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Unit 2: Introduction to Logistic

First, viewing internal operations (the shaded area of Figure 2.4) in isolation is useful to elaborate Notes
the fundamental importance of integrating all functions and work involved in logistics. While
such integration is a prerequisite to success, it is not sufficient to guarantee that a firm will
achieve its performance goals. To be fully effective in today’s competitive environment, firms
must expand their integrated behaviour to incorporate customers and suppliers.
Second, the basic process illustrated in Figure 2.5 is not restricted to for-profit business, nor is it
unique to manufacturing firms. The need to integrate requirements and operations occurs in all
businesses as well as within public sector organizations.

Example: Retailing or wholesaling firms typically link physical distribution and
purchasing, since traditional manufacturing is not required. Nevertheless, retailers and
wholesalers must complete the logistics value-added process. The same is true of all public
sector organizations that manufacture products or provide other services.

2.4.1 Inventory Flow

The operational management of logistics is concerned with movement and storage of materials
and finished products. Logistical operations start with the initial shipment of a material or
component part from a supplier and are finalized when a manufactured or processed product is
delivered to a customer.
From the initial purchase of a material or component, the logistical process adds value by
moving inventory when and where needed. Providing all goes well, a material gains value at
each step of its transformation into finished inventory. In other words, an individual part has
greater value after it is incorporated into a machine. Likewise, the machine has greater value
once it is delivered to a buyer.

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Caution To support manufacturing, work-in-process inventory must be moved to support
final assembly. The cost of each component and its movement becomes part of the value-
added process. The final or meaningful value that is added occurs only with final ownership
transfer of products to customers when and where specified.
For a large manufacturer, logistical operations may consist of thousands of movements, which
ultimately culminate in the delivery of products to an industrial user, retailer, wholesaler,
dealer, or other customer. For a large retailer, logistical operations may commence with the
procurement of products for resale and may terminate with consumer pickup or delivery.

Example: For a hospital, logistics starts with procurement and ends with full support of
patient surgery and recovery.
The significant point is that regardless of the size and type of enterprise, logistics is essential and
requires continuous management attention. For better understanding, it is useful to divide
logistical operations into three areas: physical distribution, manufacturing support, and
procurement. These components are illustrated in the centre of Figure 2.4 as the combined
logistics operational units of an enterprise.
2.4.2 Physical Distribution

The area of physical distribution concerns movement of a finished product to customers. In
physical distribution, the customer is the final destination of a marketing channel. The availability
of the product is a vital part of each channel participant’s marketing effort.

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