Posted by: changholt | April 8, 2010

Why are logistcs important?

We’ve been talking about logistics the past few weeks, but why is it important? How does if effect the supply chain?

The term “Logistics” is based on the physical movement of goods, and has its origins in the military. Today’s business logistics includes all the activities related to the physical movement of goods and its related paperwork (and there is always a lot of paperwork).

In the days long gone, traders who bought and sold goods internationally (on the Silk Road, for example) needed logistics to ensure the products arrived in good condition and at the lowest possible cost. However, as competition increased speed was everything.  The introduction of containers in ocean shipping lowered transport times considerably. Now a days we talk about “Customer Satisfaction”, which should really be called “customer requirements”. These customer’s have been used to faster, less expensive forms of delivery, and these fast delivery times facilitated the adoption of different inventory management techniques such as Just-In-Time, MRP, MRP II, and DRP.

Logistics are important but don’t capture the entire supply chain. Supply Chain Management incorporates the planning and management of all activities involved in sourcing and procurement, conversion, and all Logistics Management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies (in essence both upstream and downstream movement of the goods and services). …. much more comprehensive than logistics. I would argue that logistics is a subset of today’s supply chain management.

In fact, understanding your supply chain is strategic and critical to running any business, especially internationally.

A few months back we looked at the five areas of your supply chain:  Production, Inventory, Location, Transportation and Information. All having a dynamic impact on your supply chain, because each company has to make the difficult decision on how much money to invest in each of these factors within the supply chain.

Are you managing your supply chain effectively?


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