Logistics Management Essay

He cost of satisfying customer demand can be significant and yet, surprisingly, they are not always full understood by organizations. One reason for this is that traditional accounting systems tend to be focused nearly understanding product costs rather than customer costs. Whilst logistics costs pull up stakes vary by confederacy and by industry, across the economy as a whole that total cost of logistics as a percentage of gross domestic product is estimated to be close to 10 per cent in the US1 and in other countries costs of similar magnitudes will be encountered.However, logistics activity does not just generate cost, it withal generates revenue through the provision of availability thus it is important to understand the profit encroachment of logistics and add together chain decisions. At the identical prison term logistics activity requires resources in the form of fixed capital and functional capital and so at that place are fiscal issues to be considered when suppl y chain strategies are devised. Logistics and the female genitalia line Todays turbulent business environment has produced an ever greater awareness amongst managers of the fiscal dimension of decision fashioning.The bottom line has become the driving force which, perhaps erroneously, determines the direction of the company. In some cases this has led to a limiting, and potentially dangerous, focus on the short term. Hence we arrive that investment in brands, in R&D and in capacity may well be curtailed if there is no prospect of an immediate payback. Just as indicantful an influence on decision making and management horizons is cash head for the hills. Strong positive cash flow has become as much a desired goal of management as profit.For example, many successful retailers have long since recognized that truly small net margins can mince to excellent ROI if the productivity of capital is high, e. g. limited parentage, high sales per square foot, premises that are leased r ather than owned and so on. Figure 3. 1 illustrates the opportunities that last for boosting ROI through either achieving better margins or higher assets turns or both. Each iso-curve considers the different ways the same ROI can be achieved through specific margin/asset turn combination. The challenge to logistics management is to find ways of moving the iso-curve to the right.Logistics extend to on ROI Logistics and the balance carpenters plane As well as its impact on operating income (revenue less costs) logistics can affect the balance sheet of the business in a number of ways. In todays financially-oriented business environment improving the shape of the balance sheet through better use of resources has become a priority. Once again better logistics management has the power to transform performance in this crucial area. Figure 3. 3 summarizes the major elements of the balance sheet and associate to each of the relevant logistics management components.Balance sheet Assets currency Logistics variable Order cycle time Order completion rate Receivables Inventories Property, set out and equipment Liabilities live liabilities Debt Equity Invoice accuracy Inventory dispersion facilities and equipment Plant and equipment Purchase pose quantities Financing options for descent, plant and equipment Fig. 3. 3 Logistics management and the balance sheetCash and receivables This component of current assets is crucial to the liquidity of the business. In recent years its importance has been recognized as more companies become squeezed for cash. It is not always recognized however that logistics variables have a direct impact on this part of the balance sheet. For example, the shorter the order cycle time, from when the customer places the order to when the goods are delivered, the sooner the vizor can be issued. Likewise the order completion rate can affect the cash flow if the history is not issued until after the goods are despatched.One of the less obvio us logistics variables affecting cash and receivables is invoice accuracy. If the customer finds that his invoice is inaccurate he is unlikely to pay and the payment lead time will be extended until the problem is rectified. Inventories Fifty per cent or more of a companys current assets will often be tied up in inventory. Logistics is concerned with all inventory within the business from raw materials, subassembly or bought-in components, through work-in-progress to finished goods. The companys policies on inventory levels and stock locations will clearly influence the size of total inventory.Materials handling equipment, vehicles and other equipment involved in storage and merchant marine can also add considerably to the total sum of fixed assets. galore(postnominal) companies have outsourced the physical distribution of their products partly to move assets off their balance sheet. Warehouses, for example, with their associated storage and handling equipment institute a sizeabl e investment and the question should be asked Is this the most effective way to deploy our assets? Current liabilities The current liabilities of the business are debts that must be paid in cash within a specified period of time.From the logistics point of view the key elements are accounts payable for bought-in materials, components, etc. This is an area where a greater integration of purchasing with operations management can yield dividends. The traditional concepts of economic order quantities can often lead to excessive levels of raw materials inventory as those quantities may not reflect actual manufacturing or distribution requirements. The phasing of supplies to match the total logistics requirements of the system can be achieved through the meet techniques of materials requirement planning (MRP) and distribution requirements planning (DRP).If premature commitment of materials can be minimized this should lead to an improved position on current liabilities. Debt/equity Whil st the balance between debt and equity has many ramifications for the financial management of the total business it is worth reflecting on the impact of alternative logistics strategies. More companies are leasing plant facilities and equipment and thus converting a fixed asset into a continuing expense. The growing use of third-party suppliers for warehousing and transport instead of owning and managing these facilities in-house is a parallel development.