1 The Framework of Logistics

Definition Of Logistics
 Supporting operations
o Every organization delivers products to its customers. (product
spectrum FIG. 1)
Fig 1: Product spectrum

o At the heart of an organization are the operations that create and

deliver the products. These operations take a variety of inputs and
convert them into desired outputs (operation spectrum FIG. 2)

Fig 2: Operation spectrum

o The products created by an organization are passed to its customers,

giving the cycle shown in Figure 3 customers generating demands,
with operations using resources to make products that satisfy them.
Logistics moves materials around this cycle. The operations are
usually divided into several related parts, So logistics also moves
materials through the different parts of an organization, collecting
from internal suppliers and delivering to internal customers
(Figure 4).
 Fig 3: Cycle of demand and supply

o This leads to our basic definition:

Logistics is the function responsible for the flow of materials from suppliers into
an organization, through operations within the organization, and then out to
customers.

Fig 4: The role of logistics

Notes:
• Moving materials into the organization from suppliers is called Inbound or
inward logistics.
• Moving materials out to customers is Outbound or outward logistics;
• Moving materials within the organization is Materials management.

Materials
what we mean by materials?
 • Tangible goods clearly must be moved, and you can easily see the role of
logistics. Even organizations providing the most intangible services move
some goods around – perhaps paperwork or consumables – so they still need
logistics.
• We can take a broader view and say that logistics also moves less tangible
things, such as information and messages.
• In different circumstances, logistics is responsible for moving raw materials,
components, finished products, people, information, paperwork, messages,
knowledge, consumables, energy, money, and anything else needed by
operations.
• To simplify things, we describe all of these as materials.

Materials are all the things that an organization does to create its products. These
materials can be both tangible (such as raw materials) and intangible (such as
information)

The Supply Chain

A Supply Chain consists of the series of activities and organizations that materials
move through on their passage from initial suppliers to final customers.

Fig. 5: Outline of the supply chain for paper

 • Every product has its own unique supply chain.
• Materials may move through raw materials suppliers, manufacturers,
finishing operations, logistics centers, warehouses, third party operators,
transport companies, wholesalers, retailers, and a whole range of other
operations. Sometimes, the supply chain goes beyond the final customer to
add recycling and re-use of materials.

Structure of the supply chain

The simplest view of a supply chain has a single product moving through a series
of organizations, each of which somehow adds value to the product.
• Downstream:
o moving materials outwards – are called downstream to the customers.
o Customers divided into tiers:
− first tier customer: One that gets a product directly from the
operations is a first-tier customer.
− second tier customer: one that gets a product from a first-tier
customer is a second-tier customer.
− third tier customer: one that gets a product from a second-tier
customer is a third-tier customer, and so on to final customers.
• Upstream:
o moving materials inwards – are called upstream.
o upstream activities are divided into tiers of suppliers:
− first tier supplier:
o supplier that sends materials directly to the operations is
a first-tier supplier.
− send materials.
o one that send materials to a first-tier supplier is a second-
tier supplier.
− third tier supplier
o one that sends materials to a second-tier supplier is a
third-tier supplier, and so on back to the original sources.
• In Figure 6:
o most organizations get materials from many different suppliers and
sell products to many different customers.
o Then the supply chain:
• converges as raw materials move in, through the tiers of
suppliers, and
• diverges as products move out, through tiers of customers.
 Figure 6: Activities in a supply chain

 A manufacturer might see:

 up-assembly providers as first tier.
 suppliers, component makers as second tier suppliers,
 materials suppliers as third tier suppliers, and so on.
 It might see:
 wholesalers as first tier customers,
 retailers as second tier customers, and
 end users as third tier customers (as Figure 7 shows).

• Each product has its own supply chain, and there is a huge number of
different configurations.
o Some are very short and simple – such as a cook buying potatoes
directly from a farmer.
o Others are surprisingly long and complicated.
 o An everyday product like a shirt has a long journey from the farm
growing cotton through to the final customer. It also has several
chains merging as buttons, polyester, dyes, and other materials joins
the main process.
o In the same way, when you buy a computer, many strands of the
supply chain merge as Intel provide the processor, Matshita the DVD
drive, Agfa the scanner, Hewlett-Packard the printer, Microsoft the
operating system, and so on.
o Supply chains diverge to meet demand from different types of
customers. Manufacturers of car components, for example, sell some
products to car assembly plants, some to wholesalers for garages
doing repairs, some to retail shops for individual customers, and some
directly to customers through websites.
• Then the supply chain divides into separate features with the same
product following alternative routes.

Benefits of logistics
 • Logistics exist to overcome the gaps created when suppliers are some
distance away from customers.
• They allow for operations that are best done at locations that are distant
from customers or sources of materials.
• Logistics can also make movements a lot simpler.
• The following list of benefits:
o Producers locate operations in the best locations, regardless of the
locations of their customers.
o Concentrating operations in large facilities to get economies of scale.
o keep large stocks of finished goods nearer to customers.
o Wholesalers place large orders, and producers pass on lower unit
costs.
o Wholesalers keep stocks from many suppliers, giving retailers a
choice of goods.
o Wholesalers are near to retailers and have short lead times.
o Retailers carry less stock as wholesalers provide reliable deliveries.
o Retailers can have small operations.
o Transport is simpler, with fewer, larger deliveries reducing costs.
o Organizations can develop expertise in specific types of operation.

Logistics must:
• organize 32 different delivery routes but,
• if the factories use a central wholesaler, the number of routes is cut to 12.
Figure 8: Using intermediaries to simplify the supply chain.