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Types of Logistics Strategies

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Published: Tue, 06 Mar 2018

Logistics

Logistics is the art and science of managing and controlling the flow of goods, energy, information and other resources like products, services, and people, from the source of production to the marketplace. It is difficult to accomplish any marketing or manufacturing without logistical support. It involves the integration of information, transportation, inventory, warehousing, material handling, and packaging. The operating responsibility of logistics is the geographical repositioning of raw materials, work in process, and finished inventories where required at the lowest cost possible.

1- Overwiew of Logistics

The word of logistics originates from the ancient Greek logos (?????), which means “ratio, word, calculation, reason, speech, oration”.

Logistics as a concept is considered to evolve from the military’s need to supply themselves as they moved from their base to a forward position. In ancient Greek, Roman and Byzantine empires, there were military officers with the title ‘Logistikas’ who were responsible for financial and supply distribution matters.

The Oxford English dictionary defines logistics as: “The branch of military science having to do with procuring, maintaining and transporting material, personnel and facilities.”Another dictionary definition is: “The time related positioning of resources.” As such, logistics is commonly seen as a branch of engineering which creates “people systems” rather than “machine systems”.

Military logistics

In military logistics, experts manage how and when to move resources to the places they are needed. In military science, maintaining one’s supply lines while disrupting those of the enemy is a crucial-some would say the most crucial-element of military strategy, since an armed force without food, fuel and ammunition is defenseless.

The Iraq war was a dramatic example of the importance of logistics. It had become very necessary for the US and its allies to move huge amounts of men, materials and equipment over great distances. Led by Lieutenant General William Pagonis, Logistics was successfully used for this movement. The defeat of the British in the American War of Independence, and the defeat of Rommel in World War II, have been largely attributed to logistical failure. The historical leaders Hannibal Barca and Alexander the Great are considered to have been logistical geniuses.

1. Logistics Management

Logistics Management is that part of the supply chain which plans, implements and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers’ requirements.

Business logistics

Logistics as a business concept evolved only in the 1950s. This was mainly due to the increasing complexity of supplying one’s business with materials and shipping out products in an increasingly globalized supply chain, calling for experts in the field who are called Supply Chain Logisticians. This can be defined as having the right item in the right quantity at the right time for the right price and is the science of process and incorporates all industry sectors. The goal of logistic work is to manage the fruition of project life cycles, supply chains and resultant efficiencies.

In business, logistics may have either internal focus(inbound logistics), or external focus (outbound logistics) covering the flow and storage of materials from point of origin to point of consumption (see supply chain management). The main functions of a logistics manager include Inventory Management, purchasing, transport, warehousing, and the organizing and planning of these activities. Logistics managers combine a general knowledge of each of these functions so that there is a coordination of resources in an organization. There are two fundamentally different forms of logistics. One optimizes a steady flow of material through a network of transport links and storage nodes. The other coordinates a sequence of resources to carry out some project. Logistics as a concept is considered to evolve from the military’s need to supply themselves as they moved from their base to a forward position. In ancient Greek, Roman and Byzantine empires, there were military officers with the title ‘Logistikas’ who were responsible for financial and supply distribution matters.

Production logistics

The term is used for describing logistic processes within an industry. The purpose of production logistics is to ensure that each machine and workstation is being fed with the right product in the right quantity and quality at the right point in time.

The issue is not the transportation itself, but to streamline and control the flow through the value adding processes and eliminate non-value adding ones. Production logistics can be applied in existing as well as new plants. Manufacturing in an existing plant is a constantly changing process. Machines are exchanged and new ones added, which gives the opportunity to improve the production logistics system accordingly. Production logistics provides the means to achieve customer response and capital efficiency

2. Commercial vehicle operation

Commercial Vehicle Operations is an application of Intelligent Transportation Systems for trucks.

A typical system would be purchased by the managers of a trucking company. It would have a satellite navigation system, a small computer and a digital radio in each truck. Every fifteen minutes the computer transmits where the truck has been. The digital radio service forwards the data to the central office of the trucking company. A computer system in the central office manages the fleet in real time under control of a team of dispatchers.

In this way, the central office knows where its trucks are. The company tracks individual loads by using barcoded containers and pallets to track loads combined into a larger container. To minimize handling-expense, damage and waste of vehicle capacity, optimal-sized pallets are often constructed at distribution points to go to particular destinations.

A good load-tracking system will help deliver more than 95% of its loads via truck, on planned schedules. If a truck gets off its route, or is delayed, the truck can be diverted to a better route, or urgent loads that are likely to be late can be diverted to air freight. This allows a trucking company to deliver a true premium service at only slightly higher cost. The best proprietary systems, such as the one operated by FedEx, achieve better than 99.999% on-time delivery.

Load-tracking systems use queuing theory, linear programming and minimum spanning tree logic to predict and improve arrival times. The exact means of combining these are usually secret recipes deeply hidden in the software. The basic scheme is that hypothetical routes are constructed by combining road segments, and then poor ones are eliminated using linear programming.

The controlled routes allow a truck to avoid heavy traffic caused by rush-hour, accidents or road-work. Increasingly, governments are providing digital notification when roadways are known to have reduced capacity.

A good system lets the computer, dispatcher and driver collaborate on finding a good route, or a method to move the load. One special value is that the computer can automatically eliminate routes over roads that cannot take the weight of the truck, or that have overhead obstructions.

Usually, the drivers log into the system. The system helps remind a driver to rest. Rested drivers operate the truck more skillfully and safely.

When these systems were first introduced, some drivers resisted them, viewing them as a way for management to spy on the driver.

A well-managed intelligent transportation system provides drivers with huge amounts of help. It gives them a view of their own load and the network of roadways.

Components of CVO include:

  • Fleet Administration
  • Freight Administration
  • Electronic Clearance
  • Commercial Vehicle Administrative Processes
  • International Border Crossing Clearance
  • Weigh-In-Motion (WIM)
  • Roadside CVO Safety
  • On-Board Safety Monitoring
  • CVO Fleet Maintenance
  • Hazardous Material Planning and Incident Response
  • Freight In-Transit Monitoring
  • Freight Terminal Management

3. CONTAINERIZATION

Containerization is a system of intermodal freight transport cargo transport using standard ISO containers (known as Shipping Containers or Isotainers) that can be loaded and sealed intact onto container ships, railroad cars, planes, and trucks.

Containerization is also the term given to the process of determining the best carton, box or pallet to be used to ship a single item or number of items.

ISO Container dimensions and payloads

There are five common standard lengths, 20-ft (6.1 m), 40-ft (12.2 m), 45-ft (13.7 m), 48-ft (14.6 m), and 53-ft (16.2 m). United States domestic standard containers are generally 48-ft and 53-ft (rail and truck). Container capacity is measured in twenty-foot equivalent units (TEU, or sometimes teu). A twenty-foot equivalent unit is a measure of containerized cargo capacity equal to one standard 20 ft (length) × 8 ft (width) × 8 ft 6 in (height) container. In metric units this is 6.10 m (length) × 2.44 m (width) × 2.59 m (height), or approximately 38.5 m³. These sell at about US$2,500 in China, the biggest manufacturer.

Most containers today are of the 40-ft (12.2 m) variety and are known as 40-foot containers. This is equivalent to 2 TEU. 45-foot (13.7 m) containers are also designated 2 TEU. Two TEU are equivalent to one forty-foot equivalent unit (FEU). High cube containers have a height of 9 ft 6 in (2.9m), while half-height containers, used for heavy loads, have a height of 4 ft 3 in (1.3 m). When converting containers to TEUs, the height of the containers typically is not considered.

The use of US measurements to describe container size (TEU, FEU) despite the fact the rest of the world uses the metric system reflects the fact that US shipping companies played a major part in the development of containers. The overwhelming need to have a standard size for containers, in order that they fit all ships, cranes, and trucks, and the length of time that the current container sizes have been in use, makes changing to an even metric size impractical.

The maximum gross mass for a 20-ft dry cargo container is 24,000 kg, and for a 40-ft, (inc. the 2.87 m (9 ft 5 in) high cube container), it is 30,480 kg. Allowing for the tare mass of the container, the maximum payload mass is there reduced to approx. 21,600 kg for 20-ft, and 26,500 kg for 40-ft containers.

Shipping Container History

A container ship being loaded by a portainer crane in Copenhagen Harbour.

Twistlocks which capture and constrain containers. Forklifts designed to handle containers have similar devices.

A container freight train in the UK.

Containers produced a huge reduction in port handling costs, contributing significantly to lower freight charges and, in turn, boosting trade flows. Almost every manufactured product humans consume spends some time in a container. Containerization is an important element of the innovations in logistics that revolutionized freight handling in the 20th century.

Efforts to ship cargo in containers date to the 19th century. By the 1920s, railroads on several continents were carrying containers that could be transferred to trucks or ships, but these containers were invariably small by today’s standards. From 1926 to 1947, the Chicago North Shore and Milwaukee Railway carried motor carrier vehicles and shippers’ vehicles loaded on flatcars between Milwaukee, Wisconsin and Chicago, Illinois. Beginning in 1929, Seatrain Lines carried railroad boxcars on its sea vessels to transport goods between New York and Cuba. In the mid-1930s, the Chicago Great Western Railway and then the New Haven Railroad began “piggy-back” service (transporting highway freight trailers on flatcars) limited to their own railroads. By 1953, the CB&Q, the Chicago and Eastern Illinois and the Southern Pacific railroads had joined the innovation. Most cars were surplus flatcars equipped with new decks. By 1955, an additional 25 railroads had begun some form of piggy-back trailer service.

The first vessels purpose-built to carry containers began operation in Denmark in 1951. Ships began carrying containers between Seattle and Alaska in 1951. The worlds first truly intermodal container system used purpose-built container ship the Clifford J. Rodgers built in Montreal in 1955 and owned by the White Pass and Yukon Route. Its first trip carried 600 containers between North Vancouver, British Columbia and Skagway, Alaska on November 26, 1955; in Skagway, the containers were unloaded to purpose-built railroad cars for transport north to the Yukon, in the first intermodal service using trucks, ships and railroad cars. Southbound containers were loaded by shippers in the Yukon, moved by truck, rail, ship and truck to their consignees, without opening. This first intermodal system operated from November 1955 for many years.

A converted container used as an office at a building site.

The widespread use of ISO standard containers has driven modifications in other freight-moving standards, gradually forcing removable truck bodies or swap bodies into the standard sizes and shapes (though without the strength needed to be stacked), and changing completely the worldwide use of freight pallets that fit into ISO containers or into commercial vehicles.

Improved cargo security is also an important benefit of containerization. The cargo is not visible to the casual viewer and thus is less likely to be stolen and the doors of the containers are generally sealed so that tampering is more evident. This has reduced the “falling off the truck” syndrome that long plagued the shipping industry.

Use of the same basic sizes of containers across the globe has lessened the problems caused by incompatible rail gauge sizes in different countries. The majority of the rail networks in the world operate on a 1,435mm (4ft 8½in) gauge track known as standard gauge but many countries like Russia, Finland and Spain use broader gauges while other many countries in Africa and South America use narrower gauges on their networks. The use of container trains in all these countries makes trans-shipment between different gauge trains easier, with automatic or semi-automatic equipment.

Some of the largest global companies containerizing containers today are Patrick Global Shipping, Bowen Exports and Theiler & Sons Goods, LLC.

Loss at sea of ISO Containers

Containers occasionally fall from the ships that carry them, something that occurs an estimated 2,000 to 10,000 times each year. For instance, on November 30, 2006, a container washed ashore on the Outer Banks of North Carolina, along with thousands of bags of its cargo of tortilla chips. Containers lost at sea do not necessarily sink, but seldom float very high out of the water, making them a shipping hazard that is difficult to detect. Freight from lost containers has provided oceanographers with unexpected opportunities to track global ocean currents.

Double-stack containerization

A Railroad car with a 20′ tank container and a conventional 20′ container.

Most flatcars cannot carry more than one standard 40 foot container, but if the rail line has been built with sufficient vertical clearance, a well car can accept a container and still leave enough clearance for another container on top. This usually precludes operation of double-stacked wagons on lines with overhead electric wiring (exception: Betuweroute). Double stacking has been used in North America since American President Lines introduced this “double stack” principle under the name of “Stacktrain” rail service in 1984. It saved shippers money and now accounts for almost 70 percent of intermodal freight transport shipments in the United States, in part due to the generous vertical clearances used by US railroads

ISO Container types

Various container types are available for different needs

  • General purpose dry van for boxes, cartons, cases, sacks, bales, pallets, drums in standard, high or half height
  • High cube palletwide containers for europallet compatibility
  • Temperature controlled from -25°c to +25°c reefer
  • Open top bulktainers for bulk minerals, heavy machinery
  • Open side for loading oversize pallet
  • Flushfolding flat-rack containers for heavy and bulky semi-finished goods, out of gauge cargo
  • Platform or bolster for barrels and drums, crates, cable drums, out of gauge cargo, machinery, and processed timber
  • Ventilated containers for organic products requiring ventilation
  • Tank containers for bulk liquids and dangerous goods
  • Rolling floor for difficult to handle cargo

Determining the best carton, box or pallet

While the creation of the best container for shipping of newly created product is called “Containerization”, the term also applies to determining the right box and the best placement inside that box in order fulfillment. This may be planned by software modules in a warehouse management system. This optimization software calculates the best spatial position of each item withing such constraints as stackability and crush resistance

4. CROSS DOCKING

Cross-docking is a practice in logistics of unloading materials from an incoming semi-trailer truck or rail car and loading these materials in outbound trailers or rail cars, with little or no storage in between. This may be done to change type of conveyance, or to sort material intended for different destinations, or to combine material from different origins.

Cross docking is used to decrease inventory storage by streamlining the flow between the supplier and the manufacturer.

  • Typical applications
  • “Hub and spoke” arrangements, where materials are brought in to one central location and then sorted for delivery to a variety of destinations
  • Consolidation arrangements, where a variety of smaller shipments are combined into one larger shipment for economy of transport
  • Deconsolidation arrangements, where large shipments (e.g. railcar lots) are broken down into smaller lots for ease of delivery.

Factors influencing the use of cross-docks

  • Customer and supplier geography — particularly when a single corporate customer has many multiple branches or using points
  • Freight costs for the commodities being transported
  • Cost of inventory in transit
  • Complexity of loads
  • Handling methods
  • Logistics software integration between supplier(s), vendor, and shipper

5 .DISTRIBUTION

Distribution is one of the four aspects of marketing. A distributor is the middleman between the manufacturer and retailer. After a product is manufactured it is typically shipped (and usually sold) to a distributor. The distributor then sells the product to retailers or customers.

The other three parts of the marketing mix are product management, pricing, and promotion.

Traditionally, distribution has been seen as dealing with logistics: how to get the product or service to the customer. It must answer questions such as:

  • Should the product be sold through a retailer?
  • Should the product be distributed through wholesale?
  • Should multi-level marketing channels be used?
  • How long should the channel be (how many members)?
  • Where should the product or service be available?
  • When should the product or service be available?
  • Should distribution be exclusive, selective or extensive?
  • Who should control the channel (referred to as the channel captain)?
  • Should channel relationships be informal or contractual?
  • Should channel members share advertising (referred to as co-op ads)?
  • Should electronic methods of distribution be used?
  • Are there physical distribution and logistical issues to deal with?
  • What will it cost to keep an inventory of products on store shelves and in channel warehouses (referred to as filling the pipeline)?

The distribution channel

Channels

  • A number of alternate ‘channels’ of distribution may be available:
  • Selling direct, such as via mail order, Internet and telephone sales
  • Agent, who typically sells direct on behalf of the producer
  • Distributor (also called wholesaler), who sells to retailers
  • Retailer (also called dealer), who sells to end customers
  • Advertisement typically used for consumption goods

Distribution channels may not be restricted to physical products alone. They may be just as important for moving a service from producer to consumer in certain sectors, since both direct and indirect channels may be used. Hotels, for example, may sell their services (typically rooms) directly or through travel agents, tour operators, airlines, tourist boards, centralized reservation systems, etc.

There have also been some innovations in the distribution of services. For example, there has been an increase in franchising and in rental services – the latter offering anything from televisions through tools. There has also been some evidence of service integration, with services linking together, particularly in the travel and tourism sectors. For example, links now exist between airlines, hotels and car rental services. In addition, there has been a significant increase in retail outlets for the service sector. Outlets such as estate agencies and building society offices are crowding out traditional grocers from major shopping areas..

Channel members

Distribution channels can thus have a number of levels. Kotler defined the simplest level, that of direct contact with no intermediaries involved, as the ‘zero-level’ channel.

The next level, the ‘one-level’ channel, features just one intermediary; in consumer goods a retailer, for industrial goods a distributor, say. In small markets (such as small countries) it is practical to reach the whole market using just one- and zero-level channels.

In large markets (such as larger countries) a second level, a wholesaler for example, is now mainly used to extend distribution to the large number of small, neighbourhood retailers In Japan the chain of distribution is often complex and further levels are used, even for the simplest .

Channel structure

To the various `levels’ of distribution, which they refer to as the `channel length’, Lancaster and Massingham also added another structural element, the relationship between its members:

‘Conventional or free-flow – This is the usual, widely recognized, channel with a range of `middle-men’ passing the goods on to the end-user.

Single transaction – A temporary `channel’ may be set up for one transaction; for example, the sale of property or a specific civil engineering project. This does not share many characteristics with other channel transactions, each one being unique.

Vertical marketing system (VMS) – In this form, the elements of distribution are integrated.

The internal market

Many of the marketing principles and techniques which are applied to the external customers of an organization can be just as effectively applied to each subsidiary’s, or each department’s, ‘internal’ customers.

In some parts of certain organizations this may in fact be formalized, as goods are transferred between separate parts of the organization at a `transfer price’. To all intents and purposes, with the possible exception of the pricing mechanism itself, this process can and should be viewed as a normal buyer-seller relationship.

Less obvious, but just as practical, is the use of `marketing’ by service and administrative departments; to optimize their contribution to their `customers’ (the rest of the organization in general, and those parts of it which deal directly with them in particular). In all of this, the lessons of the non-profit organizations, in dealing with their clients, offer a very useful parallel.

Channel Decisions

Channel strategy

Product (or service)<>Cost<>Consumer location

Channel management

The channel decision is very important. In theory at least, there is a form of trade-off: the cost of using intermediaries to achieve wider distribution is supposedly lower. Indeed, most consumer goods manufacturers could never justify the cost of selling direct to their consumers, except by mail order. In practice, if the producer is large enough, the use of intermediaries (particularly at the agent and wholesaler level) can sometimes cost more than going direct.

Many of the theoretical arguments about channels therefore revolve around cost. On the other hand, most of the practical decisions are concerned with control of the consumer. The small company has no alternative but to use intermediaries, often several layers of them, but large companies ‘do’ have the choice.

However, many suppliers seem to assume that once their product has been sold into the channel, into the beginning of the distribution chain, their job is finished. Yet that distribution chain is merely assuming a part of the supplier’s responsibility; and, if he has any aspirations to be market-oriented, his job should really be extended to managing, albeit very indirectly, all the processes involved in that chain, until the product or service arrives with the end-user. This may involve a number of decisions on the part of the supplier:

  • Channel membership
  • Channel motivation
  • Monitoring and managing channels

Channel membership

Intensive distribution – Where the majority of resellers stock the `product’ (with convenience products, for example, and particularly the brand leaders in consumer goods markets) price competition may be evident.

Selective distribution – This is the normal pattern (in both consumer and industrial markets) where `suitable’ resellers stock the product.

Exclusive distribution – Only specially selected resellers (typically only one per geographical area) are allowed to sell the `product’.

Channel motivation

It is difficult enough to motivate direct employees to provide the necessary sales and service support. Motivating the owners and employees of the independent organizations in a distribution chain requires even greater effort. There are many devices for achieving such motivation. Perhaps the most usual is `bribery’: the supplier offers a better margin, to tempt the owners in the channel to push the product rather than its competitors; or a competition is offered to the distributors’ sales personnel, so that they are tempted to push the product. At the other end of the spectrum is the almost symbiotic relationship that the all too rare supplier in the computer field develops with its agents; where the agent’s personnel, support as well as sales, are trained to almost the same standard as the supplier’s own staff.

Monitoring and managing channels

In much the same way that the organization’s own sales and distribution activities need to be monitored and managed, so will those of the distribution chain.

In practice, of course, many organizations use a mix of different channels; in particular, they may complement a direct salesforce, calling on the larger accounts, with agents, covering the smaller customers and prospects.

Vertical marketing

This relatively recent development integrates the channel with the original supplier – producer, wholesalers and retailers working in one unified system. This may arise because one member of the chain owns the other elements (often called `corporate systems integration’); a supplier owning its own retail outlets, this being ‘forward’ integration. It is perhaps more likely that a retailer will own its own suppliers, this being ‘backward’ integration. (For example, MFI, the furniture retailer, owns Hygena which makes its kitchen and bedroom units.) The integration can also be by franchise (such as that offered by McDonald’s hamburgers and Benetton clothes) or simple co-operation (in the way that Marks & Spencer co-operates with its suppliers).

Alternative approaches are `contractual systems’, often led by a wholesale or retail co-operative, and `administered marketing systems’ where one (dominant) member of the distribution chain uses its position to co-ordinate the other members’ activities. This has traditionally been the form led by manufacturers.

The intention of vertical marketing is to give all those involved (and particularly the supplier at one end, and the retailer at the other) ‘control’ over the distribution chain. This removes one set of variables from the marketing equations.

Other research indicates that vertical integration is a strategy which is best pursued at the mature stage of the market (or product). At earlier stages it can actually reduce profits. It is arguable that it also diverts attention from the real business of the organization. Suppliers rarely excel in retail operations and, in theory, retailers should focus on their sales outlets rather than on manufacturing facilities ( Marks & Spencer, for example, very deliberately provides considerable amounts of technical assistance to its suppliers, but does not own them).

Horizontal marketing

A rather less frequent example of new approaches to channels is where two or more non-competing organizations agree on a joint venture – a joint marketing operation – because it is beyond the capacity of each individual organization alone. In general, this is less likely to revolve around marketing synergy.

LOGISTICS IN FOOD DISTRIBUTION

Food distribution, a method of distributing (or transporting) food from one place to another, is a very important factor in public nutrition. Where it breaks down, famine, malnutrition or illness can occur. During some periods of Ancient Rome, food distribution occurred with the policy of giving free bread to its citizens under the provision of a common good.

There are three main components of food distribution:

  • Transport infrastructure, such as roads, vehicles, rail transport, airports, and ports.
  • Food handling technology and regulation, such as refrigeration, and storage, warehousing.
  • Adequate source and supply logistics, based on demand and need.

Information logistics

In general, it is exactly logistics of information.

The field of information logistics aims at developing concepts, technologies and applications for need-oriented information supply. Information-on-demand services are a typical application area for information logistics, as they have to fulfil user needs with respect to content, location, time and quality

Information Logistics consists of two words – information and logistics. Information can mean a lot of things, but usually is text (syntax with a semantic meaning) and logistics which is the transportation of sth from point A to point B. In a simplified sense is a newsletter information logistics, also an e-mail or even the ordinary mail you receive.

Information logistics is concerned with the supply of information to individuals and


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