An Overview of Business Logistics

One definition of business logistics speaks of "having the right item in the right quantity at the right time at the right place for the right price in the right condition to the right customer". Business logistics incorporates all industry sectors and aims to manage the fruition of project life cycles, supply chains, and resultant efficiencies.

The term "business logistics" has evolved since the 1960s due to the increasing complexity of supplying businesses with materials and shipping out products in an increasingly globalized supply chain, leading to a call for professionals called "supply chain logisticians".

In business, logistics may have either an internal focus (inbound logistics) or an external focus (outbound logistics), covering the flow and storage of materials from point of origin to point of consumption (see supply-chain management). The main functions of a qualified logistician include inventory management, purchasing, transportation, warehousing, consultation, and the organizing and planning of these activities. Logisticians combine a professional knowledge of each of these functions to coordinate resources in an organization.

There are two fundamentally different forms of logistics: one optimizes a steady flow of material through a network of transport links and storage nodes, while the other coordinates a sequence of resources to carry out some project (ex:restructuring a warehouse).

Nodes of a distribution network

The nodes of a distribution network include :

• Factories where products are manufactured or assembled
• A depot or deposit is a standard type of warehouse thought for storing merchandise (high level of inventory).
• Distribution centers are for order processing and order fulfillment (lower level of inventory) and also for receiving returning items from clients.
• Transit points are built for cross docking activities, which consist in reassembling cargo units based on deliveries scheduled (only moving merchandise).
• Traditional retail stores of the Mom and Pop variety, modern supermarkets, hypermarkets, discount stores or also voluntary chains, consumer cooperative, groups of consumer with collective buying power. Note that subsidiaries will be mostly owned by another company and franchisers, although using other company brands, actually own the point of sale.

There maybe some intermediaries operating for representative matters between nodes such as sales agents or brokers.

Logistic families and metrics

A logistic family is a set of products which share a common characteristic: weight and volumetric characteristics, physical storing needs (temperature, radiation,...), handling needs, order frequency, package size, etc. The following metrics may be used by the company to organize its products in different families:

• Physical metrics used to evaluate inventory systems include stocking capacity, selectivity, superficial utilization, volumetric utilization, transport capacity, transport capacity utilization.
• Monetary metrics used include space holding costs (building, shelving and services) and handling costs (people, handling machinery, energy and maintenance).

Other metrics may present themselves in both physical or monetary form, such as the standard Inventory turnover.

Handling and Order Processing

Unit loads are combinations of individual items which are moved by handling systems, usually employing a pallet of normed dimensions.

Handling systems include: trans-pallet handlers, counterweight handler, retractable mast handler, bilateral handlers, trilateral handlers, AGV and stacker handlers. Storage systems include: pile stocking, cell racks (either static or movable), cantilever racks and gravity racks.

Order processing is a sequential process involving: processing withdrawal list, picking (selective removal of items from loading units), sorting (assembling items based on destination), package formation (weighting, labeling and packing), order consolidation (gathering packages into loading units for transportation, control and bill of lading).

Picking can be both manual or automated. Manual picking can be both man to goods, i.e. operator using a cart or conveyor belt, or goods to man, i.e. the operator benefiting from the presence of a mini-load ASRS, vertical or horizontal carousel or from an Automatic Vertical Storage System (AVSS). Automatic picking is done either with dispensers or de-palletizing robots.

Sorting can be done manually through carts or conveyor belts, or automatically through sorters.

Transportation

Cargo, i.e. merchandise being transported, can be moved through a variety of transportation means and is organized in different shipment categories. Unit loads are usually assembled into higher standardized units such as: ISO containers, swap bodies or semi-trailers. Especially for very long distances, product transportation will likely benefit from using different transportation means: multimodal transport, intermodal transport (no handling) and combined transport (minimal road transport). When moving cargo, typical constraints are maximum weight and volume.

Operators involved in transportation include: all train, road vehicles, boats, airplanes companies, couriers, freight forwarders and multi-modal transport operators.

Merchandise being transported internationally is usually subject to the Incoterms standards issued by the International Chamber of Commerce.

Configuration and management

Similarly to production systems, logistic systems need to be properly configured and managed. Actually a number of methodologies have been directly borrowed from operations management such as using Economic Order Quantity models for managing inventory in the nodes of the network. Distribution resource planning (DRP) is similar to MRP, except that it doesn't concern activities inside the nodes of the network but planning distribution when moving goods through the links of the network.

Traditionally in logistics configuration may be at the level of the warehouse (node) or at level of the distribution system (network).

Regarding a single warehouse, besides the issue of designing and building the warehouse, configuration means solving a number of interrelated technical-economic problems: dimensioning rack cells, choosing a palletizing method (manual or through robots), rack dimensioning and design, number of racks, number and typology of retrieval systems (e.g. stacker cranes). Some important constraints have to be satisfied: fork and load beams resistance to bending and proper placement of sprinklers. Although picking is more of a tactical planning decision than a configuration problem, it is important to take it into account when deciding the racks layout inside the warehouse and buying tools such as handlers and motorized carts since once those decisions are taken they will work as constraints when managing the warehouse, same reasoning for sorting when designing the conveyor system and/or installing automatic dispensers.

Configuration at the level of the distribution system concerns primarily the problem of location of the nodes in a geographic space and distribution of capacity among the nodes. The first may be referred to as facility location (with the special case of site selection) while the latter to as capacity allocation. The problem of outsourcing typically arises at this level: the nodes of a supply chain are very rarely owned by a single enterprise. Distribution networks can be characterized by numbers of levels, namely the number of intermediary nodes between supplier and consumer:

• Direct store delivery, i.e. zero levels
• One level network: central warehouse
• Two level network: central and peripheral warehouses

This distinction is more useful for modeling purposes, but it relates also to a tactical decision regarding safety stocks: considering a two level network, if safety inventory is kept only in peripheral warehouses then it is called a dependent system (from suppliers), if safety inventory is distributed among central and peripheral warehouses it is called an independent system (from suppliers). Transportation from producer to the second level is called primary transportation, from the second level to consumer is called secondary transportation.

[Airline logistic network. Note how Denver works as hub in the network.]

Although configuring a distribution network from zero is possible, logisticians usually have to deal with restructuring existing networks due to presence of an array of factors: changing demand, product or process innovation, opportunities for outsourcing, change of government policy toward trade barriers, innovation in transportation means (both vehicles or thoroughfares), introduction of regulations (notably those regarding pollution) and availability of ICT supporting systems (e.g. ERP or e-commerce).

Once a logistic system is configured, management, meaning tactical decisions, takes place, once again, at the level of the warehouse and of the distribution network. Decisions have to be made under a set of constraints: internal, such as using the available infrastructure, or external, such as complying with given product shelf lifes and expiration dates.

At the warehouse level, the logistician must decide how to distribute merchandise over the racks. Three basic situations are traditionally considered: shared storage, dedicated storage (rack space reserved for specific merchandise) and class based storage (class meaning merchandise organized in different areas according to their access index).

Airline logistic network. Note how Denver works as hub in the network.

Picking efficiency varies greatly depending on the situation. For man to goods situation, a distinction is carried out between high level picking (vertical component significant) and low level picking (vertical component insignificant). A number of tactical decisions regarding picking must be made:

• Routing path: standard alternatives include transversal routing, return routing, midpoint routing and largest gap return routing
• Replenishment method: standard alternatives include equal space supply for each product class and equal time supply for each product class.
• Picking logic: order picking vs batch picking

At the level of the distribution network, tactical decisions involve mainly inventory control and delivery path optimization. Note that the logistician may be required to manage the reverse flow along with the forward flow.

Warehouse management systems and warehouse control systems

Although there is some overlap in functionality, warehouse management systems (WMS) can differ significantly from warehouse control systems (WCS). Simply put, a WMS plans a weekly activity forecast based on such factors as statistics and trends, whereas a WCS acts like a floor supervisor, working in real time to get the job done by the most effective means. For instance, a WMS can tell the system that it is going to need five of stock-keeping unit (SKU) A and five of SKU B hours in advance, but by the time it acts, other considerations may have come into play or there could be a logjam on a conveyor. A WCS can prevent that problem by working in real time and adapting to the situation by making a last-minute decision based on current activity and operational status. Working synergistically, WMS and WCS can resolve these issues and maximize efficiency for companies that rely on the effective operation of their warehouse or distribution center.

Logistics Outsourcing

Logistics outsourcing involves a relationship between a company and an LSP (logistic service provider), which, compared with basic logistics services, has more customized offerings, encompasses a broad number of service activities, is characterized by a long-term orientation, and thus has a strategic nature.

Outsourcing does not have to be complete externalization to a LSP, but can also be partial:

• A single contract for supplying a specific service on occasion
• Creation of a spin-off
• Creation of a joint venture

Third-party logistics (3PL) involves using external organizations to execute logistics activities that have traditionally been performed within an organization itself. According to this definition, third-party logistics includes any form of outsourcing of logistics activities previously performed in house. For example, if a company with its own warehousing facilities decides to employ external transportation, this would be an example of third-party logistics. Logistics is an emerging business area in many countries.

The concept of a fourth-party logistics (4PL) provider was first defined by Andersen Consulting (now Accenture) as an integrator that assembles the resources, planning capabilities, and technology of its own organization and other organizations to design, build, and run comprehensive supply chain solutions. Whereas a third-party logistics (3PL) service provider targets a single function, a 4PL targets management of the entire process. Some have described a 4PL as a general contractor that manages other 3PLs, truckers, forwarders, custom house agents, and others, essentially taking responsibility of a complete process for the customer.

Logistics Management

Logistics management is that part of the supply chain that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customer requirements. A professional working in the field of logistics management is called a logistician.

• Materials management
• Channel management
• Distribution (or physical distribution)
• Supply-chain management

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