Definition of Logistics
LOGISTIC DEFINITION
Logistics is the operational function that includes all the activities and processes necessary for the strategic management of the flow and storage of raw materials, components, stocks in process and finished products, so that they are in adequate quantity, specific location and appropriate time.
In other words, logistics is the process of planning, implementing and effectively controlling the flow and storage of goods, services and information related to the point of origin to the point of consumption in order to meet the customer's requirements.
Logistics management
It is the part of supply chain management that plans, executes, and controls the flow, as well as the storage of goods, services, and related information, between the point of origin and the point of consumption, in order to meet customer needs.
Logistics Operations Management
It is the company's function to manage the processes by which a number of elements that constitute inputs to these processes, whether they are materials, labour, capital, information, the customer itself, etc., are transformed into products that must have a higher value for customers than the inputs to the process.
Logistics activities
The logistics It should not be seen as an isolated function but as an integrated task process that offers a higher speed of market response at minimum costs.
Provision
It is the set of activities developed in the company to ensure the availability of the external goods and services that are necessary for the conduct of its activities.
Resupply
It is the process of moving or resurting inventories from a reserve storage location to a primary picking location.
procurement and evaluation of suppliers (level of compliance)
Inventories
inventory structure, physical against theoretical
Warehouse
cost per storage unit. Cost per m2. Cost per supply unit. Level of compliance of expeditions.
Transport
Cost of use fleet transport. Comparing the cost of transport against the cost of milling.
Customer service
Unite logistics and marketing, so that they maximize value added through the service provided, maintaining a competitive cost.
The performance of deliveries and the quality of invoices will therefore need to be monitored: non-payments, recovery problems, pending billing
Financial
Logistics costs, lost sales and product contribution margin.
Need to implement a Logistics Department
In order to establish a logistics department it is necessary to travel a path within the Company that justifies such creation. The steps to be taken would be:
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- High-direction mentalization
- Allocation of logistical responsibility
- System analysis: internal (current efficiency and implementation costs) and external (level of service provided against required level of service).
- Challenges and opportunities
- Mission of logistics in the marketing mix
- Setting service objectives
- Development of alternative strategies
- Evaluation and selection of strategies
- Market test
- Programmes, rules and procedures for action
- Information and control documents.
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There will be a feedback cycle from step 11 to 3, to assess the actions carried out, to analyse the process as a whole and to make improvements until the logistics system is in place appropriate to the needs of the organization.
Logistics Strategy
To design the logistics strategy we have to take into account the following 4 points with their different implications:
- Current state of the company
- Costs of the company
- Financial strengths and weaknesses
- Market share position
- Asset base and use
- External environment
- Consideration of components
- Customers
- Providers
- Competitors
- The Company itself
- Corporate strategy planning for functional strategic planning
- Objectives pursued by the company
- Of profit
- Survival
- Social
- Performance on Conversion
- Market share
- Growth
Strategic policies
There are different strategic policies based on their functions.
Trade policies: The comprehensive logistics, based on the strategic plan of the company, must respond to aspects related to the trade strategy (territorial, sectoral, product, etc.) and establish together its own policies on product distribution until its arrival to the various customers.
Production policies: in this case, it will seek to respond to the Company in aspects such as specialization of factories, flows between factories of the group, etc., and to establish its own policies of intermediate stocks, production flows, storage systems and movement of materials.
Supply policies: the purchase strategies, the connection with the supplier network and the supply transport management strategy are defined to respond to the collection of production materials.
Objectives of the Logistics Strategy
The main objectives are:
- Reduce costs. The variable costs associated with movement and storage are minimized in search of maximization of profits.
- Capital reduction. The level of investment is minimized in the logistics system, seeking to maximize the return on investment.
- Service improvement. The increase in logistics costs is more than offset by the increase in sales.
The objective of strategic logistics is to maximize profit, profitability and competitiveness margins.
Logistics planning
This part of the logistics tries to answer three questions: what, when and how to carry out the logistics processes and takes place at three levels that we set out below:
Strategic planning
It is the one that covers a wider time segment. It is considered long-range and always over 1 year.
Tactical planning
It involves an intermediate time horizon less than 1 year.
Operational planning
It's a short-range decision-making. These are usually daily decisions. The issue is how to move the product effectively and efficiently through the strategically planned logistics channel.
Logistics Planning Areas
The areas of logistics planning will be those where the decisions made in them have the greatest impact on the company's profits, cash flow and reinvestments.
We can mainly distinguish four main areas:
- Customer service levels. It has a significant impact on the system design. A low service level requires less locations and allows more centralized inventories. So, a low-cost transport. A high level of service involves more locations and more expensive transport.
- Location of facilities. The number, size and location of the facilities shall determine the routes. The most recommended is to include movements and costs as they are presented. The aim is to seek allocations of low costs and maximum utility.
- Inventory decisions. The allocation of inventories by resupply rules, or by making a selection of items by rotation, bringing the location of this inventory closer to the production line where they will be used. Or implementation of perpetual inventory control methods. Inventory decisions shall affect the location of the facilities.
- Transport decisions. This should take into account transport mode, shipping size, route setting and optimal programming. The mode of transport will depend on the proximity between warehouses. The size of the shipment will affect the level of inventory. The establishment of routes will depend on the location of the wires.
When to carry out the Logistics Planning
If it is a new company or new goods within a productive line, there will obviously be no logistics system.
In most cases, however, a logistics network will already exist. The decision should therefore be taken to amend the existing network or to allow it to continue to operate the current network, even if it does not have the optimal design.
There is no definitive or foolproof rule for knowing when logistics planning should be carried out. However, there are general guidelines for assessment and auditing in the five key areas: demand, customer service, product characteristics, logistics costs, and pricing policy.
Demand
Both the level of demand and its geographical dispersion have a great influence on the configuration of the logistics network. For example, if the level of demand indicates that there are areas of rapid growth, it is an indicator that a change in the location of warehouses or plants may be necessary. This will depend on the strength and consolidation of the change in this level of demand.
Also, if there is a geographical dispersion of demand, this will influence transport costs and there may be a need for logistical replanning.
Customer Service
This area mainly covers the following issues: inventory availability, delivery speed and speed and accuracy to meet the full order.
The costs are very sensitive to the level of service and may require a change for several reasons. For example, competition is providing better customer service. It may also be that service policies or targets are changed, being different from those originating on which the initial logistics strategy was based.
If the company is forced to increase our level of customer service, we need to replan our logistics strategy by minimizing the impact of increased costs.
It is true that, if the level of customer service is initially low, small changes in service levels will be sufficient and no new logistical planning will be necessary.
Product characteristics
The logistical costs are sensitive to the physical characteristics of the product itself, such as weight, volume, value and risk. These physical changes may be due to changes in packaging design, or product completion status during shipment and storage.
This will create a new cost-sharing point for the logistics system, which will give us the answer if the replanning of the logistics system is beneficial.
Logistics costs
If all other factors are kept constant, a company that produces goods of value and whose logistical costs are a small part of its total costs, will not pay attention to the optimal of its logistics strategy. However, if the logistical costs are high because they are low-value products and high-flow distribution and supply, the strategy is very important. In the latter case, regular analyses should be carried out to decide whether there is a need for logistical replanning.
Price policies
In addition to price changes impelled by the supply chain itself, there are other factors that would influence the Company's price policy.
If the transport is included or not, it will have a significant impact on the price of the goods. It also influences when the transfer of ownership of the asset occurs. This will determine who is responsible for transport on each part of the journey and will be decisive in the price of the goods.
Changes in these price policies can lead to logistical replanning.
