According to Stock and Lambert (2000):
The logistics process affects almost every sphere of
human activity directly or indirectly.
Few areas of business have as significant an impact on
a society’s standard of living as logistics.
Most customers tend to notice logistics only when there
is a problem.
The following illustrations by the authors show the
importance of Logistics Management:
a shipment of medical supplies and food intended for
distribution to victims of a natural disaster in a foreign
country cannot be delivered to those in need because
transport equipment and storage facilities are not available
or are inadequate;
an automobile plant is shut down when a trucker’s strike
halts shipment of the supplies of parts and equipment
essential to operate a just-in-time manufacturing system.
According to The Council of Logistics Management (CLM):
‘“Logistics management is that part of the supply
chain process that plans, implements, and controls the
efficient, effective flow and storage of goods, services,
and related information from the point-of-origin to
the point-of-consumption in order to meet customers’
The systems approach simply states that:
‘all functions or activities need to be understood in
terms of how they affect, and are affected by, other
elements and activities with which they interact’.
The idea is that, if one looks at actions in isolation, he
or she will not understand the big picture or how such
actions affect, or are affected by other activities.
In essence, the sum, or outcome of a series of activities,
is greater than its individual parts.
For instance, while it might be desirable to have high
inventory levels in order to improve customer order
fulfilment, high inventory levels increase storage costs
such as the risk of obsolescence.
Without considering the impact of decisions on the larger system,
such as the firm or the distribution channel, sub-optimization often
That means, while the individual activities in that system appear to
be operating well, the net result on the total system is relatively poor
To understand the opportunities for improvement, and the
implication of those opportunities, the system must be viewed as a
Cost and Service Impacts
Computer and Information Technology
Shifts in Channel Power
Identifying the cost and service impacts of the logistics
process was an important first step in achieving recognition
For example, logistics costs, as a percentage of product value,
for a producer of industrial nondurable goods (raw materials
and industrial products used in the manufacture or end
products), can be much higher than logistics costs for a
During the 1980s and 1990s many firms found it increasingly
difficult to maintain traditional profit levels and growth rates
because of increasing domestic and foreign competition,
saturated markets, government regulation, and other factors.
In many organisations, logistics is one of the most promising
areas where significant cost savings can be achieved. And in
some instances, such cost savings can have a far greater impact
on the firm’s profitability than increasing sales volume would
Information technology gave organizations the ability to better
monitor transaction intensive activities such as ordering,
movement of goods.
Computerized quantitative models for controlling and optimization
Increase visibility though IT
◦ MRP,MRP II,DRP,DRP II,JIT link material management from
order processing to inventory management, forecasting and
Globalization and competition
◦ Local firms versus overseas competitors
◦ Increased offshore buying and selling activities, more
complex and more costly global supply chains
With rising interest rates and increasing energy costs logistics
received more attention as a cost driver-emphasis on cost
Shifting channel power from manufacturers to retailers,
wholesalers, and distributors has also had a profound
impact on logistics.
Lower brand loyalty decreases a manufacturer’s power but
increases retailer’s power
The "four P's" of the marketing mix require that for a firm to be
successful, any marketing effort must integrate the ideas of having
the right product, at the right price, publicized with the proper
promotion, and available in the right place.
Logistics plays a critical role particularly in support of getting
the product to the right place.
Form Utility: The value or utility of making materials available in a
completed state is called form utility (not directly of logistics)
Possession Utility: Possession utility is the value added to a product by
allowing the customer to take ownership of the item. Possession utility is a
result not directly of logistics, but of the offering of credit, quantity
discounts, and delayed payments that enable the customer to assume
possession of the product. The logistics and marketing processes culminate
in possession utility.
Place Utility: is the value created or added to a product by
making it available for purchase or consumption in the right
place. Logistics is directly responsible for adding place utility
to products as it efficiently moves raw materials, in-process
inventory, and finished goods from point-of-origin to point-of-
Time Utility: is the value created by making something
available at the right time. Products are not as valuable to
customers if they are not available precisely when they are
FINANCE: Logistics interfaces with finance in the
planning process and in the analysis of capital
expenditures on investments in building and
equipment to support distribution, transportation,
warehousing, information technology and related
ACCOUTING: Logistics interfaces with accounting
in establishing logistics costs (transportation,
distribution, storage for various products, customers
and distribution channels).
Logistics also requires information from accounting
regarding budgets and actual expenditures.
RESEARCH & DEVELOPMENT: Logistics should be involved
with research and development, product engineering, packaging
engineering and related functions in the new product team.
It is vital for the logistics area to be represented very early in the
new product development process.
This is critical in terms of designing the proper distribution
channel, anticipating needs for inventory build-up, ensuring the
availability of materials for production, and properly configuring the
packaging for maximum efficiency and production within the
PRODUCTION/OPERATIONS: Logistics must work closely with
production and operations in a number of capacities.
First logistics often receives order releases for materials from
production, and it needs to ensure that the items required are
ordered, transported and received on a timely basis.
Storage may also need to be arranged.
Logistics often manages the flow of materials or work in process
within the organization.
Logistics must also work with production in terms of stocking and
shipping the finished products as it is available.
An efficient and economical logistics system is similar to a
tangible asset on a corporation’s books.
Logistics competency cannot be readily duplicated by the
If a company can provide its customers with products quickly
and at low cost, it can gain market share advantages over its
Logistics also supports the movement and flow of many
economic transactions; it is an important activity in facilitating
the sale of virtually all goods and services.
To understand this role from a systems perspective, consider
that if goods do not arrive on time, customers cannot buy
them. If goods do not arrive in the proper place, or in the
proper condition, no sale can be made and thus all economic
activities throughout the supply chain will suffer.