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Unit 2: Introduction to Logistic

operations, the processing of orders is of primary importance. Failure to fully comprehend this Notes
importance resulted from not fully understanding how distortion and operational failures in
order processing impact logistical operations. Current information technology is capable of
handling the most demanding customer requirements. When desired, order information can be
exchanged between trading partners.
2.3.2 Inventory

The inventory requirements of a firm are directly linked to the facility network and the desired
level of customer service. Theoretically, a firm could stock every item sold in every facility
dedicated to servicing each customer. Few business operations can afford such a luxurious
inventory strategy because the risk and total cost are prohibitive. The objective of an inventory
strategy is to achieve desired customer service with the minimum inventory commitment.
Excessive inventories may compensate for deficiencies in basic design of a logistic system but
will ultimately result in higher-than-necessary total logistics cost. Logistical strategies should
be designed to maintain the lowest possible financial investment in inventory. The basic goal is
to achieve maximum inventory turn while satisfying service commitments. A sound inventory
strategy is based on a combination of five aspects of selective deployment: (1) core customer
segmentation, (2) product profitability, (3) transportation integration, (4) time-based performance,
and (5) competitive performance.
2.3.3 Transportation

Transportation is the operational area of logistics that geographically moves and positions
inventory. Because of its fundamental importance and visible cost, transportation has traditionally
received considerable managerial attention. Almost all enterprises, big and small, have managers
responsible for transportation. Transportation requirements can be satisfied in three basic ways.
First, a private fleet of equipment may be operated. Second, contracts may be arranged with
dedicated transport specialists. Third, an enterprise may engage the services of a wide variety of
carriers that provide different transportation services as needed on a per shipment basis.

From the logistical system viewpoint, three factors are fundamental to transportation
performance: (1) cost, (2) speed, (3) consistency. The cost of transport is the payment for shipment
between two geographical locations and the expenses related to maintaining in-transit inventory.
Logistical systems should utilize transportation that minimizes total system cost. This may
mean that the least expensive method of transportation may not result in the lowest total cost of
logistics. Speed of transportation is the time required to complete a specific movement. Speed
and cost of transportation are related in two ways. First, transport firms capable of offering
faster service typically charge higher rates. Second, the faster the transportation service is, the
shorter is the time interval during which inventory is in transit and unavailable. Thus, a critical
aspect of selecting the most desirable method of transportation is to balance speed and cost of
service. Consistency of transportation refers to variations in time required to perform a specific
movement over a number of shipments. Consistency reflects the dependability of transportation.

2.3.4 Warehousing, Materials Handling, and Packaging

The first three functional areas of logistics – order processing, inventory, and transportation –
can be engineered into a variety of different operational arrangements. Each arrangement has
the potential to contribute to a specified level of customer service with an associated total cost.
In essence, these functions combine to create a system solution for integrated logistics. The
fourth functionality of logistics – warehousing, materials handling, and packaging – also
represents an integral part of a logistics operating solution. However, these functions do not
have the independent status of those. Warehousing, materials handling, and packaging are an
internal part of other logistics areas.

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