Components of a Business Logistics System

A business logistics system is made up of three main activities:  order processing, inventory management, and freight transportation.

Order processing is concerned with the information flow in the logistics system and includes a number of operations. The beginning of the process consists of a request from a customer for a particular product via an order form. These orders are then transmitted and checked for completeness and accuracy. The availability of the requested product and the customer’s credit status are verified. Finally, products are retrieved from the stock, packed, and delivered along with their shipping documents.  Throughout this entire process, the customers have to be kept informed about the status of their orders.

Inventory management is a key issue in logistics systems. Businesses choose to maintain inventories for a variety of reasons, including:

1. Improving service level.
2. Reducing overall logistics costs.
3. Making seasonal items available throughout the year.
4. Overcoming inefficiencies managing the logistics system.

The objective of inventory management is to regulate stock levels for minimizing total operating cost while satisfying customer service requirements.

Freight transportation plays an important role in today’s economy since it enables production and consumption to take place at locations far away from each other. Freight transportation accounts for two-thirds of total logistics costs and has a major impact on the level of customer service. Therefore, transportation planning plays a key role in logistics system management. A manufacturer or distributor can choose among three alternatives to transport its materials:  private transportation, contract transportation, and public transportation.

The main modes of transportation used by logistics system management are ship, rail, truck, air, and pipeline. All are combined in numerous ways to obtain door-to-door services. Rail transport is inexpensive especially for long distance shipment and is more energy efficient than the alternatives. Trucks are used mainly for moving semi-finished and finished goods by the truck load or by partial truck load. Air transportation is often used in combination with road transportation to provide door-to-door service.  Air transportation is theoretically the fastest mode of transportation but in practice it is slowed down by freight handling at airports.

The major advantages of using a logistics system are:

1. It helps capital reduction.
2. It reduces total cost of transportation.
3. It helps improve service level.

Logistics is a field that extensively utilizes information technology (IT) to perform daily tasks.  In today’s world, logistics play a vital role in transportation of goods and will continue to play a major role in the coming decades.