In a business context, Logistics is the process of ensuring the right items are in the right place at the right time. Logistics as a specialty function originated with the military service. Its purpose was to ensure that essential supplies, including personnel, were procured and then transported to where they were most needed. While the term is still used in the military, it is now more often used in the business sphere.
A Crucial Function
The success of any manufacturing company is largely dependent on the quality of its order fulfillment operations and on its level of customer satisfaction. In this context, the logistics function is critical to the company’s success, whether logistics is performed in-house or outsourced. While logistics operates as its own function, it can best contribute to the success of the company if it is fully integrated with other departments, including manufacturing, finance, marketing, sales and human resources.
- Logistics Management
- Strategic, Tactical And Operational Levels
- Third Party Outsourcing
The Supply Chain
In business, the term Logistics frequently is used in conjunction with the terms supply chain or supply chain management. Think of the linear process that makes up the production of a product through to its delivery to the end customer. Logistics touches on every part from sourcing raw materials, storing them, tracking them through production, storing the finished good, shipping the finished good (the last two steps, possibly more than once) as well as accommodating any possible returns. This process in its entirety makes the supply chain, and logistics is the science of making movements to and from each segment of the chain as efficient and economical as possible.
While the basic concept behind logistics is simple, its execution in a modern business environment can appear complex. The functions of warehousing, materials handling, inventory management, transportation, packaging and warehousing are becoming increasingly automated. They also need to be integrated and coordinated technical, and in addition all these functions need to be integrated into a single coordinated endeavor to maximize efficiencies and cost reductions. It involves obtaining timely and accurate information from each separate function and compiling that information via logistics management.
Strategic, Tactical and Operational Levels
Logistics management touches many levels of an organization and decision making can also be within the Logistics function or from senior management or Finance, depending on what the decision entails. At the strategic level, senior management generally makes the decisions about the overall management and design of the logistics network. This would include deciding locations of warehouses and distribution centers, transportation methods, etc. Tactical level decisions that focus on maximizing the cost benefit for the company could involve Finance. As an example, even if the strategic vision from senior management is for the company to own warehousing facilities, for one specific location, a tactical decision could be made to rent a local warehouse. Decisions at the operational level that affect the daily management of the logistics function are likely made within the department. These operational decisions will remain within the strategic and tactical framework.
Third Party Outsourcing
3PL – Third Party Logistics – is a growing area that highlights the three levels of decision-making (strategic, tactical, operational). Manufacturing companies are increasingly subcontracting their logistics functions and a range of specialist companies are filling the need to handle the demand. Senior management generally decides if outsourcing is in a company’s best interest and whether it will be all or part of the logistics function. Once the decision is made to outsource, it usually is the Logistics department itself that will find the appropriate supplier that best integrates into the existing supply chain operation.
From Local to Strategic
In general, the strategic vision of a company will control tactical and operational logistics decisions. However, there are times that a strong 3PL supplier relationship can inspire confidence in the manufacturing organization and the relationship can expand and develop into a strategic relationship with mutual benefit.
The objective of a logistics strategy includes ensuring that the operation delivers maximum cost benefits while meeting the objectives and goals of the organization. Because logistics touches on everything from materials sourcing to delivery to the end customer, it is subject to continual evolution and change as a business innovates and adds new suppliers, processes and customers. A strong information system is invaluable in keeping logistics able to meet new challenges.