Integrated Logistics Systems: Decisions and Objectives
Integrated Logistics Systems: Components and Strategy
Integrated Logistics Systems are essential for modern logistics tasks. These systems require integration across materials management, material flow systems, and physical distribution, all supported by Information Technology (IT).
Key Objectives of Logistics Management
Logistics planning begins with defining clear objectives:
- Study customer requirements and analyze competitor offerings. The company must establish service levels relative to competitors when setting its own targets.
- Once targets are set, the company must design a logistics system that minimizes the costs required to achieve those targets.
Core Logistics Decisions
Effective logistics management requires strategic decisions across several critical areas:
A) Order Processing
Most companies strive to shorten the order-delivery-billing cycle—the time elapsed between the receipt of an order, delivery, and payment recovery. The longer this cycle, the lower the customer satisfaction and company profits.
B) Storage
All companies must store their goods until they are sold. Storage effectively eliminates discrepancies between production levels and market demand.
C) Inventory Management
Inventory decisions involve determining when to order and how much to order. As stocks decline, management must identify the level at which a new supply order must be placed (known as the replenishment level or reorder point).
This replenishment level must simultaneously evaluate the risks of running out of stock versus the costs associated with excessive stock amounts. The decision of how much to order is crucial; generally, the higher the quantity ordered, the lower the required frequency of supply.
The most modern approach is just-in-time inventory (or almost zero inventory), which emphasizes manufacturing to order rather than manufacturing for storage.
D) Transportation
Marketers face important transportation decisions that significantly affect the product's price, delivery periods, punctuality, and the condition of the goods upon arrival, all of which influence customer satisfaction. Key decisions include the choice of the medium of transport and the method of transportation.
Organizational Lessons for Logistics Success
Business executives have learned three crucial lessons from their experience managing logistics:
- Companies should appoint a dedicated Logistics Director, responsible for all logistics outcomes concerning cost efficiency and customer satisfaction.
- The logistics manager should convene regular meetings with vendors and operations managers to review inventory levels, operational costs, customer care, and satisfaction. These meetings should also consider the market situation and whether production schedules require adjustment.
- The key to achieving more competitive logistics results in the future lies in adopting new systems and advanced software programs.