The supply chain is transforming raw materials into products and getting it to customers. Whereas, the movement of materials within the supply chain is logistics.
One of the most popular concepts of logistics management is the concept of the seven R’s. It is concerned with getting the right product in the right quantity in the right condition at the right place at the right time to the right customer and at the right price.
The following areas of logistics management contribute to an integrated approach to logistics within the SCM system.
Transportation – The different modes of transportation play a role in the movement of goods through supply chains via air, rail, road, water or pipeline. Selecting the most efficient combination improves the value created for customers.
Warehousing – When inventory is not on the move between locations it has to be stored somewhere. Warehousing is the activity related to receiving, storing and shipping materials to and from production or distribution locations.
Third and fourth-party logistics – The third-party logistics providers perform or manage one or more logistics services. Whereas, the fourth party providers are logistics specialists and play the role of a general contractor by taking over the entire logistics function for an organization.
Reverse logistics – It is a way to handle the return, reuse recycling or disposal of products that make the reverse journey from the customer to the supplier.
Logistics Value Proposition
Logistics value proposition managers must be able to balance logistics costs against the appropriate level of customer service. It is usually managed as an integrated effort to achieve customer satisfaction at the lowest total cost. Therefore, service and cost minimization are two key elements in a logistics value proposition.
- Minimize inventory to reduce costs
- Consolidate product movement by grouping shipments
- Maintain high quality and engage in continuous improvement
- Support the entire product lifecycle
- An efficient reverse logistics supply chain
An effective logistics strategy depends on the following tactics –
- Coordinating functions that are a transportation management
- Integrating the supply chain
- Substituting information for inventory
- Reducing supply chain partners to an effective minimum number
- Pooling risks
Let’s discuss these tactics in detail.
Coordinating functions and integrating the supply chain
Step 1: Locate in the right countries
First, identify all geographical locations and then analyze your forward and reverse chains to see if selecting different geographic locations could make the logistics function more efficient and effective.
Step 2: Develop an effective export-import strategy
Determine the volume of freight and units that are to be imported and exported, then decide where to place inventory for strategic advantage.
Step 3: Select warehouse locations
Determine the number of warehouses, calculate optimal distance from markets and establish the most effective placement of warehouses around the world
Step 4: Select transportation modes and carriers
Determine the mix of transportation modes that will most efficiently connect suppliers, producers, warehouses distributors and customers.
Step 5: Select the right number of partners
Select the minimum number of firms freight forwarders and third or fourth party logistics to manage forward and reverse logistics.
Step 6: Develops state-of-the-art information systems
A system that will reduce inventory costs by accurately and rapidly tracking demand information and the location of goods.
Substituting information for inventory
- Improve communications – talk with suppliers regularly and discuss plans with them.
- Collaborate with suppliers – use continuous improvement tools and share observations about trends
- Track inventory precisely – it could be done by using GPS and barcode systems
- Keep inventory in transit – it reduces inventory costs for example cross-docking
- Use postponement centres – avoid filling warehouses with the wrong mix have finished goods by setting up postponement centres to delay product assembly until an actual order has been received
- Mix shipments to match customer needs- match deliveries more precisely to customer needs by mixing different SKUs on the same pallet and by mixing pallets from different suppliers
- Don’t wait in line at customs – reduce the time spent in customs by clearing freight while still on the water or in the air
Reducing supply chain partners to an effective number
The more partners there are in the chain the more difficult and expensive the chain is to manage. Consider a supply chain of three echelons between factory and customers, two factory warehouses, nine wholesale warehouses and 350 retail stores. Reducing the number of partners reduces operating costs, cycle time and inventory holding costs.
When considering reducing the logistic partners look for an entire echelon such as all the wholesale warehouses or factory warehouses but if you eliminate all partners you would be back to the vertical integration strategy.
When manufacturers and retailers experience high variability in demand for their products they can pull together common inventory components associated with a broad family of products. This is done to buffer the overall burden of having to deploy inventory for each discrete product. Pooling risks reduces storage costs and risks of stock-outs by consolidating stock in centralized warehouses.
Logistics is defined as the art and science of obtaining, producing and distributing material and product in the proper place and proper quantities. Logistics management is part of the supply chain management that plans, implements and controls the flow and storage of goods and services. They also manage the related information between the point of origin and consumption to meet customers requirements. Oftentimes, people use the terms logistics and supply chain interchangeably. Though incorrect, they say it all the time for a good reason. It is the cornerstone of the supply chain that enables movement of goods from a point of origin to the final destination.