Project and Operations Logistics
Problem : Consider the project requires continuous flow of certain specific assemblies, material and stores , the delay of transportation , wastage in inventory and lack of storage facility causes additional problems.
Logistical activities:
The functions of the logistical system transportation, inventory, warehousing, material handling, order processing , information handling and procurement.
The logistical competency is achieved by coordinating:
1. Network design
2. Information
3. Transportation
4. Inventory and
5. Warehousing, Material handling and packaging and order processing
Network design:
Classical economics neglected the importance of facility location and overall network design is a primary responsibility of logistical management since firms facility structure is used to provide products and materials to customers. Typical logistics facilities are manufacturing plants, warehouses, cross-dock operations and retail stores. Determining how many of each type of facility are needed, their geographic locations and the work to be performed at each is a significant part of network design. It is also necessary to determine what inventory and how much to stock at each facility and where to assign customer orders for shipment. The network of facilities forms a structure from which logistical operations are performed. Thus the network incorporates information and transportation capabilities. Specific work, tasks related to processing customer orders, maintaining inventory and material handling are all performed within the network design framework.
Information:
The importance of information to logistical performance has historically not been highlighted. This neglect resulted from the lack of suitable technology to generate desired information. Management also locked full appreciation and in-depth understanding of how fast and accurate communication could improve logistical performance. Both of these historical deficiencies have been eliminated. Current technology is capable of handling the most demanding information requirements. If desired, information can obtain on a real-time basis. Managers are learning how to use such information tech to devise new and unique logistical solution.
However, the technology is only as good as the quality information. Deficiencies in the quality of in formation can create countless operational problems. Typical deficiencies fall into two broad categories. First of all, information received may be incorrect with respect to trends and events. Because a great deal of logistics takes place in anticipation of future requirements, an in accurate appraisal, or , forecast can cause inventory shortage or over commitment. Overly optimistic forecasts may results in improper inventory positioning. Second, information related to order processing may be inaccurate with respect to a related to order processing may be inaccurate with respect to a specific customer’s requirement. The processing of an incorrect order creates all the cost logistics but typically does not result in sale. Indeed, logistics costs are often increased by the exposure of inventory return and if the sales opportunity still exists, the cost of once again trying to provide the desired service. Each error in the composition of information requirements erects potential disturbance for the total supply chain.
Forecasting and order management are two areas of logistical work that depend on information. The logistics forecast is an effort to estimate future requirements; the forecast is used to guide the positioning of inventory to satisfy anticipated customer requirements. Logistics manager’s track record in forecasting is not impressive. Therefore, one of the main reasons managers use information’s to achieve positive control of logistical operations is their desire to replace forecasting in accuracy with faster response to customer requirements. Control concepts such as just-in –time(JIT),quick response(QR) and continuous replenishment(CR) represents approaches to positive logistical control made possible by the application of recently developed information tech. one of the main jobs of logistics managers is to plan and implement their firms strategy regarding the desired combination of forecasting and operational control.
Order management concerns the work involved in handling specific customer requirements. The customer order is the main transaction in logistics. Logistics serves both external and internal customers. External customers are those that consume the product or services for resale. Internal customers are organizational units within a firm that require logistical support to perform their designated work. The process of order management involves all aspects of managing customer requirements from initial order receipt to delivery, invoicing and often collection. The logistics capabilities of a firm can be only as good as its order management competency.
The more efficient the design of a firms logistical system, the more sensitive it is to information accuracy. Finely tuned time- based logistical systems have no excess inventory to accommodate operational errors because safety stocks are held to a minimum. Incorrect information and delays in order processing can cripple logistics performance. In formation flow renders a logistical system dynamic. Thus, quality and timeliness of information are key factor in logistical operations.
Transportation:
Given a facility network and in formation capability, transportation in the operational area of logistics that geographically position inventory. Because of its fundamental importance and visible cost, transportation has received considerable managerial attention over the years. Almost all enterprises, big and small, have managers responsible for transportation.
Transportation requires can be accomplished in three basic ways. First of all, a private fleet of equipment may be operated. Second, contracts may be arranged with transport specialists. Third, an enterprise may engage the services of a wide variety of carriers that provide different transportation services on an individual shipment basis. These three forms of transport are typically referred to as private, contract and common carriage. From the logistical system viewpoint, three factors are fundamental to transportation performance: cost, speed and consistency.
The cost of transport is the payment for movement between two geographical location and expenses related to administration and maintaining in-transit inventory. Logistical systems should be designed to utilize transportation that minimizes total system cost. This means that the least expensive transportation does not always result in the lowest total cost of movement.
Speed of transportation is the time required to complete a specific movement. Speed and cost of transportation are related in two ways. First, transport firms, capable of providing faster service, typically charge higher rates. Second, the faster the transportation service, the shorter the time interval during which inventory is in transit and hence unavailable. Thus, a critical aspect of selecting the most desirable method of transportation is to balance speed and cost of service.
Consistency of transportation refers to variations in time required to perform a specific movement over a number of shipments. Consistency is a reflection of the dependability of transportation. For years, transportation managers have considered consistency the most important characteristic of quality transportation. If a given movement takes two days one time and six days the next, the unexpected variance can create serious logistical operational problems. If transportation lacks consistency, inventory safety stocks will be required to protect against unpredictable service breakdowns. Transportation consistency affects both sellers and buyers overall inventory commitment and related risk. With the advent of new information tech to control and report shipment status, logistics managers have begun to seek faster service while maintaining consistency. The value of time is important. It is also important to understand that the quality of transportation performance is critical to time-sensitive operations. Speed and consistency combine to operate the quality aspect of transportation.
In the design of a logistical system, a delicate balance must be maintained between transportation cost and quality of service. In some circumstances, low cost, slow transportation will be satisfactory. In other situations, faster service may be essential to achieve operating goals. Finding and managing the desired transportation mix is a primary responsibility of logistics.
Inventory:
The inventory requirements of a firm depend on the network structure and the desired level of customer’s service. Theoretically, a company could stock every item sold in a facility dedicated to service each customer. For business operations could afford such a luxurious inventory commitment because the risk and total cost would be prohibitive. The objective is to achieve the desired customer service with the minimum inventory commitment, consistent with lowest total cost. Excessive inventory may compensate for deficiencies in basic design of a logistics network and to some degree inferior management. However, excessive inventory used as a crutch will ultimately result in higher than necessary total logistics cost.
Logistical strategies are designed to maintain the lowest possible financial assets in inventory management is to achieve maximum turnover while satisfying customer commitments. Sound inventory management policy is based on five aspects of selective deployment:
Customer segmentation.
Product requirements.
Transport integration.
Time-based requirements.
Competitive performance.
Let us briefly explain each one of the above.
Customer segmentation:
Every enterprise that sells products to a variety of customers confronts a range of transaction profitability. Some customers are highly profitable and have growth potential, while others do not. The profitability of a customer’s business depend on the products purchased, sales volumes, price, value-added services required, and supplemental activities necessary to develop and maintain an ongoing relationship. Highly profitable customers constitute the core market for an enterprise. Inventory strategies need to be focused on meeting requirements of such core customers. The key to effective segmented logistics rests in the inventory priorities designed to support core customers.
Product requirements:
Most enterprises experience a substantial variance in volume and profitability across product lines. If no restrictions are applied, a firm may find that less than 20% of all products marked account for more than 80% of total profit. While the so-called 80/20 rule or, Pareto principle is common, management can avoid excessive cost by implementing inventory strategies that consider fine –line product classification. A realistic assessment of which low-volume products should be carried is the key to avoiding excessive cost.
For obvious reasons, an enterprise wants to offer high availability and consistent delivery on more profitable products. High- level support of less profitable items, however, may be necessary to provide full-line service to core customers. The trap to avoid is high service performance or less profitable items purchased by fringe, or, non core customers. Therefore, product line profitable must be considered when developing a selective inventory policy.
Many enterprises find it desirable to hold slow-moving or, low-profit items at a central distribution warehouse. The actual delivery performance can be matched to customer importance when orders are received. Core customers may be serviced by fast, reliable air service, while other orders to fringe customers are delivered by less expensive ground transportation
Transport Integration:
Selection of the product assortment to be stocked at a specific facility has a direct impact on transportation performance. Most transportation rates are based on the volume and size of specific shipments. Thus, it may be sound strategy to stock sufficient products at a warehouse to be able to arrange consolidated shipments to a customer, or, graphical area. The corresponding savings in transportation may more than offset the increase cost of holding the inventory.
Time-based Requirements:
Commitments to deliver products rapidly to fulfill customer requirements are important drivers of logistics. Such time-based arrangement seeks to reduce overall inventories by developing the capability to respond rapidly to exact requirements of manufacturing, or, retail customers. If products and material’s can be delivered quickly, it may not be necessary to maintain inventories at manufacturing plants. Likewise, if retail stores can be replenished rapidly, less safety stock must be maintained forward in the supply chain. The alternative to stockpiling and holding safety stock is to receive the exact quantity of inventory at the time required. While such time-based programs reduced customer inventory to absolute minimums, the savings must be balanced against other costs incurred in the time-sensitive logistical process. For example, time-based programs tend to reduce shipment sizes, which increase the number, frequency and cost of shipments. This, in arrangement to be effective and efficient it must achieve trade-offs that results in the desired customer service at the lowest total cost
.
Competitive performance:
Finally, inventory strategies cannot be created in a competitive vacuum. A firm is typically more desirable to do business with if it can typically more desirable to do business with if it can promise and perform rapid and consistent delivery. Therefore, it may be necessary to position inventory in a specific warehouse to provide logistical service even if such commitment increases total cost. Sound inventory policies are essential to gain a customer service advantage, or, to neutralize a strength that a competitors enjoys.
Warehousing, Material handling & Packaging:
Four of the functional areas of logistics-network design, information, transportation and inventory-can be engineered into a variety of different operational arrangements each arrangement will have the potential to received a level of customer service at an associated total cost, in essence, these four functions combine to create a system solution for integrated logistics. The final functions of logistics- warehousing, material handling and packaging- also represent an integral part of an operating solution. However, these functions do not have the independent status of the four previously discussed. Warehousing, material handling and packaging are an integral part of other logistics areas. For example, merchandise typically needs to be warehoused at select times during the logistics process. Transportation vehicles require material handling for efficient loading and unloading. Finally, the individual products are most efficient handled when packaged together into shipping cartons, or, other types of containers.
When warehouses are required in a logistical system, a firm can choose between obtaining the services of a specialist, and, operating its own facility. The decision is broader than simply selecting a facility to store inventory, since many activities essential to the overall inventory, since many activities essential to the overall logistical process are typically performed while products are warehoused. Examples of such activities are sorting, sequencing, order selection, transportation consolidation, and in some case, product modification and assembly.
Within the warehouse, material handling is an important activity. Products must be received, moved, sorted and assembled to meet customer order requirements. The direct labor and capital invested in material-handling equipment are a major part of total logistics cost. When performed in an inferior manner, material handling can result in substantial product damage. It stands to reason that the fewer times a product is handled, the less potential exists for product damage, and the overall efficiency of the warehouse is increased. A variety of mechanized and automated devices exist to assist in material handling. In essence, each warehouse and its material –handling capability represent a minisystem within the overall logistical process.
To facilitate handling efficiency, products in the form of cans, bottles, or, boxes are typically combined into larger units. The most common units for master carton consolidation are pallets, slip shuts, and various types of containers.
When effectively integrated into an enterprises logistical operations, warehousing, material handling and packaging facilitate the speed and overall case of product flow throughout the logistical system. In fact, several firms have engineered devices to move broad product assortments from manufacturing plants directly to retail stores without intermediate handling.
Conclusion:
In the context of overall business performance, logistics exists to allow inventory to achieve desired time, place and possession benefits at the lowest total cost. Inventory has little value until it is positioned at the right time and location to support ownership transfer, or, value-added creation. If a firm does not consistently satisfy time and place requirements, it has nothing to sell. To achieve the maximum strategic benefits of logistics, the full range of functional work must be performed on integrated basis. Excellence in each aspect of functional work is relevant only when viewed in terms of improving the overall efficiency and effectiveness of integrated logistics. This requires that the functional work of logistics be integrated to achieve business unit goals.
Integrated logistics:
The conceptualization of integrated logistics is illustrated in fig.1 below.
Logistics is viewed as the competency that links an enterprise with its customers and suppliers. Information form and about customers flows through the enterprise in the form of sales activity, forecast and orders. The information is refined into specific manufacturing and purchasing plans. As products and materials are procured, a value-added inventory flow is initiated that ultimately results in ownership transfer of finished products to customers. Thus, the process is viewed in terms of two interrelated efforts, inventory flow and information flow, besides the cash flow.
First, viewing internal operation in isolation is useful to elaborate the fundamental importance of integrating all functions and work involved in logistics. While such integration is prerequisite to success, it is not sufficient to guarantee that a firm will achieve its performance goals. To be fully effective in today’s competitive environment, firms must expand their integrated behaviors to incorporate customers and suppliers. This extension, through external integration, is referred to as supply chain management.
Logistical activities:
The functions of the logistical system transportation, inventory, warehousing, material handling, order processing , information handling and procurement.
The logistical competency is achieved by coordinating:
1. Network design
2. Information
3. Transportation
4. Inventory and
5. Warehousing, Material handling and packaging and order processing
Network design:
Classical economics neglected the importance of facility location and overall network design is a primary responsibility of logistical management since firms facility structure is used to provide products and materials to customers. Typical logistics facilities are manufacturing plants, warehouses, cross-dock operations and retail stores. Determining how many of each type of facility are needed, their geographic locations and the work to be performed at each is a significant part of network design. It is also necessary to determine what inventory and how much to stock at each facility and where to assign customer orders for shipment. The network of facilities forms a structure from which logistical operations are performed. Thus the network incorporates information and transportation capabilities. Specific work, tasks related to processing customer orders, maintaining inventory and material handling are all performed within the network design framework.
Information:
The importance of information to logistical performance has historically not been highlighted. This neglect resulted from the lack of suitable technology to generate desired information. Management also locked full appreciation and in-depth understanding of how fast and accurate communication could improve logistical performance. Both of these historical deficiencies have been eliminated. Current technology is capable of handling the most demanding information requirements. If desired, information can obtain on a real-time basis. Managers are learning how to use such information tech to devise new and unique logistical solution.
However, the technology is only as good as the quality information. Deficiencies in the quality of in formation can create countless operational problems. Typical deficiencies fall into two broad categories. First of all, information received may be incorrect with respect to trends and events. Because a great deal of logistics takes place in anticipation of future requirements, an in accurate appraisal, or , forecast can cause inventory shortage or over commitment. Overly optimistic forecasts may results in improper inventory positioning. Second, information related to order processing may be inaccurate with respect to a related to order processing may be inaccurate with respect to a specific customer’s requirement. The processing of an incorrect order creates all the cost logistics but typically does not result in sale. Indeed, logistics costs are often increased by the exposure of inventory return and if the sales opportunity still exists, the cost of once again trying to provide the desired service. Each error in the composition of information requirements erects potential disturbance for the total supply chain.
Forecasting and order management are two areas of logistical work that depend on information. The logistics forecast is an effort to estimate future requirements; the forecast is used to guide the positioning of inventory to satisfy anticipated customer requirements. Logistics manager’s track record in forecasting is not impressive. Therefore, one of the main reasons managers use information’s to achieve positive control of logistical operations is their desire to replace forecasting in accuracy with faster response to customer requirements. Control concepts such as just-in –time(JIT),quick response(QR) and continuous replenishment(CR) represents approaches to positive logistical control made possible by the application of recently developed information tech. one of the main jobs of logistics managers is to plan and implement their firms strategy regarding the desired combination of forecasting and operational control.
Order management concerns the work involved in handling specific customer requirements. The customer order is the main transaction in logistics. Logistics serves both external and internal customers. External customers are those that consume the product or services for resale. Internal customers are organizational units within a firm that require logistical support to perform their designated work. The process of order management involves all aspects of managing customer requirements from initial order receipt to delivery, invoicing and often collection. The logistics capabilities of a firm can be only as good as its order management competency.
The more efficient the design of a firms logistical system, the more sensitive it is to information accuracy. Finely tuned time- based logistical systems have no excess inventory to accommodate operational errors because safety stocks are held to a minimum. Incorrect information and delays in order processing can cripple logistics performance. In formation flow renders a logistical system dynamic. Thus, quality and timeliness of information are key factor in logistical operations.
Transportation:
Given a facility network and in formation capability, transportation in the operational area of logistics that geographically position inventory. Because of its fundamental importance and visible cost, transportation has received considerable managerial attention over the years. Almost all enterprises, big and small, have managers responsible for transportation.
Transportation requires can be accomplished in three basic ways. First of all, a private fleet of equipment may be operated. Second, contracts may be arranged with transport specialists. Third, an enterprise may engage the services of a wide variety of carriers that provide different transportation services on an individual shipment basis. These three forms of transport are typically referred to as private, contract and common carriage. From the logistical system viewpoint, three factors are fundamental to transportation performance: cost, speed and consistency.
The cost of transport is the payment for movement between two geographical location and expenses related to administration and maintaining in-transit inventory. Logistical systems should be designed to utilize transportation that minimizes total system cost. This means that the least expensive transportation does not always result in the lowest total cost of movement.
Speed of transportation is the time required to complete a specific movement. Speed and cost of transportation are related in two ways. First, transport firms, capable of providing faster service, typically charge higher rates. Second, the faster the transportation service, the shorter the time interval during which inventory is in transit and hence unavailable. Thus, a critical aspect of selecting the most desirable method of transportation is to balance speed and cost of service.
Consistency of transportation refers to variations in time required to perform a specific movement over a number of shipments. Consistency is a reflection of the dependability of transportation. For years, transportation managers have considered consistency the most important characteristic of quality transportation. If a given movement takes two days one time and six days the next, the unexpected variance can create serious logistical operational problems. If transportation lacks consistency, inventory safety stocks will be required to protect against unpredictable service breakdowns. Transportation consistency affects both sellers and buyers overall inventory commitment and related risk. With the advent of new information tech to control and report shipment status, logistics managers have begun to seek faster service while maintaining consistency. The value of time is important. It is also important to understand that the quality of transportation performance is critical to time-sensitive operations. Speed and consistency combine to operate the quality aspect of transportation.
In the design of a logistical system, a delicate balance must be maintained between transportation cost and quality of service. In some circumstances, low cost, slow transportation will be satisfactory. In other situations, faster service may be essential to achieve operating goals. Finding and managing the desired transportation mix is a primary responsibility of logistics.
Inventory:
The inventory requirements of a firm depend on the network structure and the desired level of customer’s service. Theoretically, a company could stock every item sold in a facility dedicated to service each customer. For business operations could afford such a luxurious inventory commitment because the risk and total cost would be prohibitive. The objective is to achieve the desired customer service with the minimum inventory commitment, consistent with lowest total cost. Excessive inventory may compensate for deficiencies in basic design of a logistics network and to some degree inferior management. However, excessive inventory used as a crutch will ultimately result in higher than necessary total logistics cost.
Logistical strategies are designed to maintain the lowest possible financial assets in inventory management is to achieve maximum turnover while satisfying customer commitments. Sound inventory management policy is based on five aspects of selective deployment:
Customer segmentation.
Product requirements.
Transport integration.
Time-based requirements.
Competitive performance.
Let us briefly explain each one of the above.
Customer segmentation:
Every enterprise that sells products to a variety of customers confronts a range of transaction profitability. Some customers are highly profitable and have growth potential, while others do not. The profitability of a customer’s business depend on the products purchased, sales volumes, price, value-added services required, and supplemental activities necessary to develop and maintain an ongoing relationship. Highly profitable customers constitute the core market for an enterprise. Inventory strategies need to be focused on meeting requirements of such core customers. The key to effective segmented logistics rests in the inventory priorities designed to support core customers.
Product requirements:
Most enterprises experience a substantial variance in volume and profitability across product lines. If no restrictions are applied, a firm may find that less than 20% of all products marked account for more than 80% of total profit. While the so-called 80/20 rule or, Pareto principle is common, management can avoid excessive cost by implementing inventory strategies that consider fine –line product classification. A realistic assessment of which low-volume products should be carried is the key to avoiding excessive cost.
For obvious reasons, an enterprise wants to offer high availability and consistent delivery on more profitable products. High- level support of less profitable items, however, may be necessary to provide full-line service to core customers. The trap to avoid is high service performance or less profitable items purchased by fringe, or, non core customers. Therefore, product line profitable must be considered when developing a selective inventory policy.
Many enterprises find it desirable to hold slow-moving or, low-profit items at a central distribution warehouse. The actual delivery performance can be matched to customer importance when orders are received. Core customers may be serviced by fast, reliable air service, while other orders to fringe customers are delivered by less expensive ground transportation
Transport Integration:
Selection of the product assortment to be stocked at a specific facility has a direct impact on transportation performance. Most transportation rates are based on the volume and size of specific shipments. Thus, it may be sound strategy to stock sufficient products at a warehouse to be able to arrange consolidated shipments to a customer, or, graphical area. The corresponding savings in transportation may more than offset the increase cost of holding the inventory.
Time-based Requirements:
Commitments to deliver products rapidly to fulfill customer requirements are important drivers of logistics. Such time-based arrangement seeks to reduce overall inventories by developing the capability to respond rapidly to exact requirements of manufacturing, or, retail customers. If products and material’s can be delivered quickly, it may not be necessary to maintain inventories at manufacturing plants. Likewise, if retail stores can be replenished rapidly, less safety stock must be maintained forward in the supply chain. The alternative to stockpiling and holding safety stock is to receive the exact quantity of inventory at the time required. While such time-based programs reduced customer inventory to absolute minimums, the savings must be balanced against other costs incurred in the time-sensitive logistical process. For example, time-based programs tend to reduce shipment sizes, which increase the number, frequency and cost of shipments. This, in arrangement to be effective and efficient it must achieve trade-offs that results in the desired customer service at the lowest total cost
.
Competitive performance:
Finally, inventory strategies cannot be created in a competitive vacuum. A firm is typically more desirable to do business with if it can typically more desirable to do business with if it can promise and perform rapid and consistent delivery. Therefore, it may be necessary to position inventory in a specific warehouse to provide logistical service even if such commitment increases total cost. Sound inventory policies are essential to gain a customer service advantage, or, to neutralize a strength that a competitors enjoys.
Warehousing, Material handling & Packaging:
Four of the functional areas of logistics-network design, information, transportation and inventory-can be engineered into a variety of different operational arrangements each arrangement will have the potential to received a level of customer service at an associated total cost, in essence, these four functions combine to create a system solution for integrated logistics. The final functions of logistics- warehousing, material handling and packaging- also represent an integral part of an operating solution. However, these functions do not have the independent status of the four previously discussed. Warehousing, material handling and packaging are an integral part of other logistics areas. For example, merchandise typically needs to be warehoused at select times during the logistics process. Transportation vehicles require material handling for efficient loading and unloading. Finally, the individual products are most efficient handled when packaged together into shipping cartons, or, other types of containers.
When warehouses are required in a logistical system, a firm can choose between obtaining the services of a specialist, and, operating its own facility. The decision is broader than simply selecting a facility to store inventory, since many activities essential to the overall inventory, since many activities essential to the overall logistical process are typically performed while products are warehoused. Examples of such activities are sorting, sequencing, order selection, transportation consolidation, and in some case, product modification and assembly.
Within the warehouse, material handling is an important activity. Products must be received, moved, sorted and assembled to meet customer order requirements. The direct labor and capital invested in material-handling equipment are a major part of total logistics cost. When performed in an inferior manner, material handling can result in substantial product damage. It stands to reason that the fewer times a product is handled, the less potential exists for product damage, and the overall efficiency of the warehouse is increased. A variety of mechanized and automated devices exist to assist in material handling. In essence, each warehouse and its material –handling capability represent a minisystem within the overall logistical process.
To facilitate handling efficiency, products in the form of cans, bottles, or, boxes are typically combined into larger units. The most common units for master carton consolidation are pallets, slip shuts, and various types of containers.
When effectively integrated into an enterprises logistical operations, warehousing, material handling and packaging facilitate the speed and overall case of product flow throughout the logistical system. In fact, several firms have engineered devices to move broad product assortments from manufacturing plants directly to retail stores without intermediate handling.
Conclusion:
In the context of overall business performance, logistics exists to allow inventory to achieve desired time, place and possession benefits at the lowest total cost. Inventory has little value until it is positioned at the right time and location to support ownership transfer, or, value-added creation. If a firm does not consistently satisfy time and place requirements, it has nothing to sell. To achieve the maximum strategic benefits of logistics, the full range of functional work must be performed on integrated basis. Excellence in each aspect of functional work is relevant only when viewed in terms of improving the overall efficiency and effectiveness of integrated logistics. This requires that the functional work of logistics be integrated to achieve business unit goals.
Integrated logistics:
The conceptualization of integrated logistics is illustrated in fig.1 below.
Logistics is viewed as the competency that links an enterprise with its customers and suppliers. Information form and about customers flows through the enterprise in the form of sales activity, forecast and orders. The information is refined into specific manufacturing and purchasing plans. As products and materials are procured, a value-added inventory flow is initiated that ultimately results in ownership transfer of finished products to customers. Thus, the process is viewed in terms of two interrelated efforts, inventory flow and information flow, besides the cash flow.
First, viewing internal operation in isolation is useful to elaborate the fundamental importance of integrating all functions and work involved in logistics. While such integration is prerequisite to success, it is not sufficient to guarantee that a firm will achieve its performance goals. To be fully effective in today’s competitive environment, firms must expand their integrated behaviors to incorporate customers and suppliers. This extension, through external integration, is referred to as supply chain management.
