Principles of Business
Unit 7: Logistics and Supply Chain
Management
Definitions:
Logistics
1. The commercial activity of transporting
goods to customers.
2. Logistics is used more broadly to refer to the
process of coordinating and moving
resources – people, materials, inventory, and
equipment – from one location to storage at
the desired destination.
Supply Chain
A supply chain is a network between a company
and its suppliers to produce and distribute a
specific product. The supply chain represent the
step it takes to get the product or service to the
customer.
Supply chain operations include the systems,
structures and processes to plan and execute the
flow of goods and services from supplier to
customer. To maximize effectiveness, it is
critical to evaluate both internal operations and
the extended supply chain that includes suppliers
and customers.
Relationship between Supply Chain
Management and Logistics
Difference between Logistics and supply chain
Logistics refers to what happens within one
company, including the purchase and delivery of
raw materials, packaging, shipment, and
transportation of goods to distributors while
supply chain management refers to a larger
network of outside organizations that work
together to deliver products to customers,
including vendors, transportation providers, call
centers, warehouse providers, and others.
Distribution Chain
When we look on the distribution chain we are
looking at how the product or service gets from
the producer to the consumer. Distribution
channel is a chain of businesses or intermediaries
through which a good or service passes until it
reaches the end customer. It can include
wholesalers, retailers, distributors and even the
internet. Channels are broken into direct and
indirect forms. Direct channel allows consumer
to buy the good from the manufacturer and
indirect channel allows the consumer to buy the
good from the wholesaler or retailer.
Components of Logistics
Forward and reverse flow of goods
Downstream/Forward flow of goods is from
the source or point of origin to the consumer or
point of consumption.
Reverse flow is associated with product return.
Reserves consumption is the flow of finish goods
and related information from consumption to the
point or origin for the purpose of recapturing
value or proper disposal.
Activities associated with reverse flow of
goods:
1. Return to supplier
2. Resell
3. Refurbish/Recondition
4. Remanufacture
5. Reclaim parts
6. Recycle
Reason for the activities mention above:
1. Defects- products are generally return if it
doesn’t meet quality standard set by
manufacturers.
2. Product Recalls- Manufactures may recall
the product from time to time to address the
product quality issues which cannot be
rectified in the field.
3. Competitive Reasons- in order to thrive in
the retail market all major players agree to
 take back product if the prescribed
conditions are followed in order to gain
confidence of the customer.
4. Abuse- some customers to make use of the
return policy and abuse the system in order
to achieve individual gain thus triggering
reverse flows.
5. Charity- some organizations use reverse
logistics function in order to achieve their
objectives.
6. Maximization of product margins. We
often hear about trade-in products in almost
all industries. Organizations recycle the parts
collected from the trade-in products in order
to maximize the product margins.
Storage of Goods
A warehouse is a building for storing goods.
Warehouses are used by manufacturers,
importers, exporters, wholesalers, transport
businesses, customs, etc. They are usually large
plain buildings in industrial parks on the
outskirts of cities, towns or villages.
They usually have loading docks to load and
unload goods from trucks. Sometimes
warehouses are designed for the loading and
unloading of goods directly from railways,
airports, or seaports. They often have cranes and
forklifts for moving goods, which are usually
placed on ISO standard pallets loaded into pallet
racks. Stored goods can include any raw
materials, packing materials, spare parts,
components, or finished goods associated with
agriculture, manufacturing, and production.
Port Insurance
Here are 5 of the most common types of
logistics insurance:
1. Commercial General Liability: As one
of the most widely used policies, this
protects you from being liable for
personal injury as well as property
damage, both on your company premises
or off.
2. Errors & Omissions: With lawsuits and
settlements happening constantly in
today’s world, this type of insurance that
provides coverage and help with any
legal issues that may arise is vital to your
company.
3. Commercial Property: Natural disasters
and accidents are things that cannot be
fully protected against, no matter how
well prepared you are. With Commercial
Property insurance, you property can at
least be financially protected in the event
of an accident or disaster.
4. Workers’ Compensation: As a required
policy by law, this is something that
legally needs to be in place before you do
business with any employees.
5. Marine Cargo: With so many doing
business dealings overseas, Marine Cargo
insurance is on the rise and can fully
protect you from damaged or lost goods,
as well as other things.
Activities involved in Supply Chain
Operations
Supply Chain Management is a cross functional
approach to managing the movement of raw
materials into an organization and movement of
the finished goods out of the organization toward
the end consumer.
Supply chain activities involve the:
1. Transformation of natural resources,
raw materials, and components into a
finished product that is delivered to the
end customer.
2. Movement of storage of raw material:
This is whereby, bauxite companies used
trucks to take the mineral to the main
plant where it is stored until ready for
processing. OR The sugar trucks which
take the canes from the fields to the
factory until ready for processing.
3. Processing of raw materials and
components into finished goods: This is
 raw material being converted to finish
goods so when the cane is now at the
factory it is processed into sugar, rum,
molasses, etc.
4. Storage of work- in- progress and
finished goods: In the manufacturing
process they are some items that will be
half way in production but are not
complete this is known as work in
progress. Hence proper storage is
required for such as it a major part of
investment.
5. Delivering the finished product from
point of origin to point of destination:
This is the delivery of the finish product.
For example the orange juice is now
boxed and delivered to supermarkets and
wholesales.
The Distribution Chain
Distribution (or place) is one of the four
elements of the marketing mix. Distribution is
the process of making a product or service
available for the consumer or business user who
needs it. This can be done directly by the
producer or service provider, or using indirect
channels with distributors or intermediaries.
A manufacturer makes a good through a
process involving raw materials, components, or
assemblies, usually on a large scale with
different operations divided among different
workers. Commonly used interchangeably with
producer.
The wholesaler, also known as the distributor,
acquires goods from a manufacturer, farmer or
miner, holds them in a distribution center and
then sells them to retailers.
The Retailer is an entity that sells goods such as
clothing, groceries, or cars directly to consumers
through various distribution channels with the
goal of earning a profit.
The Consumer is an individual who buys
products or services for personal use and not for
manufacture or resale. A consumer is someone
who can make the decision whether or not to
purchase an item at the store, and someone who
can be influenced by marketing and
advertisements.
Modes or transport
The different modes of transport are air, water,
and land transport, which includes rail, road and
off-road transport.
● Air is the newest means of transport; it was
introduced in 1903 but developed into full
means of transporting people and goods in
1930s. The greatest of the air transportation
started after the Second World War (WW11).
This mode of transportation can be used for
both domestic and international flights.
● Rail railways were developed during the
period of industrial revolution in the 19th
century. The major advantage of railway
transport includes provision reliable services.
It has ability of conveying heavy and bulky
goods; it is also very cheap, safe and
comfortable for passengers over a long
distance.
● Road exist in all parts of the world, this
involves the use of motor vehicles (cars,
lorries, buses, bicycles, and trucks). There
are various types of roads according to size
and functions, some roads are tarred while
others are not. The best of these roads are the
modern roads which links major towns. Road
transport when compared with other modes
of transportation is more flexible.
● Marine (cruise& cargo) water transport is
very important because it is the cheapest way
of transporting bulky goods over a long
distance. In the world, there are two major
types of water transport namely: Inland water
transport and ocean water transport. Inland
water transport: this is the system of
transport through all navigable rivers, lakes
and man-made canals. Ocean waterways
carry a lot of the world's trade, majority of
the bulky goods, materials and passengers
pass through ocean waterways from one
country to another at the cheapest cost.
● Pipeline this system of transportation
involves the use of hollow pipes in the
transportation of water, crude oil,
(petroleum) and gas. This mode of
transportation is safer than using tankers or
trailers in the transportation of these liquids.
● Digital delivery (also referred to as content
delivery, online distribution, or electronic
software distribution (ESD), among others)
is the delivery or distribution of digital media
content such as audio, video, software and
video games.[1] The term is generally used to
describe distribution over an online delivery
medium, such as the Internet, thus bypassing
physical distribution methods, such as paper,
optical discs, and VHS videocassettes.
Strength and Weaknesses of the different
modes of transport.
1.  Rail:
Advantages:
● Ability of loading and unloading goods and
services is more.
● Frequency of delivering the goods over long
distances is more.
● Climatic conditions have no effect
● No traffic or congestion easy movement of
the vehicle.
Disadvantages:
● Capital and initial investments are more.
● High material usage for the construction and
even the fuel consumption
● The above are some of the advantages and
disadvantages of using the rail.
2.  Road:
Advantages:
● High flexibity and ability to move the
vehicles fast.
● Uses different routes to reach the
destination quickly.
● Does door to door service
● High safety for the cargo.
● Chance to select the carrier which is
suitable for carrying the goods.
Disadvantages:
● It mostly depends on climatic conditions.
● High cost for long distances.
● Productivity is low.
● Some of the advantages and
disadvantages are discussed above.
3.  Air:
Advantages:
● Highest speed
● Even delivers goods to remote places.
● High reliability
Disadvantages:
● Highest cost of transportation.
● Even adverse weather conditions effect
the transportation.
● Material and fuel consumption is costly.
4. Water:
Advantages:
● It is economical mode for transporting
heavy loads and even cargo.
● It is the safest mode which provides
convenience to the people without
accidents.
● Cost of construction and maintenance is
very low.
● It even provides international transport
Disadvantages:
● It is highly affected by the weather
conditions.
● It requires large initial investment
● It is a slow process.
6. Pipeline
 Advantages:
● Reduction in cost of transportation is very
significant.
● Supply through pipelines is very reliable. It
is free from obstacles in road and rail
transport.
● In case of underground pipelines, the land in
which pipeline is laid can still be used for
agricultural use.
● It ensures supply in remote areas where road
ways are not very good.
● Also it provides safe and secure supply for
defense needs.
Disadvantages:
● Unlike roads no separate land acquisition is
done for pipelines, sometimes it is laid
sidewise along the road.
● Illegal pilferage and wastage due to leak is a
problem in pipelines.
● Like other big linear structures patrolling and
maintenance of pipelines is a huge task.
● In case of chemicals and petroleum pipelines
any leak can cause an accident.
● In case of petroleum and minerals pipelines,
as the pipeline is laid in private owned lands
which causes problems to both land owners
and companies laying pipelines.
Multimodal Vs. Intermodal Transport
Intermodal is the movement of cargo from
origin to destination by several modes of
transport where each of these modes have a
different transport provider or entity responsible,
each with its own independent contract. Multiple
carriers contracted to fulfill a single journey.
Benefits of Intermodal Transport
● Lower costs
● Environmentally friendly
● Reliability, capacity, and safety advantages
Multimodal is the movement of cargo from
origin to destination by several modes of
transport where each of these modes have a
different transport provider or entity responsible,
but under a single contract. A Single carrier
contracted to fulfill a single journey
Benefits of multimodal transport are:
1. Minimizes time loss at trans-shipment points
2. Provides faster transit of goods
3. Reduces the burden of documentation and
formalities
4. Saves cost
5. Establishes only one agency to deal with.
6. Reduces cost of exports
Differences between intermodal and
multimodal transport:
1. Intermodal system transports merchandise
from one to another country using different
means of transport and containers or movables
boxes. However, multimodal transport does not
need these loading recipients.
2. Multimodal transport needs a unique
document but intermodal transport employs one
document by transport.
3. Multimodal transport is more economic but
intermodal transport is more competitive and
more comfortable for the user.
Transport Documents
A transport document is a kind of document used
to convey information about cargo that is being
transported.
Kinds of transport documents include:
● Air Waybill, a transport document used for
air freight
● Bill of Lading, a transport document for sea
freight
● CMR (transport document), a transport
document for road freight for use in all
European countries, as well as additional
countries in Asia and Africa.
● Cargo insurance certificate, is a document
indicating the type and amount of insurance
coverage in force on a particular shipment. It
includes the name of the insurance company
and conditions of coverage.
● A Delivery Note is one of the transport
documents accompanying the shipment of
goods that list description and quantity of
 goods delivered. A copy of the Delivery
Note, signed by the buyer or consignee is Benefits and Challenges of supply chain
returned to the seller or consignor as a proof operation.
of delivery. Advantages
● International Commercial Invoice is an 1. Better quality of life.
administrative document which contains all 2. Wealth creation
the information about the international sale. 3. New and innovative job opportunities
The item, quantity, price for the including entrepreneurship, for example,
products/services sold, delivery and payment telemarketing.
conditions, as well as the taxes and other Disadvantages
expenses that might be included in the sale, 1. globalization,
are detailed in an International Commercial 2. counterfeiting,
Invoice. 3. product complexity,
● Import Licenses is a permit that allows an 4. rapid product obsolescence,
importer to bring in a specified quantity of 5. regulatory complexity,
certain goods during a specified period 6. management blunders,
(usually one year). Import licenses are 7. changing market conditions,
employed (1) as means of restricting outflow 8. natural disasters,
of foreign currency to improve a country's 9. political instability.
balance of payments position; (2) to control
entry of dangerous items such as explosives, The impact of logistics and supply chain
firearms, and certain substances; or (3) to operations on the competitiveness of business

protect the domestic industry from foreign (a) Logistics improve competitiveness.
competition. See also import restrictions. (b) Competitive advantage.
(c) Comparative cost advantage outsourcing
through:
Role of Transport in Marketing (i) Second party;
(ii) Third party;
(iii) Fourth party. (For example, imported
Transportation is indispensable function of concentrates).

marketing. Transportation provides the physical Problems that are likely to be encountered in
means of carrying goods and persons from one distribution

place to another. In other words, it is concerned Problems encountered in distribution: (a)

with carrying the goods from the places of
production to the places of their consumption.
Transportation creates place utility and
regularizes supply from one place to another.
Transportation greatly facilitates the
Relationship between the availability of airport,
harbor and docking facilities and the efficient
distribution of goods. (b) Delayed shipment,
spoilage, misdirection of goods, inadequate
warehousing facilities, lack of proper security
measures, industrial unrest, and ineffective
communication.

performance of marketing functions like buying, Measures used to mitigate problems in

assembling, selling, storage and warehousing distribution

etc. The entire economy and its development is Measures to mitigate problems, including but not
dependent on a well- knit system of limited to:
(a) Government intervention.
transportation. (b) Communication network including use of
MODE OF TRANSPORT the internet.
(c) Insurance.
(d) Selecting the most appropriate channel of
distribution based on product.
 (e) Use handling services with good reputation.
(f) Careful labelling and documentation.
(g) Avoid holding large stocks.
(h) Employing Security Company, use of
security cameras.

The impact of information technology on

logistics and supply chain operations

Forms of technology:
(a) Global Positioning Systems (GPS)

At present, GPS technology has attracted

much attention, one of the crucial reasons is that
many functions of GPS have been proved to be
effective in the logistics field, especially in the
goods distribution field. To be specific, currently
GPS mainly use the following functions in cargo
distribution;

● Navigation function
● Vehicle tracking
● Goods distribution route planning
● Information inquiry
● Traffic command
● Emergency assistance

(b) Geographic Information System (GIS)

GIS is one of the major player of the logistics

industry. GIS helps the Logistics for following
aspects:

PRE-PLANNING
1.  Allocating the resources
2. Transportation routing
● NAVIGATION
● FLEET MANAGEMENT
1. GPS tracking
2. Vehicle Finance
● COST REDUCTION.

(c) Portnet;
(d) Telemarketing, e-commerce;
(e) Global logistics providers such as Fedex,
DHL, and Amazon Logistics;
(f) Logistics hubs, for example, Jamaica.