Business logistics

This logistics activity involves management of the locations where the firm’s inventories are stored. Warehouses and distribution centres are similar but have different emphasis. A warehouse is used for the storage of goods. Canned foods, for example, are canned during one month of the year at the end of a growing season and then are shipped out in a fairly even flow for the next 11 months. Or, as a contrary example, Christmas decorations are made throughout the year, but their sales are concentrated in a four- to six-week period. Distribution centres emphasize a faster turnover (or throughput) of goods. Chain grocery stores use distribution centres for receiving railcars and trucks filled with pallet loads of individual grocery products. Inside the warehouse all the products are placed in individual stacks. Then orders are “picked” from these individual stacks for each retail store. They are assembled, loaded aboard pallets, placed aboard trucks, and delivered to the stores.

The logistics of moving people may be handled in two ways. Individuals can be given instructions to meet at a certain point, nearby or far away. They then assume responsibility for making their own travel arrangements and showing up as directed. If larger groups of people are to be moved, a firm may assume responsibility and charter a bus or airplane and arrange for lodging. When the Trans-Alaska Pipeline was built during the 1970s, it was necessary to build housing for the construction workers and to continually supply them with food and other goods. On an international scale, some nations often supply the work force used in other nations. The workers are recruited in their home country and moved to where they are needed.

The discussion to this point has emphasized domestic logistics—i.e., that carried on within the borders of one nation. International logistics involves movements across borders, and these movements are considered more complex for several reasons. First, there are delays at the border. Goods must be inspected, and often import duties, or charges, are assessed. Additional inspections at the border may be conducted to determine whether the goods meet that nation’s health, safety, environmental protection, and labeling standards. Most nations of the world—although not the United States—insist that metric measurements be used. Many documents are required for international shipments, and often the logistic efforts involved in assembling the documents are more challenging than those in moving the product. Usually all documents must be present at the point where the goods are passing through the importing nation’s customs and inspection posts. Many international movements go aboard ship, and the process of moving through ports and being at sea is more time-consuming. Differences between time zones limit the hours when communications can take place.

While they do not move large tonnages of product, service industries have logistical needs of their own. Their transportation needs are met by the postal service or carriers of small parcels that make overnight deliveries. Banks must process checks quickly and deliver cashed checks to the issuing bank promptly. Often service industries process paper records and must set up steps to move papers that are analogous to procedures that manufacturing firms employ to move goods. Linked computers are used increasingly for many of these paperwork-integrating tasks. Hospitals must have medicines and a wide range of materials and supplies ready for use. Before a surgeon is scheduled to perform a procedure, the needed instruments must be selected, placed in their order of use, sterilized, and held ready.

The individual elements of a firm’s logistics system must be tied together. The firm’s management may have a separate logistics department that is equal in status with other major departments such as finance, production, marketing, and so on. However, most firms are more likely to have these functions spread throughout various departments loosely coordinated by a logistics staff. (A more traditional firm had its logistics activities associated with inbound and interplant movements handled by the production staff, and these activities grouped were known as “materials management.” The traditional firm’s logistics activities involving outbound products leaving the assembly line and bound for customers were handled by the marketing staff, and these activities grouped were known as “physical distribution management.”) Today, some firms rely on “third-party” logistics, wherein they contract with an outside firm to coordinate, manage, and sometimes perform the various functions.

The second way that logistics activities are linked is by communications. In recent years, improved communications have taken the place of inventory. Some chain stores have scanners at checkout counters where a customer buys merchandise. These scanners are linked directly to the chain’s home office so that it has instantaneous information as to what is being sold. Knowing this, they can restock the store and intermediate channels immediately, rather than having a large inventory at that store in anticipation of what might sell.

Third, control systems help link the elements of logistics systems. The reason for this is that the goods moving through a system are valuable and therefore are targets for pilferage by employees or organized thefts conducted by outsiders. Hence, a logistics system needs a control system that tracks the goods as they move from place to place to ensure that some do not disappear. The system is designed so that when goods do leave the system, they must be exchanged for proper documentation or payment. Computers also help link a firm’s logistics activities. As of 1992, more than 1,500 different computer software packages were available for use by logistics managers.