Principles of Logistics and Transport

CUSCM104

Logistics Activities
 Overview
• Learning objectives
• Introduction
• Key activities
 Learning Objectives
• To explain the various logistics activities
• To establish the importance of these logistics activities in
achieving supply chain objectives
Introduction
 What Activities take place in Logistics?
Activities
1. Customer Response
2. Inventory Planning &
Management (IP&M)
3. Supply
4. Transportation
5. Warehousing /
DC Operations

Each of these requires:

- Measures and Goals
- Process Design
- Information System Requirements
- Organizational Development
Logistics Activity Framework

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Logistics Activity Framework

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 Logistics Activities
1. Customer Response

Involves:
• Developing / Maintaining a Customer Service Policy*
• Order Entry
• Order Processing
• Invoicing / Collections
• Monitoring Customer Satisfaction
* the contract between the logistics organization and the customer, defining service
targets, such as fill rates, response times, min. order quantities, terms and conditions for
returns, etc.).
 Customer response
• Seventy-five percent of the reasons customers leave a
company has nothing to do with the product.
• Of dissatisfied customers, 98 percent will never complain—
they will just leave.
• Eighty-five percent of dissatisfied customers tell nine people;
13 percent tell 20 people. A satisfied customer tells five
people.
• In the next 6 years, 80 percent of your customers will leave,
65 percent due to something you did.
• A 5 percent retention rate will increase profits from 25 to 55
percent.
 DEFINITION
Customer service is a process for providing
significant value added benefit to the supply
chain in a cost-effective way.
THE IMPORTANCE OF CUSTOMER SERVICE
 THE COMPONENTS OF CUSTOMER SERVICE

Pre-transaction elements: customer service factors that

arise prior to the actual transaction taking place.

Transaction elements: the elements directly related to the

physical transaction and are those that are most commonly
concerned with logistics.

Post-transaction elements: these involve those elements

that occur after the delivery has taken place.
 Pre-transaction elements

• Written customer service policy;

• Organizational structure;
• Single order contact point;
• Accessibility of order personnel;
• Order size constraints;
• System flexibility
 Transaction elements
• condition of goods;
• inventory availability;
• order preparation;
• service/order cycle time;
• delivery alternatives;
• delivery time;
• delivery reliability;
• delivery of complete order;
• order status information.
 Post-transaction elements
• Invoicing procedures;
• Invoicing accuracy;
• Product tracing/warranty;
• Returns policy;
• Availability of spares;
• Call-out time;
• Customer complaints and procedures.
 MULTIFUNCTIONAL DIMENSIONS
of customer service

1. Time – usually order fulfilment cycle time;

2. Dependability – guaranteed fixed delivery times

of accurate, undamaged orders;

3. Communications – ease of order taking, and

queries response;

4. Flexibility – the ability to recognize and respond

to a customer's changing needs.
 CONCEPTUAL MODELS OF SERVICE QUALITY

• Service quality is a measure of the extent to which the

customer is experiencing the level of service that he or she is
expecting.
• Service quality is the match between what the customer
expects and what the customer experiences.

• Service quality = Perceived Performanc e x 100

Desired Expectatio ns
Logistics Activity Framework

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 Inventory management & Planning

Goal:

– determining / maintaining the lowest inventory levels

possible that will meet Customer Service Policy
requirements.

 Involves:
 Forecasting
 Order Quantity Engineering
 Replenishment planning
 Inventory deployment
Inventory Planning and Management
Aspects of Inventory Management
• Inventory levels
• Stock-outs
• Planning parameters-eg. size of inventory or when to
purchase
• Financial terms -eg inventory carrying costs or lost sales
• Demand terms-LT demand ,annual demand or forecast
demand
• Decision variables-eg EOQ, SS, Re-order point
 Fill Rate Planning
• Fill rate planning is the process of determining
optimal service levels and inventory turns for each
item.
• It is one of the most difficult planning decisions in all
of logistics.
• The trade-off between inventory carrying costs (ICCs)
due to excess inventory and lost sales costs due to
insufficient inventory is easy to state but difficult to
model
 Forecasting
• A forecast is a prediction of future events which
provide useful estimates for planning
purposes( Krajewski &Ritzman,1993)
• A demand forecast is the basis for important
planning decisions-regarding scheduling, inventory,
production, facility layout & design, workforce,
distribution & purchasing (Russell et.al 2003).
 Forecasting
• Forecasts are developed for a company’s finished
goods, components and service parts.
• The forecast is used by the production team to
develop production or purchase order triggers,
quantities and safety stock levels.
• The forecast is not static and should be reviewed by
management on a regular basis.
• This is to ensure that information on future trends,
the internal or external environment is incorporated
into the forecast to give a more accurate calculation.
 Forecasting
• Most major corporate and logistics decisions are based
on the forecast including:
– Capital investments
– Marketing campaigns
– Service level planning
– Warehouse sizing
– Staffing plans
– Manufacturing expansions
– Transportation network designs
– Supplier negotiations
Logistics Activity Framework

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 3. Supply

Goal:

• Minimize total acquisition cost

(TAC) while meeting availability, response time and quality
requirements

Involves:
• Developing / Maintaining a Supplier Service Policy
• Sourcing (of supplies)
• Supplier integration
• Purchase Order processing
• Buying and Payment
 Supply conti..

• Supply is the process of building inventory (through manufacturing

and/or procurement) to the targets established in inventory planning.
• The objective of supply management is to minimize the total
acquisition cost (TAC) while meeting the availability, response time,
and quality requirements stipulated in the customer service policy
and the inventory master plan.
• The logistics of supply include:
 Developing and maintaining a Supplier Service Policy (SSP)
 Sourcing
 Supplier integration
 Purchase order processing
 Buying and payment
 Supplier Service Policy (SSP)

• A SSP is a set of guidelines for choosing suppliers, monitoring

supplier performance, and designing inbound logistics
programs.
• The SSP should include:
a) Supplier logistics certification criteria and monitoring
to established targets
b) Supplier classification based on logistics performance
and activity levels
c) Non conformance penalty programs
d) Segmented inbound logistics strategies
 Sourcing :Take note of TAC
• Total Acquisition Cost (TAC) The TAC of an item
(sometimes referred to as total ownership cost or
total logistics cost) for each supplier includes the cost
of the item and the cost of purchase order
placement, float, inventory carrying, lost sales,
transportation, warehousing, and international
logistics fees
Logistics Activity Framework

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 4. Transportation
• Links sources of supply with customers.
Goal:

– Link all pick-up and deliver-to points within the response time
requirements and transportation limitations at the lowest possible
cost.

Involves:
– Network design & optimization
– Shipment Management
– Fleet and Container Management
– Carrier Management
– Freight Management
Logistics Activity Framework

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 5. Warehousing (DC Operations)

Goal:

– To minimize the cost of labor, space and equipment in the

warehouse while meeting cycle time and shipping accuracy and
storage capacity requirements.
Involves:
– Receiving
– Putaway
– Storage
– Order Picking
– Shipping