FUNDAMENTAL OF LOGISTIC MANAGEMENT (DPL10023) STUDENT’S QUICK NOTE HEATHER VALARIE BENILUS ROHANAH BINTI DORANI
FUNDAMENTAL OF LOGISTIC MANAGEMENT (DPL10023) STUDENT’S QUICK NOTE HEATHER VALARIE BENILUS ROHANAH BINTI DORANI
Published by: POLITEKNIK KOTA KINABALU NO.5, JALAN POLITEKNIK,KKIP BARAT KOTA KINABALU ,INDUSTRIAL PARK 88460 KOTA KINABALU,SABAH TEL;088-401800 FAX:088-499960 WEBSITE: https://polikk.mypolycc.edu.my © PoliteknikKota Kinabalu First Edition,2023 All right reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical including photocopy, recording, or any information storage and retrieval system without permission in writing from Politeknik Kota Kinabalu
TABLE OF CONTENT PREFACE CHAPTER 1 The Role of Logistic in The Economy and Organization Page 1 CHAPTER 2 Customer Service Page 10 CHAPTER 3 Transportation Page 19 SUMMATIVE EXERCISES Page 26
PREFACE Greetings. This module is written for Semester 1 students in Polytechnic whose taking Diploma in Logistics and Supply Chain Management. Hopefully this module will help the students in facing the assessments and for the final exam purposes. With this module also, they will be anticipated on what they will learn in the next semester.
CHAPTER 1 THE ROLE OF LOGISTICS IN THE ECONOMY AND ORGANIZATION Explain the role of logistics in the economy and organization Logistics management defined as the process of planning, implementing and controlling the efficient, effective flow and storage of goods, service, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements Development of Logistics Logistics become developed as early as 1900. There are many factors contributes to the development of logistics. The factors are: Military Logistics Following the contribution of logistics in the World War II and Persian Gulf War in 1990-1991, logistics has been acknowledged to contribute its efficiently and effectively. So in order for the organization to improve efficiency, they should pay attention to their logistics management. Deregulation There have been deregulation in the transportation industry in 1970 to 1980. It has given organizations many options and competition between transportations modes. Following this, 1
carriers has become more creative, flexible, customer-oriented and competitive in order to succeed. Competitive pressure Global Logistic • the organization had to be competitive • Logistics is an area for a company to be competitieve against their competitor in order to be more realible andprovide responsive service Cost Control • Logistics can be look at cost control in an organization. • Beside quality,cost control can be a crucial issue for a company. And to achieve that, its shoould look upon the logistic management. Information Technology IT gave the organization the ability to better monitor the flow of logistics activities such as order processing, movement and storage of goods. Combined with the availability of computerized quantitative models, this information increased the ability to manage flows and to optimize inventory level and movement. System such as MRP, DRP and JIT enable the organization to link many material management activities smoothly and the organization has its competitive advantage than to its competitor. 2
Channel Power Shifting channel power from manufacturer to retailers, wholesalers and distributors also had impact in logistics. When competition risesin major consumer goodsindustries, there isstakeout of many suppliers and manufacturers, so that a few leading competitorsremain. Those remaining are competitive and offer a high-quality product. A lower brand loyalty decreases a manufacturer’s power. This increases retailer’s power because sales are determined by what is in stock, not by what particular brands are offered. Profit Leverage is an effort to reduce operating expenses by reducing purchasing costs instead of focusing in increasing profit. Efficiency in logistics will eventually helps company to its profit leverage 3
Describe the role of logistic in economy Cost It is well documented that among the most significant costs in most firms are logistic costs. This is true if logistics is not well planned and managed. Value to the customers and firms in term of quick delivery and cost savings will be value added to the logistics activities. Thus, the savings from minimizing costs could then benefit customers and company’s shareholders. Length of supply and distribution lines Firms are seeking or developing global strategies, whereby: i. Products are designed for a world market; or ii. Products are produced where the cost of raw materials, components and labour are lower; or iii. Products are produced locally but sold internationally. This definitely will stretch the distribution lines compared to the products which are sold to local market only. Therefore, logistics plays an importance role as more cost will be incurred especially the transportation costs. Strategic roles As business logistics are capable of lowering a significant portion of the costs incurred by the organization, its role is now more prevalence in the strategic planning of the organization. Customer value When the product requested reach the buyers at the time and place specified by the buyers, value will be created. There are four types of value in products or services. These are form, time and possession. Logistics will create two out of four values, which are time and place values in products mainly through transportation. 4
Customer wants Customer has needs and wants. Needs refer to basic needs of human kind but wants are shaped by culture and changing environment. Describe the role of logistic in organization i. Logistic support marketing - Decision Making - Connection between good distribution & sales activation - Marketing mix instruments - uses management principles to ensure the optimization of workflow. ii. 4p’s - Product Product refersto the set of utilities/characteristicsthat a customer receives as a result of a purchase. To avoid making poor decisions. management needs to understand the trade-off and interrelationships between logistics and other marketing activities. - Price Price isthe amount of money that a customer paysfor the product orservice offering. - Promotion Promotion of a product or service encompasses both personal selling and advertising. Whereas increasing advertising expenditures or the size of the direct sales force can have a positive impact on sales, there is a point of diminishing returns. A point exists where the extra money being spent does not yield sufficiently high increases in sales or profits to justify the added expense. It is important for organizations to understand when they 5
reach that point, so that they can avoid misallocating funds. - Place Place is the key element of the marketing mix with which logistics interfaces directly. Place expendituressupport the levels of customerservice provided by the organization. This includes on-time delivery, high order fill rates, consistent transit times, and similar issues. Describe the Key Logistic Activities a) Customer Service - the support company offer their customers both before and after they buy and use the products or services that helps them have an easy and enjoyable experience with the company b) Demand forecasting/planning - process of using predictive analysis of historical data to estimate and predict customers' future demand for a product or service. Demand forecasting helps the business make better-informed supply decisions that estimate the total sales and revenue for a future period of time. c) inventory management - is determining the policies that set the goals for the inventory control system d) Logistic communication - involves complex coordination among different departments and workers within an organization for both outbound and inbound shipping and receiving. e) Material handling - Material handling is the movement of materials and goods from one location to another. It includes protecting, storing, and controlling the materials, from manufacturing to distribution. f) Order processing - the workflow that takes place between a customer placing an order and the order getting delivered 6
g) Packaging – serves two functions as logistical tools or marketing tools h) Purchasing/procurement: Purchasing (buying of materials & all other activities that is associated with the buying process), procurement (purchasing, traffic, warehousing & inbound logistics). i) Reverse logistic - Reverse logistics is the set of activities that is conducted after the sale of a product to recapture value and end the product's lifecycle. j) Warehousing and storage - Storage refers to the small-scale storing of products in small spaces. On the other hand, warehousing is the practice of keeping goods in larger areas known as warehouses, for longer periods of time. k) Plant and warehouse selection - Determining the location of the company's plant(s) and warehouse(s) is a strategic decision that affects not only the costs of transporting raw materials inbound and finished goods outbound, but also customer service levels and speed of response. a) Traffic and transportation – To provide easy movement. Involve selection in mode of transportation 7
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Chapter 2 9
CHAPTER 2 CUSTOMER SERVICE Explain Customer Service in Logistic activities Customer Service Defined Customer service define as a measure of how well the logistics system is performing in providing time and place utility for a product or service. This includes activities such as the ease of checking stock, placing an order, and post-sale support of the item. A recent view of customer service • Institute proactive customer experience – Customer should aware and knows how to reach the company customer service • Break down company silos – In order to deal with customer’s problem, the firm have to cooperate to make it works • Customer experience roles – The usage of AI should enable to ease the customer service mechanism in order to retain the customers • Customer data protection – Firm should protect the database of their customer from being violated • Customer expectations – Need to fulfil customers problem so that they can stay loyal to the firm. 10
TQM and customer service • TQM is a management philosophy that focuses on continuous improvement of processes, products, and services to achieve customer satisfaction and organizational excellence. • A core definition of total quality management (TQM) describes a management approach to long-term success through customer satisfaction. In a TQM effort, all members of an organization participate in improving processes, products, services, and the culture in which they work. • TQM is essential to increasing customer satisfaction because business processes are developed specifically to provide higher quality goods as the first priority. In turn, this increases the company's value to its customers which justifies a higher price point for products and services. 11
DESCRIBE THE ELEMENTS OF CUSTOMER SERVICE There are Three elements of customer service. They are pre-transaction, transaction and post transaction Pre-transaction The pre-transaction elements of customer service tend to be related to the organization's policies regarding customer service, and can have a significant impact on customers' perceptions of the organization and their overall satisfaction. The pre-transaction elements are as follow; ▪ A written statement of customer service policy. This policy would define service standards, which should be tied to customers' needs. The standard defined should be actionable and measurable. ▪ Organization structure The structure should facilitate both internal and external communication of policies, performance, and corrective actions as needed. Customers should feel at ease to whoever individuals within an organization who can satisfy their needs and answer their questions. ▪ System flexibility. Flexibility and contingency plans should be built into the system, which allow the organization to successfully respond to unforeseen events. The system should be adaptability to meet customer requirement. Transaction elements ▪ Order cycle time – Elapsed time between order and delivery. Should be accurate upon the customer requirement ▪ Inventory availability – Percentage of demand met from stock in hand ▪ Order fill rate – Proportion of order filled within the stated lead time ▪ Orderstatusinformation – query response time and exception advice. 12
Post-transaction elements ▪ Availability of spares - in stock level of service parts ▪ Warranty and product tracing - warranty handling and product tracing capability ▪ Customer complaint handling - dealing with complaints and returns THE IMPORTANCE OF CUSTOMER SERVICE FOR GAINING STRATEGIC ADVANTAGE 1. Earning Customer Loyalty and Maintaining a client - Customer will stay loyal to the firm because they feel they are being appreciated by that particular firm. 2. A Good Customer Service Booststhe Brand Image - Customer will be Word-of-Mouth of the firm because they feel pampered. So, it will an easy task for the firm to introduce a new product line 3. Satisfied And Happy Customers are Good Advertisement for the Brand. - Customer will be Word-of-Mouth of the firm because they feel pampered. This will attract more new customers to the firm. 4. . A Great Client Assistance is a Key Factor in Customer Service that Gives the Brand the Edge Over Rivals - Competitive advantage over its competitor 5. . Long Term Customer Retention - Customer comfortable with the firm that they refuse on brand or service switching. 13
IDENTIFY THE CUSTOMER SERVICE STRATEGY An organization's entire marketing effort can be neutralized by poorly conceived or executed customer service policies. Yet customer service is often a neglected element of the marketing mix. As a result, customer service standards tend to be based on industry norms, historical practices, or management's judgment of what the customer wants, rather than what the customer really desires. Management often treats all customers the same, not recognizing that different customers want different levels and types of services There are Four methods in establishing the customer service strategy. They are; 1. customer reactions to stockouts The shopper behaviour when facing a stocked out are; - Do not purchase item - Delay purchase - Substitute different brands - Buy item at another store Strategies to the manufacturer/retailer to overcome stockout; - Implement JIT system - Improved the demand forecasting - Calculate reorder points of each product - Automate tasks with modern inventory management software - Develop strong relationship with supplier 2. Cost/revenue trade-offs. A cost trade-off refers to the decision-making process of choosing between two or more options that have varying costs associated with them. In essence, it is the trade-off between the costs and benefits of choosing one option over another. 3. ABC Analysis / Pareto’s Law ABC analysis is a method in which inventory is divided into three categories, i.e. A, B, and C in descending value. The items in the A category have the highest value, B category items are of lower value than A, and C category items have the lowest value. Inventory control and management are critical for a business. Purpose: - to develop policy guidelines for control - to determine the level of importance and the required control needed for each inventory type 14
The logic behind ABC classification is that some customers and products are more beneficial to a firm than others: beneficial in terms of profitability, sales revenues, segment growth rates, or other factors deemed important by corporate management. 4. The customer service audit Customer service audits capture a snapshot of the customer experience: whether the company and employees are doing well, and where the customer service experience could be improved. The goal of a customer service audit is to identify areas for improvement across your customer support and to make sure that your team is consistently meeting or exceeding customer expectations. The objectives of the audit are to (l) identify critical customer service elements, (2) identify how performance of those elements is controlled, (3) assess the quality and capabilities of the internal information system. There are TWO type of customer audit; - External customer audit - Internal customer audit 15
State Customer Service Performance in Logistics Quality in Logistic Logistics quality is a quality term according to DIN ISO 8402, which refers to the suitability of a company to provide the logistics services required by the customer. A logistics service is fulfilled when the customer receives the right goods in the right quantity at the right time and in the right place. 5 key factorsto measure logistics service quality • TANGIBLES –the availability the product on the shelves • REALIBILITY – error free delivery, order processing. Customer order should be handle carefully by the company • RESPONSIVENESS – company can provide a tol-free number, chat facilities in case there is a mistake in customer order. The complaint should be handle ASAP • ASSURANCE – goodsshould be delivered to customersafely • EMPATHY – urgency to ensure the availability the product on the shelves (i.e: lead time, reorder point) Developing and reporting customerservice standards 1. Be responsive to customer inquiries, and act with a sense of urgency. 2. Be transparent about the company policies and procedures, and consistent in the way of implementing them. 3. Show empathy for each customer's situation, and personalize the experience to their specific needs. 4. Be available when customers need assistance, and clearly communicate when and how customers can reach the assistance from the firm. 5. Be reachable on multiple channels, especially the channels that the customers value the most 16
Global Customer Service Issue 1. Slow response time 2. Rude communication of customerservice staff 3. Lack of real time engagement 4. Being transferred from one agent to another 5. Excessive customerservice automation 6. No unified customer view 7. Incompetent customerservice staff 8. Offering a wrong product 9. Fail to meet commitments 10. No or poor after-salessupport 17
CHAPTER 3 18
CHAPTER 3 TRANSPORTATION Transportation physically moves products from where they are produced to where they are needed Mode of transport stated as below; The transport participant consists as below; 1. Shipper 2. Consignee (Receiver) 3. Carrier and Agents 4. Government 5. Internet 6. Public Shipper and consignee have a common interest in moving goods from origin to destination within a given time at the lowest cost Carriers desire to maximize their revenue for movement while minimizing associated costs Agents(brokers and freight forwarders) facilitate carrier and customer matching Government desires a stable and efficient transportation environment to support economic growth 19
Public is concerned with transportation accessibility, expense, and standards for security, safety and the environment Identify the transportation cost and pricing Time and place utility 1. Transportation is needed to moves products from where they are produced to where the point consumption. 2. Place utility is the movement across space or distance adds value to products. 3. Time utility is created by warehousing and storing products until they are needed 4. Transportation is also a factor in time utility; it determines how fast and how consistently a product moves from one point to another. This is known as time-in-transit and consistency of service, respectively. Transportation Interfaces To minimize cost, firm should be able to choose its mode transportation Below are the characteristics that a firm should consider when choosing mode of transport; ✓ Speed isthe elapsed movement time from origin to destination ✓ Availability is ability of a mode to service any given pair of locations ✓ Dependability isthe potential variance from expected delivery schedule ✓ Capability is the ability to handle any load size or configuration ✓ Frequency is the quantity ofscheduled movements a mode can handle 20
Factorsinfluencing transportation cost and pricing There are two factorsinfluencing transportation cost and pricing They are product-related factors and market-related factors Product-related factors; ✓ Density ✓ Stowability ✓ Ease or difficulty of handling ✓ Liability Market-related factors ✓ Degree of intramode and intermode competition ✓ Location of markets, which determinesthe distance goods must be transported ✓ Nature and extent of government regulation of transportation carriers ✓ Balance or imbalances of freight traffic into and out of market ✓ Seasonality of product movements ✓ Whetherthe product istransported domestically or internationally 21
Explain the Logistic and Traffic Management • Traffic Management isthe administration of transportation activities • It includes several major issues • The whole participators in transportation should be understand the whole system in satisfying customer needs at a profit 1. Inbound and Outbound logistics Inbound logistics – brings supplies or materials into a business Outbound logistics -deals with moving goods and products out to customers. Both focus heavily on the transporting of goods. To be effective, this traffic function must interface with other departments within and outside of the logistics area 2. Carrier-shipper contracts A contract of carriage is a negotiated contract not subject to a tariff that is between the carrier and shipper for the transportation of cargo. The written contract between a shipper and carrier sets forth the terms, conditions, and obligations of each party with respect to the carriage of the particular goods. Contracts permitsthe shipper to exercise greater control over the transportation activity. 3. Carrier-shipper alliances A shipping alliance, often referred to as an ocean alliance, is a group of ocean carriers that create a cooperative agreement together. This agreement covers a number of trade routes through cooperation among its members on a global scale To ensure traffic moves smoothly, a cooperative relationship between shippers and carriers on both strategic and operational level need cooperative with each other 4. Private Carriage Any transportation entity that moves products for the company who ownsit Private carriers were established primarily to haul the products, of their own company Can be very costly to the company 5. Mode/carrier selection decision process Carrier selection is the process of shippers selecting carriers to move goods from origin to destination. 22
Because transportation affects most logistics activity, the traffic managers must develop the best possible mode/carrier strategies 6. Routing and Scheduling Scheduling is the process of planning out time windowsfor when deliveries will be made and who will make them. Routing is the process of mapping specific routes that drivers will take to make these deliveries. Carriers and shippers can achieve sizeable benefit by optimizing their routing and scheduling activities Adv to carrier – greater vehicle utilization, higher level of customer service, lower transportation costs reduced capital investment in equipment and better management decision making Adv to shipper – cost and service improvements 7. Service Offering Service offered by the carrier include pickup and delivery, claims, equipment availability, time-in-transit, and consistency of service Carriers have to develop customer service packages that meet the needs of increasingly demanding customers 8. Computer Technology Refer to inventionsrelated to or associated with computers and devices with a central processing unit, such as the hardware and software of computers, the Internet and storage devices. become widespread in logistic, especially in the area of traffic management Can be grouped into four; transportation analysis, traffic routing and scheduling, freight rate maintenance and auditing, and vehicle maintenance 23
Describe Carrier Pricing and Related Issue Important issues in transportation It involve how rates are developed in general and how specific rates are determined by a carrier to transport a shipment between point A to point B or even to the destination point. include : rate and rate determination, FOB pricing, delivery pricing, quantity discounts, allowances, pricing and negotiation 1. Rates and Rate Determination Cost-of-service pricing • FC + VC + Allowances = Profit • Can be vary based on distance and volume Value-of-Service Pricing • Based on the demand for transportation service & the competitive situation Categories of Rates • There are two types of charges assessed by carriers: line haul rates and accessorial charges • line-haul rates –charged for the movement of goods between two points that are not in the same local pickup and delivery area • accessorial charges – cover all other payments made to carrier for transporting, handling, or servicing a shipment Categories of Rates (line-haul rates) • Class Rates Reduce the number of transportation rates required by grouping products into classes for pricing purposes • Exception Rates or exception to the classification Provide the shipper with rates lower than the published classrates • Commodity rates Apply when a large quantity of a product is shipped between two locations on a regular basis • Contract Rates and freight –all-kinds(FAK) Rates include other rates that apply in special circumstances. E.g: contract rates are those negotiated between a shipper and carrier Freight-all-kinds(FAK) have been developed recently and apply to shipments instead of products 24
2. FOB Pricing FOB stands for “free on board” or “freight on board” and is a designation that is used to indicate when liability and ownership of goods is transferred from a seller to a buyer. Free on Board (FOB) is a term used to indicate when the ownership of goods transfers from buyer to seller and who is liable for goods damaged or destroyed during shipping. "FOB Origin" means the buyer assumes all risk once the seller ships the product. "FOB Destination" means the seller retains the risk of loss until the goods reach the buyer. FOB terms can impact inventory, shipping, and insurance costs. 3. Delivery Pricing A pricing method in which the final price to the buyer is adjusted to include transportation costs; the seller takes responsibility for arranging delivery but adds the cost to the quoted price. Include zone pricing, basing-point pricing, uniform delivered pricing Zone pricing – a single price within a geographic area, eg.postage Uniform delivered pricing - a single price for all customers regardless of location, eg., newspapers Basing-point pricing – the sellerselects one or more location that serve as points of origin 4. Quantity Discounts Cumulative quantity discounts provide price reductions to the buyer based on the amount of the purchase over some prescribed period of time Noncumulative quantity discounts are applied to each order and do not accumulate over a time period 5. Allowances Sometimes, sellers will provide price reductions to buyers that perform some of the delivery function. The most common allowances are provided for customer pickup form some the product or unloading of the carrier vehicle upon delivery at the customer’s location 6. Pricing and negotiation Shippers are concentrating more business with fewer carrier and are focused more on negotiated pricing. The goal is to develop an agreement that is mutually beneficial, recognizes the needs of the parties involved and preforms at their best for a win-win situation. 25
SUMMATIVE EXERCISE 1 1. Identify correct definition for each term below. (5 MARKS) a. Logistics management b. Reverse logistics c. Supply chain management d. Materials management e. Physical distribution Definition Term Flow and storage of goods, services, and related information from point of origin to the point of consumption. Management of interaction & coordination of the upstream & downstream flow of materials, final goods & related information among suppliers, resellers & final consumers. The process of moving goods from their typical destination for the purpose of capturing value, or proper disposal. Controlling and regulating the flow of material while simultaneously assessing variables like demand, price, availability, quality, and delivery schedules. The management of physical flow of products and management and operation of the flow system in which it is concerned with the physical movement of the goods from the producer to the consumer. 26
SUMMATIVE EXERCISE 2 State True or False based on statement below. (5 MARKS) No. Statement True/False 01. Inventory management is important to ensure the customer receive the product within the agreed scope. 02. Purchasing is one of the activity mix in business logistics. 03. Transportation involves all acts of transferring cargo from one location to another. 04. Packaging serves two functions as logistical tools or marketing tools 05. Customer needs are shaped by culture and changing environment. 27
SUMMATIVE EXERCISE 3 State True or False based on statement below. (5 MARKS) No. Statement True/False 1. Safety stock is also called buffer stock. 2. One of the reasons companies buy speculative inventory is because of the forecasted price increase 3. Inventory is referring to a physical resource that a firm holds in stock with the intent of selling it or transforming it into a more valuable state. 4. Raw materials are goods that have undergone some changes but have not been completed. 5. Dead stock is a term used to describe merchandise that was never sold to customers and has already expired in the warehouse. 28
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