Logistics is adding “place utility” to a product. For example, a product needs to be transferred from a Mumbai to another location say Delhi. This product could be raw material for the manufacturing facility, or the finished product from the manufacturing facility for distribution in the market. The management of raw materials usually comes under material management in a factory. According to Islam et al. (2013), “Place utility in logistics is because a buyer and a seller of the product have agreed to sell and buy the product at certain conditions that include delivery price and time. As per the agreed conditions, transport and/or logistics service provider will be hired (by the buyer or seller depending on the sales terms) to move cargo from the seller’s premises to the buyer’s premises. When it is in transit or under logistics service, the “product” will be termed as “cargo” or “goods.” As per the agreement, the cargo may need to be stored in somewhere along the transit; this service is termed as ‘warehousing’ and depending on the necessity and type of cargo, the warehouse location, size, type, etc. will be determined.”
The buyers may purchase the product in a big lot or a smaller lot depending upon the market demand and the level of inventory the buyer has to maintain. To find the optimum level of the inventory, there are strategies like Just-in-time (JIT), which is a “pull” approach wherein the buyer will receive the product only when it is required or ordered. The goal of this strategy is having an effective inventory level of “zero.” This is quite different to the traditional “push” approach, where the buyer is required to purchase the product in a lot and is also required to maintain some degree of inventory. The product is expected to be suitably packed for transport and warehousing services. Product packaging will depend on the type of product. Usually, a bill of lading (B/L) is supplied by the transport service provider. The B/L includes details of the shipment (product + price + taxes) and gives the title of the shipment to a buyer. B/L is an important document in international trade as it provides guarantees to the exporter (to receive payment) and the importer (to receive the product).
Logistics = Supply of raw materials + materials management in a factory + distribution to customers
Source: Richard R. Still, Edward W. Cundliff, Normal A. P Govoni, Sandeep Puri (2017), Sales and Distribution Management: Decisions, Strategies, and Cases, Pearson; Sixth edition.