logistics

logistics, in business, the organized movement of materials and, sometimes, people. The term was first associated with the military but gradually spread to cover business activities.

Logistics implies that a number of separate activities are coordinated. In 1991 the Council of Logistics Management, a trade organization based in the United States, defined logistics as: “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.” The last few words limit the definition to business enterprises. Logistics also can be thought of as transportation after taking into account all the related activities that are considered in making decisions about moving materials.

In some firms, all these activities are placed within a single logistics department; in others, they are shared among departments. The firm’s logistics department also is responsible for logistics management, control, and planning. The firm may contract with an outside party to perform specific logistics services; this practice is referred to as third-party logistics.

The phrase business logistics is often associated with firms that have large volumes of products to move, such as appliance manufacturers or retail chain stores. Service industries also have logistic concerns, however. Banks with automatic teller machines must keep them supplied with currency and paper forms and must collect deposits. Television networks operate many vehicles to help collect the news; and, at a major sports event, broadcasters may have several dozen vehicles present. Governments and nonprofit organizations also have logistics programs. Some of the most challenging logistics assignments have been associated with the military buildup in the dispute between the United Nations and Iraq in 1990–91 and in the famine relief efforts in Ethiopia and other African nations in the 1980s.

Separate activities or functions, all of which fall under a business firm’s logistics “umbrella,” include customer service, demand forecasting, documentation flow, interplant movements, inventory management, order processing, packaging, parts and service support, plant and warehouse site selection, production scheduling, purchasing, returned products, salvage scrap disposal, traffic management, and warehouse and distribution centre management. These activities must be planned and executed in coordination with each other. The logistics manager may pay more for one element of service in order to save an even larger amount on a different element. For example, air freight, an expensive form of transportation, saves money on packaging because airlines are more careful with cargo than are some of their competitors. Also, because the goods will be delivered more quickly, payment for them is received more quickly.

Customer service involves an array of activities to keep existing customers satisfied. An example is computer software manufacturers who allow consumers to telephone them to discuss problems they are encountering with the software. Servicing equipment in the field and training new users are other examples of customer service. The term user-friendly is sometimes applied; the firm wants to develop a reputation as being easy to do business with. Firms continually monitor the levels of customer service they—and their competitors—offer. They might use machines to record how many times customer-service telephones ring before being answered or what percentage of requested repair parts they can deliver within a certain time span.

This activity is carried on in conjunction with the firm’s marketing staff and is used to obtain a better idea of the logistic needs of the next planning period. These needs include both delivery to customers and receipt of raw materials or components for assembly. Because the logistics staff is involved with order processing, it also has early information about what customers are actually ordering. This is important intelligence for others in the firm who are planning and scheduling production.

The paperwork that accompanies the flow of physical product is considered to be the documentation flow. A bill of lading is the contract between the shipper and carrier. A packing list is placed in each carton of assorted merchandise by the person packing it; and upon receipt the consignee verifies both the count of freight on the carrier’s waybill and the packing list’s entries for each carton. International shipments require many more documents. The typical number ranges from 6 to 10, but the number can climb to more than 50. For example, livestock must be accompanied by a veterinarian’s inspection certificate. Documentation also links the shipment to payment for the product—a form of control necessary to ensure that goods are not shipped without regard to their being paid for. Electronic data interchange is often used in place of paper for the documentation process.

During the production process a firm moves products between its various plants. A large automobile manufacturer might have several thousand suppliers feeding parts into 100 factories that assemble components that will be used by, say, 20 assembly lines. Flows must be controlled and altered to meet changing demands. The just-in-time (JIT) inventory replenishment system insists on small, accurate resupply deliveries to be made just as they are needed—no sooner and no later. Also, the components must be free of defects, because there is no batch of spare parts from which to pick a replacement.