The primary objective of a logistics system is to move the inventory in a supply chain effectively and efficiently to extend the desired level of customer service at the least cost. To achieve this, the following subsets of the above broader objective need to be achieved:
1. Inventory Reduction
Inventory is the biggest culprit and adversely affecting the bottom line of an enterprise. Through a financial accountancy perspective, inventory is an asset and does not cause any appreciable disadvantage even when it is stocked in an excess quantity. Traditionally, firms have carried an excess of inventory for the purpose of extending excellent customer service. However, inventory as an asset requires investment to possess it. The funds invested are blocked and cannot be used for any other productive purpose. Moreover, there is a capital cost associated with it. The carrying cost will be equivalent to the interest on the funds at the bank borrowing rates currently applicable. The carrying cost will be drain on the enterprise profits. Hence, the prime objective of logistics is to maintain the inventory at the minimum level. However, the customer service goal can be managed through small, but frequent supplies. A higher transportation cost will be much lower than the inventory carrying cost resulting in better margins.
2. Reliable and Consistent Delivery Performance
On-time delivery is crucial to the customer to maintain his production schedule. The customer is not interested in a faster delivery of the material ahead of production schedule. This area of operation is subject to variance. However, proper planning on transportation modes and inventory availability along with a variation factor will reduce the variance. The other objective of logistics should be consistency in delivery performance; this will help build customer confidence for keeping a long-term relationship.
3. Freight Economy
Freight is a major cost element in logistics cost. This can be reduced by adopting measures such as freight consolidation, transport mode selection, route planning, load unitizing, and long distance shipments.
4. Minimum Product Damages
Product damages add to the logistics cost. The reason for product damages are improper logistical packaging, frequent consignment handling, absence of load unitizing, and so on. Use of mechanized material handling equipment, load unitization, and proper logistical packaging will reduce the product damages.
5. Quick Response
This is related to the capability of a firm to extend the service to the customer in the shortest time frame. Use of the latest technologies in information processing and communications will enhance the decision-making capability in terms of accuracy and time, enabling the enterprise to be flexible enough to fulfil the customer requirements in volumes and varieties in the shortest time frame. For example, smaller shipments could be delivered rapidly at the point of consumption.
Source: Sople V.V (2013), Logistics Management, Pearson Education India; Third edition.
Way cool, some valid points! I appreciate you making this article available, the rest of the site is also high quality. Have a fun.