Page 39 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Logistics and Supply Chain Management

Notes Inventory

To build up inventory sufficient capital has to be tied up for a length of time. Thus by proper
analyzing demand and supply patterns and the nature of the product, will result in reduction of
cost that will also help in optimizing the level of inventory.
2.2.3 Logistics Value Generation

The key to achieving logistical leadership is to master the art of matching operating competency
and commitment to key customer expectations and requirements. This customer commitment,
in an exacting cost framework, is the logistics value proposition. It is a unique commitment of
a firm to individual or selected groups of its customers. The typical enterprise seeks to develop
and implement an overall logistical competency that satisfies customer expectations at realistic
total cost expenditure. Very seldom will either the lowest total cost or the highest attainable
customer service constitute the fundamental logistics strategy. Likewise, the appropriate
combination will be different for different customers.
A well-designed logistical effort must have high customer response and capability while
controlling operational variance and minimizing inventory commitment. And, most of all, it
must have relevancy to specific customers. Significant advances have been made in the
development of tools to aid management in the measurement of cost/service trade-offs.
Formulation of a sound strategy requires a capability to estimate operating cost required to
achieve alternative service levels. Likewise, alternative levels of system performance are
meaningless unless viewed in terms of overall business unit marketing, manufacturing, and
procurement strategies. Leading firms realize that a well-designed and well-operated logistical
system can help achieve competitive advantage. In fact, as a general rule, firms that obtain a
strategic advantage based on logistical competency establish the nature of their industry’s
competition.

Self Assessment

State whether the following statements are true or false:
4. The least-total-cost system design includes only the transportation costs.
5. ‘Total inventory cost’ curve shows an increase with each additional warehouse.
6. For bulk goods, total logistics cost as a proportion of value addition is about 50 per cent.

2.3 The Work of Logistics

In the context of supply chain management, logistics exits to move and position inventory to
achieve desired time, place, and possession benefits at the lowest total costs. Inventory has
limited value until it is positioned at the right time and at the right location to support ownership
transfer or value added creation. If a firm does not consistently satisfy time and location
requirements, it has nothing to sell. For a supply chain to realize the maximum strategic benefit
from logistics, the full range of functional work must be integrated. Decisions in one functional
area will impact cost of all others. It is this interrelation of functions that challenges the successful
implementation of integrated logistical management. Integrated work related to these functional
areas creates the capabilities needed to achieve logistical value.

2.3.1 Order Processing

The important of accurate information to achieving superior logistical performance has
historically been underappreciated. While many aspects of information are critical to logistics

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