Procurement- Lecture 1 Concepts of Logistics and Distribution HASSAN AHMED MOHAMUD

Introduction to logistics and distribution The key components of distribution have been an important feature of industrial and economic life for countless years. Recently distribution has been recognized as a major function in its own right. The main reason for this has probably been the nature of distribution itself. Concepts of Logistics and Distribution2

Introduction to logistics and distribution Cont… It is a function made up of many sub-functions and many sub-systems, each of which has been, and may still be, treated as a distinct management operation. The appreciation of the scope and importance of distribution and logistics has led to a more scientific approach being adopted towards the subject. Concepts of Logistics and Distribution3

Introduction to logistics and distribution Cont… This approach has been aimed at the overall concept of the logistics function as a whole and also at the individual sub-systems. Concepts of Logistics and Distribution4

SCOPE AND DEFINITION Parallel to the growth in the importance of distribution and logistics has been the growth in the number of associated names and different definitions that are used. Some of the different names that have been applied to distribution and logistics include: Concepts of Logistics and Distribution5

SCOPE AND DEFINITION Cont.. physical distribution; logistics; business logistics; materials management; procurement and supply; product flow; marketing logistics; supply chain management; demand chain management; and there are several more. Concepts of Logistics and Distribution6

SCOPE AND DEFINITION Cont.. There is, realistically, no 'true' name or 'true' definition that should be pedantically applied, because products differ, companies differ and systems differ. Logistics is a diverse and dynamic function that has to be flexible and has to change according to the various constraints and demands imposed upon it and with respect to the environment in which it works. Concepts of Logistics and Distribution7

SCOPE AND DEFINITION Cont.. One quite widely accepted view shows the relationship as follows: Logistics = Supply + Materials management + Distribution. logistics is concerned with physical and information flows and storage from raw material through to the final distribution of the finished product. Concepts of Logistics and Distribution8

SCOPE AND DEFINITION Cont.. Figure 1.1 illustrates these different elements and flows, Concepts of Logistics and Distribution9

SCOPE AND DEFINITION Cont.. There are a multitude of definitions to be found in textbooks and on the internet. A selected few are: 1.Logistics is... the management of all activities which facilitate movement and the co- ordination of supply and demand in the creation of time and place utility. (Hesket, Glaskowsky and Ivie, 1973) Concepts of Logistics and Distribution10

SCOPE AND DEFINITION Cont.. 2. Logistics is the art and science of managing and controlling the flow of goods, energy, information and other resources. (Wikipedia, 2006) 3. Logistics management is... the planning, implementation and control of 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 customer requirements. (CSCMP, 2006) Concepts of Logistics and Distribution11

SCOPE AND DEFINITION Cont.. 4. Logistics is... the positioning of resource at the right time, in the right place, at the right cost, at the right quality. (Chartered Institute of Logistics and Transport (UK), 2005) It is interesting to detect the different biases – military, economic, academic, etc. Concepts of Logistics and Distribution12

SCOPE AND DEFINITION Cont.. An appropriate modern definition that applies to most industry might be that logistics concerns the efficient transfer of goods from the source of supply through the place of manufacture to the point of consumption in a cost-effective way whilst providing an acceptable service to the customer. Concepts of Logistics and Distribution13

Components of distribution and logistics key areas representing the major components of distribution and logistics. These will include: transport, warehousing, inventory, packaging and information. Concepts of Logistics and Distribution14

Figure 1.2 The key components of distribution and logistics Concepts of Logistics and Distribution15

HISTORICAL PERSPECTIVE There have been several distinct stages in the development of distribution and logistics. 1950s and early 1960s – distribution systems were unplanned and unformulated. – Manufacturers manufactured, retailers retailed, and in some way or other the goods reached the shops. Concepts of Logistics and Distribution16

HISTORICAL PERSPECTIVE Cont… 1960s and early 1970s – the concept of physical distribution was developed. – This consisted of the recognition that there was a series of interrelated physical activities such as transport, storage, materials handling and packaging that could be linked together and managed more effectively. Concepts of Logistics and Distribution17

HISTORICAL PERSPECTIVE Cont… 1970s – major change was the recognition by some companies of the need to include distribution in the functional management structure of an organization. – The decade also saw a change in the structure and control of the distribution chain. There was a decline in the power of the manufacturers and suppliers, and a marked increase in that of the major retailers. Concepts of Logistics and Distribution18

HISTORICAL PERSPECTIVE Cont… 1980s – Fairly rapid cost increases and the clearer definition of the true costs of distribution contributed to a significant increase in professionalism within distribution. – With this professionalism came a move towards longer-term planning and attempts to identify and pursue cost-saving measures including centralized distribution, severe reductions in stock-holding and the use of the computer to provide improved information and control. Concepts of Logistics and Distribution19

HISTORICAL PERSPECTIVE Cont… Late 1980s and early 1990s – covered the combining of materials management (the inbound side) with physical distribution (the outbound side). The term 'logistics' was used to describe this concept. – One major emphasis recognized during this period was the importance of the informational aspects as well as the physical aspects of logistics. Concepts of Logistics and Distribution20

HISTORICAL PERSPECTIVE Cont… 1990s – In the 1990s the process was developed even further to encompass not only the key functions within an organization's own boundaries but also those functions outside that also contribute to the provision of a product to a final customer. This is known as supply chain management. – The supply chain concept thus recognizes that there may be several different organizations involved in getting a product to the marketplace. Concepts of Logistics and Distribution21

HISTORICAL PERSPECTIVE Cont… and beyond – organizations have recognized that there is a positive 'value added' role that logistics can offer, rather than the traditional view that the various functions within logistics are merely a cost burden that must be minimized regardless of any other implications. – Thus, the role and importance of logistics have, once again, been recognized as a key enabler for business improvement. Concepts of Logistics and Distribution22

IMPORTANCE OF LOGISTICS AND DISTRIBUTION It is useful, at this point, to consider logistics in the context of business and the economy as a whole. Logistics is an important activity making extensive use of the human and material resources that affect a national economy. Several investigations have been undertaken to try to estimate the extent of the impact of logistics on the economy. Concepts of Logistics and Distribution23

IMPORTANCE OF LOGISTICS AND DISTRIBUTION Cont… One such study indicated that about 30 per cent of the working population in the UK are associated with work that is related to logistics. A recent study undertaken in the USA indicated that logistics alone represented between 10 and 15 per cent of the gross domestic product of most major North American, European and Asia/Pacific economies. Concepts of Logistics and Distribution24

LOGISTICS AND DISTRIBUTION STRUCTURE The fundamental characteristics of a physical distribution structure could be considered as the flow of material or product, interspersed at various points by periods when the material or product is stationary. This flow is usually some form of transportation of the product. Concepts of Logistics and Distribution25

Figure 1.4 physical flow of material from suppliers through to customers Concepts of Logistics and Distribution26

SUMMARY In this initial chapter, a number of subjects have been introduced. These will be expanded in subsequent chapters of the book. The rather confusing number of associated names and different definitions was indicated, and a few of the very many definitions were considered. No 'true' or definitive definition was offered, because logistics and distribution can and do differ dramatically from one industry, company or product to another. Concepts of Logistics and Distribution27