PHILIPPINE CHRISTIAN UNIVERSITY
LOGISTICS MANAGEMENT
An Introduction
A report submitted by:
De Guzman, Diane Joy
De Lara, Armida
Ortega, Timmy Rose
Osorio, Bernadette
Osorio, Kathleen
Sibug, Eva
Viloria, Brian Earl
In Partial Fulfillment of the Subject
Logistics, Operations and Supply Chain Management (MMPA622)
Submitted to
Dr. Rachelle G. Franco
on 18 February 2023
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I. INTRODUCTION
Logistics management originated by the British Army far before the outbreak of the First World
War where a military supply chain system was developed by building infrastructure such as;
roads, railroads, ports, airfields, supply stores and vehicles to transport weapons and troops.
At the most basic level, logistics is important because it is a core process that deals with the
movement and management of both the people and resources required to keep products
flowing from manufacturers to end customers. In order for supply chain organizations to
effectively balance supply and demand, manage inventories and ensure customer satisfaction,
they need strong logistical processes that have been defined, tested and optimized for
maximum efficiency. This involves ensuring that products are delivered on time, that the
correct products are being sent, that businesses are able to boast increased value for their
customers and that costs for all parties can be reduced.
II. DEFINITION
Logistics is defined as the art and science of obtaining, producing, and distributing material and
product in proper place and in proper quantities.
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Logistics describes the process of coordinating and moving resources—people, materials,
inventory, and equipment—from one location to storage at the desired destination. It is the
process of planning, implementing, and controlling the efficient, effective flow and storage of
goods, services, and related information from point of origin to point of consumption for the
purpose of conforming to customer requirements.
Logistics Management is that part of Supply Chain Management that plans, implements, and
controls the efficient, effective, forward, and reverse flow and storage of goods, services, and
related information between the point of origin and the point of consumption in order to meet
customers' requirements. It focuses on the efficiency and effective management of daily
activities concerning the production of the company’s finished goods and services. It is the
process of meeting the needs and wants of customers by planning, implementing, and
controlling the storage and the movement of the goods or services from the storage facility to
the final destination. Logistics management is of the main components of supply chain
management.
How is Logistics Management related to Supply Chain Management (SCM)?
Supply chain management and logistics definitely intersect, but they differ when it comes to
their scope and focus.
Supply chain management covers a wide range of activities, including planning, sourcing
materials, labor and facilities management, producing and delivering those goods and services.
It outlines the strategy and activities that go into planning, sourcing, producing and delivering
goods, as well as handling returns. It deals with the management of materials, information, and
financial flows in a network consisting of suppliers, manufacturers, distributors, and customers.
Logistics is one activity in supply chain management. Logistics focuses on the right products
being in the right place at the right time, and how to get them there. It is centered on the
movement and transport of goods within a company. It focuses on the efficient and cost-
effective delivery of goods to the customer.
III. OBJECTIVES OF LOGISTICS
The main objective of logistics management is to execute proper planning on transportation modes and
inventory available to satisfy the customers. This leads to a smooth freight moving process and timely
delivery of products or goods
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5 MAIN OBJECTIVES OF LOGISTICS MANAGEMENT PROCESS
1. Minimize Manufacturing Costs - Logistics management can have a direct impact on
manufacturing costs. Efficient logistics management improves material handling and fastens
transportation. It also increases its safety, which in turn reduces the shipping costs of the
business. Hence, a well-planned logistics management process can maximize business profits.
2. Efficient Flow of Operations - Logistics management allows a clear flow of information from one
department to another. The smooth process flow makes the entire operations efficient.
3. Better Communication Flow - Logistics management engages with many internal business
functions and external trading partners. Even one miscommunication can lead to a loss of
considerable time, money, and resources. Hence, a seamless communication flow is a crucial
objective of logistics management.
4. Provides Competitive Edge - The primary goal of logistics management is to provide better
customer service. Logistics management aims to eliminate processing errors by establishing a
streamlined process flow. Quality processes and quick service would ensure customers are
happy. These measures increase sales, which automatically gives businesses a competitive edge
over competitors.
5. Better Inventory Management - Inventory management is an essential component of logistics
management. An efficient logistics solution also makes the inventory management of the
company effective. Inventory is an integral part of the bigger picture of logistics management.
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IV. TYPES OF LOGISTICS
A. INBOUND LOGISTICS
Inbound logistics refers to the transport, storage and delivery of goods coming into a business.
Outbound logistics refers to the same for goods going out of a business. Inbound logistics is the
way materials and other goods are brought into a company. This process includes the steps to
order, receive, store, transport and manage incoming supplies. Inbound logistics focuses on the
supply part of the supply-demand equation.
Inbound Logistics Activities:
Sourcing and Procurement: It is the sourcing and vendor selection for supply of raw
materials and manufacturing parts. It involves identifying and evaluating potential
suppliers, obtaining price quotes, negotiating with and managing suppliers.
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Ordering/purchasing: Buying the goods and materials the company needs so the right
quantity arrives at the right time.
Transport to distribution channels: Deciding whether to use a truck, airplane, train or
another method to move goods. This activity also involves selecting delivery speed for
incoming supplies, contracting with third-party carriers and working with vendors on price
and route.
Receiving: Once the goods arrive at the store, warehouse, or fulfillment center, the
location’s receiving team is in charge of receiving the inventory. The team will accept the
shipment, log it in their records, and count the contents to make sure that the shipment is
precisely what was ordered.
Storage: If the shipment is acceptable, the receiving team will then move the inventory
into storage. It will remain there until it’s used in outbound logistics processes.
B. OUTBOUND LOGISTICS
Outbound logistics refers to the same for goods going out of a business. Inbound and outbound
logistics combine within the field of supply-chain management, as managers seek to maximize
the reliability and efficiency of distribution networks while minimizing transport and storage
costs.
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Outbound logistics system is concerned with the flow of finished products from factory
warehouse to the customers through a distribution network comprising of:
● The wholesalers
● Distributors
● Retailers
● Regional warehouses
● Transporters
● The inventory at all levels
● Sales order processing
● Sales return processing
● Accounts receivable realization and
● Counter flow of information from the customers to the factory
C. THIRD PARTY LOGISTICS
A 3PL (third-party logistics) is a provider of outsourced logistics services. Logistic services
encompass anything that involves management of the way resources are moved to the areas
where they are required. The term comes from the military.
D. FOURTH PARTY LOGISTICS
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This evolution in supply chain outsourcing is Fourth-party Logistics or 4PL. A 4PL provider is a
supply chain integrator. The 4PL assembles and manages all resources, capabilities and
technology of an organization's Supply Chain and its array of providers.
E. REVERSE LOGISTICS
Reverse logistics is for all operations related to the reuse of products and materials. It is the
process of moving goods from their typical final destination for the purpose of capturing value,
or proper disposal.
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V. LOGISTICS FUNCTION/COMPONENTS
Logistics is as straightforward as it is complex. Getting a product or service from A to B is never
as simple as that.
Logistics management is intertwined with supply chain management and together, they create
complex networks of logistical processes that serve customers.
Logistics Management is a complex process that deploys the use of numerous components to
determine the efficient movement of cargo.
It includes an elaborate network of service providers, freight forwarders, agents, packers, and
distributors, all working in tandem via different methods of transport.
Because logistics extends far beyond physical distribution, there are multiple roles and
functions of logistics. There's a bit of a controversy on how many functions of logistics there
are, depending on whether you're grouping similar logistics functions or not.
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7 MAJOR FUNCTIONS OF LOGISTICS MANAGEMENT
1. ORDER PROCESSING
Order Processing is an essential task for a logistics company. The logistics activities begin with
order processing, which may be the responsibility of the logistic company’s commercial
department. The commercial department ensures that the payment and delivery terms are met
before processing the order within the company.
It is a workflow that organizations often implement to prepare and deliver customer orders
properly, accurately and on time. Order processing may involve large teams, smaller teams, a
few individuals or even a single individual, depending upon the size of the operations of an
organization. This workflow involves five well-defined steps that help organizations in managing
everything from the moment a customer places an order until they deliver that order to the
said customer.
ORDER PROCESSING WORKFLOW
Order placement
The first step is order placement, where businesses receive an order from a customer. In this
step, an order management system (OMS) receives order details like the name of the items, the
quantity of each item, shipping details and the address for delivery. Based on the delivery
address and the availability of items, the OMS then selects the appropriate warehouse or
fulfillment center for the order.
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This is done with the objective of minimizing delivery cost and transit time. There may be
instances where all the items in an order are not available at a single warehouse or fulfillment
center. In such cases, the OMS may select more than one warehouse for fulfilling the order.
PICKING INVENTORY
This step involves picking the right items in the right quantity from the inventory as per the
order details. It is very important that the pickers perform the picking process correctly to
ensure timely packaging and shipping of orders to the customers. Smaller organizations may do
this manually, while larger organizations may use barcode scanners to automate the process.
The different picking strategies that organizations use are:
● Piece picking: In this strategy, each individual picker picks the necessary items for a
single order at a time.
● Zone picking: In zone picking, the organizations split each warehouse into different
zones, and each individual picker collects items from their designated zones only.
● Batch picking: In this strategy, each picker picks items for many different orders
simultaneously.
SORTING
In this step, separation of picked items takes place. This separation happens based on the
delivery addresses of the items. This step is essential when the picking takes place using either
the zone or the batch picking strategy. After picking using these strategies, it is important that
the staff then separate these items, adhering to the different orders. This step is very important
to ensure customers receive the items they ordered in proper condition and quantity.
PACKING
After sorting the items as per the different orders, the next step is to pack them. In this step,
the assigned professionals pack the items properly to protect them from any damage during
transit. They pack the items in appropriate boxes, weigh them and label them properly with the
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destination address and other contact details of the recipient. In this step, it is important that
the packaging chosen is appropriate as per the dimensions of the items to make the entire
process as cost-effective as possible.
SHIPPING
In this step, the shipping of orders to their destinations takes place. There are two different
ways in which organizations may ship the orders. They may ship each individual order directly
to the customer or they may ship several orders together whose final destination addresses are
nearby. This helps them in reducing the total number of shipments and hence the overall cost
of shipping. In this step, it is very important that the organizations use a reliable shipping
partner that provides a trustworthy tracking system. This helps both the organization and their
customers in tracking the orders and improves overall customer satisfaction.
2. MATERIALS HANDLING
Material handling is the movement, protection, storage and control of materials and products
throughout manufacturing, warehousing, distribution, consumption and disposal. As a process,
material handling incorporates a wide range of manual, semi-automated and automated
equipment and systems that support logistics and make the supply chain work. Their
application helps with:
● Forecasting
● Resource allocation
● Production planning
● Flow and process management
● Inventory management and control
● Customer delivery
● After-sales support and service
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This is the act of moving goods around the warehouse, known as material handling. It entails
managing the inventory in a way that allows the warehouse to fulfill orders quickly and
accurately. Even though it appears to be a routine job, it is critical and must be done regularly.
For a small shop which has 100 items in the shop, moving one of them around is simple.
However, if this small shop is unsure where the products are kept, the shopkeeper will have to
look for the product each time he receives an order. There are 100 products in his inventory, so
he’ll have to search through them all to find the one the customer ordered before moving the
others. Now, multiply the scenario mentioned above by a factor of a hundred. Large companies’
warehouses can be up to half a mile in length. Consider how much inventory there is in the
warehouse. If the warehouse manager doesn’t know where the materials are kept and how to
be transported to the warehouse’s dispatch center, he will be in big trouble. His productivity
and efficiency will suffer greatly. As a result, the materials handling function is critical.
3. WAREHOUSING
If we take LG or Samsung as an example, these are durable consumer companies with a global
presence. While their products may be located in one location, their distribution is global. As a
result, warehousing has a significant impact and is an essential Logistics activity.
It is important to note that the warehouse must be close to the retailer or distributor to deliver
goods quickly. If a branded product takes a week to deliver, it may not move as much in the
market as a competing unbranded product that takes only two days to deliver. As a result, it
makes sense for the branded company to establish a more convenient warehouse to provide
the products quickly. A brand’s first move in a new territory is to lease a new warehouse,
allowing it to be closer to the region and the end customers.
This is a common practice. Logistics centers are strategically placed so that the main warehouse
(large warehouses that stock most products) isn’t overburdened. These warehouses can take
the pressure off deliveries and become interdependent to ensure that goods are delivered to
customers when demand is high, or production is low.
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BENEFITS OF WAREHOUSING
Apart from the fact that warehouses store products, it has many other added advantages such
as:
● Better Inventory Accuracy
Since warehousing ensures that you have all your inventory in one place, you can know how
much inventory you have at hand and how much you have moved.
● Protection of Goods
A warehouse ensures that all your inventory is stored in a safe facility, especially for perishable
goods, as you can ensure that they are stored in the appropriate conditions.
● A Decrease in Overhead Costs
Warehousing assists in improving the management of inventory and the daily operations of a
warehouse, which means that you can reuse your costs.
● Central Location
If you choose to have a warehouse near the manufacturing hub or your customer, this will
assist in having better transportation of goods and decrease the time required to move
products to these places.
TYPES OF WAREHOUSES
Warehouses come in many different sizes and forms, such as:
● Private Warehouses
Private warehouses are owned and managed by suppliers and resellers to fulfill their
distribution activities. Examples of private warehouses are retailers renting out warehouses to
store their items, warehouses used by producers that are near their places of work and
warehouses that are either owned or leased by a wholesaler where they will store or distribute
their inventory.
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● Public Warehouses
Warehouses that are owned by the government are referred to as public warehouses and they
can be used by private entities to store their goods, as long as they can pay rent. These
warehouses can be of assistance to small companies that need storage facilities but cannot
afford to have their own.
● Bonded Storage
Bonded storage refers to warehouses that are owned and managed by both the government
and private firms. These warehouses are used to store imported products where an import duty
has not been paid yet, and the private firms need to receive a license from the government.
Bonded storage ensures that private firms pay their taxes to the government.
● Co-operative Warehouses
Co-operative warehouses are owned by co-operative societies. They are meant to be accessible
storage facilities as the rates that they charge are not as high as other types of warehouses. Co-
operative warehouses are not intended to make a profit, but they are to assist those members
who cannot afford to rent warehouses at the usual rate.
● Distribution Centers
Distribution centers are storage facilities that can keep large amounts of inventory for a short
period of time. Their purpose is to be used as a distribution system where goods are moved
quickly from the supplier and then to the customer.
4. INVENTORY MANAGEMENT
Inventory management is one of the most critical functions of a logistics company. Inventory
management is all about maintaining sufficient inventories to meet client demands while
keeping the carrying cost to a minimum. It’s essentially a balancing act between providing
excellent customer service while avoiding losing market share and the cost of doing so.
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If a company has 100 units on hand, but only 10 units are needed to meet demand, it has
wasted its money by purchasing 90 of the products. A different company ordered 500 units, but
they only produced 200 units because they assumed demand would be lower. As a result,
they’ve now lost sales and incurred a loss of opportunity.
Logistics companies use inventory management software which is required to carry out efficient
inventory management. It is now possible to solve routine issues such as determining the
number of items remaining in a warehouse without conducting a physical inspection thanks to
this type of software. It will be necessary to record each inventory operation to optimize the
time and precision of the inventory operations, thereby increasing space, optimization and
reducing costs.
3 COMMON INVENTORY MANAGEMENT STRATEGIES
THE PULL STRATEGY
In a pull strategy, a brand is manufacturing inventory based on clear demand from customers.
Essentially, customers are ‘pulling’ products from the brand, creating a two-way street of
supply and demand. When customers demand a product, the brand will supply it. Pull
strategies are good for brands looking to keep inventory costs low. However, if consumer
demand changes rapidly, there can be problems adjusting output levels to keep up, which
results in stocking out. The downside of stocking out on Amazon is loss of demand and a drop in
organic product ranking.
THE PUSH STRATEGY
The push strategy is when a brand is pushing out products based on expected or forecasted
demand.
Instead of waiting for a customer to ask for a product such as in the pull model, brands
leveraging the push strategy would create as many products as they think customers will
demand and then wait for the requests to come in. In the push strategy, it’s easier to keep
operating costs low because you’re creating more products at one time, but there is also more
risk involved compared to the pull strategy. If the demand for a product doesn’t meet the
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forecasted levels, a brand could be left with serious excess inventory, driving down the cost of
the product overall.
THE JUST IN TIME STRATEGY (JIT)
The just in time (JIT) inventory model is when products are created based on a demand
schedule that will deliver the final product to a consumer right when they request it.
Elements from both the push and the pull strategy are evidenced in the JIT model as there is a
need for both outspoken demand from customers as well as a clear understanding of market
forecasting to succeed. The JIT strategy relies on manufacturers having raw materials on hand
but not actually creating products until the demand comes in, which can keep overhead costs
low but can also create delays in delivering the end products to consumers. Currently, it is not
advised to use this strategy for your Amazon business due to inconsistencies with Amazon’s
shipping partners and longer than normal warehouse receiving times caused by COVID-19.
5. TRANSPORTATION
Transportation is one of the most critical activities performed by the logistics company, which is
also one of the most resource-intensive and revenue-generating logistics segments.
Transportation is expensive for a single reason – Fuel. Whether it’s gasoline, diesel, or natural
gas, fuel is a costly resource primarily used in transportation. It is the responsibility of the
logistics company to procure LTL or FTL as required for the order shipment.
This is the reason why companies spend tens of thousands of dollars each year to keep
transportation costs under control, as it is a significant source of variability for any business.
Physical delivery of products from the manufacturer to the distributor or dealer, and then from
the dealer to the final customer, is included in transportation.
The following methods of transport are used to move goods today.
● Road vehicles (trucks, vans, motorcycles)
● Railways
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● Inland waterways (barges)
● Deep sea
● Air (Aircraft and drones)
● Pipelines
● A combination of the above called inter-modal or multimodal
Each mode of transport has its advantages and disadvantages. The chart below shows some of
those advantages and disadvantages.
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6. PACKAGING
In supermarkets and hypermarkets, the packaging is of two types: one that customers see on a
shelf and get attracted to because it seems appealing and prompts the customer to purchase
the packages. The second is transport packaging, wherein the products are packed in bulk to
prevent breakage or spillage while still allowing them to safely transfer large volumes of the
product from one location to another.
The cost-effective packing of the product is the responsibility of the logistics company. If
necessary, precautions are not taken, end customers may get damaged goods, resulting in
severe losses for both the logistics company and the end client. It’s possible that packaging
costs 1-2 percent of the product’s value, but if it’s not done correctly during transport, it will
cost the company 100 percent because of the damage and loss it suffers.
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Packaging provides a variety of benefits:
● Barrier protection – Packaging provides a barrier to dust, water, humidity and other
contaminants that could potentially harm the contents and decrease their shelf life;
● Containment – Grouping multiple cases, small objects or bulk materials together aids in
both manual and automated handling;
● Convenience – Packages can have features that add convenience in distribution,
handling, stacking, display, opening, reclosing, use, dispensing, reuse, recycling, and
ease of disposal;
● Physical protection – Packaged products are protected from damage caused by
dropping, shock, vibration, electrostatic discharge, extreme temperature shifts and
impacts;
● Security – Tamper resistant and tamper evident packaging can reduce the risk of theft,
or indicate that damage has occurred during handling;
● Sustainability – Returnable and reusable packaging can be used repeatedly before it is
recycled; some materials are engineered to biodegrade.
7. MONITORING
Monitoring is the continuous process of gathering logistics and programme information to
measure against previous base-line indicators that are aligned to the goals and objectives of a
program. A continuous review of the degree to which a logistics activity is completed and if its
objectives are being met allows for corrective actions to be taken.
WHAT TO MONITOR?
If efforts are made to establish a monitoring system, it is better to ensure that the M&E process
or activity is important to the continuity of the logistics activities and will have an impact on
overall performance. A thorough analysis of the context, objectives, desired outcomes, and
organization goals will help to properly define the specific aspects to monitor in depth. The
following are some of the aspects that can be monitored in a logistics activity.
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DELIVERY LEAD TIME
Lead time is the time between placing an order and receiving the goods or service. In
disaster/emergency relief situations, timing of delivery can have a serious impact on the relief
operation and on the beneficiaries.
● Delivery of items too early or too late may also incur unnecessary costs. Delivery too
early can mean goods have to be stored until they are needed and will incur additional
costs whilst being stored or managed.
● Delivery of items too late can mean the costs of setting up facilities, for example feeding
stations and having people ready to distribute goods, is wasted due to the fact goods
have not been delivered. Delayed delivery can also cause the organization to incur
additional transport costs, if specialty transport arrangements such as aircraft have to
be used to move the goods more quickly along the supply chain.
ORDER INFORMATION
The internal performance of a logistics function is dependent on the efficiency and effectiveness
of each of the individual logistics components. For example, one performance indicator for
procurement might be the ability to disseminate information on the number of orders issued.
Knowledge of pending orders will allow the warehouse to plan for storage space, while
unexpected deliveries can disrupt operations.
EFFICIENCY
The measurement of efficiency is sometimes relative and dependent on what an entity defines
as efficiency. In logistics management, efficiency is the satisfactory delivery of a logistics service
that enables the end user to fulfill the intended purpose of the request. A good example is the
request for medication to be pre-positioned before a malaria season. A late delivery would
mean higher incidence of malaria and an increase in the request for malaria treatment rather
than malaria prevention drug.
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TOTAL COSTS
The concept of “total cost” focuses on reducing the total cost of logistics rather than the cost of
each activity. An organization should monitor cost reduction across the board and evaluate the
impact on each of the logistics components. For example, purchasing in bulk may reduce the
cost of the product but at the same time increase the stock holding costs.
INVENTORY COSTS
Inventory carrying costs include:
● Inventory service costs - insurance and taxes.
● Storage space costs - leasing costs or land rates.
● Inventory risk costs - costs related to pilferage, the risk of goods being kept so long that
they become obsolete, the risk of damage.
● Carrying costs - the cost of storing - labor, asset/item depreciation, and other
overheads.
INVENTORY VALUE
In recent years the concept of value has become accepted as the difference between the value
a customer attributes to a product or service and the cost of acquiring the item. Excessive stock
holding is not only a risk in emergencies - in the event of an evacuation stocks may be
abandoned - but also not cost effective when money is tied up in dormant stocks that may not
all be utilized within reasonable time, or used at due to rapidly changing needs. Monitoring and
collaborating closely with programs on distribution rates helps in balancing the benefits.
Storekeepers are encouraged to share monthly stock reports with stakeholders so they may
know what they have in their possession.
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ORDER MANAGEMENT COSTS
Order management costs include those costs incurred for issuing and closing orders, the related
handling costs, and the associated communications costs. In other words – the staff and
infrastructure costs associated with placing orders, and not just the costs of the items
themselves. How many cumulative staff hours does it take to complete a single order,
multiplied by their hourly salary? What about the costs of maintaining communications systems
and renting office space? It is advisable to benchmark these and keep them under close
monitoring to ensure that service delivery is cost effective.
COST OF WASTE
The cost of waste covers the cost of disposing of item packaging, disposing of spoiled, expired,
recalled or damaged relief items, or of disposing of damaged, unserviceable equipment. Waste
disposal costs have sharply increased due to environmental impacts and national regulations
VI. MAJOR FEATURES OF LOGISTICS MANAGEMENT
1. Smooth flow of all types of goods (e.g.; raw materials, work-in-process and
finished goods).
2. Meeting customer expectations about product and related information
requirements.
3. Real-time flow of information about products’ demand and availability.
4. Delivery of quality product in required quantity without excessive safety stock.
5. Best possible customer service at the least possible cost.
6. Integration of various managerial functions for optimization of resources.
7. Movement and storage of goods in appropriate quantities.
8. Enhancement of productivity and profitability.
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Logistics: What It Means and How Businesses Use It ([Link])
What Is Logistics ([Link])
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