1. Customer service
Customer service acts as the binding and unifying force for all of the logistics management activities. Each component of the logistics system can affect whether a customer receives the right product at the right place, in the right condition, for the right cost at the right time. Customer service involves successful implementation of the integrated logistics management concept in order to provide the necessary level of customer satisfaction at the lowest possible cost.
2. Order processing:
The starting point of physical distribution activities is the processing of customers‘ orders. In order to provide quicker customer service, the orders received from customers should be processed within the least possible time. Order processing includes receiving the order, recording the order, filling the order, and assembling all such orders for transportation, etc. the company and the customers benefit when these steps are carried out quickly and accurately.
The error committed at this stage at times can prove to be very costly. For example, if a wrong product or the same product with different specifications is supplied to the customer, it may lead to cancellation of the original order (apart from loss in the credibility of the firm). Similarly, if the order is not executed within a reasonable time, it may lead serious consequences. High speed data processing techniques are now available which allow for rapid processing of the orders like EDI.
Warehousing refers to the storing and assorting products in order to create time utility. The basic purpose of the warehousing activity is to arrange placement of goods, provide storage facility to store them, consolidate them with other similar products, divide them into smaller quantities and build up assortment of products. Generally, the larger the number of warehouses a firm has the lesser would be the time taken in serving customers at different locations, but the greater would be the cost of warehousing. Thus, the firm has to strike a balance between the cost of warehousing and the level of customer service.
4. Inventory Control and Management:
Linked to warehousing decisions are the inventory decisions which hold the key to success of physical distribution especially where the inventory costs may be as high as 30-40 per cent (e.g., steel and automobiles). Thus, the new concept of Just-in-Time-Inventory decision is increasingly becoming popular with a number of companies.
The decision regarding level of inventory involves estimate of demand for the product. A correct estimate of the demand helps to hold proper inventory level and control the inventory costs. This is not only helps the firm in terms of the cost of inventory and supply to customers in time but also to maintain production at a consistent level.
The major factors determining the inventory levels are:
- The firm‘s policy regarding the customer service level, degree of accuracy of the sales forecasts,
- Responsiveness of the distribution system i.e., ability of the system to transmit inventory needs to the factory and get the products in the market.
- The cost inventory consists of holding cost (such as cost of warehousing, tied up capital and obsolescence) and replenishment cost (including the manufacturing cost).
Transportation seeks to move goods from points of production and sale to points of consumption in the quantities required at times needed and at a reasonable cost. The transportation system adds time and place utilities to the goods handled and thus, increase
their economic value. To achieve these goals, transportation facilities must be adequate, regular, dependable and equitable in terms of costs and benefits of the facilities and service provided.
6. Information monitoring:
The physical distribution managers continuously need up-to-date information about inventory, transportation and warehousing.
For example, in respect on inventory, information about present stock position at each location, future commitment and replenishment capabilities are constantly required. Similarly, before choosing a carrier, information about the availability of various modes of transport, their costs, services and suitability for a particular product is needed. About warehousing, information with respect to space utilization, work schedules, etc., is required.
In order to receive all the information stated above, an efficient management information system would be of immense use in controlling costs, improving services and determining the overall effectiveness of distribution. Of course, it is difficult to correctly assess the cost of physical distribution operations. But if correct information is available it can be analyzed systematically and a great deal of saving can be ensured.
Typical logistics facilities are manufacturing plants, warehouses, cross-dock operations and retail stores. Whether facilities are owned, leased or rented, the location of plant and warehouse (storage facilities) is extremely important. The strategic placement of plants and warehouse can assist firms in improving customer service levels. Proper facility location can also allow volume related transportation rates in moving product from plant to warehouse, plant to plant, or warehouse to customers.
8. Forwarding and clearing
Freight forwarders typically purchase transportation capacity from carriers in bulk and sell it to their network of shipping clients, earning a fee based on the spread between the purchased transportation cost and the price sold to a shipping client. A freight forwarder is a classic example of a non-asset based third-party logistics provider which thus by definition does not own the logistics assets and instead contracts out to execute client‘s logistics needs. The cost advantage of using a freight forwarder is particularly compelling for a shipper aiming to initiate or accelerate international activity.
9. Salvage, scrap disposal and return goods handling
Salvage and scrap disposal together with return goods handling is often referred to as reverse logistics. It is an element increasingly receiving management attention, particularly as the concern for recycling and reusable packaging grows, and considering the complexity and high cost of return goods handling. With regard to salvage and scrap disposal, logistics is involved in the removal and disposal of waste materials left over from the production, distribution, or packaging processes. This could involve temporary storage followed by transportation to disposal, reuse, reprocessing, or recycling locations.
Returns may take place, for example, because of a problem with the performance of the product. Return goods handling is complex and expensive due to the movement of mostly small quantities of goods, from the customer to the company, the opposite movement to which its systems are best suited.
10. Parts and service support
Parts and service support, or after-sale service support, provides repairs, spares and parts to dealers, and ensures the collection of defective or malfunctioning products from customers, and responding quickly to demands for repairs. The parts and service support activity is very important to industrial customers for whom downtime, as a result of production stoppages or delays caused by awaiting repairs, can be extremely costly. Customer relationship management (CRM) and the use of company or outsourced call centres can play an important role in parts and service support for the company‘s customers.
Packaging provides advertising, marketing, protection and storage for goods. Packaging performs two basic functions, viz. marketing and logistics. In a marketing sense the package acts as a form of promotion or advertising, attracting customers to and informing them about the product. From a logistics perspective, packaging serves two purposes: it must protect the product from damage while it is being stored or transported, and can also make it easier to store and move products by reducing handling and therefore materials handling costs.
Procurement, or purchasing and supply management, is the purchase of materials and services from outside organisations to support the company’s operations from production to marketing, sales and logistics. Procurement includes activities such as supplier/provider selection, negotiation of price, terms and quantities, and quality assessment. As organisations form longer term relationships with fewer key suppliers/providers, procurement continues to grow in its importance and contribution to the organisation.
The cost of purchased materials and supplies is a significant part of total costs of most organisations. The procurement function also provides the opportunity for leveraging the capabilities and competencies of suppliers through closer integration of the buyers’ and suppliers’ logistics processes. Procurement is therefore playing an increasingly critical role in creating and sustaining competitive advantage as part of an integrated logistics process. Leading organisations include these supply side issues in their strategic planning.
Manufacturing must also link into a strategy and plan for procurement. There needs to be unity within the business between marketing, distribution, production and procurement through the tasks of integrated logistics management.