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Essay: Flow of logistics services

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  • Published: 21 June 2012*
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Flow of logistics services

I totally agree with the statement that the main goal of business logistics is to plan, manage and execute a cost effective movements of goods. It has been defined differently from time to time, a better way of describing supply chain management is ” it is an movement of goods and services and associated flows from point of origin to point of consumption for the purpose of cost reduction and customer satisfaction”. As we move along we will discover various aspects related to logistics and supply chain with appropriate examples. Let’s begin with the logistics part first and then we will discuss the indicators of its performance.

Logistics management aims at the product, quantity, condition, place, time, customer and cost. This can be explained as delivering the right product that has been demanded by the customer in the right quantity requested without damaging the condition of the product and delivering it at the right place within the time frame allotted and deliver to the valid customer without charging him extra (quoted price) or at the right cost.

Flow of logistics services

The Logistics management prioritizes on Customer service maximization in such a way that it will cost them less in every aspect. This is the main target and is at the top of logistics management chain (just like at the top of food chain). This can only be achieved if one can determine the needs of the customer and how they respond to the services given by you. If they are not satisfied then seek for a feedback and make the changes immediately keeping in mind the minimization of cost

2nd element of the chain which includes the functions like transportation, warehouse management etc, and the things which we should be concerned about, the most will be the rate and the negotiation of the contract with the transport and also to select the mode and routing of the vehicle. If the goods are perishable and the route that we have chosen is not the shortest and the best way, then the chances are that the quality of the goods might get affected. Performing a satisfactory warehousing management decision one should consider the space factor first since it can cost them a lot. A product can be sold in the market for a much higher price because of the bad logistics management. There are other factors also that should be kept in mind while making a decision related to the same, such as the packaging of the product. If the goods are delicate and can be broken then they need special attention on the way they are packed. If the goods are sent to the concerned person in bad condition then the chances of them to be accepted are less and that can indirectly affect the price of the product. Transportation (Transit Time Variability): Indicates the reliability of the transportation function. This can be calculated by:

Less variability in transit time helps customers plan the work more efficiently

  Customer
Response
Inventory Planning
&Management
Supply Transportation Warehousing Total Logistics
Finance Total Response Cost (TRC)+ Total Inventory Cost (TIC) + Total Supply Cost (TSC) + Total Transportation Cost (TTC) + Total Warehousing Cost (TWC) = Total Logistics Cost (TLC)
Productivity Total Response Hours + Total Inventory Hours + Total Supply Hours + Total Transportation Hours + Total Warehousing Hours = Total Logistics Hours/Order

Logistics metrics focuses on availability, reliability and quality. It measures the internal and external performances, which are explained as following

The internal measure the performance of the internal components and the External reflects the expectations of the organization by customers etc. External are financially oriented and are driven by the internal activities. Such measures can be both financial and non financial. These are further elaborated as we move forward. It also includes critical success factors for all levels of business

How to measure the metrics?

  • � Manually
    • Data collection by means of paper forms
    • Time measurement of logistics processes
    • Financial documents analysis
  • Automated
    • Information System (ERP, DB analysis)
    • Communication Technology (Tracking&Tracing)
    • Dedicated software (“Cockpit” of Key Performance Indicators, KPI)

    Why there is a need to measure the performance metrics?

    To reduce the cost of operating: this will help us in identifying the areas where we are spending a lot and how we can save by making changes

    To make profits: Attracting and retaining customers will lead to revenue growth. The price of any product can be enhanced by making service improvements in logistics activities.

    To enhance shareholder’s value: The performance of the logistics will be impacted by its market value.

    Importance of Effective Metrics

  • Clear definition and understanding – simple and explainable
  • Documented and communicated
  • Benchmarking – easily measured/benchmark
  • Quantifiable & monitoring
  • Reportable
  • Issued on timely basis
  • Realistic – what you can control
  • Consistent – repeatable
  • Time bound – measurement period
  • Specific – tied to unit of measure
  • Sensitive to change
  • Data supportable
  • Supported by upper management
  • Assignable & accountable
  • Motivates higher levels of customer service
  • Observable
  • Such metrics/indicators have been used by many big Organizations. We will discuss this in brief by using examples of two major IT companies.

    Hewlett-Packard (HP) � emphasized on the importance of shared performance metrics in the supply chain.

    (i) Percentage of demand filled from available Stock also known as fill rate

    (ii) Inventory turnover ratio: It helps us in evaluating the speed of the moments of goods in a company. The higher the ratio is, the better it is for business. This can be calculated by:

    This explains the financial side, the non financial can be explained as the percentage of demand met, it indicates the operational capabilities of a company. Poor forecasting can lead to lower inventory levels and unreliable production. We can calculate it by:

    JIT (just in time) was smartly used by Dell International to save cost on their logistics.

    Production: defectives

    � Defectives not fixable have to be scrapped, bringing down the production rate

    � The unit cost of production increases – cost of repair + cost of labor + cost of material

    A formula to calculate is:

    My learning’s from it

    In this assignment we have discussed what Logistics is all about. We have learnt how an effective movement of goods, materials and associated flows can affect the entire supply chain system. In a nutshell, we can say that the logistics performance metrics are the integral part of SCM. We have also learnt that in SCM how important it is to deliver the orders on time that are no later than the requested delivery date requested by the customer. We have seen how logistics is important for an organization to work in a cost effective manner.

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