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Logistics and Supply Chain Basics

The document provides an overview of logistics, procurement, and supply chain management, emphasizing their roles in the movement of materials within and between organizations. It explains logistics as the flow of materials from suppliers to customers, while procurement involves acquiring necessary materials and services. The document also outlines the structure of supply chains, the distinction between purchasing and procurement, and the importance of supply chain management in coordinating activities across various organizations.

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23 views6 pages

Logistics and Supply Chain Basics

The document provides an overview of logistics, procurement, and supply chain management, emphasizing their roles in the movement of materials within and between organizations. It explains logistics as the flow of materials from suppliers to customers, while procurement involves acquiring necessary materials and services. The document also outlines the structure of supply chains, the distinction between purchasing and procurement, and the importance of supply chain management in coordinating activities across various organizations.

Uploaded by

ansusiawohkonneh
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

Fundamentals of Logistics and Supply Chain Management

Lecture one
The Concepts of Logistics, Procurement and Supply Chain Management
Introduction
All organisations move materials. Manufacturers build factories that collect raw materials from
suppliers and deliver finished goods to customers; retail shops have regular deliveries from
wholesalers; a television news service collects reports from around the world and delivers them
to viewers; most of the population live in towns and cities and eat food brought in from other
countries and regions; when a book or DVD is ordered from a website a courier delivers. Every
time we buy, rent, lease, hire or borrow something, someone has to make sure that all the parts
are brought together and delivered to our doors.

What is Logistics ?

Logistics is the function responsible for the flow of materials from suppliers into an
organisation, through operations within the organisation, and then out to customers.

Role of Logistics

Moving materials into the organisation from suppliers is called inbound or inward logistics;
moving materials out to customers is outbound or outward logistics; moving materials within
the organisation is called materials management.
What can be classified as materials ?

Materials are all the things that an organisation moves to create its products. These materials can
be both tangible (such as raw materials) and intangible (such as information).

Note: We can now say logistics is responsible for moving raw materials, components, finished
products, people, information, paperwork, messages, knowledge, consumables, energy, money
and anything else needed by operations. To simplify things, all these can be described as
materials.

The Supply Chain

Note: Organisations do not work in isolation, but each one acts as a customer when it buys
materials from its own suppliers, and then it acts as a supplier when it delivers materials to its
own customers. A wholesaler, for example, acts as a customer when buying goods from
manufacturers, and then as a supplier when selling goods to retail shops. A component maker
buys raw materials from its suppliers, assembles these into components, and passes the results to
other manufacturers. Most products move through a series of organisations as they travel
between original suppliers and final customers. Milk moves through a farm, tanker collection,
dairy, bottling plant, distributor, and supermarket before we buy it.

SUPPLY CHAIN consists of the series of activities and organisations that materials move
through on their journey from initial suppliers to final customers.

Every product has its own unique supply chain, and these can be both long and complicated.
Example of the supply chain for paper

materials may move through raw materials suppliers, manufacturers, finishing operations,
logistics centres, warehouses, third party operators, transport companies, wholesalers, retailers,
and a whole range of other operations. Sometimes, the supply chain goes beyond the final
customer to add recycling and re-use of materials.

Structure of the supply chain

moving materials inwards are called upstream and whiles moving materials outwards are called
downstream.

The upstream activities are divided into tiers of suppliers. A supplier that sends materials
directly to the operations is a first tier supplier; one that send materials to a first tier supplier is
a second tier supplier; one that sends materials to a second tier supplier is a third tier supplier,
and so on back to the original sources. Customers are also divided into tiers. One that gets a
product directly from the operations is a first tier customer; one that gets a product from a first
tier customer is a second tier customer; one that get a product from a second tier customer is a
third tier customer, and so on to final customers.

Activities in the Supply chain

Purchasing and procurement

In a supply chain, each organization buys materials from upstream suppliers, adds value, and
sells them to downstream customers. As each organization, in turn, buys and sells, the materials
move through the whole supply chain. The trigger that initiates each move is a purchase. This is
basically a message that an organization sends to a supplier, saying, ‘we have agreed on terms,
so send us materials and we will pay you.

Purchasing is the function responsible for acquiring all the materials needed by an organization

Procurement is responsible for acquiring all the materials needed by an organization. It consists
of all the related activities needed to get goods, services and any other materials from suppliers
into an organization.
Difference between purchasing and procurement

Procurement and purchasing are often taken to mean the same thing. Usually, though, purchasing
refers to the actual buying, while procurement has a broader meaning. It can include different
types of acquisition (purchasing, rental, contracting, and so on) as well as the associated work of
selecting suppliers, negotiating, agreeing terms, expediting, monitoring supplier performance,
materials handling, transport, warehousing and receiving goods from suppliers.

Procurement does not usually move materials itself, but it organizes the transfer. It gives the
message that materials are needed, and arranges the change of ownership and location. But it is
another function, such as transport, that actually delivers them. So, procurement is largely
concerned with information processing. It collects data from various sources, analyses it, and
passes information to the supply chain.

Relationships between Procurement and Logistics in SCM


Both are important functions in supply chain management. Procurement is the process of
sourcing goods (e.g. raw materials, components, finished goods) and services whereas Logistics
includes transport, warehousing and added value services - end-to-end, from extraction to
factory, to delivery, to maintenance and return. In this sense, the procurement function can also
buy logistics services.

Supply Chain Management

Supply chain management encompasses the planning and management of all activities involved
in sourcing and procurement, conversion, and all logistics management activities. Importantly, it
also includes coordination and collaboration with channel partners, which can be suppliers,
intermediaries, third party service providers, and customers. In essence, supply chain
management integrates supply and demand management within and across companies.

Process View of Supply Chains

 Four Primary Cycles


 Customer Order Cycle
 Replenishment cycle
 Manufacturing Cycle
 Procurement Cycle

Common questions

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Effective supply chain management in logistics requires careful consideration of coordinated operations, technology integration, strategic sourcing, inventory management, and risk assessment. These considerations are necessary to streamline operations, improve communication across all stages, ensure accurate data tracking, standardize processes, and react adaptively to market changes. Implementing advanced technologies like ERP systems enhances visibility and decision-making. Simultaneously, risk assessments ensure contingency plans are in place for disruptions. Enhanced efficiency, cost reduction, agility, and service quality, critical for competing in today's market, all stem from these considerations .

Channel partner collaboration is crucial in supply chain management as it ensures efficient coordination and integration across all levels of the supply chain. By working closely with suppliers, intermediaries, third-party service providers, and customers, organizations can optimize procurement, logistics, and production processes. This collaboration leads to enhanced problem-solving, more accurate demand forecasting, reduced lead times, efficient production schedules, and improved customer satisfaction. It facilitates seamless interaction across borders and functional areas, significantly contributing to the overall agility and robustness of the supply chain .

The supply chain structure organizes the movement of materials through a series of upstream and downstream activities involving tiered suppliers and customers. Initial suppliers provide raw materials to first-tier suppliers, which then pass materials down to second-tier suppliers and so on, towards the organization. Upon completing production, the finished products move downstream, through first-tier customers and beyond, eventually reaching final consumers. This tiered structure ensures a systematic flow and facilitates the organization of activities at each stage, helping to optimize transitions and efficiency throughout the supply chain .

In supply chain management, "upstream" activities refer to processes and activities that involve the procurement of materials from suppliers prior to reaching an organization. This includes tiered suppliers providing raw materials and components. "Downstream" activities, on the other hand, involve distributing and delivering finished products to customers, which might also include tiered customer hand-offs until reaching the final consumer. Understanding these terms is significant as it helps in managing and optimizing the flow of materials through each stage, ensuring seamless transitions and reducing bottlenecks .

Logistics management contributes to supply chain efficiency by ensuring the timely and cost-effective flow of raw materials, components, finished goods, people, information, and other necessities through each stage of production and distribution. This involves organizing transport, warehousing, added value services, and ensuring coordination between various stakeholders, which helps in reducing delays, cutting costs, and increasing overall operational efficiency .

The concept of a supply chain extends beyond the final customer by incorporating processes related to recycling and material re-use. After products reach consumers, organizations may implement reverse logistics strategies to bring used products back into the supply chain for recycling or re-use. This extension emphasizes sustainability and resource efficiency as materials re-enter the production cycle, reducing waste, conserving resources, and aligning with environmentally responsible business practices. Incorporating recycling and re-use adds a crucial dimension to supply chain management, ensuring long-term viability and compliance with green initiatives .

Logistics is responsible for managing the flow of materials from suppliers into an organization, within the organization, and out to customers. It is categorized into three main areas: inbound or inward logistics (moving materials from suppliers into the organization), materials management (moving materials within the organization), and outbound or outward logistics (moving materials out to customers).

The four primary cycles in a supply chain process view are the Customer Order Cycle, Replenishment Cycle, Manufacturing Cycle, and Procurement Cycle. These cycles integrate supply and demand management by ensuring requirements at each stage are anticipated and met efficiently. The Customer Order Cycle focuses on fulfilling customer orders, the Replenishment Cycle ensures inventory replenishment, the Manufacturing Cycle oversees production processes, and the Procurement Cycle facilitates the acquisition of raw materials and components. Together, they create a cohesive flow delivering products that meet customer demand within the supply constraints .

Procurement is primarily concerned with sourcing and acquiring all materials an organization needs, including selecting suppliers, negotiating terms, and dealing with information processing to arrange the movement of goods. Logistics, on the other hand, manages the physical movement and storage of those goods. They complement each other as procurement arranges the transfer logistics carry out, ensuring materials are available where and when needed. Both functions together ensure a seamless flow from suppliers to consumer while maintaining cost-effectiveness and timeliness .

Procurement is a broader function than purchasing, encompassing a wide range of activities such as selecting suppliers, negotiating contracts, and organizing logistics. While purchasing specifically refers to the act of buying goods and services, procurement involves a strategic approach to acquiring goods and services, including leasing, contracting, and managing supplier relationships. Additionally, procurement focuses on processing information and arranging for delivery, without directly handling the physical movement of materials .

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