10

V.G. Orekhivskyy. Logistics. Lesson 1.

Lesson 1. Logistics as a Science

1. Logistics Origin and Background

2. The Alternative Logistic Definitions

3. Reasons and Tendencies of Logistic Development

3.1. Logistics in Food Supply Systems

4. Logistics Aim and Tasks

5. Logistics and the Modern Economic Environment

5.1. Careers in Logistics

--------------------------------------------------------

1. The “Logistics” term is a relatively new in the economic theory, however it has a long history.

Greek by origin, presented in all European languages, has being used in many but two meanings. In Greece: “Art of Thinking”, “Performance of Calculations”.

Special state controllers had been called “logists”, and there were 10 of them.

Romanians – “rule of products distribution”.

Later – logistics is met in military science, as a fundamental mechanism of military support.

Byzantium [bi’zentiem] Imperia (880-920 y.y.) “The logistic goal is to support army, provide ammunition, food, and missions planning”.

Thus the “logistics” term receives the military origin. However, it has been further developed and acquires two major meanings.

German philosopher, mathematician Wilhelm Leibnitz (XVII-XVIII): Logistics – mathematical science.

1960 - The New Structure of Headquarters of French Army adopted “Senior Marshall for Logistics”, responsible for supply, transportation, placement and route [rut] planning (J.D. Little, The Military Staff, Its History and Development (Harrisburg, PA: Stackpole Co., 3^rd. ed., 1961), pp.4-49).

A.A. Zhomini, French General – “Treatise about Military Art” (1830) define logistics as a “third branch of the military science”, after strategy and tactics. It’s still a basis of theoretical and practical approaches of functioning of military forces. Thus there are organizational “logistic” structures in the NATO army forces.

American Army – W. War II. The logistics concern in amer. Army support become evident. The correspondence of lofistical problems in army with industrials has initiated its implementation in US economy terminology from the middle of 1950 th. as “enterprise logistics”. Further developments – separated the categories of “business-logistics”, “marketing-logistics”, “supply logistics”, “purchasing” logistics” etc.

In Europe (Germany, France) – logistics related to separate functional areas - “supply logistics”, “purchasing” logistics”, “Transport logistics”, etc.

Modern European languages “logistics” as – 1. mathematical logic. 2. techniques and technology of transport-warehousing works in military and civilian spheres. In some languages (engl.) – only 2-nd meaning.

From the beginning of 1990^th. – “logistics” has being used also in mass media, to define the new scientific direction – management of material, informational and financial flows, or turnovers of raw materials, processed products, information and so on, from the point of raw materials supplier, via processing plant towards the ultimate consumer according to the requirements of the latter.

Periods of logistics development

Period	Phase	Years	Competency
1. Philosophical	Mathematical logic	Till VIII century	Formalization of distribution
2. Military	Military logistics	From VIII cnt	Optimization of military location
3. Civil	Fragmentary logistic Partial integration Complete integrity	1960th 1980th 1990 th	Physical distribution of goods Logistical system Logistical chains

2. The Alternative Logistic [le’dzistik] Definitions

To start Logistical systems are concerned with the effective management of the total flow of goods from the acquisition of raw materials to the delivery of final products to the customers.

Logistical system is composed of a large number of elements which have to be managed properly in order to deliver final products in the right quantities at the desired time and quality, and at a reasonable cost. Process design – in a way that environmental aspects are dealt adequately.

The most important elements:

Plants, distribution centers, products (incl. Raw materials, supplies, semifinished and final products), transportation infrastructure, information and communication systems, people.

Variety of constraints here: technological options, productivity limits, labor availability, demand uncertainties, service requirements.

To determine ways to acquire and use logistic elements which are subject to constrains, cost components are taken into account.

These are: purchasing costs, production costs, setup/changeover costs, inventory costs, investment costs, hiring and firing costs, transaction costs. Therefore, processes related to design and control of logistical systems can be extremely complex. (not difficult)

Thus, logistics sphere encompasses purchasing and supplier management, materials management and manufacturing, inventory management and warehousing, distribution and transport, and customer service, also waste technologies and green management.

Has the Military Origin – therefore the challenge in logistics is:

Getting the right product to the right place in the right quantity at the right time, to the right customer, in the best condition and at an acceptable cost, by The Chartered Institute of Logistics and Transport (UK) – CILT.

Also known as a definition of “7R” (the most simple one). Also could be “5R”, “6R”, “8R”. Always present – key points product, place, time, costs. (4 P marketing – product, place, price and promotion)

Therefore, logistics can be treated as a mechanism of compromise development – by producing necessary goods with reasonable costs which would be acceptable by the customer, taking into account quality and delivery times.

Logistics is becoming a key consideration in new product development with logistics professionals playing their part in multi-disciplinary teams to ensure products are designed with efficient supply-chain management in mind.

While logistics covers a range of functions, each with its own challenges and skills, they are all interdependent and practitioners must work together and understand the impact on the whole supply-chain to deliver results.

American Council of Logistics Management, Logistics: The process of planning, controlling and storage of materials flow with the optimal costs, creating ready products inventory along with relevant information, with the overall aim of satisfying customer needs from the point of origin till the point of consumption.

The variety of definitions originates by the differences of languages, or by form, while the content (core) remains similar. However, the definition becomes more and more complex, as the theory develops. It includes more and more sciences – eg. technology of production, waste management, research and engineering, develops in space (macro-meta-levels) and in time horizons.

Three major approaches to define the concept:

1^st. Oriented to movement – action when we engage in planning, realization and control related with transformation of goods in time and place, supported by the relevant information, along with changes in quality, quantity, and logistical services (close to “7R” approach.)

2^nd.Orientation - Consumption cycle of the product. International logistical society “Society of Logistics Engineers” (SOLE): logistics – administrative support for planning, controlling and regulation, which during the product consumption would guarantee effective use of resources and to be optimal for the effectiveness of the logistic elements during the consumption phases (initiating, planning, realization, usage and liquidation).

3^rd. Oriented to services. Logistics – the coordination process of non-material actions for effective services provided in the optimal cost frame and in accordance with customer requirements.

3. Reasons and Tendencies of Logistics Development

Reasons:

Competition Growth

Economy of Scale – decline of importance; small – series production can be more effective. “Moderate” growth of the firms, because non-optimal costs can not be covered anymore by mass production.

Research – 1% cost reduction in logistics equals 10% of sales growth.

Logistical costs account for 10-15% of the GNP.

Synergy effect – “mutual enhancing and support of system elements”

Developed countries – different organizations of logistics, associations, etc. In Europe – European Logistics Organization (coordination of logistics research). Periodicals – “Distribytcia i logistika” (Ukraine)

Logistics become not only management concept, but as a philosophy of management.

Ukraine – logistics is on fragmentary stage, the same in most countries. Pioneers in logistics in Ukr. – enterprises with foreign investments (if the foreign partner acts as a strategic investor).

Real development and growth – around 20 years.

Development of supply-chains

Supply-chains feed on data and depend on information sharing, especially in a global environment where speed of communication is of the essence and supply-chains grow ever more complex. Today all areas of logistics make use of information technology to process, tailor and deliver real-time information to when and where it is needed.

The ability to appraise and use IT packages and electronic communication methods has become a key competency for logistics managers, not least because, with the growing use of the Internet, the supply-chain is at the centre of some of the most exciting developments in telecommunications and electronic commerce - also known as e-commerce.

At almost every point, supply-chain operations will also have an impact on the environment. Companies must address questions such as: 'Is fuel consumption of the vehicle fleet being minimised?', 'Is the distribution centre energy efficient?', or 'Can packaging materials be reused or recycled?' The challenge is how to combine business development with a sustainable approach to the environment.

3.1. Logistics in Food Supply Systems

During the 1970^th and 1980s industry, trade and academia became heavily involved in the development of instruments primarily directed towards more effective planning and control of logistical operations.

Developments include: manufacturing resource planning and the just-in-time approach. Interest originated mainly from businesses concerned with production and /or assembly of semifinished and final products.

Attention – to planning and control of distribution operations, distribution resource planning, routing and location/allocation.

In the 1980s and 1990s these approaches began to be directed towards food supply chains and agri-chains in general.

Successful food chains – require that the crucial elements costs, quality and technology (incl. Information and communication) be taken into account. Also – the concept of multifunctionality – the environmental impact on production.

Aspects of agri-chains

Agri-chains – relatively high logistical costs involved and the high quality levels required. Logistical costs can account for 25-40% of the total added value, especially for ornamentals, meat, milk.

Log-l systems should not only operate cost effectively but also should be responsive and flexible. Cost effectiveness and flexibility issues – very complex task.

Agri-chains differ fundamentally from industrial production or assembly chains in a number of ways

• restricted quality life of primary, intermediate and final products. Therefore, storage technology and conditioning play a prominent role.

• large variation of quality, quantity and availability of primary products, due to regional and seasonable conditions, which require storage and transportation

• unintended and/or unwanted by-products, remainders and refuse (esp. from decomposition processes such as slaughtering, cheese making or potato processing)

• high turnover of volume products

• many suppliers of primary products, centralized marketing for only a few product groups

• substantial environment impacts on production, processing, distribution and consumption (packaging material, used product, surplus product)

• large public interest of organizations in all links of the chain (health and safety aspects of food, animal friendly production, environmentally friendly processing and distribution).