- controlling the material flow from the source of raw materials to production and customers
- the flows of information that control the material flow
- buying and selling, transport and storage of products and services
in such way that
- the product is available in the right place at the right time
- the process causes no negative environmental or safety risks
- costs are minimized
Logistics also consists of planning the flow of money and contracts as well as examination of social and environmental impacts.
Introduction: Introductory presentation of this section (Google Slides).
About the Logistics term
Logistics have been carried out as long as there was a trade in goods or services. The concept of logistics began to be in use as a term by top management in the 1950s in the United States. Before that, logistics was mainly connected for use in war and military operations. Later, attention was paid to the total costs, their reduction and to the development of warehousing and transportation. Mainly after year 2000 managing the entire supply chain started to have more focus.
Logistics has developed a number of slightly differing definitions. In addition to the above definition, logistics means planning of materials and services associated with productive and cost-effective purchasing management, warehousing, transportation and distribution, implementation and monitoring so that at the same time customer requirements are taken into account.
This definition includes as well company’s inbound, inhouse as the outbound logistics. Also, logistics can be seen as a process or a series of different functions. Logistics can also be defined in brief:
Logistics is the management of product or service and information and money associated with it in the organization to meet customer needs.
Logistics definition also highlights needs of a customer. Identification and anticipation of these needs have crucial role for the business to be successful and profitable. Customer focus and customer orientation are the foundation of a successful business.
Importance of Logistics
Business does not work without logistics. Effective and efficient logistics is vital for operations of the organizations. Logistics is recorded at the EU level as one of the key industries of business, which aims to improve competitiveness of the member states. Logistical problems can cause major damage to the global economy. It was noted, for example, in the spring 2010 when the ash cloud caused by Icelandic volcano paralyzed air traffic in Europe.
Long distances for export industry’s main markets cause special requirements for Finnish logistics as well as dependence on maritime transport and domestic thin flow of goods. On the other hand, Finland compared internationally, has a small market, where the population is only approximately 5.5 million. According to logistics survey in 2018, Finnish logistics costs in relation to GDP is approximately 11.2 per cent, which internationally is a high number. A part of the difference is caused by differences in industries. Logistic costs of heavy industry (e.g. Forest and metal industries) are higher than e.g. of the pharmaceutical industry (due to Finland’s geographical distance to the main markets, to European Union countries). However, there is much can be done with cooperation of freight forwarding industry, its customers and with authorities.
The goal of logistics is to deliver raw materials, semi- finished and finished products to the place, on time with quality and quantity as agreed. Delivery should be handled in compliance with the service level chosen by each company so that company ‘s financial result is as good as possible. At the same time environmental burden should be as low as possible.
Logistics can not be fully understood unless one has created an overall picture of the business environment. It is not enough to view one part without considering issue as a whole. For example, procurement decisions have an impact among other things on current assets, production and distribution. Logistics should be seen as the overall process with the aim to develop the entire order – supply chain competitiveness.