The scope of logistics management is wider than just optimizing transportation costs. Decisions about logistics have their effect on inventories, on packaging, on materials handling and on purchasing and marketing (sales) decisions and vice versa.
For instance, what is the point in producing small (but) economic batch qualities when the distribution facility dictates that a number of these batches should be accumulated before they can be shipped to the customers? Instead of carrying inventory inside the plant, one will carry it outside in the warehouse.
Moreover inventory control decisions have to take into account the inventories ‘in transit’ or in the pipeline. The latter depends much on the transport facilities or logistics decisions regarding transport.
Decisions regarding the number of warehouse, their location, the number of customers serviced by each etc will have effects on inventory levels to be held at each warehouse.
Also, depending upon the transport activity envisaged the number of warehouses and the inventory levels can be lower or higher. With more volume of transportation and a quicker mode of transportation, one may be able to manage with smaller investment in warehousing for the same level of service to the customers.
Decisions about the mode of packaging depend on the mode of transport, and the converse also is true. Quantities to purchase, quantities to sell, time of purchase and time of sales are well linked with the decision regarding the transport and bulk storage of materials.
In short, the organization’s goal is to provide good service to the customers in terms of quantity, quality, timely delivery and therefore various aspects such as inventory control, service levels, package design, warehousing (capacity, umber location), the mode frequency and routes of transport will all have to be considered. Thus, Logistics is an integral part of the materials management system.
Supply Chains and Physical Distribution Management (PDM):
The organization’s objective of providing service to the customer would be better served if the organization realizes the essential ‘supply chain’ aspect of today’s business. Physical distribution function has a big role to play in the efficiency of the supply chain as this function is at one interface between the supplying and receiving organization. PDM should result in optimality for the chain as a whole.
Of course the ideal situation is the one where the inventories carried in any part or location on the supply chain should be minimal. That is, they should be minimal while being optimal for the entire chain and near optimal (if optimally is not possible) for the different members on the supply chain. This requirement for optimality or near optimality suggests that the material supplies in the pipeline, i.e. those that are on the trucks or in the goods train or other transportation mode, should be small in quantity. It means the materials should land ‘Just-in-time’ at the point of use and should not lie in large quantities at any point. The task before PDM is to make deliveries /pick ups in small quantities that are economical to the transport service provider. All this flows from the supply chain concept.
Making Frequent Small Deliveries / Pick ups that are Economical:
The distance between the supplier and the receiver (buyer) should be short. This would help in minimizing the time spent in travel and would cut down the travel time related cost. However, most of the times it is not possible to find suppliers who are only a short distance away and who also meet the other criteria such as quality production, capability to produce enough quantity and price economy. This is similar to asking or a cow that yield much milk per season, the season lasting long, and one that has short horns which do not hurt. Since such a breed of a cow may not exist, the cow has to be genetically engineered of developed.
Companies having the Just-in-Time system, therefore develop or prepare their suppliers from the small area surrounding the company most of the time within a radius of 40 kilometers. This involves a yeoman effort on the part of the company selecting training and nurturing the locally available talent. —