Logistics management is essential for the proper functioning of a supply chain and for successfully serving customers. In this lesson, you'll learn about the role of logistics in supply chain management and how intermediaries can be used in the process.
Anne is in charge of logistics management at a company that manufactures computers and related hardware. The Council of Supply Chain Management Professionals defines logistics as that part of the supply chain process that plans, implements and controls the efficient, effective flow and storage of goods, services and related information from point of origin to point of consumption in order to meet customer requirements. The concept of logistics may sound complicated, but it really isn't. You can think of logistics as making sure that the goods, services and information are where they are supposed to be at the right time.
Anne's job is to make sure that the company receives the goods and services necessary to make its computers and related products. She also must make sure that the finished products are distributed to the company's customers safely and in a timely manner. In addition, she coordinates with the company's customer service department, ensuring the right support and parts are provided as needed.
Let's look at some common logistics activities in which Anne is routinely engaged. Transportation involves the movement of goods, such as raw materials and parts, for her company's products and finished products for customers. Anne will have to decide how the goods will be transported and by whom.
Storage involves warehousing of goods. There is a relationship between transportation, storage and inventory control. The slower the mode of transportation that Anne uses, the more inventory she may decide to store, which will require more storage capacity. For example, if her goods are shipped via ship instead of air, she probably will keep more inventory on hand because transoceanic shipping takes time.
Inventory control is making sure there is enough inventory available to meet the company's and its customer's needs and ensuring that inventory levels are accurately recorded and monitored. Inventory can consist of the raw materials and parts used to produce goods and the finished goods ready to be distributed to customers.
Packaging is required for the safe transport of goods. Materials handling relates to the flow of goods into a warehouse, placement of goods in a warehouse and movement out of the warehouse. Order fulfillment involves fulfilling and shipping customer orders.
Demand forecasting is predicting the level of inventory needed by the company. Anne needs to be careful to forecast accurately or the needs of the company or its customers may not be timely met. Production planning is related to forecasting and involves calculating the production capacity of the company based on inventory levels. Sometimes, logistics managers, like Anne, will work with production managers during the planning process.
Procurement is also sometimes included in the logistics process. Procurement is simply the acquisition of goods necessary for the company to engage in its production activities. There needs to be sufficient raw materials and parts in inventory to meet the company's production needs. Customer service is also relevant to logistics. Anne needs to ensure that there are proper inventory levels, storage and transportation systems in place to meet customer orders in a timely manner.
Facility location is also important because it can affect the required level of inventory, delivery time and transportation costs in getting products to customers. This, in turn, can affect the quality of customer service. For example, moving a fulfillment center to a different location may mean shipping expenses and delivery times will increase or decrease for customers.
Sometimes, it's cheaper and more efficient for companies to outsource some of their logistics activities. These intermediaries can provide many of the logistics functions better and cheaper because they specialize in providing the services. This allows a company, like Anne's, to focus on its core business.
Anne, for example, has decided to outsource transportation, storage and order fulfillment to outside companies. She uses freight companies to transport raw materials and parts to the company's factory. She also has hired a third-party fulfillment center, which may store the company's products, take orders from the company's customers and fill the order by shipping the ordered product to the customer. If you've ever paid close attention to products offered on Amazon, you may notice that Amazon acts as a fulfillment center for many companies. In other words, Amazon doesn't sell all the products on its site but rather serves as a fulfillment center for some products.
Let's review what we've learned. Logistics concerns ensuring goods, services and information get to where they need to be when they need to be there. Logistics activities can include transportation, warehousing, packaging, materials handling, inventory control, order fulfillment, forecasting, production planning, procurement, customer service and facility location. Many of these logistics activities are often outsourced to third-party intermediaries.
Watching and reviewing this video might help you to explain the role of logistics in supply chain management and understand how intermediaries help with the process. You could emphasize the correlation between storage, inventory control and transportation while highlighting the importance of customer service to logistics.