Logistics Management Concept, Significance and Key Activities

Logistics Management: Concept, Significance and Key Activities. Read this article to learn about the concept, significance and key activities of logistics management of business organisation. Concept of Logistics Management: Logistics management may be defined as follows: 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. 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.” Points of Comment: Certain pertinent observations on the concept of logistics are: (i) The actual work of logistics is supportive in nature. Logistical support is a must for manufacturing and marketing operations. (ii) The concept of logistics is based on a total system view of the multitude of functions in movement of materials and goods from sources of supply to users. Accordingly, it forces management to think in terms of managing the total system; rather than just one part of it. Classification of Logistical Activities: Logistics (or Logistical Activities) may be Broadly Classified into Two Categories: I. Inbound logistics; which is concerned with the smooth and cost effective inflow of materials and other inputs (that are needed in the manufacturing process) from suppliers to the plant. For proper management of inbound logistics, the management has to maintain a continuous interface with suppliers (vendors). II. Outbound logistics (also called physical distribution management or supply chain management); is concerned with the flow of finished goods and other related information from the firm to the customer. For proper management of outbound logistics, the management has to maintain a continuous interface with transport operators and channels of distribution. Significance (or Objectives) of Logistics Management: Logistics management is significant for the following reasons: (i) Cost Reduction and Profit Maximization: Logistics management results in cost reduction and profit maximization, primarily due to: 1. Improved material handling. 2. Safe, speedy and economical transportation. 3. Optimum number and convenient location of warehouses etc. (ii) Efficient Flow of Manufacturing Operations: Inbound logistics helps in the efficient flow of manufacturing operations, due to on-time delivery of materials, proper utilisation of materials and semi-finished goods in the production process and so on. (iii) Competitive Edge: Logistics provide, maintain and sharpen the competitive edge of an enterprise by: 1. Increasing sales through providing better customer service. 2. Arranging for rapid and reliable delivery. 3. Avoiding errors in order processing; and so on. (iv) Effective Communication System: An efficient information system is a must for sound logistics management. As such, logistics management helps in developing effective communication system for continuous interface with suppliers and rapid response to customer enquiries. (v) Sound Inventory Management: Sound inventory management is a by-product of logistics management. A major headache of production management, financial management etc. is how to ensure sound inventory management; which headache is cured by logistics management. Key Activities Involved in Logistics Management: Following is a brief account of key activities involved in 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. Material handling systems, in logistics management are divided into three categories: 1. Mechanized systems. 2. Semi-automated systems. 3. Automated systems. (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: 1. Raw-materials and parts. 2. Semi-finished goods. 3. Finished goods. Management has to balance the benefits of holding inventories against costs associated with holding inventories like – storage space costs, insurance costs, risk of damage and spoilage in keeping stocks etc. (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. Labeling is a strong sales promotion tool. The consumer who is persuaded to read the label may, in fact, try to buy the product; even though he/she had no such premeditation (advance idea). (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: 1. The number and type of warehouses needed and. 2. The location of warehouses. The above two decisions depend on the desired level of customer service and the distance between the supply source and final destination i.e. markets. (viii) Transportation: Transportation is that logistical activity which creates place utility. Transportation is needed for: 1. Movement of raw-materials from suppliers to the manufacturing unit. 2. Movement of work-in-progress within the plant. 3. Movement of finished goods from plant to the final consumers. Major transportation systems include: The choice of a particular mode of transportation is dependent on a balancing of following considerations: 1. Speed of transportation system. 2. Cost involved in transportation. 3. Safety in transportation. 4. Reliability of transportation time schedules.