Logistics: What exactly is it?
By Jon Fernquest |
Since the price of oil started skyrocketing this year, we've heard the word "logistics" continually in the news.
But what exactly is it?
Chris Catto Smith, author of a weekly column on logistics in the Bangkok Post, teaches readers some of the basics this week in his column. First, here are some definitions:
Definitions of Logistics
Logistics (definition #1):
Getting the right item
in the right quantity
at the right time
at the right place
for the right price
Logistics (definition #2):
The management of resources and shipment, including inventory,
transport by different modes, warehousing, packaging and demand fulfilment.
Logistics (definition #3):
Giving the customer as much as he wants when he wants it
and at the right price and in good condition.
Logistics (definition #4):
A. Input from many different suppliers delivering the right components to the right locations at the right time.
B. The shipment of completed goods to various destinations for sale.
C. Partly engineered goods are transported elsewhere to be included in a larger project.
The supply chain (definition)::
The various activities and transportation links
needed to for goods to travel from producer to consumer.
Pick and Pack (definition):
A logistics service offered to small retailers, taking a truck or train load of products and disassembling them, picking the relevant product for each destination and re-packaging with shipping label affixed and invoice included, service also includes obtaining a fair shipping rate from trucking firms (See Wikipedia)
To summarise, logistics functions include warehousing and distribution management. There are also special industry practices such as "pick and pack." Some goods also have special requirements, for example refrigerated goods or goods sent to small convenience stores like 7-11.
Outsourcing
If a company has all their expertise and capital tied up in their core business of manufacturing or retailing, they may outsource logistics to another company.
Large retailers such as Tesco Lotus operate distribution centers receiving shipments and storing them in warehouses until stores need the goods.
Rather than operating their own transport fleet of delivery trucks, large retailers often outsource the transportation of goods to a specialised transport company such as the international logistics company DHL or local logistics provider Linfox.
Just In Time Logistics
Just in time (JIT) logistics, originating with Japanese car manufacturers, is when goods are shipped on-demand when they are needed, "just in time" to be sold to a customer or used in manufacturing. The company saves money because goods do not sit around in warehouses for long periods of time. These goods sitting in warehouses tie up money that could be used elsewhere in the business.
While JIT reduces inventory and warehousing costs, JIT can increase transportation costs because JIT often means a "greater number of journeys with smaller loads." Unpredictable traffic situations, as found in Bangkok, also make JIT difficult. Traffic jams and delivery problems can cause a whole factory to be shut down when parts don't arrive in time.
(Source: Bangkok Post, business, 18-06-08, Logistics & Supply Chain 101, CHRIS CATTO-SMITH, temp-link)
Vocabulary:
logistics - the management of the flow of goods, information and other resources, including energy and people, between the point of origin and the point of consumption in order to meet the requirements of consumers, the integration of information, transportation, inventory, warehousing, material-handling, and packaging, military logistics, moving goods for warfare was the original kind of logistics (See Wikipedia)
label affixed - putting a label on a product to identify it
obtaining a fair shipping rate - getting a good shipping rate, people who don't ship frequently probably do not know what a good rate is, or how to bargain for it
skyrocketing - increasing very quickly by large amounts
different modes - different ways of doing something
demand fulfilment - giving things to people when they need it
in good condition - not damaged, looks like new
suppliers - a company that sells goods to other companies or stores
components - parts that some product is made of
partly engineered goods - goods partly build at one location, sent to another location for final assembly
final assembly - the last stage when a finished good to eb sold in a store is produced (a car rolls off the assembly line)
the supply chain - the system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer (See Wikipedia)
industry practice - a common way of doing some business acticity in an industry
pick and pack - logistics service offered to small retailers (for example, taking a truck or train load of products and disassembling them, picking the relevant product for each destination and re-packaging with shipping label affixed and invoice included, service also includes obtaining a fair shipping rate rate from trucking firms; See Wikipedia)
convenience stores - small neighborhood stores like 7-11
expertise - special knowledge gained from experience, training, or education
capital tied up in - money invested in a business, that is already being used for something, not available for other use
core business - the main thing that a business does and strives to excel at
outsource - hisring another company to do a task such as product design or manufacturing (See Wikipedia)
a transport fleet - a group of vehicles used for an organisation's transportation needs
Just In Time (JIT) logistics - a method of inventory management that originated in Japan, when goods arrive "just in time" to be used (just before they need to be used) so that they don't need to be stored in a warehouse, tieing up valuable working capital (See Wikipedia)
shipped on-demand - goods sent to someone when they need and ask for it
tie up money - when some activity uses money invested in the business (so this money cannot be used for some other business activity or need)
traffic jams - when there a lot of cars on the road, so that none of the cars can move quickly
