Logistics Process

Exploring the Logistical Processes

Photo courtesy of Caroline UniversityOpens in new window Logistics is the process of moving goods from the point of manufacture to the point of consumption by the final consumer. It involves the planning, implementing and controlling of the cost-efficient flow of raw materials, work in process, and finished goods within the supply and distribution chain. All the activities in the chain are linked to the accurate movement of information.

The logistics process normally involves a number of distinct steps, starting with:

All Businesses have Logistical Processes

Any business—a café, a butchery, an IT business, a street hawker’s stall, a library, an automobile dealership—makes use of logistical processes. Even an airline or a music concert requires a number of logistical processes to get it off the ground.

Box 1.1 presents the logistical processes of a university.

We see then that any service or business enterprise makes use of logistical processes. Each and every major industry (the automobile industry, agriculture, the banking and educational industries, etc.) will have processes to deliver their goods or services to the customer.

Typical Logistical Activities

Logistics involves a number of key activities and supporting activities. Let us look some of these briefly.

1.     Order Processing

The customer’s order starts the whole chain working. The customer drives the entire production chain (the product or service is produced for the customer). So getting the customer’s order exactly right is critical: what does the customer want?

Order processing involves the accurate collecting, processing and storage of information, which is then passed on to the next link in the supply and distribution chain.

2.     Purchasing and Procurement

Buying the right goods to make the right product or service for the customer is the next step. It does not help to buy the wrong goods (which are then useless). It also does not help to buy inferior goods (which cost you more in the long term, owing to comebacks, etc.)

3.     Total Quality Management

Total Quality Management (TQM)Opens in new window involves buying materials of the right quality and making them right first time (quality is just the starting block for competing in the new global economy).

Quality assurance is necessary to make sure that goods bought match the specification standards for the goods.

4.     Production Scheduling

The next step is producing the product or service that the customer wants. This involves a careful analysis of the production process.

Do we have the right people (skilled human resources) to make the right product, using the right machinery (robots or tools)?

Materials Requirement Planning (MRP) means that we must make sure that we have the right materials to make the right product. A bill of materials (BOM) is needed before production can start.

Let us look at a practical example. What would a bill of materials for the production of a Toyota car look like? This is more complex than it seems to be.

Firstly, you will need to break down the car into everything that is needed. For example, you will need four wheels (with four tyres, and four inner tubes, four valves for air, and 48 bearings – four wheels needing 12 bearings each). And the wheels are only a smallish part of the car.

Production scientists went even further and looked at the manufacturing? This kind of question led to the more developed MRP II, Manufacturing Resources Planning.

5.     Protective Packaging

The packaging should be convenient for the customer to carry; it should be environmentally friendly; it should protect the contents from disease or corruption; and it should also appeal to the marketers (so that they can sell the product to the customer). It should also contain information which is of value to the customer (for example, No preservatives, additives or colorants).

PackagingOpens in new window thus performs a number of key functions, namely:

• providing information (mentioned above),
• protection (you would not want somebody to spit into your packet of chips before you eat them, would you?),
• handling considerations (can you carry the product?), and
• storage and transportation considerations (can you carry and store the goods in a warehouse, or transport them easily in a train – or are they oblong and inconvenient to move?).

6.     Stores and Warehousing

Do you have enough space to store the stock on hand before it reaches the customer?

1. Space considerations. Is your store large enough to contain the volumes produced? Should you own the warehouse permanently, or hire one as the need arises (in December, say, when you make and sell more beer than normal)?
2. Stock placement and layout considerations. Should you automate the store, using conveyor or belts? Do you have the right forklifts to reach the very top of the store? Is it safe to store goods so high up?

3. Location decisions. Is the warehouse close enough to the marketplace where the customer actually buys the product?
4. Transportation considerations. Is the warehouse on major road/rail/water routes, thus making transportation easy?

7.     Transportation

Logisticians have to consider the various modes of transportation when transporting or distributing goods to their customers. The five basic modes of transportation are:

1. air, which is fast but expensive, especially for bulk items;
2. rail, which is slow, but inexpensive, especially for bulk items;
3. road, which is moderately fast, and moderately expensive, but very flexible;
4. shipping, which is slow, and certain goods can be damaged at sea due to rust, etc.;
5. pipeline, which is useful for transporting fluids, such as water or petroleum (gasoline).

Transporters have to consider the following in making transportation decisions:

8.     Inventory Management

Inventory is just a fancy name for stock. You get different types of stock or inventory, as follows:

9.     Materials Management

Any item in the supply chainOpens in new window is handled as it moves through the supply chain. For example, raw mercury can be ordered from the Far East. This raises questions like the following:

• Can the ships transport and move the containers shipped in an environmentally safe manner? Do they have the right containers to move the mercury?
• Does the ship have the appropriate refrigeration chambers to transport perishable foods (such as apples) across the ocean? These refrigerators must be able to adjust to the temperature outside (since the equator is much hotter than the Antarctic).

Even finished goods require materials-handling equipmentOpens in new window which is suitable for the task on hand.

• A storeman needs the right forklifts to pack goods at the right weight and height.
• Dock staff need the right forklifts to move a particular motor vehicle by lifting the vehicle in exactly the right position (you cannot just use any forklift for any car – they are all different and built for specific cars).
• Huge cooling towers which must be loaded from a ship need cranes that can handle their weight.

The correct materials-handling equipment and computerized systems are needed throughout the supply and distribution chain.

10.     Information Systems

Information management is critical in the supply and distribution of the right product to the right customer at the right time.

Effective information systems assist logisticians:

11.     Customer Service

The above-mentioned activities are critical components of the supply and distribution cycle. The whole cycle starts with the customer (the customer’s order) and ends with the customer (delivery and payment). Customer serviceOpens in new window is the most critical aspect of the whole supply and distribution chainOpens in new window.

Indeed, without the customer no business will take place. Logisticians must look at the following critical issues:

• The soft customer service considerations, such as the etiquette of placing international orders and doing business internationally (telephone etiquette, politeness, manners, promises and customs).
• The hard customer service considerations, such as on-time delivery, accurate invoicing and accurate placing of orders, correct deliveries, correct forecasting of customer needs, etc.
  
  
  The hard elements are often more important than the soft elements. (Which would you prefer, your iPod delivered to you on time, or a nice polite receptionist telling you your iPod will arrive three weeks late?)
  
  Logisticians often realize that the hard issues of customer service are often more difficult to implement and manage than the soft issues. Good businesses often get the hard issues right first, and then add the soft issues to a winning formula.

The Overall Logistical Process Should be Kept as Simple as Possible

One of the reasons why companies often struggle with logistics is that they make the process too complicated. The rule of thumb for logistical process is KISS.

Keep it simple, stupid!

Many businesses, including highly productive businesses, often complicate the steps. They add in a great number of steps and this is often to the customer’s detriment rather than benefit.

Ideally all businesses need to strip their business processes down to the bare essentials. Only those processes that actually benefit the customer are necessary. Often, big businesses develop many complicated steps for their operations and this leads to a product or service that takes a long and complicated route to the final customer.

Simplifying Your Business Processes

A fancy management philosophy called Business Process Re-engineering looks precisely at this. Its goal is the simplification of all business processes, by getting rid of any unnecessary steps.

Good business processes are often actually quite simple. They involve only essential steps.

They involve a critical scrutiny of each and every individual activity, whilst asking the question: “Is this essential to customer satisfaction . . . does this step mean a more satisfied customer?” An important advice for anyone doing business in the new global economy is this: Keep things as simple as possible.