The storing, handling, and moving of products and services so that customers can get them at the right time, at the right place, and in the right assortments is called logistics.
Major Logistic Functions
A logistic system is designed on the basis of stated logistics objectives so that minimum cost is incurred for the accomplishment of these objectives. The following are the major logistic functions that are performed under the designed logistic system:
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Order Processing
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Warehousing
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Inventory Management
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Transportation
Now each of these is discussed one by one.
Order Processing
There are many ways of submitting an order like:
• By mail
• By telephone
• Through a salesperson
• Through computer and EDI
• In some cases, orders are generated by suppliers for their customers
When an order has been received, it should be quickly and accurately processed by the organization. When processing is done effectively, both the organization as well as the customer benefit.
Nowadays, sophisticated computerized order processing systems are used by most companies that speed up the cycle of ordering, shipping, and billing. For example, a company named General Electric uses a computer-based system in which, when a customer order is received, it checks the credit standing of the customer as well as the availability of the required stock. Then, a set of internal orders is generated by the system, like an order to ship, an order to bill, and a production order, etc. All of these systematic activities happen within 15 seconds.
Warehousing:
Almost every organization is bound to store its products because there is always some gap between production and consumption. An organization must determine important aspects of the warehousing function like:
• How many warehouses are required?
• What kinds of warehouses are needed?
• The location of the warehouses, etc.
Warehousing can take the following two forms:
a) Storage Warehouses
b) Distribution Centers
Storage Warehouses:
Goods can be stored for average to long periods in storage warehouses.
Distribution Centers:
Distribution centers are more sophisticated in that they are involved more in the movement of goods and less in storage. These distribution centers are highly automated and larger facilities designed for the receipt of goods from various suppliers and plants. Customer orders are received and processed efficiently, and quick distribution of the ordered goods is made from these centers.
In the modern technological age, new highly automated warehousing systems are replacing older warehousing systems. In these latest warehouses, effective centralized computerized material handling systems are used. There are very few employees working, and most of the work is done through computerized machines and robotics.
Inventory Management
Inventory is also one of the major logistic functions in which an effective level of inventory is maintained. The major issue in this function is to maintain a complicated balance between carrying too little inventory and carrying too much of it.
Carrying too much inventory results in stock obsolescence and higher inventory carrying costs. On the other hand, carrying too little inventory results in costly production & emergency shipments, stockouts, and finally customer dissatisfaction. So, the management of the organization makes effective inventory decisions by comparing inventory carrying costs with generated sales and profits.
In recent years, new inventory handling systems have replaced old high-cost methods. Just-in-Time is one of the effective inventory systems in which the level of inventory maintained is kept very low. Inventory is ordered just after receiving sales orders from customers. Inventory arrives quickly, and the resulting sales orders are efficiently completed by the organization. In this way, inventory maintenance cost is reduced, resulting in increased profit. This JIT system is effectively used in Japan.
Transportation
Major logistic functions include transportation, in which certain decisions about the transportation of goods are made in light of the interests of the organization. The transportation function is important because it affects delivery performance, product pricing, and the condition of arriving goods, etc. This ultimately affects customer satisfaction.
There are five different transportation modes that can be adopted by organizations in delivering their products to dealers, warehouses, and customers. These five modes of transportation are as follows:
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Rail
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Truck
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Pipeline
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Air
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Water (Shipping)
Rail:
The largest carrier in any nation is the railway system, which handles the delivery of about 26% of total cargo ton-miles. Large amounts of bulk products can be delivered to distant locations in a cost-effective way through railway transportation, such as sand, coal, farm and forest items, minerals, etc.
In recent years, certain improvements have been made in railway systems for effective transportation of goods from one place to another like:
• Special flat cars are provided to carry truck trailers by rail
• Provision of in-transit services, etc.
Trucks:
In recent years, trucks have played a significant role in the transportation of goods from one place to another with a share of 24% of total cargo ton-miles. Within cities, trucks are considered the largest transportation mode. The routing and timing schedules of trucks are highly flexible, and their service is much faster than railways. High-value goods for short hauls are effectively transported through trucks.
Pipelines:
For the shipment of petroleum, chemicals, and natural gas from source markets, a specialized means of transportation called pipelines is used. Pipelines are mostly used by owners for the delivery of their own products.
Air:
Air transportation is the least used mode among business organizations, and only about 1% of total cargo is transported by air. However, this mode of transportation is becoming increasingly popular. The cost of air transportation is much higher due to high freight rates, but it is the quickest mode of transporting products, especially perishable goods and small quantities of highly valuable products.
Shipping (Water):
Shipping is the oldest mode of transporting goods from one region to another, but it is more time-consuming than other modes. Shipping is used together with other modes of transportation.
The following are some combinations of intermodal transportation:
• Fishybacks: Water and trucks
• Tranships: Water and rail
• Airtrucks: Air and trucks
