What is logistic?

Chapter 2

Part 1

Literature review

2.0:0 Definition of Logistic

TheOxford English Dictionarydefines logistics as “the branch ofmilitary sciencehaving to do with procuring, maintaining and transportingmateriel, personnel and facilities.” Another dictionary definition is “the time-related positioning of resources.”

Logistics is commonly seen as a branch ofengineeringthat creates “people systems” rather than “machine systems”. When we talk in terms of HRM logistics means giving inputs i,e recruiting manpowers which ultimately works for the final consumer or to deliver services.

There is, realistically, no ‘true’ name or definition that should be pedantically applied, because product differs, companies differs and system differs. “Logistics is a diverse and dynamic function that has to be flexible and has to change according to the various constraints and demands imposed upon it and with respect to the environment in which it works. And therefore these terms are used interchangeably, in literature and in the business world. (logistic and distribution management – Alan Rushton)

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2.1:0 OVERVIEW OF LOGISTICS

2.1.1: Definitions

Council of Logistics Management (1991) defined that logistics is “part of the supply chain process that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of manufacture and the point of consumption in order to meet customers’ requirements”.

Johnson and Wood’s definition (cited in Tilanus, 1997) uses “five important key terms”, which are logistics, inbound logistics, materials management, physical distribution, and supply-chain management, to interpret.

Logistics describes the entire process of materials and products moving into, through, and out of firm.

Inbound logistics covers the movement of material received from suppliers. Materials management describes the movement of materials and components within a firm. Physical distribution refers to the movement of goods outward from the end of the assembly line to the customer. Finally, supply-chain management is somewhat larger than logistics, and it links logistics more directly with the user’s total communications network and with the firm’s engineering staff. The commonality of the recent definitions is that logistics is a process of moving and handling goods and materials, from the beginning to the end of the production, sale process and waste disposal, to satisfy customers and add business competitiveness. It is ‘the process of anticipating customer needs and wants; acquiring the capital, materials, people, technologies, and information necessary to meet those needs and wants; optimising the goods- or service-producing network to fulfil customer requests; and utilizing the network to fulfil customer requests in a timely way’ (Tilanus, 1997).

Simply to say, ‘logistics iscustomer-oriented operation management’. Logisticsis the management of the flow ofgoods,informationand other resources in arepair cyclebetween the point of origin and the point of consumption in order to meet the requirements of customers.

Logistics involves the integration of information,transportation,inventory, warehousing, material handling, and packaging, and occasionallysecurity. Logistics is a channel of thesupply chainwhich adds the value of time and place utility. Today the complexity of production logistics can be modelled, analyzed, visualized and optimized by plant simulation software.

2.2:0 History and Advancement of Logistics

Logistics was initially a military activity concerned with getting soldiers and munitions to the

battlefront in time for flight, but it is now seen as an integral part of the modern production

process. The main background of its development is that the recession of America in the

1950s caused the industrial to place importance on goods circulations.

It was initially developed in the context of military activities in the late 18th and early 19th centuries and it launched from the military logistics of World War II. The probable origin of the term is the Greek logistikos, meaning ‘skilled in calculating’. (BTRE, 2001) Military definitions typically incorporate the supply, movement and quartering of troops in a set. And now, a number of researches were taken and made logistics applications from military.

2.3.0: INTERRELATIONSHIPS BETWEEN TRANSPORTATION AND LOGISTICS

Without well developed transportation systems, logistics could not bring its advantages into good transport system in logistics activities could provide better logistics efficiency, reduce operation cost, and promote service quality. The improvement of transportation systems needs the effort from both public and private sectors. A well-operated logistics system could increase both the competitiveness of the government and enterprises.

2.4.0: Transportation Costsas a Characteristics in Logistics

Transport system is the most important economic activity among the components of business

logistics systems. Around one third to two thirds of the expenses of enterprises’ logistics costs are spent on transportation.

According to the investigation of National Council of PhysicalProceedings of the Eastern Asia Society for Transportation Studies, Vol. 5, pp. 1657 – 1672, 2005

Cost related to Transportation of goods does not only includes fuel cost but include the followings:

• Overhead cost
• Maintenance cost
• Drivers’ and loaders / helpers’ salaries
• Depreciation cost
• Management cost
• Fuel cost

Transport costs have significant impacts on any organization, be it a public body, i.e. a government institution or a private firms. In may organization, transportation cost are influenced by the ways users are managing and utilizing.  These represents the cost of moving a passenger or a good from one place to its destination, including all associated cost involved within the activities. These rates are often visible as transport service providers should be aware of the all information to secure the transaction.

2.4.1: Factors that affect transportation cost

The most important factors that affect transportation cost are thus:-

1. Geography -  This factor is mainly concerned with distance and accessibility. Distance is commonly the most basic condition affecting transport costs. It can be expressed in terms of length, time, economic costs or the amount of energy used. It varies greatly according to the type of transportation mode involved and the efficiency of specific transport routes.
2. Type of product. Many products require packaging, special handling, are bulky or perishable. As such, in the case of health sector, it involves moving medical items, pharmaceutical products, patients, medical staff, medical services etc
3. Economies of scale. Another condition affecting transport costs is related to economies of scale or the possibilities to transportation of goods in larger quantities so as to lower the cost. As far passengers are concerned, it should involved merging of trips within the same route.
4. Energy – Transport activities are in fact large consumers of energy, especially fuel and oil. Consideration has to be given to minimise trips and hence minimising fuel consumption.
5. Mode. Different modes are characterized by different transport costs. Reduction in cost is also due to different mode of transport. For example one cannot transport a small box of 25 kg in a lorry of 5 tons. This could well be transported in a small van or a car which will use less fuel.

2.5.0: Deficiencies that Drive Up Logistics Operations Costs

Logistics, a poorly understood and often unappreciated process, accounts for a sizeable portion of a hospital’s operating budget. Studies have shown that 30% to 46% of hospital expenses are invested in various logistical activities and that almost half of the costs associated with supply chain processes could be eliminated through the use of best practices.

In hospitals, logistics cover not just support services such as purchasing, stores and the pharmacy, but also health care services such as patient care units and operating rooms. Many activities that could be carried out by support personnel are often on the list of duties performed by health care personnel. The result is that the internal supply chain within a hospital is often highly fragmented.

Logistics is a complex process. The people involved vary with the type of products in questions: for example, stores manage medical and non-medical supplies, the pharmacy looks after pharmaceutical products; and food services manages the procurement and processing of food products.

2.6.0: Materials and Methods in transportation and logistics

The literature on accounting in health care industry covers a number of themes. Many researches have been carried out and many titles and articles have been provided regarding how to reduce the escalating medical costs and improve quality management in transportation and logistics. Some have been successful, while others have shown failures.

Procurement, storage, mobilization, distribution and other aspects of providing material assistance to the health sector, and the handling of those supplies, require a good organizational structure to ensure the efficient management and utilization of resources that in emergency situations, tend to be limited.

This structure is provided by logistics, the strategy of achieving practical objectives promptly and methodically while making the most effective use of available resources.

2.6.1: The two basic premises:

1. Supply logistics cannot be unprepared at the time of an emergency. Organizations of health institutions must see it as a cornerstone of emergency planning and preparedness efforts. Employing resources appropriately, and being able to secure those that are not at hand, depends on first identifying their availability and location, as well as the sources for obtaining them. All those activities demanded by logistical deployment during an emergency – the mechanisms for standardizing the various processes and all the necessary documents for recording information and controlling, monitoring and following up on the flow of supplies – must be prepared, understood, and tested in advance.

2. The various stages in the flow of supplies, from their point of origin to the moment they reach their recipients – whether they be the organizations managing the emergency or the actual beneficiaries of the assistance – are a chain made up of very close links. This is called the chain supply. How any one of these links is managed invariably affects the others. Supply management must therefore be the focus of an integral approach that looks at all the links in the sequence and never loses sight of their interdependence. This is known as supply chain logistics.

Some of these procedures reflect the standards of international organizations involved in disaster response. Many others, however, are the distillation of concrete experiences by those in the field.

Information in PAHO/WHO’s Scientific Publication Medical Supply Management after Natural Disasters

2.7.0: Supply chain management (SCM)

SCMis the management of a network of interconnectedbusinessesinvolved in the ultimate provision ofproductand servicepackages required by end customers (Harland, 1996).

Supply chain management spans all movement and storage ofraw materials, work-in-process inventory, and finished goods from point of origin to point of consumption (supply chain).

Definition of Supply Chain Management (SCM) provided by the APICS Dictionary:

It defines SCM as the “design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand and measuring performance globally.”

Supply chain management is the systemic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole (Mentzeret al., 2001).

A customer focused definition is given by Hines (2004:p76):

“Supply chain strategies require a total systems view of the linkages in the chain that work together efficiently to create customer satisfaction at the end point of delivery to the consumer. As a consequence costs must be lowered throughout the chain by driving out unnecessary costs and focusing attention on adding value. Throughput efficiency must be increased, bottlenecks removed and performance measurement must focus on total systems efficiency and equitable reward distribution to those in the supply chain adding value. The supply chain system must be responsive to customer requirements.”

Global supply chain forum:-

Supply Chain Management is the integration of key business processes across the supply chain for the purpose of creating value for customers and stakeholders (Lambert, 2008).

 According to theCouncil of Supply Chain Management Professionals(CSCMP), “Supply Chain Management encompasses the planning and management of all activities involved insourcing,procurement, conversion, andlogistics management.” It includes the important components of monitoring and collaboration withall partners in the chain. They can besuppliers,agents, service providers, andcustomers, users and other stakeholders in the chain. In fact, supply chain management integrates both supply and demandmanagement within and across companies. Accordingly to the same Council (CSCMP), self-organizing network of businesses that cooperate to provide product and service offerings has been called the“Extended Enterprise”.

“A supply chain, as opposed to supply chain management, is a set of organizations directly linked of the upstream and downstream flows of products, services, finances, and information from a source to a customer. Managing a supply chain is supply chain management” (Mentzeret al., 2001).

Supply chain management softwareincludes tools used to execute supply chain transactions, manage supplier relationships and control associated business processes.

Supply chain event management (abbreviated as SCEM) is a consideration of all possible events and factors that can disrupt a supply chain. With SCEM possible scenarios can be created and solutions devised.

2.8.0: Transport Management System (TMS)

TMS are one of the systems managing thesupply chain. They belong to a sub-group called Supply chain execution (SCE). TMS, has become a critical part of any (SCE) Supply Chain Execution and Collaboration System in which real time exchange of information with other SCE modules has become mission critical.

Transportation Management Systems manage three key processes of transportation management:

2.8.1: Planning and Decision Making in Transportation and Logistics

TMS will define the most efficient transport schemes according to given parameters, which have a lower or higher importance according to the user policy: transport cost, shorter lead-time, fewer stops possible to insure quality, flows regrouping coefficient…

2.8.2: Transport follow-up

TMS will allow following any physical or administrative operation regarding transportation: traceability of transport event by event (shipping from A, arrival at B, customs clearance…), editing of reception, custom clearance, invoicing and booking documents, sending of transport alerts (delay, accident, non-forecast stops…)

2.8.3: Measurement of the Transport Management System

TMS have or need to have a Logistics KPI reporting function for transport.

Various functions of a TMS:

• Planning and optimizing of terrestrial transport rounds
• Transportation mode and carrier selection
• Management of air and maritime transport
• Real time vehicles tracking
• Service quality control
• Vehicle Load and Route optimization
• Transport costs and scheme simulation
• Shipment batching of orders
• Cost control, KPI reporting and statistics

Typical KPIs include but not limited to:

1. % of On Time Pick Up or Delivery Performance relative to requested

2. Cost Per Metric – mile; km; Weight; Cube; Pallet

2.8.4: Route Planning and Optimization

• Reduce Distribution Costs & Fleet Miles – Daily routes are created using powerful algorithms and street-level routing, in conjunction with your business constraints
• Increase Resource Utilization-Make better use of existing resources by delivering more and driving less. The answer to increasing volume is not always to put more vehicles on the road, but to make smart, efficient
• Make Sound Business Decisions -Understand how delivery costs affect the profitability of each customer by knowing the actual cost per stop
• Set Driver Standards – Creating route plans and gathering actual information allows you to set performance standards and expectations-which can result in less overtime and better driver performance
• Decrease Routing Time – Let your routers spend less time configuring routes and more time assessing what-if scenarios to produce better, more efficient routes.
• Contingency Planning – Prepare for holiday or seasonal spikes and other “what if” scenarios
• Reports – Driver manifests, maps, directions, resource utilization, customer delivery cost, actual versus projected by route and by stop, planned route summaries and many more reports to help consistently in evaluating a system.

2.8.5: Load Optimisation

• A Quick Load Design which should be also accurate for many Route Types – Each route requires different loading system. In fact different types of equipment are used at different loading and unloading bays depending on the routing system.
• Multiple Loading Strategies – These are different types of techniques used for operating at the loading and unloading bays. It could be in terms of software or some working methods used by machine operators so as to increase the output of work by minimising physical efforts.
• Building Load in advance – a common techniques applied by many warehouses is to pre-build or to prepare the load in advance and store them in some identified location and which will be useful and same time in a Pre-Build Orders – Load orders to be picked, built and pre-staged throughout the day, all while continuing to have them allocated to the correct route and truck during the final loading pass
• Load Design to Reduce Product Breakage – Most breakage occurs within the first 10 minutes of a route due to poor packing.
• Reports – Final load sheet, driver check-out, load validation and pick sheets provide you with all of the detailed information required.

2.9.0: Supply chain management must address the following problems

2.9.1: Distribution Strategy

Definition of strategy

“A strategy is a pattern of major objectives, purposes or goals and essential policies or plans for achieving those goals, stated in such a way as to define what business the company is in or is to be in and the king of company it is or is to be.” (Drucker, 1961)

2.9.2: The distribution strategy

The business environment is unpredictable and complex to anticipate and forecast effectively. As such strategies have to be developed so as to meet the need of everybody in the supply chain. These include patterns of actions that should be planned and intended in the management of the transport so as to handle the distribution channel in a more appropriate way. This strategy can also be developed in the supply chain management whereby it will raise a question of centralising or decentralising the warehousing and delivery. This strategy will of course reduce the day to day transport arrangement problem. 

2.9.3: Trade-Offs in Logistical Activities:

There are many activities in logistic system andTrade-offs may increase the total cost if only one of the activities is optimized. For example, a full loaded lorry distributing stores is more economical on a cost than less than the lorry load capacity (e.g. half lorry load). The full lorry load of a product will reduce transportation costs and will therefore decrease the inventory holding costs which may in turn decrease total logistics costs. It is therefore imperative to take a systems approach when planning logistical activities. These trade-offs are key to developing the most efficient and effective Logistics and SCM strategy.

2.9.4: Distribution Network Configuration: number, location and network missions of suppliers, production facilities, distribution centers, warehouses, cross-docks and customers.

2.9.5: Tiering of Suppliers

Organisations have for many years sought to reduce their supplier base as they seek to implement a lean supply regime. Segmenting the chosen supply base into tiers gives a measure of priority in the management of the supply chain.

The first tier is reserved for the immediate and direct suppliers of assemblies / manufacturers etc, whereas the second and third tier suppliers are reserved for component suppliers who supply the first tier suppliers, thus removing them from direct involvement with the manufacturer.

Therefore tiering is important in the direction and management of the supply chain as the first tier supplier is responsible for ensuring that there has been a movement in the supply chain and also is receiving from his direct supplier.

• Information: Integration of processes through the supply chain to share valuable information, including demand signals, forecasts, inventory, transportation, potential collaboration, etc.
• Inventory Management: Quantity and location of inventory, including raw materials, work-in-progress (WIP) and finished goods.
• Cash-Flow: Arranging the payment terms and methodologies for exchanging funds across entities within the supply chain.

Holding a huge amount of inventory mean huge capital tide up and therefore involving large amount of money and also increasing the holding cost. A good management in logistic and supply chain will undeniably give rise to a good cash flow and managing fund equitably.

Several models have been proposed for understanding the activities required to manage material movements across organizational and functional boundaries.One model is the SCM Model proposed by the Global Supply Chain Forum (GSCF). Supply chain activities can be grouped into strategic, tactical, and operational levels.

Importance of Supply Chain Management

Organizations increasingly find that they must rely on effective supply chains, or networks, to compete in the global market and networked economy.In Peter Drucker’s (1998) new management paradigms, this concept of business relationships extends beyond traditional enterprise boundaries and seeks to organize entire business processes throughout a value chain of multiple companies.

During the past decades, globalization, outsourcing andinformation technologyhave enabled many organizations, such asDellandHewlett Packard, to successfully operate solid collaborative supply networks in which each specialized business partner focuses on only a few key strategic activities (Scott, 1993). This inter-organizational supply network can be acknowledged as a new form of organization. However, with the complicated interactions among the players, the network structure fits neither “market” nor “hierarchy” categories (Powell, 1990). It is not clear what kind of performance impacts different supply network structures could have on firms, and little is known about the coordination conditions and trade-offs that may exist among the players. From a systems perspective, a complex network structure can be decomposed into individual component firms (Zhang and Dilts, 2004).

Traditionally, companies in a supply network concentrate on the inputs and outputs of the processes, with little concern for the internal management working of other individual players. Therefore, the choice of an internal management control structure is known to impact local firm performance (Mintzberg, 1979).

In the 21st century, changes in the business environment have contributed to the development of supply chain networks. First, as an outcome of globalization and the proliferation of multinational companies, joint ventures, strategic alliances and business partnerships, significant success factors were identified, complementing the earlier “Just-In-Time”, “Lean Manufacturing” and “Agile Manufacturing” practices.

Secondly, “technological changes, particularly the dramatic fall in information communication costs, which are a significant component of transaction costs, have led to changes in coordination among the members of the supply chain network” (Coase, 1998).

Many researchers have recognized these kinds of supply network structures as a new organization form, using terms such as “Keiretsu”, “Extended Enterprise”, “Virtual Corporation”, “Global Production Network”, and “Next Generation Manufacturing System”.In general, such a structure can be defined as “a group of semi-independent organizations, each with their capabilities, which collaborate in ever-changing constellations to serve one or more markets in order to achieve some business goal specific to that collaboration (Akkermans, 2001).

The main task of all hospitals is the improvement of the patient’s state of health. The provision of the medical treatment and patient care – core processes of the hospital, create demand for patient-related support services. These secondary processes can be of medical or non-medical nature.

Additional services summarized in tertiary processes are not directly linked to patients, but are necessary for proper operation of the healthcare facility.

In many processes of hospital logistics, material transport plays a decisive role. According to requirements, hospital material transport is either scheduled (planned) or on-demand (un-scheduled).

Compared to industrial applications, the quality of material transport in healthcare facilities must be of the highest quality. Wrong or inaccurate deliveries could have fatal implications for patients, hospital employees, and visitors.

Research Questions

This subject addresses the following researches:

1. What is the present Distribution Network Configuration and the transport management system at the Ministry of Health and Quality of life. Whether an improvement of the complete transportation system can contribute to reduce cost in the long run.
2. What are the Distribution Strategy?
3. Whether an improvement in the logistic and transport management system can contribute to reduce cost in the health.
4. Perception of users and other stakeholders in the Transportation and Logistic System?

Part 2

2.1.0: Overview of the Existing Transport System

Transport operations at the MOH determines the efficiency of moving goods and people. However there is no common rules and regulations for each health institution but each hospital have developed their own way of operating transport though common practices, depending on the specialised services.

Transport system in any hospital takes a crucial part in the manipulation of logistic. A good system needs a clear plan and program of logistics and a proper transport implementations and techniques to run the daily activities within the institution.

The Supply chain execution at the MOH means managing and coordinating the movement of materials, information and funds across the supply chain.

Strategies were thought many times to improve the health sector in Mauritius both in terms of quality service and cost reduction. This was to be accomplished by the impact of all aspects of the hospital activities on behalf of the size of each hospital. For instance, some strategies in the health sector share a set of values and guiding principles that reflect a more holistic concept of the individual, and acknowledge the social, economic and environmental influences on health.

Supply chain management is fact a cross-functional approach which includes managing the movement of medical and non medical goods / materials from manufacturers / suppliers into the government health institutions, internal carriage of same to users including patients and the movement of patients, medical practitioners and other health staffs within the organization in an objective to contribute in the healthcare system and in the smooth running of the organization.

As organizations strive to focus on core competencies and becoming more flexible, they reduce their ownership of raw materials sources and distribution channels. These functions are increasingly being outsourced to other entities that can perform the activities better or more cost effectively. The effect is to increase the number of organizations involved in satisfying customer demand, while reducing management control of daily logistics operations. Less control and more supply chain partners led to the creation of supply chain management concepts. The purpose of supply chain management is to improve trust and collaboration among supply chain partners, thus improving inventory visibility and the velocity of inventory movement.

2.0.1:

Examining the current cost of logistic and transportation in the Health sector

“The current economic crisis in Mauritius is the best motivation that needs to reduce Health Care Logistics costs”

All supportive services in all the Hospitals should be concerned to examine every opportunity to reduce and manage hospital logistics expenses while providing flawless customer service. Hospital administrators should be aware that the world economic crisis is dominant and they should put to all their efforts in reducing hospital costs in all sections

The