IL/U1 Topic 1 Introduction to Logistic System: Concepts of Logistics
A logistics system is made up of facilities, where one or more functional activities are carried out (e.g. storage and distribution). Reverse logistics is the sector of logistics dealing with product flows (unsold items or returns) from their final destination to the initial producer, or to a facility dedicated to their treatment. This chapter introduces logistics without mention of the objectives to be pursued. These can be characterized by three variables: costs, profits and service level. Within a company, the management of the logistics system is the transverse process of planning, organizing and controlling the logistics system.
Concepts of Logistics
Logistics is a key component of the modern economy. It was also a key element in 20th century warfare; however, it was not adequately documented or understood. The term “logistics” originated from an ancient Greek word meaning ratio, calculation, reason, or oration. The term logistics was first used by the military to describe the activities associated with maintaining a fighting force in the battle field and in its strictest sense, to describe the housing of troops. The dictionary definition of logistics describes the term, “the branch of military science having to do with procuring, maintaining, and transporting material, personnel and facilities”. The word is also used to describe the time related to positioning of resources.
Logistics is concerned with the organization, movement, and storage of material and people. It deals with the planning and control of the flow of materials and related information in organizations. Its main objective is to get the right materials to the right place at the right time while optimizing the total operational costs of this process. Logistics are applied to both public and private sectors. With respect to the military, logistics is concerned with supplying troops with food, armaments, ammunitions, spare parts, and the transport of the troops themselves.
For civil organizations, logistics issues are encountered by firms that produce and distribute physical goods.
Over the years the meaning of the term “logistics” has gradually expanded to include business and service activities. The domain of logistics activities is to provide customers with the right goods in the right place at the right time. It ranges from providing the necessary subcomponents for manufacturing to having inventory on the shelf of the retailer to having the correct quantity and type of blood available for a surgical procedure in a hospital. The major issue that logistics attempts to resolve is to decide how and when raw-materials, semi-finished, and finished goods should be acquired, moved, and stored. The need for logistics management also arises in firms and public organizations that provide services, including mail delivery, public utilities, and after-sales service. From the steel factories of Pennsylvania to the ports of Singapore, every organization faces the challenge of getting the right materials to the right place at the right time.
A fundamental characteristic of logistics is its holistic, integrated view of all the activities that it encompasses. Therefore, while procurement, inventory management, transportation management, warehouse management, and distribution are all important components, logistics is primarily concerned with the integration of these activities to provide maximum value to the overarching system.
Increasingly competitive markets are making it imperative to manage logistics systems more efficiently. Logistics is one of the most important activities in modern societies. For example, the total logistics costs incurred by organizations in the United States in 1997 were $862 billion, corresponding to approximately 11% of the United States’ gross domestic product. This cost was higher than the combined annual United States government expenditure in social security, health care services, and defense.
Logistics for business evolved in the 1950s. Business logistics plans implements and controls the efficient and effective inflow, outflow, and storage of goods. This happened because of the increasing complexity of supplying one’s business with materials and shipping out the final products. A logistics system consists of a set of facilities linked by transportation services. These transportation services move materials between facilities using vehicles and equipment including trucks, tractors, containers, cars, and trains.