Unit 1. The Context of Logistics

Unit 1. The Context of Logistics

Interesting to know

Самые известные музеи логистики

Музей логистики (Museum of Logistics), Токио, Япония. Музей открыт в 1998 году. Он унаследовал коллекцию музея «Ниппон Экспресс»: более 12 000 статей о транспортировке и 40 000 документальных изображений, отражающих историю фирмы «Ниппон Экспресс». История материально-технического снабжения Японии отображена на втором этаже, а на третьем располагаются читальный зал и комната мультимедиа.

Музей королевского логистического корпуса (The Royal Logistics Corps Museum), Суррей, Великобритания. Экспозиция музея рассказывает о материально-технической поддержке британской армии со времен Оливера Кромвеля до наших дней. Посетители музея узнают, как на протяжении последних 500 лет солдат британской армии транспортировали, кормили, снабжали оружием и снаряжением и как солдаты поддерживали связь с друзьями и близкими.

Музей логистики вооруженных сил Канады (The Canadian Forces Logistics Museum), Монреаль, Канада. В музее представлены более 10 000 экспонатов, относящихся к истории Канадского королевского корпуса материального снабжения и его приемника – Логистического подразделения вооруженных сил Канады. Экспозицию музея дополняет крупнейшая коллекция канадской военной техники и артиллерии канадской провинции Квебек.

Text 2. Aims of logistics

1. Make sure you know the following words and word combinations.

Supply chain, semantics, convention, exactly, distribution, morale, merchandising, manager, efficiently, productivity, inbound, outbound, warehouse, consumables, tangible, intangible, circumstance, courteously, consumables, value, security, grease, shareholder, survive.

2. Read the text and do the tasks that follow.

Logistics is responsible for the flow of materials through a supply chain. This function is also called supply chain management. Some people argue that logistics is somewhat narrower and concentrates on the movement within a single organization, while supply chain management takes a broader view of movement through related organizations. This is, however, largely an argument over semantics rather than real differences in practice. In this booklet we will stick to the convention that the two terms refer to exactly the same function. This view is supported by the Institute of Logistics and Transport – the main professional body within the UK – who give the following definitions:

Logistics is the time-related positioning of resources, or the strategic management of the total supply-chain.

The supply chain is a sequence of events intended to satisfy a customer.

Some people also talk about logistics management, business logistics, distribution management, materials management, merchandising, or a series of other terms. Sometimes you have to be careful as these terms can refer to specific parts of the supply chain or slightly different activities. When someone talks about 'distribution management' you should be clear about whether they mean transport, physical distribution, the whole of logistics, or some other function.

With our broad view, logistics managers have two main aims. The first is to move materials into, through, and out of their own organization as efficiently as possible. The second aim is to contribute to an efficient flow through the whole supply chain. Traditionally, managers concentrate on the first of these, focusing on those parts of the supply chain that they directly control. Hopefully, if each organization looks after its own logistics properly, materials will move efficiently through the whole chain, thus achieving the second aim. To some extent this is true. It is not, however, inevitable and organizations really need a more positive approach to co-operation. This will be discussed in a more detailed way in the next units. Here, though, we look at the more immediate aims of logistics within an individual organization.

We have said that managers’ aim for an efficient movement of materials – but what exactly do we mean by 'efficient'? There are several answers to this, including fast deliveries, low costs, little wastage, quick response, high productivity, low stocks, no damage, few mistakes, high staff morale, and so on. Although these are all worth-while goals, they are really indicators rather than real aims. To find the real aim of logistics, we must relate it to the wider objectives of an organization.

Moving materials into the organization from suppliers is called inbound or inward logistics; moving materials out to customers is outbound or outward logistics; moving materials within the organization is materials management.

In these definitions we have talked about the movement of materials – but what exactly do we mean by materials? Sometimes this is obvious when, for example, a power station brings coal from a mine, a farmer moves potatoes to a wholesaler, or a computer manufacturer delivers PCs to a warehouse. At other times it is less clear when, for example, a television company delivers entertainment to its viewers, a telephone company provides a communications service, or a research company creates new knowledge. Tangible goods clearly have to be moved, and you can easily see the role of logistics. Even organizations providing the most intangible services move some goods around – perhaps paperwork or consumables – so they still need logistics. However, we can take a broader view and say that logistics also moves less tangible things, such as information and messages. Then a television company uses logistics to move around its production facilities, and also to transmit programmes to customers. In different circumstances, logistics is responsible for moving raw materials, components, finished products, people, information, paperwork, messages, knowledge, consumables, energy, money and anything else needed by operations. To simplify things, we describe all of these as materials.

Materials are all the things that an organization moves to create its products. These materials can be both tangible (e.g. raw materials) and intangible (e.g. information).

Ultimately, the success of every organization depends on customer satisfaction. If it does not satisfy customers, it is unlikely to survive in the long term, let alone make a profit, have high return on assets, add shareholder value, or achieve any other measure of success. So organizations must deliver products that satisfy customers. Unfortunately, customers judge products by a whole series of factors. When you buy a DVD, for example, you judge its contents, appearance, how easy it is to buy, how long you wait, how expensive it is, whether the right DVD was delivered, whether it was damaged, how courteously you were treated by sales staff, and so on. Some of these factors clearly depend on logistics – the availability of the DVD depends on stocks; the delivery time depends on transport; damage is prevented by good material handling; the price is affected by logistics costs. So we can phrase the overriding aim of logistics in terms of customer service. It has to organize the movement of materials in the best way to achieve high customer satisfaction.

Any organization can give outstanding customer service if it is prepared to allocate enough resources. The problem, of course, is that more resources come with higher costs. There is a limit to the amount that customers will pay for a product and, therefore, on the service that can be given. Then a realistic aim for logistics balances the service given to customers with the cost of achieving it.

The overall aim of logistics is to achieve high customer satisfaction. It must provide a high quality service with low – or acceptable – costs.

We can phrase this balance in terms of perceived customer value. Logistics adds value by making products available in the right place and at the right time. If a product is available at the place it is needed, logistics is said to have added place utility; if it is delivered at the right time, logistics has added time utility. Then we can phrase the aim of logistics in terms of getting the highest customer utility or perceived value. In essence, we are trying to maximize the difference between perceived value and actual costs.

People often summarize the aims of logistics as getting 'the right materials, to the right place, at the right time, from the right source, with the right quality, at the right price'. This is broadly correct, but it depends on how we define 'right'. In different circumstances, logistics is judged by completely different measures of performance. When you post letters, you sometimes want them delivered quickly, sometimes as cheaply as possible, sometimes with high security, sometimes at a specified time, and so on. Managers have to design logistics that are flexible enough to satisfy a variety of needs. There are two aspects of this. The first is concerned with planning, when managers take a strategic view and design the best possible supply chain for their circumstances. The second concern is about execution, when materials move through this chain as efficiently as possible. Harrington summarizes this double role by saying that, 'logistics is both the glue that holds the materials/product pipeline together and the grease that speeds product flow along it'.

3. Answer the questions.

1. What is the logistics function? 2. What does its narrower definition imply? 3. What definitions of logistics and supply chain does the Institute of Logistics and Transport suggest? 4. What does ‘distribution management’ mean? 5. What two main aims do logistics managers have? 6. What are the immediate aims of logistics within an organization? 7. What does the success of every organization depend on? 8. Under what condition can an organization provide an outstanding customer service?

4. Expand on the following statements from the text.

1. Logistics is responsible for the flow of materials through a supply chain. 2. One has to be careful what terms to use in relation to logistics. 3. Logistics managers have two main objectives. 4. Managers aim at more efficient movement of materials. 5. The success of any company depends on customer satisfaction. 6. Allocating enough resources is the key to any organization’s customer service.

5. Work in pairs. Describe the aims of logistics. Give examples to support your point of view.

Text 3. Importance of Logistics

1. Make sure you know the following words and word combinations.

Essential, ultimately, point of origin, expensive, overheads, costs, disagreement, precise, expenditure, gravel, jewellery, rule of thumb, turnover, interpret, wholesale, account for.

2. Read the text and do the tasks that follow.

Logistics is essential for every organization. M. Christopher says that 'Logistics has always been a central and essential feature of all economic activity'. R.D. Shapiro and J.L. Heskett agree, saying that 'There are few aspects of human activity that do not ultimately depend on the flow of goods from point of origin to point of consumption'. Without logistics no materials move, no operations can be done, no products are delivered, and no customers are served.

Not only is logistics essential, but it is also expensive. Organizations may reduce their overheads as much as possible, but they are often left with surprisingly high logistics costs. Unfortunately, it is difficult to put a figure to these, and there is a good deal of uncertainty in the area. Normal accounting conventions do not separate expenditure on logistics from other operating costs, and there is some disagreement about the activities to include. As a result, very few organizations can put a precise figure on their logistics expenditure, and many have almost no idea of the costs.

The cost of logistics varies widely between different industries. Building materials, such as sand and gravel, have very high logistics costs compared with, say, jewellery, pharmaceuticals and cosmetics. However, one rule of thumb suggests that logistics costs are 15-20 per cent of turnover. The USA has a GDP of $10 trillion, so it might spend $1-2 trillion dollars a year on logistics, with half of this spent on transport. You have to interpret such figures carefully as other studies give different views. The UK government, for example, says that 12 per cent of the GDP comes from wholesale and retail trades and 6 per cent comes from transport and storage. These figures suggest that overall logistics costs are considerably higher – perhaps supporting an earlier estimate by A. Childerley that logistics accounted for 32.5 per cent of the UK GDP.

Despite the differences in these figures, everyone agrees that logistics can be very expensive. Whether it is getting more expensive is open to debate. Some people say that fuel, land, safety, environmental protection and employee costs are all rising and making logistics more expensive. They argue that this is a long-term trend that will inevitably continue. An opposing view says that improvements in logistics are more than compensating for price rises, and the overall cost is falling. By improving methods and replacing outdated practices, logistics costs continue to fall as a proportion of product value. The true picture depends on circumstances within each organization.

Despite its obvious importance, logistics has not always received its fair share of attention. Historically, organizations put all their effort into making products and gave little thought to the associated movement of materials. Managers recognized that transport and storage were needed, but they were viewed as technical issues that were not worth much attention – they were simply the unavoidable costs of doing business. Some early work in the 1920s began to look more carefully at the transport of finished goods. In 1962, though, P. Drucker could still describe logistics as 'the economy's dark continent' and say that this formed 'the most sadly neglected, most promising area of ... business'. Since then there have been considerable changes.

Perhaps the main reason for change was the recognition that logistics was expensive. By the 1970s and 80s surveys were suggesting that the movement and storage of materials typically accounted for 15-20 per cent of revenue. It is difficult to get accurate figures for this, and in 1994 G.V. Hill could still say that 'many distributors are unaware of the costs of the distribution service they provide'. However, logistics had been identified as a high cost function and one where organizations can make significant savings.

3. Scan the text searching for the English equivalents of the following collocations.

Cущественная черта, человеческая деятельность, в конечном итоге, потребление, обслуживать клиентов, снижать накладные расходы, логистические издержки, отделять, бухгалтерские условности, рабочие издержки, не иметь представления, варьировать, тратить, розничная торговля, хранение на складе, смета.

4. Answer the questions.

1. How do A. Christopher, R.D. Shapiro and J.L. Heskett define the importance of logistics? 2. Logistics isn’t of great importance only, is it? 3. Does the reduction in overheads always lead to reducing costs? 4. Can all organizations give the exact figure of their expenditure? 5. In what industries are logistics costs high? 6. What is mean percentage of logistics costs? 7. What amount of money is spent on logistics in the USA and UK?

5. Expand on the following statements from the text.

1. Logistics is essential for any organization. 2. Logistics is not only essential but expensive, too. 3. The cost of logistics varies significantly between different industries. 4. Logistics costs make 15–20 % of turnover.

6. Discuss the importance of logistics in pairs. Follow the usual procedure of preparing your utterance.

Панамский канал

Строительство Панамского канала стало одной из важнейших вех в мореплавании. Введенный в эксплуатацию в 1920 году (первое судно прошло по нему в 1914, но из-за схода оползня осенью того года, официальное движение было открыто лишь шестью годами позже), канал в несколько раз сократил путь между портами Тихого и Атлантического океанов. Прежде, чтобы попасть из одного океана в другой, судам нужно было огибать Южную Америку аж вокруг мыса Горн. Сегодня Панамский канал — один из главных мировых морских путей, через который ежегодно проходит около 18 тысяч судов (нынешняя пропускная способность канала – 48 судов в сутки), что составляет значительную часть мирового грузооборота.

Unit 1. The Context of Logistics