Logistics Management: Core concepts

Logistics management, a component of supply chain management, is the process of efficiently transporting goods from the starting point to the destination. It involves steps such as acquisition, storage and transportation of inventory.

Here we will try to understand the Logistic concept, identify main activities and elements within logistics, recognise various modes of transport in logistics operations, recognise different types of ISO containers, identify different terminologies in Incoterms.

What is Logistics?

Here are a few definitions.

Logistics concerns the efficient transfer of goods from the source of supply through the place of manufacture to the point of consumption in a cost-effective way while providing acceptable service to the customer. (Rushton et al. 2014: 6)

Logistics is the positioning of resources at the right time, in the right place, at the right cost, at the right quality. (CILT 2012)

Logistics deals with the management of the flow of goods or raw materials from point of origin to point of consumption. (Grant et al. 2007).

What is Logistics? Brief History

• Around 2700 B.C. – Materials handling – Pyramids
• Around 300 B.C. – Revolutionary Greek rowing vessels vAround A.D. 700 – Procurement logistics – Mezquita Mosque
• Around 1200 – The international network – Hanseatic League
• Around 1500 – Progressive postal service in Europe
• Around 1800 – New technologies and transport – Steam engine
• Around 1940 – Military logistics – World War II
• 1956 – Invention of the sea container
• Around 1970/80 – Competition with delivery times, e.g. Just-in-time

Source: DHL (2012)

Logistics – Perspectives

Two Perspectives

1. Materials Management: What a company does with inputs

   The way a company acquires materials, such as raw materials or parts, how a company handle them once they arrive at the company, and how they are shipped out.

2. Physical Distribution

   The way a company delivers its product to the market, which could be the customers or retailers

What is Logistics – The Rights

Logistics involves getting:

• In the right way (mode)
• The right product
• In the right quantity and right quality
• In the right place
• At the right time
• For the right customer
• At the right cost

Logistics – Activities

Logistics Activities

• The movement of goods or people through planes, ships, trains and trucks/ lorries
• Collaborating with the ordering of goods by manufacturers and retailers to fulfill the expected demand for goods from their customers
• Delivering the raw materials purchased by manufacturers to enable them to make the goods they sell
• The storage of goods in warehouses, distribution centres or specialised buildings
• Collaborating with inventory management in the control of stock levels to ensure that no stock-outs
• Meeting future demand for goods by consumers, through advance planning so that raw materials are available for production on-time

Related Logistics Activities:

Customer service . Facility location decisions . Inventory management . Order management . Procurement . Transport management

Demand forecasting . International logistics . Materials handling . Packaging . Reverse logistics . Warehousing management

Sustainable Logistics

• Green logistics essentially focuses on ways to reduce the environmental effects of logistics.
• Sustainable logistics is a broader concept, also taking into account the economic and social implications of activities, striving to improve economical, ecological and societal interests simultaneously.
• Sustainable logistics attempts to take into account this so-called triple bottom line, indicating that there is some kind of three-way trade-off.

Barriers to Sustainable Logistics

• Higher Costs
• Coordination complexity/effort
• Insufficient/missing communication in the supply chain

Triple Bottom Line

It is one central concept to operationalise sustainability:

Environmental Dimension: natural resources, water, air and soil quality; energy conservation; Land use.

Social Dimension: Community, education, health, well-being, and quality of life

Economic Dimension: profit and loss; cash flow and other finance indicators

Logistics – Transport Modes

Mode Characteristics (Road)

• Door to door delivery and collection
• Fast, regular service, or one-off journeys
• Reduced need for double-handling, which reduces packaging (except when moving small consignments)
• Limited only by road infrastructure
• Full loads or consolidation of smaller consignment

Mode Characteristics (Rail)

• Ideal for bulky or heavy consignments
• Railhead & track infrastructure can be limited
• Cheap, but often inflexible service
• Double handling which can cause damage
• Last mile has to be delivered by road

Mode Characteristics (Sea)

• Cost economies – ideal for bulk or low value goods
• Flexibility – many liner services & ships
• Speed – slow voyage time and turnaround at ports
• Damage – caused by double handling
• Delay problems – the weather can be a factor
• Must have a port infrastructure to load and unload

Mode Characteristics (Air)

• Ideal for small, valuable and light consignments
• Fast service over international distances
• Delays can occur at airports
• Less chance of damage – less packaging
• No door to door, last mile must be by road
• Can be expensive, attract a premium price

Mode Characteristics (Pipeline)

• Important transport system for crude, petroleum, natural gas and etc.
• Can operate on a 24/7 basis, limited only by commodity changeover and maintenance
• Highest fixed cost and lowest variable cost
• Fixed cost for pipelines, construction, control stations and pumping capacity
• Less flexible and limited to gas, liquid or slurry

Containerisation: Concepts, Pros & Cons

Containerization is a shipping practice where a number of pieces of freight (containers) is stored within a large container and transported as a single unit.

Advantage of Containerization?

The advantage of this technique is that it requires less cargo handling, offers better cargo protection and offers reduced shipping costs to shippers.

Standardization: ISO standard (modes and equipment). Standard transport product through specialized modes (ships, trucks, barges, and wagons) and equipment. Each container has a unique identification number and a size type code.

Flexibility: You can transport commodities, manufactured goods, liquids and refrigerated goods.

Costs: Low transport costs. Economies of scae at modes and terminals.

Velocity: Fast transshipment operations. Low terminal turnaround times.

Warehousing. Own warehouse, simpler and less expensive packaging. Stacking capability.

Security & Safety: Contents unknown to carriers. Reduced spoilage and losses.

Disadvantages of Containerization?

Site constraints: Large consumer of terminal space, Draft issues with larger containerships.

Capital intensiveness: Container handling infrastructures and equipment are important capital investments.

Stacking: Complexity of arrangement of containers, both on the ground and on modes.

Repositioning: Divergence between production and consumption, repositioning 20% of all containers.

Theft and losses. High-value goods vulnerable to thefts, particularly between terminal and final destination.

Illicit trade: Illicit trade of goods, drugs, and weapons, as well as for illegal immigration (rare).

Watch this interesting video on containerisation. This video is presented by Maersk Line.

Malcom McLean and Containerisation | Maersk Line

 

26 April 1956 marks the beginning of what has been described as the ‘container revolution’: 58 boxes were loaded onboard the converted tanker Ideal-X and sailed from Newark, New Jersey to Houston, Texas – the American businessman Malcom McLean who later founded Sea-Land Services, had invented the modern intermodal shipping container.

At the time, cargo was usually loaded and unloaded by hand, costing 5.86 USD a ton compared to 16 cents a ton using Ideal-X; the value of ‘economies of scale’ was introduced.

The journey to Houston reflects how a simple idea – packing commodities into a 35 foot, six-sided box and moving that box between different modes of transport – eventually revolutionised world trade. In the decades to come, it quickly took up pace – and today, more than 6,000 container ships, large and small, support trade for local and global customers.

Logistics – Containers

Types of ISO Containers

• Dry freight or cube containers are front loaded, completely enclosed and suitable for general-purpose transportation.
• Flat racks and platforms are ISO containers that are used to transport heavy machinery. They do not have side walls, but may have end bulkheads and are often collapsible.
• Open-top containers are shaped like a box and loaded from either the top or end. They are designed to carry heavy, tall, or hard to load materials such as coal or grain.
• Reefer or refrigeration containers are temperature controlled containers that have an integral refrigeration unit. They are used to ship and transport perishables or other items that require a temperature controlled atmosphere.
• Insulated or thermal containers are suitable for transporting chilled and frozen goods, as well as temperature-sensitive materials and products. They have insulated walls, but are not refrigerated
• Tank containers are built to the same standard dimensions as other ISO containers, but are cylindrical vessels mounted in a rectangular steel framework. Typically, these containers are used to transport liquid or bulk materials.

Logistics – Incoterms

• The Incoterms rules have become an essential part of the daily language of trade.
• They have been incorporated in contracts for the sale of goods worldwide and provide rules and guidance.
• They are a set of rules which define the responsibilities of sellers and buyers for the delivery of goods under sales contracts.
• The newest version is Incoterm 2010 and next one is Incoterm 2020.
• 11 terminologies in Incoterm 2010