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Logistics | Meaning, Definition, Objective, Importance & Components

Logistics


What is Logistics ?


Logistics refers to the skill and discipline engaged in the administration and control of the way in which the flow and energy, goods, information and related resources take place. In the present scenario, the term Logistic has a vast scope which include the flow of raw materials to manufacturers for from suppliers and final delivery of finished products to end user.

Definition of Logistics


According to Council of Logistics Management (CLM) :
“Logistics is the process of planning, implementing and controlling the 
efficient, cost-effective flow and storage of raw material in-process inventory, finished goods and related information from point of origin to point of consumption for the purpose of confirming customer requirements”.

According to Robert A. Novack : 
"Logistics is an activity involving the creation of time, place, form and possession of utilities within and among firms and individuals through strategic management with the goal of creating products/services that satisfy customer through attainment of value”.

The process through which the procurement, movement and storage of raw materials, semi-finished and finished products are tactically managed through organisations and marketing channels in a way that maximises the current and future profitability by cost-efficient order fulfilment is known as logistics. Thus, it is a process which integrates inventory, packaging, transportation, material handling, information, and warehousing. The functional responsibility of logistics lies in attaining activities such as relocation of resources, processing of raw materials and maintaining records in the most economical way.
In Indian market scenario, the costs associated with market logistics are higher as compared to the other developed economies. It is approximately 13% of GDP which is much higher than 9% of GDP in USA. This logistical function is also known as the physical distribution function as it is mainly concerned with the physical flow of goods,


Objectives of Logistics


The objective of logistics are as follows :

1) Improving Customer Service : 
By attaining customer satisfaction, highest level of profits can be ensured. Thus, continuous improvement in customer service acts as the core objective of logistics.

2) Speedy Response : 
It refers to the organisation's ability to give prompt response to the customers queries. In today's era of IT, it has become completely manageable to give immediate response to the customers' queries by acquiring related data and postponing logistical functions to latest time for increasing the response rate.

3) Decreasing Costs of Total Distribution :
Decreasing the costs associated with overall distribution is another vital objective of logistics. The expenses on distribution of goods include expenditure on shipment, storage and ,record keeping, etc. As these processes are interlinked, reducing the cost of one function often increases the cost of the other.

4) Consistent and Reliable Delivery Performance : 
Ensuring consistent and reliable delivery performance is another main objective of logistics. This will significantly help companies to strengthen their relationships with the customers by developing trust and gaining confidence.

5) Least Product Damages : 
Damaged products contribute to extra expenditure on logistics. This extravagant expenditure on damage can be avoided by using mechanical system for handling materials, using logical and efficient system of packaging.

6) Creating Additional Sales : 
One of the other aims of logistics is to increase sales by creating additional sales. This can be attained by providing better services in the most economical way.

7) Generating Place and Time Utilities : 
Ensuring the utility of product at right time and right place is another main objective of logistical functions. The product is not good for the consumers until it reaches them at the right place and right time.

8) Stability of Costs : 
Another purpose of logistics is to ensure the stability of costs. It can be attained by managing the supply of goods through thoughtful use of the accessible transportation and suitable storage facilities.

9) Upgrading Quality : 
In the long-run, logistics seeks to ensure continuous quality improvement. Total Quality Management has emerged as a primary obligation in all parts of the industry within this aspect. Its assurance is mainly responsible for logistical regeneration.

10) Life cycle Support : 
A sound logistical system is mainly responsible for maintaining healthy PLC. Sometimes goods are sold without giving guarantee regarding their lasting performance as advertised. These situations call for reversing the direction of normal value added inventory offered to the customers.

11) Movement Consolidation : 
Transportation cost is one of the most important logistical costs as logistics aims to reduce costs through consolidation and integration of operations. It is directly related with the product type, shipment Size, distance, etc. Thus, movement consolidation becomes desirable for ensuring the reduction in transportation costs.

12) Inventory Reduction : 
One of the major factors which can prove to be unfavorable for the firm is heaps of records. Conventionally, abundant inventory was maintained for ensuring good customer care services, which indulged a lot of expenditure. Thus, reduction in inventory is another main objective of logistics.

Importance of Logistics


The importance/ Advantages of logistics can be stated as follows :

1) Form Utility : 
It refers to the procedure through which goods and services are produced and put into appropriate form for usage by the customers. Form utility refers to the worth of a product which has been created by putting together all its parts. 
For example, a mobile screen has some form utility, but a complete cell phone has high level of form utility. It is indirect application of logistics which helps in using time and place utilities, through which various parts of final products are combined.

2) Possession Utility : 
It refers to the value added to the goods or services so that the customer is actually able to possess it. It is usually arranged by providing loans, credits, etc. By offering products and services to consumers at fixed time and place, logistics becomes indirectly responsible for providing possession utility through place and time utility.

3) Time Utility : 
It refers to the value of getting the product when required. Time utility occurs within the firm so that all the materials and parts are available at the right time and production line remains unaffected. Logistics here influence time utility as it helps in creating value for customers by timely delivering the product to customers or making it available in the market for purchase when required.

4) Place Utility : 
It implies that all the requisite goods/services are available at the right place when required. If a product required by a customer is on its way, or in warehouse or in some other store, it fails to serve the purpose of place utility for the customer. The place utility is considered to be the value acquired by providing the requisite goods/service available at the right place.

Components of Logistics : Market Logistics Decisions


Following are the fundamental components of logistics :

1) Order Processing : 
Order processing refers to the process of receiving and delivering information of sales orders. An effective order processing leads to the efficient flow of goods. Order processing is mainly responsible for maintaining high standards of customer services in an organisation. Inefficient order processing system can be balanced through competent shipment or transportation facilities or by maintaining minimum inventories. Order processing consists of three major functions :

i) Order Entry :
Order entry starts as early as orders are placed by customers/salesman either telephonically, through mail or website.

ii) Order Handling : 
As soon as order is received, it is sent to the warehouse (for checking if the goods are available as per the order) and credit department (for checking the terms, prices, and credit ratings of customers). In case it is approved, the order is procured, assembled and packed.

iii) Order Delivery : 
The order is sent for shipment through suitable transportation.
In case the desired product is not available in the warehouse, it is said to be 'out of stock'. It is the duty of the organisation to immediately inform the customer if his/her desired product is out of stock and he/she should also be suggested with some alternate choices.

2) Stock or Inventory Management / Control : 
The management of inventory requires the development and maintenance of a wide range of products to fulfill the demands of customers. It would be quite difficult to run a business efficiently in the absence of inventory management.
Inventory related decisions include the time of delivery and quantity of order. It is essential for inventory management to ascertain the level of stocks at which the orders should be placed. The stock level is termed as the 'order (reorder) point'. The order point with '20' recording implies that the stock falls by 20 units. It is quite necessary that the risk factors involved in stocks should be compensated with the cost of overstock. It helps in fixing the policies for stocks by giving due importance to the factors such as investment decisions, customer care, stock levels, size and time of order delivery, etc. It is quite clear that the success of a business iſ impossible without proper management and control of inventory.

3) Material Handling : 
The physical management and handling of goods is known as material handling. It is one of the crucial factors in transportation and warehouse operations. Effective techniques and processes of handling material help in lowering the expenses on inventory management which further brings down the need to handle the material again and again. It also helps in improving customer care services and leads to the rise in satisfied clientele. Following two methods are mainly used in material handling:

a) Unit Loading : 
A box or several boxes are kept on a skid or pallet from where it can be effectively loaded through machines.

b) Containerisation : 
Several individual terms are packed in a big box and sealed together. The consignment is opened at the destination.

It is the decision of the organisation to opt either for its own warehouses or for shared outbound warehouses. In comparison to outbound warehouse, in-house warehouse offers more flexibility, less expenditure, and better administration. Yet, the major advantage of outbound warehouse is that it needs no fixed investment on part of the organisation. Moreover alternative choices for selecting the warehouse a per the required space and desired location make it an attractive option. This approach also helps in considerably improving the customer service. These types of warehouses are also known as distribution centres.
Distribution centres are usually large sized centralised warehouses. They acquire goods from suppliers and manufacturers, rearrange them as per the order and send them to the customers in the shortest possible time. The main focus is upon the distribution of the goods instead of storing them. The location and design of these distribution centres need to ensure speedy distribution of goods. Their advantages are numerous, viz. better customer care services, lower time taken to deliver the goods, less expenses on shipment and low expenses on holding inventories. Thus the, selection of an ideal warehouse helps in lowering the expenses on shipment and inventory, and ensures better customer care services.

Transportation of goods, i.e., physical  movement of products from manufacturers to end users is a pretty expensive form of physical distribution. The significance of transportation can be understood through a number of factors. Transportation helps in utilising time and place in the best possible manner, in relation to the goods. It helps in ascertaining the level of customer care service and is also related to other factors of physical distribution such as, warehouse, inventory control, and channel management. Moreover, transportation is one of the most significant elements of business expenditure.

Basically, there five main modes of transportation, with each one having its own advantages. These are as follows :

a) Railways : 
Railways are used to relocate heavy and lofty consignments that are required to be sent to far places.

b) Roadways : 
Trucks and minivans are used as transportation medium on roadways. The advantage of roadways is that it can render flexibility of schedule and place because trucks can go almost anywhere and at any time, as desired.

c) Waterways : 
Waterways proves to be one of the least expensive ways of transportation. It is mainly used for the heavy, inexpensive and non-perishable items.

d) Airways: 
Airways are the most expensive, yet, the fastest means of transportation.

f) Pipelines : 
Pipelines are the most automatic means of transportation. Normally, they are a part of the shipper and carry the products of shipper

For availing the benefits of different means of transportation and avoiding their disadvantages, it is usually found that several times a few means of transportation  are amalgamated and synchronised. In the recent past, this approach (also known as inter-modal transportation) has become simplified due to new innovations in the industries of transportation.

6) Customer Services : 
The standards of customer services set the objectives and desired performance level expected by the organisation. The physical distribution system is designed as per the acceptable standards of customer services. The elements of physical distribution are collected in a way to attain the acceptable standards at the cheapest rates. The entire expenditure incurred can be divided into the following five main parts :
  • Transportation.
  • Customer service/order processing.
  • Warehousing.
  • Managerial costs.
  • Inventory control.
Customer service standard refers to the different levels of services as per the varying needs of different customers. The needs of the services are different for different customers and the marketer has to analyse these needs so as to cater to customers' demands. The basic elements associated with the customer care in relation to the distributions are economy, reliability of delivery system, timely delivery, availability, adequate range of products, and efficiency in order processing, replacement of faulty items, guarantees and warranties.

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