Role of Logistics in the Supply Chain

Logistics basically connects the source of supply with the sources of demand. It bridges the gaps between market demand and the capabilities of supply sources. Logistics helps in bridging these gaps so as to make them invisible at the points of demand in the supply chain. To achieve this, all compo­nents of the logistics system such as the warehousing network, transportation network, inventory con­trol system and supporting information system are put into operation with the objective of delivering the right product at the right place and at the right time with the least cost. The logistics system has to fulfill the two primary objectives of customer service and cost while striking a balance between them.

Logistics makes it possible to deliver a product to the customer anywhere, irrespective of its manufacturing location. It is deployed for making a daily shipment of products manufactured once a week/month or otherwise as per market needs. Logistics facilitates either a full truckload of shipment once a week or a part load daily per the requirement of customers. Thus logistics fills the gap between supply and demand. However, when these gaps tend to be larger and the risk of dilution of service level is high, an integrated system is needed to make the operation seamless for product and information flow. SCM is a process of integration to bridge the gap between supply and demand. Today, we are talking of a virtual supply chain wherein the cycle time is reduced to zero, no warehouses exist, as inventory levels plummet to near zero and freight is cut down to a minimum through networking. This is an ideal situation but attempts should be made to achieve this goal. After trading half the path toward the goal as above, it becomes progressively easier to tread the remaining path and bridge the gap. SCM helps to close this gap by enhancing and then aligning the capabilities through enablers such as technology, collaboration and human resources (HR) skills. The supply chain banks on the relationship with suppliers for performance cycle reduc­tion, quality improvement, freight minimization and reduction in cost of material and transaction. It emphasizes flexibility in manufacturing capability for producing volumes and variety to quickly respond to the market demands, irrespective of time and place limitations. On the distribution side the supply chain is needed in order to make products available at the point of sale or consump­tion as and when required, so as to minimize loss of sales due to non-availability of products. This would entail the restructuring of the distribution network, designing logistics programs to tune to channel members’ requirements, speedier, reliable and consistent freight movements, load unitiza­tion, cross-docking, and freight consolidation. The supply chain tries to understand the demand signals and profiles the target customer base to adjust itself for planning and execution of customer requirement in accordance with the desired service level.

Logistics capabilities supplement supply chain operations (Table 3.1). The efficiency and effectiveness of inventory movement across the supply chain is largely dependent on the ca­pability of logistics management. Hence, integration of the supply chain is not possible with­out the capability and reliability of the logistics operation. Cost reduction and customer service enhancement in the supply chain are not possible without efficient logistics operations such as warehousing, material handling, inventory control, packaging and transportation. In fact, lo­gistics and SCM cannot be separated from each other, since they are part of the same customer service solution. Logistics operations may continue irrespective of whether or not an enterprise follows the supply chain philosophy. Inventory movement needs to take place to bridge the gap between demand and supply. Logistics takes care of this gap. The effectiveness and efficiency of gap closing depends on the enablers—technology, collaboration and HR skills. On the other hand, the success of a supply chain is greatly dependent on logistics. However, for the success of both logistics and the supply chain, the following operations need to be taken care of, planned and managed properly:

• Close coordination with suppliers.
• Reduce inventory levels
• Speed, reliability, and consistency in inventory movement
• Faster replenishment cycle
• Shorter performance cycle
• Flexible manufacturing cycle
• Asset utilization and productivity
• Innovations for value additions in customer service offerings

In a nutshell, logistics is the key to the success of SCM. The degree of success depends on the level of integration between them using the enablers such as information and communication technology.

Source: Sople V.V (2013), Logistics Management, Pearson Education India; Third edition.