Logistics and Supply Chains

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CHAPTER

1
LOGISTICS AND SUPPLY CHAINS
Contents
Learning objectives 3 Role of logistics 4 Supply chains 8 Aims of logistics 14 Activities of logistics 18 Importance of logistics 22 Chapter review 28 Case study – Ace Dairies 29 Project – useful websites 30 Discussion questions 31 References 31 Further reading 32

LEARNING OBJECTIVES After reading this chapter you should be able to: • understand the broad role of logistics • see how logistics support the operations of an organisation • describe the role and structure of supply chains • discuss the overall aims of logistics • understand how logistics contribute to organisational performance • appreciate the balance between customer service and costs • list the activities within logistics and understand the relationships between them • recognise the importance of logistics to every organisation.

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4 A N O V E R V I E W O F S U P P LY C H A I N M A N A G E M E N T

Role of logistics
Every organisation has to move materials. Manufacturers have factories that collect raw materials from suppliers and deliver finished goods to customers; retail shops have deliveries from wholesalers; a television news service collects reports from around the world and delivers them to viewers. Most of us live in towns and cities and eat food brought in from the country. When you order books from a website, a courier delivers them to your door, and when you buy a mobile phone it has probably travelled around the world to reach you. Every time you buy, rent, lease, hire or borrow anything at all, someone has to collect it and deliver it to your door. Logistics is the function responsible for this movement.

Logistics the function responsible for all aspects of the movement and storage of materials on their journey from original suppliers through to final customers

• Logistics is the function responsible for all aspects of the movement and storage of materials on their journey from original suppliers through to final customers.

On a national scale, logistics needs a huge amount of effort. China has become ‘the factory of the world’ and exports US$100 billion of goods a month, while the internal trade of goods within the European Union (EU) is worth more than US$2 trillion a year – and all of this has to be moved between strings of suppliers and customers. A rule of thumb says that logistics accounts for 10–20% of gross domestic product (GDP), so the USA’s GDP of US$13 trillion1 might include US$2 trillion for logistics. The 30 members of the Organisation for Economic Co-operation and Development (OECD) have a combined GDP of US$40 trillion2 and might spend US$6 trillion on logistics. Despite this effort, we hardly notice logistics as it goes about its business – but sometimes you might notice the lorries driving down a motorway, visit a shopping mall, drive through a trading estate, see a container ship unloading, fly from an airport, or have a parcel delivered by a courier service. These are the visible signs of a huge industry that employs millions of people and costs billions of dollars a year. In this book, we describe this complex function, seeing exactly what it involves and how it can be managed.

Logistics support operations
Product the combination of goods and services that an organisation supplies to its customers

Every organisation delivers products to its customers. Traditionally, these products are described as either goods or services. Then manufacturers like Sony, Ford and Guinness make tangible goods, while the BBC, Qantas and Vodafone provide intangible services. But this view is misleading, and it is more realistic to describe every product as a complex package that contains a mixture of both goods and service. For example, Toyota manufactures cars, but they also give services through warranties, after-sales guarantees, repairs and finance packages. McDonald’s provides a combination of goods (burgers, cutlery, packaging, etc.)

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