THE NATURE OF LOGISTICS

 THE NATURE OF LOGISTICS

The growing flows of freight have been a fundamental component of contemporary changes in economic systems at the global, regional and local scales. These changes are not merely quantitative with more freight in circulation, but structural and operational. Structural changes mainly involve manufacturing systems with their geography of production, while operational changes mainly concern freight transportation with its geography of distribution. As such, the fundamental question does not necessarily reside in the nature, origins and destinations of freight movements, but how this freight is moving. New modes of production are concomitant with new modes of distribution, which brings forward the realm of logistics; the science of physical distribution.

Logistics can be defined as the process of planning, implementing and controlling the the efficient, cost-effective flow and storage of raw materials, in process inventory, finished goods and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirement.

The application of logistics enables a greater efficiency of movements with an appropriate choice of modes, terminals, routes and scheduling. The implied purpose of logistics is to make available goods, raw materials and commodities, fulfilling four major requirements related to order, delivery, quality and cost fulfillment. Logistics is thus a multidimensional value added activity including production, location, time and control of elements of the supply chain. It thus enables a better managerial level of space-time relations and as such an important aspect of transport geography. Logistics acts as the material and organizational support of globalization requiring a complex set of decisions to be made concerning an array of issues such as the location of suppliers, the transport modes to be used and the timing and sequencing of deliveries. Activities comprising logistics include physical distribution; the derived transport segment, and materials management; the induced transport segment.

Physical distribution is the collective term for the range of activities involved in the movement of goods from points of production to final points of sale and consumption. It must insure that the mobility requirements of supply chains are entirely met. Physical distribution includes all the functions of movement and handling of goods, particularly transportation services (trucking, freight rail, air freight, inland waterways, marine shipping, and pipelines), transshipment and warehousing services (e.g. consignment, storage, inventory management), trade, wholesale and, in principle, retail. Conventionally, all these activities are assumed to be derived from materials management demands.

Materials management is to support the transformation of raw materials and component parts into shipped or finished goods. The function of inventory, in general, is to decouple the entire transformation process. During the transformation process, materials are combined with labor, information, technology, and capital. The five function inventory are

• pipeline inventories
• cycle inventories
• buffer stock
• seasonal  
• decoupling

The close integration of physical distribution and materials management through logistics is blurring the reciprocal relationship between the derived transport demand function of physical distribution and the induced demand function of materials management. This implies that distribution, as always, is derived from materials management activities (namely production), but also, that these activities are coordinated within distribution capabilities. The functions of production, distribution and consumption are difficult to consider separately, thus recognizing the integrated transport demand role of logistics. Distribution centers are the main facilities from which logistics are coordinated.

Distribution Center. Facility or a group of facilities that perform consolidation, warehousing, packaging, decomposition and other functions linked with handling freight. Their main purpose is to provide value-added services to freight, which is stored for relatively shorts periods of time. They can also perform light manufacturing activities such as assembly and labeling. A warehouse is a facility designed to store goods for longer periods of time.

Since it would be highly impractical to ship directly goods from producers to retailers, distribution centers essentially act as a buffer where products are assembled, sometimes from other distribution centers, and then shipped in batches. Distribution centers are established in part to deal with to different forms of a synchronizes in freight distribution such as different paces of production and consumption. Distribution centers commonly have a market area in which they offer a service window defined by delivery frequency and response time to order. This structure looks much like a hub-and-spoke network.

The wide array of activities involved in logistics, from transportation to warehousing and management, have respective costs. Once compiled, they express the burden that logistics impose on distribution systems and the economies they support, which is known as the total logistics costs. Costs are however not the only consideration in supply chain management since supply chains can also be differentiated by time, reliability and risk level. .

The emergence of logistics in contemporary supply chains is based upon continuous improvements in transport and inventory management costs, leading to lower cycle and lead times.

Cycle time. The amount of time required from the receipt of an order to when this order is completed (assembled) and ready for delivery. Often labeled as the completion rate and is mostly linked with the function of production in the manufacturing sector. Often labeled as the level of responsiveness of production.

Lead time. The time it takes for an order to be fulfilled, which includes preparation, packing and delivery to a designed location. Often labeled as the arrival rate and is mostly linked with the function of distribution, mainly its efficiency and reliability. Often labeled as the level of responsiveness of distribution.

Before the emergence of online purchases, customers were rarely exposed to the concepts of cycle times and lead times since goods were directly purchased at a store. The customer was seeing the outcome of cycle and lead times, but not the process. An online transaction, particularly if it concerns a complex and customization good (e.g. a computer) commonly includes the time it takes for the order to be ready for shipment and the delivery time from the distribution center to the customer's address.