What is logistics?

Summary

Logistics is the management of the storage and movement of

goods and information. Good logistics cuts costs, speeds

work, and improves customer service.

Logistics involves the co-ordinated management of material and

information flows throughout your organisation. Supply chain

management deals with the same issues throughout the chain from

your sources to your customers. Its objective is to simplify the

supply chain to control total cost, improve total quality, maximise

customer service, and increase profit. Logistics is a complex

discipline: getting the right balance between ways of buying, moving

and storing goods involves juggling a lot of balls at once. But getting

it right is extraordinarily rewarding. Immediately, good practice can

take a lot of non-value-added waste out of your systems. Perhaps

more importantly, it will add value to your activities: it will make you

more competitive.

People have different names for these activities when they are

managed together. Supply chain management, logistics and materials

management are terms widely (and interchangeably) used. This

document mostly uses 'logistics'. People mean different things when

they discuss logistics: they often concentrate on transport, and limit

themselves to systems which move goods from factory gate to

customer. Here we talk about the whole supply chain, and

concentrate on transport, storage, information flows, and

commercial relationships.

Logistics and supply chain

management

Supply chain management is about getting a smooth and efficient

flow from raw material to finished goods in your customer's hands.

It is a concept which is increasingly replacing traditional fragmented

management approaches to buying, storing and moving goods.

Traditionally, the management of material flows has centred around

stocks of product: on trains and boats and trucks; in warehouses

and stores and factory-floor queues. Managing those stocks meant

buying enough goods far enough in advance to ensure that long,

steady production runs were seldom jeopardised by shortages of

components. Tougher competition has brought shorter product

life-cycles and made that approach increasingly expensive.

Replacing these 'inventory-driven systems' are 'service-driven

systems'. This type of system, 'pulled' by customer demand rather

than 'pushed' by a supply system, is long-familiar in retailing and

over the last decade has become a necessity in many manufacturing

sectors.

This document will help you identify and manage your supply chain.

It will give you an understanding of the elements of logistics and

supply chain management. It relates them to cost and service. And it

points you in the right direction to improve your costs, service, and

competitiveness. It is not a tutorial, but it gives managers an outline

of the elements within each discipline which together can improve

competitiveness.

Where logistics fits in your business

Before you can start managing your supply chain better you must

know:

what you want from your business

what your customers want from you

how well your competitors meet customer needs.

The place of the logistics discipline in your business depends on the

answer to these questions. For some companies - largely those

which assemble physical goods in volume and ship them to

customers - there is an argument that managing the business is

indistinguishable from managing its logistics. Procurement, transport,

manufacturing, sales and customer service can all benefit from an

integrated logistics function, leaving just marketing, personnel,

finance and research as separate functions. In other firms, the role of

time and place is less critical. Most service companies, and many

low-volume manufacturing businesses would pay less attention to

logistics skills.

Supply chain management events

"Logistics for competitive advantage" videos

What is the supply chain?

Traditionally, companies have dealt with moving and storing goods

in a disparate way, and under a number of different managers. In

manufacturing, transport from supplier to plant was handled by

suppliers themselves or by purchasing departments. Transport and

storage within the plant was handled by the stores department (in

the stores) and by manufacturing operations (within the plant).

Transport from plant to customer was handled by transport or

distribution departments; buying was handled by purchasing; sales

forecasts by marketing and communicated to manufacturing and

procurement in a generally one-way information flow.

This approach splits functional departments into watertight

compartments when, as every manager knows, business isn't like

that. Particularly in this area, where the essence of supply chain

management is managing flows across departments, sites and - often

- companies. So a high degree of management integration is needed.

Logistics deals with geography, time and value. Many of its

concerns are with things in places and transport between the places.

In this view logistics deals with everything from raw materials

through their movement into and between various stores and

processes to the customer. It looks at material flows within sites as

much as between sites.

Why stock is here to stay

The thrust of this document is that better logistics systems, closer

relations with suppliers, and better forecasting techniques can

together eliminate idle stock. In a Just in Time world, total inventory

is the same as work in progress, and that is a very low figure.

Nothing is bought until it has been sold. Nothing is made until it has

been sold, and manufacturing, transport, and lead times diminish

towards zero. Certainly, you can reap rich rewards through using

good management to reduce stock levels, lead times, and failure

costs. But as a glance at the section on JIT above should make

clear, you are embarking on the longest journey. The few businesses

around the world which have achieved JIT are all very large and

wield enormous economic power over suppliers. They can and do

insist, for instance, that suppliers move their factories to the same

town or business park as their plants. They have found, by and

large, that there is mutual interest in close co-operation with

suppliers and in helping them to 'level up' their quality and

technology. The rewards they offer, though, are dazzling. Even so,

'Just in Time' is just a phrase to describe the results of work that has

been many years in the building. Your business does not have the

economic power of these multinationals. But this document has set

out ways of developing internal systems and building team-work

with suppliers which can work for small businesses as well as large.

Although it may take longer for the smaller firm, the benefits of

moving in this direction are there for all to reap.