IMPORTANCE OF LOGISTICS MANAGEMENT
Logistics management from this total system is the means whereby the needs of customers are satisfied through the coordination of the materials and information flows that extend from the marketplace through the firm and its operations and beyond that to supplies.
Today’s organizations worldwide need logistics management more than ever because of following:
1) Competitive pressure 2) information technology 3) channel power and 4) profit leverage.
These are the discussed briefly in the following paragraphs.
1) Competitive pressure: during the 1970s. Logistics received more attention as a major cost driver to offset the effects of rising interest rates and increasing energy costs. In addition the logistics cost became more critical for many multinational companies because of globalization of their business. these developments affected logistics primarily in two ways :
I. The growth of world class competitors which has pressurized organization to differentiate themselves and their product offerings. Logistics enable domestic firms to provide more reliable and responsive services to customers in the local markets than overseas competitors.
II. As firms increasingly buy and sell off-shore, the supply chain between the manufacturing firm and its supplier and customer firms become longer, costlier and more complex. Hence in such situation, excellent logistics is necessary to take advantage of global opportunities.
2) IINFORMATION TECHNOLOGY: with the explosion of information technology, organization gained the ability to better monitor transaction intensive activities such as ordering, transportation and storage of goods and materials. Computerized quantitative models along with technology increased the ability to manage material flows and optimize inventory levels and movements. For example, systems such as material requirement planning (MRP 1), distribution resources planning (DRP) and just-in-time (JIT) allowed firms to link many activities such as order processing, inventory management, forecasting and production scheduling.
3) CHANNEL POWER: the channel power shifted from manufacturers to wholesalers, distributors and retailers. This has had a great impact on logistics. In major consumer good industries, when competition increases, many suppliers and manufacturers are forced out of competition and a few leading; competitors remain in the market. Those who remain are highly competitive and are able to offer very high quality products. In the views of consumers, all of the leading brands are substitute for each other and lower brand loyalty decreases the manufacturer’s power. Ultimately sales of consumer products are determined by what is in stock, and not by what particular brand offered to the customers.
4) PROFIT LEVERAGE: Any amount of money saved in logistics costs has greater impact on the organizations profitability than a similar increase in sales revenue considerably because profit earned through sales is only a small percent of sales revenue. Hence, a rupee saved in logistics is a rupee increase in the company’s profit. Therefore, we can infer that logistics cost savings have much more leverage than an increase in sales.
LOGISTIC PLANNING
A corporate mission is a statement setting out long range goals unique to each organization elucidating the business the company wants to be in, who its customers are its basic beliefs about business, and its goals of survival growth and profitability. Objectives and goals sets the targets which are to be achieved in the long term in order to fulfill the mission of the firms in order to achieve the long term objectives and goals, alternatives strategies or actions plans need to be evaluated in the context of the environment faced by the firm from these alternatives, specific strategies must be selected for implementation in order to meet the objectives and goals that will fulfill the mission of the firm hence business strategy is a long range game plan of an organization and provides a road map of how to achieve the corporate mission. The strategic or long term plans for the firm and developed at the highest level of management of the firm.
The strategic planning for each of the functions of the firm, such as marketing, operations, logistics, etc.that are derived from the firms strategic plans, are developed at the highest level of the concerned function. The strategic plan within the function need to be detailed in the form of tactical and operational plans at the tactical and operational levels of management in the respective function. The operational level og management of a function in affirm plans the operational activities in order to meet the tactical and strategic plans of the function and control the activities during implementation on order to meet the operational plans.
According to the planning level illustrates the logical flow of the planning process across the organization. The activity flows in the logistic function bring out the sequence of activities from order receipt to procurement to customer delivery. Strategic plans determine the capacity plans by defining the internal capacity limitations in manufacturing, warehousing, and transportation as well as human resources.
PLANNING AND OPERATIONS PROCESS
The strategic plans developed for the firm lead to the development of strategic plans for the logistics functions. These in turn generates the tactical and operational logistical plans. For e.g. the objectives of cost reductions for a firm would less to strategies to reduce total logistics cost reduction for a firm would lead to strategies to reduce total strategies costs. these strategic plans could take the form of, for e.g. reducing the number of warehouses, transportation consolidation, or purchase of new software for logistic information management next ,the tactical plans are developed to implement the stetegic plans .tactical plans out line the steps or procedure that are required to execute strategic plans. for eg in order to reduce the number of warehouses one can plan to centralize the ware housing at a few locations by increasing the capacity of these warehouses which are not economical.
At the operational level, operational plans are developed in order to perform and control the activities to accomplish the tactical plans thus operational plans need to be developed for performing the logistics activities from the fewer warehouses as decided in the tactical plans
A corporate mission is a statement setting out long range goals unique to each organization elucidating the business the company wants to be in, which its customers are its basic beliefs about business, and its goals of survival growth and profitability. Objectives and goals sets the targets which are to be achieved in the long term in order to fulfill the mission of the firm in order to achieve the long term objectives and goals, alternatives strategies or actions plans need to be evaluated in the context of the environment faced by the firm from these alternatives specific strategies must be selected for implementation in order to meet the objectives and goals that will fulfill the mission of the firm hence business strategy is a long range game plan of an organization and provides a road map of how to achieve the corporate mission. The strategic or long term plans for the firm and developed at the highest level of management of the firm.
WHAT IS LOGISTC INFORMATION SYSTEM AND ITS OBJECTIVES
Logistic information system is nothing but to manage, control and measure the logistical activities. These activities occur within the organization or as well as overall across the supply chain.
Logistics information systems are important for achieving logistics efficiency and effectiveness. In an enterprise, logistics information system seeks to achieve the following:
1) It ensures of logistics functional operations into a process pursuing customer satisfaction at the lowest total cost.
2) Information system facilitates planning and control of the logistical activities related to order fulfillment.
3) It makes the firm more competitive, by making better tactical and strategic decision for the benefits of the firm and its customer.
4) Helps provide customers information regarding product availability, order status, and delivery schedules promoting customers service.
5) It reduces the requirements of inventory and human resources by enabling requirements planning.
6) It interfaces with marketing, financial, and manufacturing information systems and provides information to top management to help formulate strategic decisions for the whole firm.
.
7) The use information technology in information systems has enabled quick response to demand making forecasting redundant. This has also helped in implementing “pull” systems like just-in-time making the firm more competitive.
8) It promotes systems that link the operations of the firm, such as manufacturing and distributing, with the suppliers operations on the one hand the customer on the other.
9) In the other cases, organizations are finding that through information they can manage dispersed inventories as if they were single inventory. The benefits of this can be considerable. If inventory management is centralized and decisions on replenishment and other quantities are taken or the basis that is a single stock, then only one safety stock instead of many required. The stock itself can be carried anywhere in the system, either near the point of production or the consumption. This is the concept of ‘virtual’ inventory management or electronic inventory management.
LOGISTICS IN BUSINESS
In the first half of the twentieth century, logistics existed as a fragmented and elusive activity with little recognition beyond the military services and those firms that were a part of the military-industrial complex. This began to change in the latter half of the twentieth century as business realized the potential benefits of logistics. Logistics management is concerned with the development and implementation of a methodology for ensuring the efficient and cost-effective attainment of logistic objectives. Logistics management is the most widely accepted term and encompasses logistics not only in the private business sector but also in the public/government and nonprofit sectors. In addition, service companies including banks, hospitals, restaurants, hotels, and so on have logistics challenges and issues, and logistics management is an appropriate form for the service industry.
LOGISTICS FOR COMPETITIVE ADVANTAGE
Martin Christopher has presented an interesting ‘Three C’s” model of competitive advantage:
The bases for success in the marketplace are numerous, but a simple model is based around the triangular linkage of the company, its customers and its competitors – the ‘Three C’s’.
The source of competitive advantage is found firstly in the ability of the organization to differentiate itself, in the eyes of customer, from its competition and secondly by operating at a lower cost and hence at lower profit.
Seeking a sustainable and defensible competitive advantage has become the concern of every manager who is alert to the realities of the marketplace. It is no longer acceptable to assume that good products are sold themselves, neither it is advisable to imagine that success today will carry forward into tomorrow.
Let us consider the bases of success in any competitive context. At its most elemental, commercial success derives either from a cost advantage or a value advantage or ideally both. It is as simple as that – most profitable competitor in any industry sector tends to be lowest cost producer or the supplier providing a product with the greatest perceived differentiated values.
Put very simple, successful companies either have a productivity advantage or they have a ‘value’ advantage or they have a combination of both. The productivity advantage gives a lower cost profile and the value advantage gives the product or offering a differential ‘plus’ over competitive offerings.
Those firms that develop superior logistical competency are strategically positioned to enjoy hard-to-duplicate competitive advantage in terms of cost and service performance.
It can be said that a firm achieves competitive advantage over its competitors by fulfilling customer requirements (value advantage or effectiveness) at the lowest cost (productivity advantage or efficiency).
PRODUCTIVITY ADVANTAGE
In many industries there will be a competitor who will be a low cost producer and will have greater sales volume in that sector. This is partly due to economies of scale, which enable fixed costs to spread over a greater volume but more particularly to the impact of the experience curve.
It is possible to identify and predict improvements in the rate of output of workers as they become more skilled in the processes and tasks on which they work. Bruce Henderson extended this concept by demonstrating that all costs, not just production costs, would decline at a given rate as volume increased. This cost decline applies only to value added, i.e. costs other than bought in supplies. Traditionally it has been suggested that the main route to cost reduction was by gaining greater sales volume and there can be no doubt about the close linkage between relative market share and relative costs. However it must also be recognized that logistics management can provide a multitude of ways to increase efficiency and productivity and hence contribute significantly to reduced unit costs.
VALUE ADVANTAGE
It is a observed that customers don’t buy products they buy benefits. These benefits may be intangible i.e. they relate not to specific product features but to such things as image and reputation. Unless the product or service that we offer can be distinguished in some way from its competitors there is a strong likelihood that the marketplace will view it as a ‘commodity’ and so the sale will tend to go to the cheapest supplier. Value differentiation can be gained in numerous ways. When a company scrutinizes markets closely it frequently finds that there are distinct value segments. In other words different groups of customers attach different levels of importance to different benefits. Adding value through differentiation is a powerful means of achieving a defensible advantage in the market. Equally powerful as a means of adding value is service. Increasingly it is the case that markets are becoming more service sensitive and this poses a challenge in management of logistics. It is important to seek differentiation through means other than technology. A number of companies have responded to this by focusing upon service as a means of gaining a competitive edge. Service in this context relates to the process of developing relationships with customers through the provision of an augmented offer. This augmentation can take many forms including delivery service, after sales service, financial packages, technical support and so on.
This matrix is a useful way of examining the options available for value and productivity advantage:
SERVICE LEADER COST & SERVICE LEADER
COMMODITY MARKET
COSTLEADER
In commodity market situations where a company’s products are indistinguishable from their competitors’ offerings the only strategy is to move towards being a cost leader or towards being a service leader. Often the leadership route is not available. This particularly will be the case in a mature market where substantial market share gains are difficult to achieve.
Cost leadership strategies have been based upon the economies of scale, gained through greater volume of sales. This is why market share is considered to be so important in many industries. This cost advantage can be used strategically to assume a position of price leader and make it difficult for high cost competitors to survive. This cost advantage can come through effective logistics management. In many industries logistics cost represents such a large part of total costs that that it is possible to make major cost reductions through fundamentally reengineering logistics processes.
The other way to come out of the commodity quadrant of the matrix is to seek a strategy of differentiation through service excellence. Customers in all industries are seeking greater responsiveness and reliability from suppliers; they are looking for reduced lead times, just-in-time delivery and value added services that help them do a better job of serving their customers.
In this scheme of things, logistics is therefore essentially an integrative concept that seeks to develop a system wide view of the firm. It is fundamentally a planning concept that seeks to create a framework through which the needs of the manufacturing strategy and plan, which in turn links into a strategy and plan for procurement
Logistics is an important operation that helps the organization to manage his business in today’s competitive world.
While doing this project, we came to know that how much important is the logistic to the organization.
It helps to deal with the problem and issue and provide immediate and medium term solution and improves performance.
Logistics management from this total system is the means whereby the needs of customers are satisfied through the coordination of the materials and information flows that extend from the marketplace through the firm and its operations and beyond that to supplies.
Today’s organizations worldwide need logistics management more than ever because of following:
1) Competitive pressure 2) information technology 3) channel power and 4) profit leverage.
These are the discussed briefly in the following paragraphs.
1) Competitive pressure: during the 1970s. Logistics received more attention as a major cost driver to offset the effects of rising interest rates and increasing energy costs. In addition the logistics cost became more critical for many multinational companies because of globalization of their business. these developments affected logistics primarily in two ways :
I. The growth of world class competitors which has pressurized organization to differentiate themselves and their product offerings. Logistics enable domestic firms to provide more reliable and responsive services to customers in the local markets than overseas competitors.
II. As firms increasingly buy and sell off-shore, the supply chain between the manufacturing firm and its supplier and customer firms become longer, costlier and more complex. Hence in such situation, excellent logistics is necessary to take advantage of global opportunities.
2) IINFORMATION TECHNOLOGY: with the explosion of information technology, organization gained the ability to better monitor transaction intensive activities such as ordering, transportation and storage of goods and materials. Computerized quantitative models along with technology increased the ability to manage material flows and optimize inventory levels and movements. For example, systems such as material requirement planning (MRP 1), distribution resources planning (DRP) and just-in-time (JIT) allowed firms to link many activities such as order processing, inventory management, forecasting and production scheduling.
3) CHANNEL POWER: the channel power shifted from manufacturers to wholesalers, distributors and retailers. This has had a great impact on logistics. In major consumer good industries, when competition increases, many suppliers and manufacturers are forced out of competition and a few leading; competitors remain in the market. Those who remain are highly competitive and are able to offer very high quality products. In the views of consumers, all of the leading brands are substitute for each other and lower brand loyalty decreases the manufacturer’s power. Ultimately sales of consumer products are determined by what is in stock, and not by what particular brand offered to the customers.
4) PROFIT LEVERAGE: Any amount of money saved in logistics costs has greater impact on the organizations profitability than a similar increase in sales revenue considerably because profit earned through sales is only a small percent of sales revenue. Hence, a rupee saved in logistics is a rupee increase in the company’s profit. Therefore, we can infer that logistics cost savings have much more leverage than an increase in sales.
LOGISTIC PLANNING
A corporate mission is a statement setting out long range goals unique to each organization elucidating the business the company wants to be in, who its customers are its basic beliefs about business, and its goals of survival growth and profitability. Objectives and goals sets the targets which are to be achieved in the long term in order to fulfill the mission of the firms in order to achieve the long term objectives and goals, alternatives strategies or actions plans need to be evaluated in the context of the environment faced by the firm from these alternatives, specific strategies must be selected for implementation in order to meet the objectives and goals that will fulfill the mission of the firm hence business strategy is a long range game plan of an organization and provides a road map of how to achieve the corporate mission. The strategic or long term plans for the firm and developed at the highest level of management of the firm.
The strategic planning for each of the functions of the firm, such as marketing, operations, logistics, etc.that are derived from the firms strategic plans, are developed at the highest level of the concerned function. The strategic plan within the function need to be detailed in the form of tactical and operational plans at the tactical and operational levels of management in the respective function. The operational level og management of a function in affirm plans the operational activities in order to meet the tactical and strategic plans of the function and control the activities during implementation on order to meet the operational plans.
According to the planning level illustrates the logical flow of the planning process across the organization. The activity flows in the logistic function bring out the sequence of activities from order receipt to procurement to customer delivery. Strategic plans determine the capacity plans by defining the internal capacity limitations in manufacturing, warehousing, and transportation as well as human resources.
PLANNING AND OPERATIONS PROCESS
The strategic plans developed for the firm lead to the development of strategic plans for the logistics functions. These in turn generates the tactical and operational logistical plans. For e.g. the objectives of cost reductions for a firm would less to strategies to reduce total logistics cost reduction for a firm would lead to strategies to reduce total strategies costs. these strategic plans could take the form of, for e.g. reducing the number of warehouses, transportation consolidation, or purchase of new software for logistic information management next ,the tactical plans are developed to implement the stetegic plans .tactical plans out line the steps or procedure that are required to execute strategic plans. for eg in order to reduce the number of warehouses one can plan to centralize the ware housing at a few locations by increasing the capacity of these warehouses which are not economical.
At the operational level, operational plans are developed in order to perform and control the activities to accomplish the tactical plans thus operational plans need to be developed for performing the logistics activities from the fewer warehouses as decided in the tactical plans
A corporate mission is a statement setting out long range goals unique to each organization elucidating the business the company wants to be in, which its customers are its basic beliefs about business, and its goals of survival growth and profitability. Objectives and goals sets the targets which are to be achieved in the long term in order to fulfill the mission of the firm in order to achieve the long term objectives and goals, alternatives strategies or actions plans need to be evaluated in the context of the environment faced by the firm from these alternatives specific strategies must be selected for implementation in order to meet the objectives and goals that will fulfill the mission of the firm hence business strategy is a long range game plan of an organization and provides a road map of how to achieve the corporate mission. The strategic or long term plans for the firm and developed at the highest level of management of the firm.
WHAT IS LOGISTC INFORMATION SYSTEM AND ITS OBJECTIVES
Logistic information system is nothing but to manage, control and measure the logistical activities. These activities occur within the organization or as well as overall across the supply chain.
Logistics information systems are important for achieving logistics efficiency and effectiveness. In an enterprise, logistics information system seeks to achieve the following:
1) It ensures of logistics functional operations into a process pursuing customer satisfaction at the lowest total cost.
2) Information system facilitates planning and control of the logistical activities related to order fulfillment.
3) It makes the firm more competitive, by making better tactical and strategic decision for the benefits of the firm and its customer.
4) Helps provide customers information regarding product availability, order status, and delivery schedules promoting customers service.
5) It reduces the requirements of inventory and human resources by enabling requirements planning.
6) It interfaces with marketing, financial, and manufacturing information systems and provides information to top management to help formulate strategic decisions for the whole firm.
.
7) The use information technology in information systems has enabled quick response to demand making forecasting redundant. This has also helped in implementing “pull” systems like just-in-time making the firm more competitive.
8) It promotes systems that link the operations of the firm, such as manufacturing and distributing, with the suppliers operations on the one hand the customer on the other.
9) In the other cases, organizations are finding that through information they can manage dispersed inventories as if they were single inventory. The benefits of this can be considerable. If inventory management is centralized and decisions on replenishment and other quantities are taken or the basis that is a single stock, then only one safety stock instead of many required. The stock itself can be carried anywhere in the system, either near the point of production or the consumption. This is the concept of ‘virtual’ inventory management or electronic inventory management.
LOGISTICS IN BUSINESS
In the first half of the twentieth century, logistics existed as a fragmented and elusive activity with little recognition beyond the military services and those firms that were a part of the military-industrial complex. This began to change in the latter half of the twentieth century as business realized the potential benefits of logistics. Logistics management is concerned with the development and implementation of a methodology for ensuring the efficient and cost-effective attainment of logistic objectives. Logistics management is the most widely accepted term and encompasses logistics not only in the private business sector but also in the public/government and nonprofit sectors. In addition, service companies including banks, hospitals, restaurants, hotels, and so on have logistics challenges and issues, and logistics management is an appropriate form for the service industry.
LOGISTICS FOR COMPETITIVE ADVANTAGE
Martin Christopher has presented an interesting ‘Three C’s” model of competitive advantage:
The bases for success in the marketplace are numerous, but a simple model is based around the triangular linkage of the company, its customers and its competitors – the ‘Three C’s’.
The source of competitive advantage is found firstly in the ability of the organization to differentiate itself, in the eyes of customer, from its competition and secondly by operating at a lower cost and hence at lower profit.
Seeking a sustainable and defensible competitive advantage has become the concern of every manager who is alert to the realities of the marketplace. It is no longer acceptable to assume that good products are sold themselves, neither it is advisable to imagine that success today will carry forward into tomorrow.
Let us consider the bases of success in any competitive context. At its most elemental, commercial success derives either from a cost advantage or a value advantage or ideally both. It is as simple as that – most profitable competitor in any industry sector tends to be lowest cost producer or the supplier providing a product with the greatest perceived differentiated values.
Put very simple, successful companies either have a productivity advantage or they have a ‘value’ advantage or they have a combination of both. The productivity advantage gives a lower cost profile and the value advantage gives the product or offering a differential ‘plus’ over competitive offerings.
Those firms that develop superior logistical competency are strategically positioned to enjoy hard-to-duplicate competitive advantage in terms of cost and service performance.
It can be said that a firm achieves competitive advantage over its competitors by fulfilling customer requirements (value advantage or effectiveness) at the lowest cost (productivity advantage or efficiency).
PRODUCTIVITY ADVANTAGE
In many industries there will be a competitor who will be a low cost producer and will have greater sales volume in that sector. This is partly due to economies of scale, which enable fixed costs to spread over a greater volume but more particularly to the impact of the experience curve.
It is possible to identify and predict improvements in the rate of output of workers as they become more skilled in the processes and tasks on which they work. Bruce Henderson extended this concept by demonstrating that all costs, not just production costs, would decline at a given rate as volume increased. This cost decline applies only to value added, i.e. costs other than bought in supplies. Traditionally it has been suggested that the main route to cost reduction was by gaining greater sales volume and there can be no doubt about the close linkage between relative market share and relative costs. However it must also be recognized that logistics management can provide a multitude of ways to increase efficiency and productivity and hence contribute significantly to reduced unit costs.
VALUE ADVANTAGE
It is a observed that customers don’t buy products they buy benefits. These benefits may be intangible i.e. they relate not to specific product features but to such things as image and reputation. Unless the product or service that we offer can be distinguished in some way from its competitors there is a strong likelihood that the marketplace will view it as a ‘commodity’ and so the sale will tend to go to the cheapest supplier. Value differentiation can be gained in numerous ways. When a company scrutinizes markets closely it frequently finds that there are distinct value segments. In other words different groups of customers attach different levels of importance to different benefits. Adding value through differentiation is a powerful means of achieving a defensible advantage in the market. Equally powerful as a means of adding value is service. Increasingly it is the case that markets are becoming more service sensitive and this poses a challenge in management of logistics. It is important to seek differentiation through means other than technology. A number of companies have responded to this by focusing upon service as a means of gaining a competitive edge. Service in this context relates to the process of developing relationships with customers through the provision of an augmented offer. This augmentation can take many forms including delivery service, after sales service, financial packages, technical support and so on.
This matrix is a useful way of examining the options available for value and productivity advantage:
SERVICE LEADER COST & SERVICE LEADER
COMMODITY MARKET
COSTLEADER
In commodity market situations where a company’s products are indistinguishable from their competitors’ offerings the only strategy is to move towards being a cost leader or towards being a service leader. Often the leadership route is not available. This particularly will be the case in a mature market where substantial market share gains are difficult to achieve.
Cost leadership strategies have been based upon the economies of scale, gained through greater volume of sales. This is why market share is considered to be so important in many industries. This cost advantage can be used strategically to assume a position of price leader and make it difficult for high cost competitors to survive. This cost advantage can come through effective logistics management. In many industries logistics cost represents such a large part of total costs that that it is possible to make major cost reductions through fundamentally reengineering logistics processes.
The other way to come out of the commodity quadrant of the matrix is to seek a strategy of differentiation through service excellence. Customers in all industries are seeking greater responsiveness and reliability from suppliers; they are looking for reduced lead times, just-in-time delivery and value added services that help them do a better job of serving their customers.
In this scheme of things, logistics is therefore essentially an integrative concept that seeks to develop a system wide view of the firm. It is fundamentally a planning concept that seeks to create a framework through which the needs of the manufacturing strategy and plan, which in turn links into a strategy and plan for procurement
Logistics is an important operation that helps the organization to manage his business in today’s competitive world.
While doing this project, we came to know that how much important is the logistic to the organization.
It helps to deal with the problem and issue and provide immediate and medium term solution and improves performance.