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Logistics and SCM

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Logistics and SCM

Fundamental definitions

  • Logistics is a practical science concerned with the mananagement of the flows of materials, money and information. It deals with businesses' and organizations material flows' physical, informational and financial control from procurement to customer ( Finnish Wikipedia on logistics translated by jubo-jubo )
  • Logistics deals with the flows and storages of goods, services and related information ( Council of Supply Chain Management )
  • Logistics is the management of the flow of resources between the point of origin and in order to meet some requirements, for example, of customers or corporations. ( Wikipedia )
The resources managed in logistics can include physical items, such as food, materials, equipment, liquids, and staff, as well as abstract items, such as time, information, particles, and energy.
The logistics of physical items usually involves the integration of information flow, material handling, production, packaging, inventory, transportation, warehousing, and often security. The complexity of logistics can be modeled, analyzed, visualized, and optimized by dedicated simulation software. The minimization of the use of resources is a common motivation. ( Wikipedia )

In Finnish

  • fi:Logistiikka on materiaali-, raha- ja tietovirtojen hallintaan erikoistunut käytännönjohteinen tieteenhaara. Siinä käsitellään yritysten ja laitosten materiaalivirran fyysistä, tiedollista ja taloudellista hallintaa hankinnasta asiakkaalle saakka.( Suomenkielinen Wikipedia )
  • fi:Toimitusketjun hallinta (Supply Chain Management, SCM) tarkoittaa tavaroiden toimituksen ja palveluketjun optimointia. Kaikkien toimitusketjun osapuolien; toimittajien, jakelijoiden, alihankkijoiden ym. liikekumppaneiden yhdistämistä ja koko ketjun tehokasta hallinnointia. Tavoitteena on lisätä kaikkien jäsenten välistä kommunikointia ja siten alentaa kustannuksia, lisätä myyntiä ja tehostaa asiakaspalvelua. ( Suomenkielinen Wikipedia )

Modes of transport

  • Mode of transport is a term used to distinguish substantially different ways to perform transport. ( Wikipedia )
  • Multimodal transport (also known as combined transport) is the transportation of goods under a single contract, but performed with at least two different means of transport; the carrier is liable (in a legal sense) for the entire carriage, even though it is performed by several different modes of transport (by rail, sea and road, for example). ( Wikipedia )

4 strategic decisions

  1. What w:modes of transport to use ?
  2. What carriers in each mode will the use ?
  3. Own w:fleet or hire outsiders ? ( private carrier or w:common carrier)
  4. Will the company manage transportation operations or hire a 3rd party ?

Cost of transport ( all trips Hong Kong - Helsinki )

  • Volume: A small lot is more expensive then a big lot per unit
  • Transport lot: 650€ / 100 kg (air) vs. 1570€ / 24,000 kg (sea)
100x price difference per kilo ( air vs. sea )
  • Time: shorter transport time == higher cost
  • Time: 2 days / 10,000kg / 40,000€ (air) vs. 30 days / 10 tons / 1,400€ (40' container 2 w:TEU, sea transport) ( all figures from Soile Kallinen's material )
  • A private carrier is a company that transports only their own goods. ( Wikipedia )
  • A common carrier in [[w:common law{]] countries (corresponding to a public carrier in civil law systems, usually called simply a carrier) is a person or company that transports goods or people for any person or company and that is responsible for any possible loss of the goods during transport. ( Wikipedia )
  • Fleet vehicles are groups of motor vehicles owned or leased by a business or government agency, rather than by an individual or family. Typical examples are vehicles operated by car rental companies, taxicab companies, public utilities, public bus companies, and police departments. In addition, many businesses purchase or lease fleet vehicles to deliver goods to customers, or for sales representatives to travel to clients. ( Wikipedia )

History of modes of transport

Mode of sea transport over time:

Sail -
Steamship (S/S) ( approx. 1770 - early 1900's ) -
Motor Ship ( M/S) -
w:Containerization ( 1960's) -
LNG powered ships ( 2010's )

TODO: history of land and air transport



Logistics is flow

  • A lead time is the latency (delay) between the initiation and execution of a process. ( Wikipedia )
  • Material flow (MF) is the description of the transportation of raw materials, pre-fabricates, parts, components, integrated objects and finally products as a flow of entities. The term applies mainly to advanced modeling of Supply chain management. As industrial material flow can easily become very complex Plant Simulation Software has been developed to simulate, visualize, analyze and optimize these processes. ( Wikipedia )
  • w:Reverse logistics stands for all operations related to the reuse of products and materials. It is "the process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal. ( Wikipedia )

Practical logistics

Material flows and warehousing

Order cycle system:

  1. Order transmittal - Electronic or paper order from customer
  2. Order processing - Electronic or paper order processed by supplier
  3. Order preparation - Order is the goods being readied for shipment
  4. Order shipment - Order is the package of goods shipped to customer
  • A flowchart is a type of diagram that represents an algorithm, workflow or process, showing the steps as boxes of various kinds, and their order by connecting them with arrows. ( Wikipedia )

Purchasing and logistics

  • A requisition is a request for something, especially a formal written request on a pre-printed form. ( Wikipedia )
  • Purchasing refers to a business or organization attempting to acquiring goods or services to accomplish the goals of its enterprise. ( Wikipedia )

Supply management:

Purchasing involvement starts before a product is designed
> Procurement involvement begins before a requisition is received
> Buying Involvement begins after a requisition is received ( Soile Kallinen )
  • Purchase requisition Purchase Request is a precise document generated by an internal or external organization to notify the purchasing department of items it needs to order, their quantity, and the time frame that will be given in the future. ( Wikipedia )
  • A purchase order request or purchase requisition is a request sent internally within a company to obtain purchased goods and services, including stock. ( Wikipedia )
  • A purchase order (PO) is a commercial document and first official offer issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services the seller will provide to the buyer. Sending a purchase order to a supplier constitutes a legal offer to buy products or services. Acceptance of a purchase order by a seller usually forms a contract between the buyer and seller, so no contract exists until the purchase order is accepted. ( Wikipedia )
As always, w:offer and acceptance are required to form a contract ( Refresh from Business Negotiations and Contracts )
  • Global sourcing is the practice of sourcing from the global market for goods and services across geopolitical boundaries. Global sourcing often aims to exploit global efficiencies in the delivery of a product or service. These efficiencies include low cost skilled labor, low cost raw material and other economic factors like tax breaks and low trade tariffs. ( Wikipedia )

Related concepts

Learn further
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