Page 47 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Logistics and Supply Chain Management

Notes Self Assessment

State whether the following statements are true or false:
10. Logistics is viewed as the competency that links an enterprise with its customers and
suppliers.

11. The area of physical distribution concerns movement of a finished product to customers.
12. The primary logistical responsibility in manufacturing is not to participate in formulating
a master production schedule.

2.5 Logistical Operating Arrangements

The potential for logistical services to favourably impact customers is directly related to operating
system design. The many different facets of logistical performance requirements make
operational design a complex task, as an operating structure must offer a balance of performance,
cost, and flexibility. When one considers the variety of logistical systems used throughout the
world to service widely diverse markets, it is astonishing that any structural similarity exists.
But keep in mind that all logistical arrangements have two common characteristics. First, they
are designed to manage inventory. Second, the range of logistics alternatives is limited by
available technology. These two characteristics tend to create commonly observed operating
arrangements. Three widely utilized structures are echelon, direct, and combined.

2.5.1 Echelon Structured Logistics

Classification of a logistical system as having an echeloned structure means that the flow of
products typically proceeds through a common arrangement of firms and facilities as it moves
from origin to final destination. The use of echelons usually implies that total cost analysis
justifies stocking some level of inventory or performing specific activities at consecutive levels
of a supply chain. Echelon systems utilize warehouses to create inventory assortments and
achieve consolidation economies associated with large volume transportation shipments.
Inventories positioned in warehouses are available for rapid deployment to meet customer
requirements. Typical echelon systems utilize either break-bulk or consolidation warehouses.
A break-bulk facility typically receives large-volume shipments from a variety of suppliers.
Inventory is sorted and stored in anticipation of future customer requirements. Food distribution
centres operated by major grocery chains and wholesalers are examples of break-bulk
warehouses. A consolidation warehouse operates in a reserve profile. Consolidation is typically
required by manufacturing firms that have plants at different geographical locations. Products
manufactured at different plants are sorted in a central warehouse facility to allow the firm to
ship full-line assortments to customers. Major consumer product manufacturers are prime
examples of enterprises using echeloned systems for full-line consolidation.
2.5.2 Direct Structured Logistics

In contrast to inventory echeloning are logistical systems designed to ship products direct to
customer’s destination from one or a limited number of centrally located inventories. Direct
distribution typically uses the expedited services of premium transport combined with
information technology to rapidly process customer orders and achieve delivery performance.
This combination of capabilities, designed into the order delivery cycle, reduces time delays
and overcomes geographical separation from customers. Examples of direct shipments are
plant-to-consumer truckload shipments, direct store delivery, and various forms of direct-to-
consumer fulfilment required to support e-commerce shopping. Direct logistical structures are

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