What is Logistics

What is Logistics

What is Logistics

The process of planning, implementing, and controlling the flow of raw materials, IP inventory, and finished goods from the point of origin to the point of consumption to meet the customer requirements.

• The Governing Body - Council of Logistics 

• Logistics function concerns taking products and services where they are required and when they are required.

• Logistics is the process of strategically supervising the procurements.

• Information Logistics (IL) as a section of information management deals with the flow of information within an organization unit.

Logistics = Inbound logistics + Material handling + Physical distribution

Vendor - A vendor is a person, company, or entity that sells goods or services to their customers.

  • Vendors can operate in various capacities, including retailers, wholesalers, distributors, or online platforms.
  • They may sell products from numerous manufacturers, delivering a diverse range of items to customers. They act as intermediaries between manufacturers and consumers, handling aspects such as marketing, sales, and customer service.
  • Vendors often focus on sourcing products from different manufacturers, negotiating deals, controlling inventory, and providing a convenient shopping experience for customers.

Manufacturer - A person, company, or entity that produces goods or products by using raw materials.

  • They typically design, produce, and assemble items, often in large amounts, using raw materials or components.
  • Manufacturers fund research and development, production facilities, and quality control processes to confirm the goods meet specific standards and regulations.
  • They may sell their products directly to consumers, distribute them through retailers, or supply them to wholesalers and distributors for further distribution.

Supplier - provider of goods or services to other businesses or organizations.

  • Suppliers sell raw materials, components, or finished products to manufacturers, retailers, or other businesses.
  • They play a vital role in the supply chain, ensuring timely delivery and quality products to their clients.
  • Suppliers primarily engage in B2B transactions, focusing on fulfilling orders and maintaining client relationships.

Agent - Has an authorized to represent some other party in legal or commercial transactions.

Wholesalers - They take ownership of merchandise sold to retailers in retail stores.

In logistics, push and pull strategies refer to two different strategies for fulfilling customer demand.

Push Strategy

Here, products are manufactured or stocked in uncertainty of customer demand. This means that production and inventory levels are determined based on forecasts or historical demand patterns. Once products are produced or stocked, they are moved through the supply chain to distribution centers and retailers without waiting for specific customer orders. This method is common in industries with stable demand patterns or long lead times, such as specific manufacturing or retail sectors.

Advantages of Push Strategy

  • Economies of Scale - Push strategies usually involve producing goods in large batches or quantities, which can result in lower per-unit production costs due to economies of scale.
  • Stable production planning - With this production schedules can be planned and executed in advance based on forecasts or historical demand data. This can stabilize production processes and lower the risk of production disruptions.
  • Reduced lead times - Since products are produced in anticipation of demand, lead times from order placement to delivery can be shorter compared to pull strategies where production starts after obtaining customer orders.
  • Simplified supply chain coordination - Push strategies generally involve a more detailed supply chain management coordination process since production and inventory levels are determined independently of specific customer orders.
  • Promotional flexibility - This allows companies to proactively promote and market their products since inventory is readily available. Also, it can be advantageous for seasonal or promotional campaigns.

Disadvantages of Push Strategy

  • Excess inventory - One of the main weaknesses of push strategies is the risk of overstocking, which can lead to higher inventory holding costs, obsolescence, and markdowns. This ties up capital and storage space.
  • Increased risk of stockouts for new products- Push strategies may result in inadequate inventory for new or less predictable products since production levels are based on historical data or forecasts, which may not accurately reflect future demand.
  • Reduced responsiveness to changes in demand - Since production and inventory levels are predetermined, push strategies may be slightly responsive to sudden changes or fluctuations in customer demand compared to pull strategies.
  • Waste and scrap - Excess production in push strategies can lead to excess waste and scrap if products become obsolete or perishable before being sold. This can increase costs and environmental influence.
  • Higher transportation costs for expedited shipments - In cases where demand exceeds forecasted levels, companies may incur higher transportation costs to expedite shipments or replenish inventory quickly.
  • Potential for loss of market share - If competitors adopt more responsive pull strategies, companies using push strategies may risk losing market share due to lesser delivery times or inability to meet changing customer demands.

Pull Strategy

In contrast, a pull strategy depends on actual customer demand to drive production and inventory replenishment. Products are manufactured or stocked in response to specific customer orders or signals from downstream entities in the supply chain. Here, production and inventory levels are revised dynamically based on real-time demand data. This approach minimizes the risk of overproduction and excess inventory, as products are only produced or stocked when there is confirmed demand. Pull strategies are often used in industries with volatile demand patterns or short lead times, such as e-commerce or fast-moving consumer goods.

The advantages of a pull strategy 

  • Reduced inventory costs - Pull strategies help producers minimize the inventory holding costs since products are produced or stocked in response to real customer demand. Also, this diminishes the risk of overstocking and obsolescence.
  • Improved demand responsiveness - Pull strategies enable companies to be more responsive to changes in customer demand since production and inventory levels are adjusted based on real-time demand data. So, this can lead to better customer service and satisfaction.
  • Enhanced efficiency - By aligning production and inventory levels with actual demand, pull strategies can improve overall supply chain efficiency. This includes reduced lead times, lower transportation costs, and optimized resource utilization.
  • Waste reduction - Pull strategies help minimize waste by producing only what is required and when. This reduces the likelihood of excess inventory buildup and the need for costly disposal or markdowns.
  • Better forecast accuracy - Since pull strategies rely on actual customer orders or demand signals to drive production and inventory replenishment, they can lead to enhanced forecast accuracy over time. This allows companies to better anticipate future demand routines and make informed business decisions.
  • Flexibility and adaptability - These strategies show outstanding flexibility and adaptability to changing market conditions compared to push strategies. Companies can quickly adjust production and inventory levels.

The Disadvantages of the Pull Strategy

  • Increased risk of stockouts - Relying solely on customer demand to trigger production and inventory replenishment can lead to stockouts if demand exceeds supply capacity or if there are delays in production or distribution.
  • Higher transportation costs - Pull strategies may result in more frequent, smaller shipments as products are produced or restocked in response to specific orders. This can lead to higher transportation costs compared to bulk shipments associated with push strategies.
  • Complexity in supply chain coordination - Implementing a pull strategy often requires greater coordination and communication among supply chain partners to ensure timely fulfillment of customer orders. This can be challenging, especially in complex supply chains with multiple stakeholders.
  • Potential for production disruptions - Pull strategies are more susceptible to disruptions in the supply chain, such as delays in raw material availability or production bottlenecks. These disruptions can have a cascading effect on downstream operations and customer satisfaction.
  • Complication in forecasting - Pull strategies rely on accurate demand forecasting to ensure optimal production and inventory levels. However, forecasting demand accurately can be challenging, especially in industries with volatile demand patterns or seasonal fluctuations.
  • Inventory imbalance - This may lead to inventory imbalances, where certain products or SKUs experience high demand while others remain underutilized. This can result in excess inventory for some items and stockouts for others, leading to inefficiencies and increased costs.