Logistics refers to the skill and discipline engaged in the administration and control of the way in which the flow of energy, goods, information, and related resources takes place. In the present scenario, the term logistics has a vast scope which includes the flow of raw materials to manufacturers from suppliers and final delivery of finished products to end users.
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 fulfillment 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. 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 objectives of logistics are as follows:
- 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.
- 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.
- 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 the cost of the other.
- 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 efflcient system of packaging.
- 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.
- 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.
- Inventory Reduction: One of the major factors which can prove to be unfavourable 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.
Components of Logistics: Market Logistics Decisions
Following are the fundamental components of logistics:
- 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.
- 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.
- Material Handling: The physical management and handling of goods is known as material handling. It is one of the crucial factors in transponations 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.
- Warehousing: 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 as per the required space and desired location make it an attractive option. This approach also helps in considerably improving the customer service. These types ofwarehouses are also known as distribution centres.
- Transportation: Transportation of goods, i.e., physical movement of products from manufacturers to end users is a pretty expensive 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.
- 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.
Importance of Logistics
The importance of logistics can be stated as follows:
- 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.
- 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.
- Time Utility: It refers to the value Of getting the product when required. Time utility 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.
- 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.
