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Logistics and Supply Chain
Principles of Business
Topic Seven

Logistics and Supply Chain

Logistics is the general management of how resources are acquired, stored and transported to their final destination. Logistics management involves identifying prospective distributors and suppliers, and determining their effectiveness and accessibility. A supply chain is a network between a company and its suppliers to produce and distribute a specific product, and the supply chain represents the steps it takes to get the product or service to the customer. 

Components of Logistics

Logistics is a process of the movement of goods across the supply chain of a company. The major functions of logistics we are discussing here.

  • Order processing - The processing of purchase orders is an important task in functions of logistics operations. The purchase order placed by a buyer to a supplier is an important legal document of the transactions between the two parties. This document incorporates the description or technical details of the product to supply, price, delivery period, payment terms, taxes, and other commercial terms as agree
  • Inventory control - Inventory management involves keeping enough inventories to meet customer requirements. 
  • Warehousing - Warehousing is the storing of finished goods until they are sold. 
  • Transportation - When an order is placed, the transaction is not completed until the goods are physically moved to the customer’s place. The physical movement of goods is through various transportation modes
  • Material handling and storage system - The speed of the inventory movement across the supply chain depends on the material handling methods. Mechanization and automation in material handling enhance the logistics system productivity.
  • Logistical packaging - Logistical or industrial packaging is a critical element in the physical distribution of a product, which influences the efficiency of the logistical system. It differs from product packaging, which is based on marketing objectives.
  • Information - Logistics is basically an information-based activity of inventory movement across a supply chain. Hence, an information system plays a vital role in delivering a superior service to the customers.

Activities involved in Supply Chain Operations

There are different activities or stages in supply chain management. Some of the keys aspects are mentioned below:

  • Transformation of raw materials – the first activity in the supply chain process is that of transforming the raw materials that are used to produce the products to be supplied to
  • Movement and storage of raw materials – when raw materials have been acquired and partially transformed, they are transported closer to the manufacturing site for the products.
  • Processing of raw materials and components into finished goods - After acquiring the right raw material, the organization has to make careful decisions on the manufacturing of the product.
  • Storage of work-in-progress and finished goods – besides the storage of the raw intermediary materials, the business will also need storage space for the finished products while awaiting delivery to the targeted consumers.
  • Delivering the finished product to final destination - Distributors will be needed at this stage in the supply chain process in order for the final products to reach the consumers. The distributors could include wholesalers and retailers.

The Channels or Chains of Distribution

Channels of distribution refer to the means by which commodities reach the hands of consumers from the plant of manufacturers. This may be done directly from the manufacturer to the consumer or indirectly through middlemen such as wholesalers and retailers. The types of channels are as follows:

1. Direct Channel – Manufacturer – Consumer Goods are bought directly from the producer.

2. Indirect channels (a)    Manufacturer – Retailer – Consumer Goods are bought from a middle man such as retailers.

3. Indirect channel (b)   Manufacturer –Wholesaler – Retailer – Consumer

The wholesaler is a second muddle man/link on the chain. The wholesaler purchases in bulk from the manufacturer and stores them in large warehouses. They therefore assists manufacturers by moving large amounts of items from plant  Retailers purchase goods from wholesalers and sell them in smaller quantities to consumers.

Interpretation of Information on Transport Documents

Bill of Lading - The bill of lading is usually the first common document used in international shipment and it is a contract between the owner of the goods and the carrier. It will state what goods are shipping, where they are going and where the
shipment started.

Certificate of Origin - This document is prepared  by the manufacturer and is certified by a government entity or chamber of commerce. It’s used to identify the country of the manufacturer where the goods were made. 

Commercial Invoice - When the international sale is complete and goods are ready to be shipped out, a commercial invoice is the document used to describe the entire export transaction from beginning to end including the shipping terms.

Inspection Certificate - These inspections certificates certify that the items were received in good condition and that the shipment contained the correct quantity.

Insurance Certificate - For export shipments, this document certifies that the business bought an insurance policy for cargo on board.

Packing List - A packing list is similar to a shipping list in that it lists the goods being shipping, information on how it was packed, how the goods are numbered, and weight/height dimensions.

Air Waybill - A kind of waybill used for the carriage of goods by air. This serves as a receipt of goods for delivery and states the condition of carriage.