

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Logistics and system analysisy Logistics concept is based on the system approach.

A) Cost perspective:

1. Measuring the efficiency of the system by cost.2. Decisions about logistics have their effect on inventories,on packaging , on materials handling & on purchasingand marketing decisions.

3. Organizations goal is to provide good service to the

customers- in terms of quantity, quality, timely delivery.4. So, inventory control, service levels, package design,

warehousing, the mode, frequency and routes of transport will have to be considered.

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Logistics and system analysisB)Level of optimality:1) Firm should not optimize at one activity at the expense of other activity.

2) Overall firm is a system that should be optimized.

3) Example: logistics mgr want to give 5 day delivery service to customers whenthe competition is giving 3 day delivery service in the same sales area.

Marketing

FinanceOther

functionlogistics

Production

Vendors Customers

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Techniques of logistics system analysisy Short run or static analysis:1. Comprised of a matrix like table which presents each of the logistics

and other relevantcosts for two or more alternative logistics systems.

2. The major downside is that it presents a solution which is notnecessarily the correctone at all possible volume levels or every time.

y Long run/ Dynamic analysis:

1. Project the optimum is to mathematically calculate

the point of equality between the systems.

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Factors affecting the cost & importance of

logistics

A. Competitive relationship of logistics

B. Product relationships of logistics

C. Spatial relationship of logistics

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