Fundamentals of Logistics and Supply Chain Management

Lecture Two

Elements of Logistics Management

Introduction
The role of each element of logistics often defines the logistics activities within a supply chain.
The elements of logistics further help to explain what logistics activities and processes are being
undertaken in a supply chain.

There are five elements of logistics:

 Storage, warehousing and materials handling

 Packaging and unitization
 Inventory
 Transport
 Information and control

Storage, warehousing and materials handling

 Warehousing

Note: All organizations hold stocks and as a result of that warehouses are built. Stocks occur at
any point in the supply chain where the flow of materials is interrupted. Most organizations
arrange for stocks to be kept in warehouses. People use a number of different terms for
warehouses, with the most common being distribution centers and logistics centers. A
WAREHOUSE is any location where stocks of material are held on their journey through
supply chains.

Activities within a warehouse

The basic function of a warehouse is to store goods. This means that they receive deliveries from
upstream suppliers, do any necessary checking and sorting, store the materials until they are
needed and then arrange delivery to downstream customers. The following activities are
undertaken within a warehouse:
  Receiving goods from upstream suppliers.
 Identifying the goods, matching them to orders and finding their intended use.
 Unloading materials from delivery vehicles.
 Doing any necessary checks on quantity, quality and condition.
 Labelling materials (usually with bar codes) so they can be identified.
 Sorting goods as needed.
 Moving goods to bulk storage area.
 Holding them in stock until needed.
 When necessary, moving materials from bulk storage to a smaller picking store.
 Picking materials from this store to meet orders.
 Assembling materials into orders.
 Packing and packaging as necessary.
 Loading delivery vehicles and dispatching the order.
 Controlling all communications and related systems, such as inventory control and
finance.
 Material Handling

Material handling is commonly defined as the “movement, protection, storage and control of
materials and products throughout manufacturing, warehousing, distribution, consumption and
disposal. When used properly, material handling can improve:

 Forecasting
 Resource allocation
 Production planning
 Flow and process management
 Inventory management
 Customer delivery
 Customer service and support

Actions required in material handling

 Types of material – (Raw materials, finished goods)

  Material handling requirement (Fragile, flammable)
 Material original location, identification and traceability)

Factors to consider in material handling

 Material breakage
 Theft
 Cost of material handling

Basic techniques in material handling

 Computerized material retrieval system

 ASRS (Advanced storage and retrieval system)

Importance of warehousing, materials and storage

 Better inventory management

Warehouses provide a centralized location for your goods, making it easier to track and manage
your inventory. By investing in warehouses shipment and distribution of products becomes more
efficiently.

 More efficient parking and processes

A warehouse enables businesses to pack and grade their goods according to legal requirements
and customer needs. The logistical cost is reduced, while flexibility is maximized. This type of
facility can be an ideal distribution location, eliminating the need to arrange for pickup and hire
employees to manage fulfillment.

 Improved risk management

Warehousing not only protects against price fluctuations but also provides safe storage of
perishable products.
Packaging and Unitization
 Packaging

Packaging means the wrapping or bottling of products to make them safe from damages during
transportation and storage. It keeps a product safe and marketable and helps in identifying,
describing, and promoting the product.

Purpose of packaging

Many items need special protective packaging during moves, particularly delicate things like
chemicals and electronics. Sometimes the packaging can protect goods from harsh environments,
such as rain or sun. Sometimes it is needed to separate materials that would contaminate each
other, such as sugar and petrol. Sometimes it keeps the contents clean, such as foodstuffs and
medicines. In general, packaging serves four basic functions as it:

 Identifies the product and gives basic information

 Protects items while they are being moved through the supply chain
 Makes handling easier
 Assists in marketing, promoting the product, advertising and giving information to
customers.
 Unitization

Unitization is the process of combining several units into larger units. This is done in order to
reduce the number of handlings required and to improve efficiency. Unitization can be used for
both storage and transportation purposes.

Forms of Unitization

There three basic forms of unitization:

1. Containers
2. Pallets
3. Slip Sheets
Importance of packaging and unitization

 Creation of demand
 Protection of product
 Transportation
 Guidelines
 Better storage

Inventory / Stocks
Ideally, materials move smoothly and continuously through a supply chain. In practice, there are
always delays and when materials stop moving, they form stocks. All organizations hold stocks
of some kind, whether it is a shop that stocks goods for customers to look at.

STOCKS are supplies of goods and materials that are held by an organization. They are formed
whenever the organization’s inputs or outputs are not used at the time, they become available.

An INVENTORY is a list of things held in stock.

Purpose of stock

 Act as a buffer between different parts of the supply chain.

 Allow for demands that are larger than expected, or at unexpected times.
 Allow for deliveries that are delayed or too small.
 Take advantage of price discounts on large orders.
 Allow the purchase of items when the price is low and expected to rise.
 Allow the purchase of items that are going out of production or are difficult to find.
 Allow for seasonal operations.
 Make full loads and reduce transport costs.
 Give cover for emergencies.
 Can be profitable when inflation is high.

Types of stocks

 Raw materials – the materials, parts and components that have been delivered to an
organization, but are not yet being used.
  Work in process – materials that have started, but not yet finished their journey through
the production process.
 Finished goods – goods that have finished the process and are waiting to be shipped out
to customers.
 Spare parts for machinery, equipment, and so on.
 Consumables such as oil, fuel, paper, and so on.

Transportation
Transportation is simply the movement of products and materials from one place to another. This
includes shipment of raw materials to the manufacturer and movement of finished product to the
customer. Transportation also includes the movement of parts to assembly areas as they are
assembled.

 Mode of transportation

The mode of transport describes the type of transport used. There are basically five different
options – rail, road, water, air and pipeline. Each mode has different characteristics, and the best
in any particular circumstances depends on the type of goods to be moved, locations, distance,
value and a whole range of other things.

Rail transport
Is the most commonly used for heavy and bulky loads over long land journeys. Trains can
maintain a consistent, reasonably high speed, and can link with other modes to carry containers
and bulk freight.
Road
Road Is the most widely used mode of transport and is used at least almost everywhere in all
supply chains. Its main benefit is flexibility, being able to visit almost any location.

Water
Both rail and road transport have the obvious limitation of only being used on land. Most supply
chains use shipping to cross the oceans at some point, and over 90% of world trade is moved by
sea.
Air
Because of its low unit costs, water transport is the most common mode for international
transport. Sometimes, though, it’s slow speed is unacceptable. If, for example, you run a factory
in Argentina and a critical machine breaks down, you do not want the spare part to be put on the
next scheduled ship from Japan, which will arrive in four weeks’ time. In such circumstances the
alternative is air transport.
Pipeline
The main uses of pipelines are oil and gas together with the utilities of water and sewage. They
can also be used for a few other types of products such as pulverized coal in oil.
Importance of transportation
 Transportation helps in mass production and stability of prices
 Transportation helps in economic development
 Transportation offers numerous opportunities
 Transportation helps in social development
 Transportation helps in cultural development

Information and Control

Logistics is a complex operational procedure that requires a lot of precise information to be
effective. Forecasting demand, transportation times, and inventory are crucial to keeping the
operations to a tight timescale.
Information and communication systems along with the associated hardware used in supply
chain management fulfil different roles. They may aid the decision-making process, help to
monitor and control operations, create simulated systems, store and process data, and aid
communication between individuals, companies and machines.
Importance of information and control in Logistics
 Effective information management
In modern management, information has become a central feature of management planning and control.
Computers and information technology have been used to support logistics and supply chain management
for many years.
 Useful combination of software and hardware
Logistics information systems combine hardware and software to manage, control, and measure
logistics activities that occur within specific firms as well as across the overall supply chain.
Hardware includes computers and servers, internet technologies, ancillary technologies such as
barcode and RF devices, communication channels, and storage media.

 Help in decision making

Companies need better information on their customers (such as customer service and sales
forecasting), information on their suppliers. (Such as production planning and sourcing and
purchasing).
 Digital ordering processing systems
The order processing system is the nerve center of the logistics and supply chain system. A
customer order provides the communication message to set the logistics process in motion The
order processing and information systems form the foundation for logistics and corporate
management information systems.
 Competitive advantage
Computer-based decision support systems (DSS) support the executive decision-making process
in logistics and supply chain management. To support time-based competition, firms are
increasingly using information technologies as a source of competitive advantages.