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KNOWLEDGE LIBRARY

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27Jun

Warehouse Occupancy Percentage

Optimal storage utilization helps enforce healthy inventory management. In our early work with Honda their...

02Jun

Efficient Procurement Inventory

Efficient procurement inventory (EPI) is often required to realize steep discounts when a special opportunity...

02Jun

Inventory Carrying Rate

The inventory carrying rate (ICR) is the percent of the unit inventory value used to...

26Jun

Inventory Activity Profiling & Data Mining

Suppose you were sick and went to the doctor for a diagnosis and prescription.  When...

27Jun

Inventory Performance Measures

Inventory performance measures include financial, productivity , quality, and response time indicators for evaluating the efficiency and...

Definition of Logistics

I was recently asked by a large food manufacturer to help them develop a formal logistics organization. At the kickoff meeting the participants spent the first two hours arguing with one another about who should be represented in the new organization. As utter frustration was setting in and the first meeting was about to adjourn by default, it finally dawned on me why we were not able to make any progress. Each person in the room came to logistics without a formal degree in logistics and from a different professional discipline. One came from marketing, another from sales, another from material management, another from manufacturing, another from warehousing, another from transportation, and another was the nephew of the chairman of the board.  As a result each had his or her own different definition of logistics. It is impossible to develop anything, let alone an organization, for a process that is not even defined, and where each of the major players speaks a different language.

 

Remember what God did to humble the people who were trying to build a monument to themselves reaching all the way to Heaven. He gave them all a different language, so that the people could not communicate with each other. As a result, they could not complete the construction of the tower. We are the same way in logistics; if we can’t speak the same language, we can’t start, let alone finish a project.

 

There are many definitions of logistics circulating in the world of supply chain management – almost as many as there are supply chains.  We developed a simple definition over 20 years ago. Logistics is the flow of material, information and money between consumers and suppliers.

 

Much can be learned from the three parts of that simple sentence. First, logistics is “flow”. Flow is a good thing! What happens to water when it stops flowing? Stagnation, scum, insects, and possibly death. What happens to blood when it stops flowing? The nerds in the group always say, “coagulation”. The non-nerds usually just say, “somebody dies.” The point is, when material, information, and money stop flowing, some elements of the business and supply chain become unhealthy and potentially die. Even the highest performing professionals may lose their jobs when those flows stop. Customers and shareholders become disgruntled when those flows stop. Flow is a good thing!

 

Second, material, information, and money should flow simultaneously, in real-time and without paper.

 

Lastly, logistics flow should be viewed, considered, and modeled bi-directionally, “between consumers and suppliers”. Otherwise, its design will be sub-optimal.

 

We can also learn about “logistics” from its root, “logic”.  According to Webster, “logic” means “reason or sound judgment”. Unfortunately reason and sound judgment are missing from many logistics and inventory decisions. Wisdom and sound judgment often fall prey to the tyranny of self-imposed deadlines and/or prevailing fads and philosophies. Ironically, “logic” has gone missing from a lot of logistics.

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