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Logistics is the science of organising the timely shipment of goods or information by the most efficient route. This does not just mean finished goods, but all of the components and materials required to create them. Goods do not just travel from producer to market – they also travel back again, not least when rejected by consumers or under end of life legislation. This is known as reverse logistics. Logistics management has been defined as the right item in the right quantity at the right time at the right place for the right price. The means by which goods travel from the producer to the consumer is known as the supply chain.
The supply chain and its management have become crucial in modern business, not just because the distances travelled by most goods are far greater in a global economy but because it has been realised that the supply chain in many ways is business. Regardless of what is designed, produced, quarried or manufactured, until the moment it reaches the end user the essential business transaction has not taken place. This has led to whole theories of macro and micro-economics based upon supply-chain management and debates as to whether companies should be process or customer-oriented from business gurus.
Typically a business venture in the global economy will require input from many different suppliers delivering the right components to the right locations at the right time. It will also then require the shipment of completed goods to various destinations for sale. In some business sectors this pattern may repeat as partly engineered goods are transported elsewhere to be included in a larger project. The professional body for those involved in logistics or supply chain management is the Chartered Institute of Logistics and Transport.
Logistics is therefore the management of resources and shipment, including inventory, transport by different modes, warehousing, packaging and demand fulfilment – ie giving the customer as much as they want when they want it. Many companies tie their expertise and capital up in manufacturing, and they will therefore rely on transport specialists to manage their supply chain needs. At the simplest level this means engaging a hire or reward haulier to carry goods from factory to shop.
Typically such organisations as supermarkets – Sainsbury’s for example – will engage a logistics company – such as Wincanton or Christian Salvesen;– to run their regional distribution centres (RDCs), and this company will then use its own fleet and hire other hauliers to help fulfil the regional distribution requirements as necessary. This is known as third party logistics, where the logistics company will typically offer pick and pack, warehousing and distribution management.
The biggest players in logistics offer 4PL - fourth-party logistics. This involves the management of the entire supply chain, often internationally, and relies upon the engagement of third party logistics suppliers to provide fleet, packing and warehousing services regionally or nationally, with the use of subcontractors as necessary. Essentially 4PL companies are asset-free, using other companies’ material resources almost exclusively to fulfil their management contracts.
One theory of logistics which grew out of Japanese efficiency studies involves the computerised timing of components and goods shipment so that they are finished just in time to be shipped, and delivered just in time to be sold or used. Hence product is always in transit and the supply chain has no inventory sitting in warehouses. This is cost-effective when the system works – however a lack of inventory means delivery problems can bring entire factories to a close within hours. It is not unknown for car factories such as Nissan which used JIT to fly parts in by helicopter if their normal distribution lets them down.
JIT may also have a higher environmental cost. On-demand transport means a greater number of journeys with smaller loads which runs counter to the fuel economy and anti-congestion measures currently espoused as best practice.
Global logistics is already a multimodal business, incorporating shipping, aviation, road and rail freight. In the future more emphasis will be needed at a governmental, corporate and local level to offer greater integration of these modes. This will include greater infrastructural investments across modes and greater collaboration and partnership between transport suppliers. Logistics will also increasingly be affected by:
Today consumers are increasingly aware of the distances products travel and companies are increasingly concerned about the cost and efficiency of that travel. Logistics management will therefore continue to grow in importance within every organisation and area.
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