Logistics

Logistics (from medieval Latin logisticus, and this from the Greek . λογιστικός, logistikós) is the set of means and methods necessary to carry out the organization of a company, or a service, especially distribution.

For distribution, logistics is responsible for coordinating transportation, the strategic vision of the supply chain, the management of production and distribution processes, as well as tasks related to company purchases. In the business field there are multiple definitions of the term logistics, which has evolved from military logistics to the contemporary concept of art and technique that deals with the organization of the flows of goods, energy and information. Logistics is essential for trade. Logistics activities make up a system that is the link between production and markets that are separated by time and distance. Business logistics, through logistics and supply chain management, covers management and planning of activities of the purchasing, production, transport, storage, handling and distribution departments.

Origin of logistics: background and military logistics

Shield of the Spanish Army Operative Logistics Force

Since the dawn of civilization, the products people want are not produced where they want to be consumed or are not available when they are wanted. Back then, food and other products existed in abundance only at certain times of the year. In the beginning, humanity had to choose to consume the products where they were or to transport them to a certain place and store them there for later use. Since there was no developed transportation and storage system, the movement of products was limited to what one person could carry, and storage of perishable products was possible only for a short period. This transport and storage system forced people to live close to places of production and to consume a fairly small range of products or services.

When logistics systems began to improve, consumption and production began to separate geographically. The different zones specialized in what they could produce most efficiently. Thus, excess production could be shipped profitably to other regions and products that were not manufactured in the area could be imported.

Main objectives

The fundamental mission of business logistics is to place the right products (goods and services) in the right place, at the right time and in the desired conditions, contributing as much as possible to the profitability of the company.

Logistics aims to satisfy demand under the best conditions of service, cost and quality. It is in charge of managing the necessary means to achieve this objective (surfaces, means of transport, information technology, etc.) and mobilizes both the human and financial resources that are appropriate.

Ensuring the quality of service, that is, compliance with customer requirements, gives a competitive advantage to the company. Doing it at a lower cost allows you to improve the profit margin of the company. Achieving this by guaranteeing security allows the company to avoid sanctions, but also to communicate on current issues such as respect for the environment, ethical products, etc. These three parameters make it possible to explain the strategic nature of the logistics function in many companies (the pressure of the environment creates the function). Currently the logistics directors are members of the management committees of the companies and report to the shareholders.

Logisticians' domains of responsibility are varied: operational (execution), tactical (company organization) and strategic (strategic plans, prospective, responsibility and knowledge).

Logistics chain

In business or in any type of company, logistics can have an approach (internal or external) that covers the flow from the origin to the delivery to the end user. All this at the minimum global cost for the company.

There are two advantages

• It optimizes a constant flow of material through a network of transport links and storage centers.
• The other coordinates a sequence of resources for a particular project.

Logistics flow systems are generally optimized for one of several goals: avoiding product shortages (in military systems, especially fuel and ammunition), minimizing the cost of transportation, obtaining a good in a minimum time or minimum storage of goods (in time and quantity). Logistics flow is particularly important in just in time manufacturing, in which great emphasis is placed on minimizing inventory. A recent trend in large retail chains is to assign these goals to individual stock items, rather than optimizing the entire system for a given goal. This is possible because the plans generally describe the common quantities to be stored at each location and these vary depending on the strategy. The basic method of optimizing a distribution standard system is to use a minimum distribution coverage tree to design the transportation network, and then locate storage nodes sized to handle the minimum, average, or maximum demand for items. Very often, the demand is limited by the existing transport capacity outside the location of the storage node. When transportation out of a storage point exceeds its storage or incoming capacity, storage is only useful to equalize the amount of transportation per unit hour in order to reduce peak loads on the transportation system.

Logistics Operator

It is a company that is in charge of operating a client's cargo and delivering it to a point; it also develops a management process throughout the Supply Chain to satisfactorily meet the logistics requirements of its customers, making use of various tools and knowledge that can only be acquired through experience in the corresponding sector.

Depending on three fundamental factors, you can find different types of services offered by operators:

According to the type of process:

• Logistics dedicated: When the service provided to the customer is offered exclusively, prior design to the measure of the required logistic project. It's a mono-client service.

• Shared logistics: The services provided are part of a catalogue offered by the logistic operator, and can therefore be requested by other companies. It's a multi-client service.

According to the location or physical location of the operation:

• Logistics in the company: It is carried out in the units of the contracting company of the service, which assigns part of its facilities to the contracted company to develop the function object of the contract.

• Logistics outside the company: The service is executed in the establishment of the logistic operator, different from the location of the subcontractor company.

According to human and technical resources:

• Own resources: When the resources of the company are used on a fixed or temporary basis, and the management of the system is carried out by the outsourced organization.

• External resources: When the resources belong to the outsourced company and not to the outsourcing company.

Logistics platform

It is a delimited area within which the activities related to transport, packaging and distribution are carried out, for national and/or international transit of goods from one or several operators. Thus, it must have a regime of free competition for all companies interested in executing the announced activities; It must also be equipped with all the necessary collective equipment for the operation of logistics activities, have common services for people and user vehicles; likewise, it can be managed by a single, public, private or mixed entity.

Logistics platforms with more than one mode of transport are:

• Port logistics areas;
• Air cargo centres;
• Dry ports;
• Multimodal logistics platforms.

Digital logistics

Digital logistics is a concept that arises from the integration between traditional logistics and the digital age. With the rise of email and digital downloads replacing physical products, one could speak of a blow to the logistics industry, but in fact something very different has happened: the logistics industry has ushered in digital innovations. In the last decade, many companies have undergone a process of digital transformation to adapt to the changes that this new stage entails, abandoning any analog process such as paperwork, calls and procedures. With digitization, the aforementioned logistics operators are in charge of operating a client's cargo and delivering it to a point using an online logistics platform through which you can carry out and manage communication flows and shipments digitally.

Functions of the logistics area

The logistics function is in charge of managing physical flows (raw materials, finished products...) and is interested in its environment. The environment corresponds in this case to:

• Resources (human, consumable, energy...)
• Goods necessary for the realization of the benefit (such as tools, own trucks, computer systems...)
• Services (transports or outsourced warehouses...)

The logistics function directly manages the physical flows and indirectly the associated financial and information flows.

Physical flows are generally divided into “purchase” (between a supplier and its client), “distribution” (between a supplier and the final client) and “return” (reverse logistics).

At the same time, it is interesting to adopt a more global vision of logistics operators, since many of these actors consider that one of their main tasks is to optimize the logistics process. According to this vision, a logistics operator must not only deal with the storage or transport of its client's merchandise, but also optimize all the complementary logistics operations in order to obtain the best results for its clientele. This management can include merchandise of a different nature: industrial, hardware, gardening, automotive, e-commerce, non-refrigerated dry food or beverages, among others.

To guarantee this optimization, logistics operators equip themselves with modern warehouses equipped with the latest technologies in stock management (such as the GSA software) and highly qualified human teams. Professional and experienced in the area of logistics. In this way, greater control of client assets is achieved, as well as cost reduction.

Distribution logistics

Distribution logistics includes the management of physical flows, today known as DFI (international physical distribution) and DFN (national physical distribution), as a basis for companies to determine the most convenient type or system for dynamic flow of your inventory, information and administrative following:

• The forecast of the activity of the logistics centres.
• Storage.
• Cost, expiration and quality of goods.
• The transfer of goods from one place to another from the warehouse with the necessary resources and equipment.
• Preparation of orders or enforcement cross-docking (Transit).
• Sometimes, the realization of small product transformation activities (kitting, tagged...).
• The distribution transport to the customer.
• The correct flow of goods so that the cost/benefit ratio can be realized.

All this will pay off in lower cost, better product quality and elimination of expiration.

Reverse logistics

Reverse logistics is a supply chain management strategy in which a company collects and reuses part of its distributed good. Typically, a supply chain network creates a pathway for businesses to reach consumers. However, in reverse logistics, companies create a new supply chain network that works in reverse and allows consumers to reach the company.

Organizations that implement reverse logistics reduce their waste and environmental impact, remain accessible to consumers, and improve general citizenship.

Reverse logistics includes the management of the following physical, information and administrative flows:

• Product collection at customer facilities.
• In conformity, repair, reintegration stock, destruction, recycling, packaging and storage.

Logistics professionals

Logistics has become a very attractive profession within the industrial and commercial field, but above all at an academic level. The 2014 Logistics Performance Index (IDL), a recent study carried out by the World Bank, considers that the training of specialists in logistics and supply chain management is one of the most important tasks for the operation of the Global economy.

Currently, middle management or higher management positions require an academic degree in order to control and optimize complex global supply chains, from the supplier of raw materials to the final consumer. There are already numerous universities that offer specialized bachelor's or master's programs in Logistics and Supply Chain Management.

One university, in which research and teaching focuses on Supply Chain Management and Logistics, is the Kühne University Logistics in Hamburg (Germany). In addition to a deep knowledge of Logistics and Supply Chain Management, you must have excellent intercultural skills and speak several languages. It is also a sine qua non requirement to have global and analytical thinking, apart from organizational capacity and communication and leadership skills. They are also very useful to carry out contractual negotiations with logistics providers or to prepare decisions to make or buy, have knowledge of economics and of course, it is mandatory to have a deep knowledge of processes and legal matters.

Main indicators (KPI) of logistics

The indicators must allow:

• Measuring with the various organizations (drivers, transporters, regulatory stores, logistics services...).
• Manage the activity in relation to the main objectives of the trade (service level, stock, cost, productivity...).

Example of stock indicators

• Evolution of coverage stock.
• Evolution of demand.
• Evolution of obsolescence.
• Evolution of values.
• Goods breaking.
• Duration of inventory.
• Inventory economic value.
• Accuracy of inventories.

Example of indicators of the purchasing and supply function

• Planning reliability.
• Delivery time.
• Availability rate.
• Service rate.
• Evolution of order number or order lines.
• Supplier certification.
• Compliance level.

Examples of storage and storage indicators

• Follow-up to absenteeism.
• Evolution of the volume treated in each process of the warehouse.
• First Entries and First Departures (PEPS).
• Monitoring capacity utilization.
• Service rate of each process.
• Better production for the company.
• Unit cost stored.
• Dispatch unit cost.
• Square meter cost.
• Units dispatched or conditioned by employees.
• Cost of office per employee.
• Office compliance level.
• Timeliness level.

Examples of transport indicators

• Monitoring capacity utilization.
• Cost tracking per transport unit, by transport route, i.e., value of optimal conditions.
• Service rate.
• Level of service.
• Orders dispatched on time.
• Delivery times.
• Damage to the transport or damage of the factory.
• Participation by transport or boarding.
• Cost of global distribution and transportation against monthly or annual sale.
• Operating cost per driver.

Logistics players

The specialization of logistics translates into the growth of the subcontracted part. Thus, industrial and commercial companies concentrate on their trades (core business).

Logistics operators can be classified, but also client companies based on the degree of outsourcing of their logistics.

• The 1PLFirst Party Logistics: no service is outsourced.
• The 2PL (Second Party Logistics): outsourcing the transport.
• The 3PL (Third Party Logistics): outsourcing of transport, storage and management.
• The 4PL (Fourth Party Logistics):externalization of the transport, the storage and its management, in addition to the resolution of more global problems: putting in place tools, making available knowledge and systems to achieve the objective.
• Superior to 4PL: wider outsourcing, the operator is responsible for optimizing a global chain, including its client, its customers and its customer providers.

The logistics real estate market

In the logistics real estate market, where rent generally predominates, there are different real estate products that adapt to the needs of each logistics operation, whether for storage logistics (logistics warehouses), distribution logistics (distribution warehouses) and the logistics of higher rotation (ships of cross-docking). In each of these cases it is necessary to know the specific needs of each operation to build warehouses that maximize the profitability of the operator's business and the owner's real estate profitability.