There
are several definitions of logistics and supply chain functions, and many
intermix both actions to the extent that, in some organisations, it would only
be just possible to distinguish between them. However, many people refer to the
following definitions:
- Supply chain management refers to the sequence and flow of information, materials, and finances from the origin of the goods (raw materials) to the final consumption of the finished goods (finished products). It includes all the organisations through which the materials flow, including the organisation's suppliers or customers, to the point where the public purchases the goods.
- Logistics refers to the transit and movement of goods from the organisation's suppliers into, through, and out of the organisation to the point where the finished goods are delivered to the organisation's customers. It includes the movement of materials through all the organisation's sites but not that of the organisation's suppliers or customers.
Supply Chain Efficiency
- Manage the flow of materials through the organisation's sites.
- To increase the efficiency of material movements and flows to minimise costs.
Supply
chain management encompasses the movement of products or services through
various organisations within the supply chain to reach the end consumer. The
complexity of the supply chain varies depending on the industrial sector and
the specific products or services involved.
Logistics
refers to the movement of products, inventory, or services into (inbound),
through (materials handling) and out (outbound) of an organisation and deals
with the following elements of the supply chain:
- Inward transport (inbound logistics from suppliers).
- Receiving (goods in).
- Warehousing or stores (warehouse management).
- Stock control (inventory management).
- Order picking (order assembly).
- Materials handling (into, from and between processes).
- Outward transport (outbound logistics delivering to customers).
- Physical distribution management (delivery to customers or consumers).
- Recycling, returns, and waste disposal (reverse logistics).
- Location (management of materials flows between the organisation's sites).
- Communication (management of inventory data and order tracking).
Ordering
or purchasing the exact amount of inventory needed to fulfil daily orders
originated in the farming industry, where food distributors aimed to reduce
food wastage. Supermarket chains used electronic point of sale (EPOS)
technology to order food products until 17:00 on day one for overnight delivery
to the food distributors' sorting hub. The food inventory would then be sorted
into distribution routes and delivered to the supermarkets by 08:00 on day two.
Various theories exist regarding the origins of cross-docking. However, cross docking originated as a transport process when parcel services began handling the delivery of packages for the public. It involved collecting packages, bringing them to a central sorting hub, re-sorting them for delivery routes, and then delivering them to their final destination without storing them.
The hub was a covered location for unloading, sorting, and reloading vehicles. Cross-docking involves moving materials or customer orders through an organisation without physically storing inventory. The organisation manages customer sales orders and purchase order processing elements in a stockless operation.
If the
amount of inventory is allowed to increase unchecked, the organisation's cash
flow and profitability will be compromised to the extent that the
organisation's commercial viability could be put at risk. The role of logistics
is to manage the amount of inventory to maximise customer service while
minimising the amount of inventory to protect the organisation's financial
resources.
In
managing the amount of inventory within the organisation, the logistics
function manages the resources of inventory by:
The Need for Communication
- Creating an inventory policy that guides the purchasing function to manage the goods the organisation makes to maximise customer service through the minimum amount of inventory, thus reducing inventory costs and capital tied up in inventory.
- Monitoring the amount of raw materials, parts, sub-assemblies, and finished goods by setting minimum, maximum, reorder points, and batch quantities to be purchased.
- Auditing the overall costs of inventory, such as capital tied up in stock, wastage through obsolescence, damages, pilferage, packaging materials used and the utilisation of storage facilities to reduce costs to a minimum whilst maximising the utility of stock.
- Administering stock levels to ensure that sales order processing and purchase order costs are minimised regarding the resources used to receive, store, and assemble customer orders. This includes minimising the inbound and outbound transport costs of transporting the inventory from the supply base to the customer.
- Controlling the receipt, storage of inventory and picking of customer sales orders to ensure the timely dispatch of customer sales orders so that customers receive their products or services within the time parameters that they have requested.
- Acting to maximise customer service to the mutual benefit of customers and the organisation, ensuring turnover, sales, and profitability levels are achieved and maximised to guarantee the long-term commercial viability of the organisation by creating a competitive advantage within the marketplace.
- Increasing the efficiency and effectiveness of the organisation's planning function by determining the size, batch quantities, and order paginations of the organisation's inventory to decrease handling, transport, and packing costs while increasing the “on time in full” (OTIF) delivery of sales orders to meet the customer's requirements.
Communication
is crucial in aligning inventory data with demand and sales volumes within
inventory management. The primary objective is to achieve this alignment at the
lowest possible cost and with the least inventory.
Effective
communication is vital to the logistics function, although it can be a complex
task to manage. The logistics function's efficiency and effectiveness rely on
the organisation's ability to accurately determine what, when, and how to fulfil
customer orders. Timely and accurate dissemination of data and explicit
instructions are essential for the organisation to operate smoothly.
Communication
encompasses written and oral information that must be processed accurately and
concisely. The evolution and increased use of information and communications
technology (ICT) has revolutionised logistics by enabling organisations to
process and distribute substantial amounts of data and information. This has
dramatically enhanced the ability to manage and accurately process both inbound
and outbound material flows.
Enterprise Resource Planning
Information
and data management are the lifeblood of logistics. The advent of enterprise
resource planning systems (ERP) has enabled organisations to manage and control
the flow of materials to the extent that it would be impossible to cope without
an ERP system. Such a system coordinates:
Beyond
this flow of communication and information lie the verbal interactions that a
logistics manager engages with the logistics team, suppliers, customers,
transportation, and distribution entities, which may be strategic, tactical, or
operational. Communication is the overarching process that allows logistics to
function optimally and at minimal cost.
- The input of sales orders.
- Consolidates the demand for inventory from the input of sales orders.
- It enables purchase orders to be raised for raw materials, parts, subassemblies, and finished goods from suppliers.
- When suppliers deliver, staff assists in receiving and accurately storing raw materials, parts, subassemblies, and finished goods.
- Authorises supplier invoices to be paid when the inventory has been booked into the organisation's inventory management system (a subpart of the ERP system).
- Assists in the planning of manufacturing.
- It enables manufacturing to convert raw materials, parts, and subassemblies into finished goods by processing material requisitions and production orders.
- Allows manufactured goods to be put into storage by updating production orders once the production process has been completed.
- The assembly of customer orders through the generation of pick notes.
- Confirm that the orders are ready to be dispatched by processing delivery notes.
- Authorises the creation of customer invoices when the orders have been confirmed as having been delivered by the updating of dispatch orders.
Customer Satisfaction
The organisation's
requirements, target market, and financial standing will influence its
structure and logistics management. The organisation must align the needs of
its customer base to maximise the return on investment by providing the highest
customer service at the lowest possible cost.
Nevertheless,
customer demand uncertainties make logistics operations complex, involving
numerous activities needed to meet the demands of an organisation's customer
base. When demand patterns are unknown and unpredictable, organisations must
determine whether they wish to prioritise cost or service when developing and
enhancing their service offerings for customers.
Organisations
can take one of two stances when it comes to deciding how they are to sell
their products or services to customers:
- Lean: The organisation eliminates unnecessary costs and waste in logistics and supply chain operations. By implementing lean principles, the organisation streamlines processes to enhance profitability. This approach is most effective when there is a consistent demand from customers for a limited range of standard products. The organisation minimises variations in order fulfilment processes to optimise manufacturing, workforce, inventory, and time resources. While offering customers a standard level of service, the organisation may risk losing flexibility in its logistics system by operating at maximum capacity. If demand decreases after implementing lean principles, operational costs may rise due to the underutilisation of assets. Conversely, the organisation may increase sales if demand is within capacity.
- Agile: While supporting cost control is still essential, the primary focus is on the service and accuracy an organisation provides to its customer base. Incorporating flexibility into its logistics systems ensures that all customer needs are met and exceeded when necessary. The staff operating within an agile environment must possess broader skills, knowledge, and experience as they oversee a more comprehensive range of tasks in fulfilling customer orders. On the other hand, in a lean environment, staff members are more specialised in a narrower scope of functions. The organisation's capability to cater to diverse customer demands will inevitably result in higher costs. Nevertheless, the belief is that the rise in expenses will be outweighed by the growth in organisational turnover, sales, and profitability. Agile processes prioritise the customer's satisfaction and position the organisation as a leader in providing a level of service that increases its competitive edge over its competitors.
The Outsourcing of Logistics
Recently,
there has been a shift towards outsourcing functions that are traditionally
considered internal areas of expertise. However, due to the rising costs and
advancements in logistics and ERP systems, organisations are still determining
whether logistics is a core area of expertise.
Many
organisations that prefer to focus on developing their product or service
portfolio have increasingly chosen to outsource the management and operation of
their logistics functions to third-party logistics (3PL) operators. These
operators have efficient methods of operation that allow them to provide a
prominent level of service while reducing costs through economies of scale.
This enables organisations to minimise their logistics expenses.
Supply Chain Sustainability
Transportation
is crucial in logistics and contributes up to 39% of the UK's air pollution.
Despite recent advancements in catalytic exhaust technology, the transition to
electric-powered vehicles is expected to reduce the environmental impact of
vehicle movements. However, this change will take some time to extend to larger
commercial vehicles. There are some ways that the logistics function can
proactively reduce its harmful impacts on the environment, such as:
- Using recyclable or biodegradable inner and outer packaging materials to reduce landfill and the toxic dumping of waste into the environment.
- Design packaging so that it does not pose a risk to wildlife once disposed of. Examples include plastic loops that get stuck around wildlife bodies.
- Decrease the amount of packaging used to dispatch goods by using enough to protect the customer's order but not so much that the additional packaging adds little or no extra protection.
- Reduce organisational energy use, such as gas, electricity, and heating oil, by using power-efficient products and fully insulating buildings to reduce air conditioning and heating needs.
- Make the most efficient use of transport by utilising route planning software to reduce the distance travelled and maximise the load-carrying capacity of vehicles to reduce the operating hours of vehicle engines.
- Consolidating customer orders with the customer's permission will reduce the number of duplicate journeys a vehicle fleet will undertake, thus reducing the fuel used.
- The location of sorting hubs or manufacturing facilities and local distribution centres will maximise the utility of a vehicle fleet where large loads are moved over the longest distances in a distribution network and smaller vehicles are used for local delivery routes.
Adopting an appropriate logistics policy and strategy is
crucial in helping the organisation achieve its chosen goals and objectives.
Conversely, implementing the right logistics policy and strategy can help the
organisation's opportunities for expansion and increased profitability.
When
considering purchasing inventory, logistics costs can significantly impact an
organisation's overall expenses, accounting for up to 60% of the total costs.
However, if inventory costs are separated as a distinct area of expenses,
logistics costs typically range between 20% and 30% of the organisation's
overall operating costs. Logistics, as a function within the organisation, is
often apparent to the public, mainly when vehicles are branded with the
organisation's trade name and logo.
More articles can be found at Procurement and Supply Chain Management Made Simple. A look at procurement and supply chain management issues to assist organisations and people in increasing the quality, efficiency, and effectiveness in the supply of their products and services to customers' delight. ©️ Procurement and Supply Chain Management Made Simple. All rights reserved.
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