In its beginnings, Logistics was to have the right product, in the right place, at the right time, with the lowest possible cost. At present, this set of activities has been redefined and today it is a whole PROCESS, treated with such importance, that organizations have a specific area for their treatment.
Logistics is the process in which a flow of raw materials, inventory in process, finished products and related information is projected, implemented and controlled, from the place / country of origin to the place / country of destination in an efficient and as economically as possible in order to achieve end customer satisfaction, ensuring that at all times the expenditure of resources of some kind, translates into adding value to the product / service, avoiding waste or waste and making the most of the productive capacity.
Like any Process of the Organization focused on optimization, the correct management of the logistics process can generate competitive advantages, which will guarantee to achieve sustained profitability levels.
In this work we intend to show the elements that define supply and inventory management as the logistics function that most directly contributes profitability to the logistics process.
Keywords: Logistics, Logistics, Inventory, Process, JIT, JAT, Management, Profitability, advantage, competitive.
DEVELOPING
Basic functions of the Logistics Process.
The management of the Logistics Process is one of the main management tools for an organization to reach a high level of competitiveness in the market. For proper management, this process is understood to be made up of functions that are in turn managed.
In every logistics process there are basic functions related to the good performance of a logistics plan. At least two of these basic functions are involved in almost all logistics operations:
- Supply and inventory management: involves the responsibility for the quantity and assortment of materials that must be available to cover production needs (raw materials and production in process) and customer demand (finished products). Transportation: deals with the physical movement of materials Storage management and handling of materials: deals with the effective use of facilities for storage and inventory control, as well as manual, mechanical and / or automated means for Physical handling of materials. The management of communications and information involves the accumulation, analysis, storage and dissemination of relevant data of the needs to make logistics decisions with efficiency and effectiveness.Communications and information integrate logistical operational areas and support activities into one system and allow it to be effective.
Flexibility of the Logistics Process.
One of the competitive advantages to be developed, based on the logistics process, is the flexibility of the Logistics Process, so that it is endowed with a high capacity of the Organization, to reinvent or do engineering dynamically (reengineering) in the face of changes in the environment. This is based on the fact that we are in a dynamic environment, where things will continue to change in the near future, so avoiding rigid management is a challenge with increasing demands. At the same time, the technological means to achieve said flexibility have also been developed, and knowledge in management sciences, based on the management of information, is also perfected.
Any change in the environment has repercussions on the logistics of organizations, just as every organization develops logistics processes and needs to optimize resources. The natural interrelation of business factors, internal and external, in national and international markets, cause the reengineering process to become increasingly important, with technological advances having a great influence on it.
Logistic System.
Registering and calculating the logistics cycle is an essential element for the management of Organizations, facilitating the evaluation of logistics management and supporting decision-making. These actions are guaranteed with an efficient logistics system.
The result of the implementation of an efficient logistics system is to provide the customer with greater value with the lowest possible total cost. The practical application of the total cost concept encourages the introduction of changes in a system activity to improve results in two ways:
- An improvement can lead to an increase in the cost of carrying out one or more logistics activities, provided that the cost of carrying out any of the other logistics activities is reduced by an equal or greater amount, so that the cost As an alternative, the total cost of the system can be allowed to increase, provided that the value delivered to the customer increases, increasing their satisfaction and loyalty, so that it can be used as a strategic competitive weapon to achieve greater overall profitability.
Some of the activities that we can find derived from Logistics Management in a company are the following:
- Productive improvement: Efficiency in production: reach high levels The distribution chain: it must keep fewer and fewer inventories without causing stock breakages Transportation: comply with the agreed program Development of information systems Organizational improvement Optimization of logistics management, with known methods and tools Optimal coordination of all the factors that influence the customer's purchase decision: quality, reliability, price, packaging, distribution, protection, service, etc. Broadening the managerial vision to turn logistics into a model, a framework, a planning mechanism for the company's internal and external activities, turning the correct practices of this general vision into culture.
These improvements, to the extent that they are harmonized, will bring, among others, the benefit of increased efficiency and improved profitability, given the challenge of globalization and the need to obtain competitive advantages.
Below we analyze one of the management techniques of one of the most interesting logistics functions, inventory optimization, through the dilemma:
Zero inventory or proper balance?
The evolution of business and the need to compete forces companies to innovate, differentiate themselves and find new, more efficient ways of producing and offering their products to the market.
Globalization allows the rapid diffusion of innovations, new technologies and new production methods and processes, increasing competition and forcing the generation of new differentiating ideas.
As part of their strategy, companies that become leaders in their respective markets place emphasis on reducing inventories but at the same time consider improving service to customers, reducing the level of shortages and reducing the levels of waste and waste..
These apparently contradictory objectives are in many cases the keys to the success of these companies.
Inventory Types
The expression stock, inventory or inventory refers to the items that the company stores, both those necessary for manufacturing and those that are going to be sold. Under this same concept there are very diverse products:
- Raw materials: Products that are used for manufacturing and that are in the warehouse waiting to be used in the production process Partially finished products or production in process: Identifies the products in progress, that is, those that are waiting to be reintegrated in the next phase of a manufacturing process, or those manufactured by the company that are not intended for sale until their manufacture is completed.Finished products: They are in the warehouses waiting to be sold Equipment goods and spare parts. It is the machinery and equipment used by the company to develop its activity, as well as the parts dedicated to the replacement of those that deteriorate in the machines of the production process. Various materials and supplies.They are used to keep machines ready or to support general administrative activity. Defective or obsolete products. They are those that have come out with a manufacturing defect or have become out of date due to remaining unsold for a long time. Containers and packaging. The containers are those containers intended for sale, that is, they will serve to market the product they contain. The packaging serves to protect the packaged product during handling, storage and transport.In the production process waste or leftover remains are generated that either cannot be taken advantage of, or can be used in some way (eg. Scrap).They are those that have come out with a manufacturing defect or have become out of date due to remaining unsold for a long time. Containers and packaging. The containers are those containers intended for sale, that is, they will serve to market the product they contain. The packaging serves to protect the packaged product during handling, storage and transport.In the production process waste or leftover remains are generated that either cannot be taken advantage of, or can be used in some way (eg. Scrap).They are those that have come out with a manufacturing defect or have become out of date due to remaining unsold for a long time. Containers and packaging. The containers are those containers intended for sale, that is, they will serve to market the product they contain. The packaging serves to protect the packaged product during handling, storage and transport.In the production process waste or leftover remains are generated that either cannot be taken advantage of, or can be used in some way (eg. Scrap).In the production process waste or surplus remains are generated that either cannot be used at all, or can be used in some way (eg scrap metal).In the production process waste or surplus remains are generated that either cannot be used at all, or can be used in some way (eg scrap metal).
Inventory Risks
Regardless of the cause, when inventories tend to grow, this results in several possible risks:
- The working capital invested in Inventory increases. There are surplus inventory of products and supplies that can no longer be sold and are not needed, due to their difficult control. Storage costs, obsolescence, breakages, etc., are increased.
To maintain the competitiveness of the company in this context, it is necessary to find forms and management techniques that allow achieving higher levels of efficiency, and to achieve this it is necessary to rely on various tools that allow simplifying management, reducing inventories and increasing the speed of re -planning.
Factors to accumulate inventory.
To determine how to maintain the ideal balance in the company, regarding whether to maintain ZERO INVENTORY or not, it is necessary to also identify some factors that motivate the accumulation of inventory and allow a better understanding of the importance of its management:
- In the first place, we must consider inventory as a resource to avoid shortages or stock outs. This accumulation serves to protect us against the possibility that supplies arrive late (delay in the supply of orders) or demand is higher than expected (demand uncertainty), preserving the Organization from possible tangible and intangible damages that Brings the shortage or out of stock.Economy of scale. In the case of industrial companies, it is necessary to take into account that the cost of producing each item (the unit cost) decreases as the number of these increases., both due to the effect of the economy of scale and the effect of the experience curve (learning). It takes advantage of the decrease in costs as the volume of purchases or manufacturing increases. In this way, the manufacture of large quantities of product can serve to lower production costs and, ultimately, the sale price of the product. To which benefits are added for certain discounts for purchase volume. However, this can be inconvenient if the cost of warehousing increases so much that it no longer compensates for the savings obtained. Business reasons. The accumulation of inventory is a guarantee that we will be able to cover the demand for a product.Having the product always available when the client demands it is a reason for the client's purchase selection to be in favor of the Organization. Always ensuring that excessive inventory can lead to higher warehouse costs, which will have an impact on the sale price and, consequently, on demand.The fact that there is insufficient inventory can bring with it inconveniences: Ex. Loss of sales and productive downtime. Intangibles: Loss of image and strength of the company that causes a decrease in the level of customer satisfaction, loss of trust and even loss of it.
Factors for ZERO INVENTORY.
On the other hand, it is necessary to highlight the advantages of using or approaching ZERO INVENTORY mechanisms:
- It involves a reduction in the explicit cost of the inventory (acquisition cost) and the implicit cost (storage, handling, obsolescence, breakages and losses), freeing up assets for other purposes, with a higher profitability rate, so that there is no loss due to cost opportunity to have financial resources immobilized More viable and efficient inventory control and auditing Prevents masking problems in inventory management, which makes it easier to detect bottlenecks, processes that do not generate value and limiting resources Reduces utilization of the available human capital time fund. They allow to evaluate suppliers more accurately, so that the selection method is perfected and make them much more responsible with the supply chain and delivery of value to the client.
JIT (from the English "Just In Time", Just In Time, JAT).
Perhaps the best known system that responds to the trend of ZERO INVENTORY, is the JIT (from the English "Just In Time", Just In Time, JAT). This system is integrated into several of the logistics functions. It has had an unprecedented boom in recent decades. Thus, after the success of its creation by Japanese companies, during the years that followed the crisis of the 1970s, researchers and companies around the world turned their attention to a form of production that, until then, had been considered linked to the traditions and socio-cultural values of Japan and, therefore, very difficult to implement in non-Japanese industries.
However, it was later shown that while the implementation of the principles and techniques that supported the JIT production systems required a profound change in the Western production mentality, they did not have as an essential requirement a form of society or specific socio-cultural requirements..
The fundamental paradigm of JIT is to achieve an ideal situation where suppliers supply in smaller quantities and more frequently, thereby substantially reducing or eliminating raw material inventories, and production is exactly matched to demand, so that it translates into a system that tends to produce just what is required, when it is needed, with excellent quality and without wasting system resources.
JIT is a production organization methodology that has implications for the entire production system. In addition to providing methods for planning and controlling production, it affects many other aspects of manufacturing systems, such as, among others, product design, human resources, the maintenance system or quality. In the JIT when problems appear they must be faced and solved. The level of stocks can then be gradually reduced until another problem is discovered; this problem would also be solved, and so on.
The JIT is much more than a program aimed at reducing inventories or ZERO INVENTORY. The JIT is a system to make the production companies operate efficiently and with a minimum of resources, human, material, financial and of all kinds. The "Just in time" also pursues the objective of improving quality, and providing tools for detection and solution of problems in the Logistics Process, maximizing the conditions that allow the solution of problems as soon as they arise. JIT is also synonymous with simplicity, efficiency and a minimum of waste and for its current development the development of information technology and communications has been paramount.
However, in JIT there are also a series of risks associated with its implementation. These are mainly related to the high dependence of the relationship with suppliers and distributors, the immediate effect of which is an increase in vulnerability to events that affect them.
Regardless of whether the JIT system is used, in the modern era it is necessary to consider suppliers and distributors as “strategic allies”, and by strengthening the relationship of trust and reciprocal collaboration, they are granted active participation in the supply chain and therefore Therefore, both parties obtain mutual benefits, from the Win / Win premise.
These benefits are related, among other factors, to creating greater value, reducing costs in the supply chain, also identifying and eliminating costs that do not add value to the process. In this way, association and cooperation are encouraged with the aim of obtaining a product with greater added value, at a lower cost, which unquestionably generates competitive advantages.
CONCLUSIONS
The acceleration and globalization of markets have led logistics processes to develop strategies in charge of managing product flows, based on the integration of the entire logistics chain. That is why the logistics process is called upon to play a central role within the company and undoubtedly points to the search for competitive advantages for companies today.
That is why, it is essential in these times, that the approach to logistics plays a preponderant role in the efficient and effective performance of business management, with a view to achieving high levels of competitiveness, achieving greater value creation with reduction of the costs associated with logistics functions, through their quantifiable analysis, expressing inventory management as the most direct way to maximize profitability in the use of available resources in the logistics process.
Likewise, it is ideal to adjust to the trend of current production systems and modern purchasing systems, to significantly reduce or even eliminate stocks of raw materials or manufacturing components, moving to have a supply in small quantities and frequent in the market. weather.
Managing ZERO INVENTORY allows optimizing the business resources used in Inventory Management, but it must be based on a well-structured approach since it is likewise a risk for any company, and may represent loss of production, sales and the end of customers.
As we have seen, the inventory level must be balanced between the two extremes. This assumes that inventory management is directly related to being competitive. In other words, it is important to guarantee the presence of a sufficient Inventory to satisfy external and internal demand, but always in such a way that its storage and management is profitable. It is then about maintaining an adequate level of inventory, which allows, on the one hand, to have enough to avoid inventory breakages and, on the other, to avoid a useless excess of it, affecting the results of the company.
BIBLIOGRAPHY
- Brandín Lorenzo, A: "Business logistics and the concept of Total Cost". Senior Management Magazine. Vol. 28. P. 369. 1992. School of Industrial Organization (EOI, Madrid, Spain). Teaching material for the Supply Chain Management Management Module, taught by professor MsC. José Luis Montes Giménez, in the Executive Master of Business Administration and Management (2013-2014). EOI, Madrid, Spain, 2014. Figueroa, H. Zero stock management: the Kanban method, just in time. Edition Chamber of Commerce and Industry of Madrid, Spain. March 1985, Mather, HF For a reduction in stock levels. Harvard-Deusto Business Review. 1984, 4th quarter Nakane, J and Hall, RW Towards an ongoing out-of-stock production. Harvard-Deusto Business Review. 1984, 1st quarterLlauger Hung Wilson.Investigative work for the Operations Management Module. Supply Chain Management, taught by Professor MsC. José Luis Montes Giménez, in the Executive Master of Business Administration and Management (2013-2014). EOI, Madrid, Spain, 2014. Ortiz Torres, Maritza. Business Logistics. An effective method to manage inventories. Teaching material for the Business Logistics Module. Master in Business Administration. Economy faculty. University of Havana, Cuba, 2015.http: //biblioteca.idict.villaclara.cu/biblioteca/compendiosinformativos/sistema-de-gestion-de-produccionhttp: //cge.es/portalcge/tecnologia/innovacion/411tecnicas/Sistemas_Just _In_Time_ (JIT).aspxin the Executive Master of Business Administration and Management (2013-2014). EOI, Madrid, Spain, 2014. Ortiz Torres, Maritza. Business Logistics. An effective method to manage inventories. Teaching material for the Business Logistics Module. Master in Business Administration. Economy faculty. University of Havana, Cuba, 2015.http: //biblioteca.idict.villaclara.cu/biblioteca/compendiosinformativos/sistema-de-gestion-de-produccionhttp: //cge.es/portalcge/tecnologia/innovacion/411tecnicas/Sistemas_Just _In_Time_ (JIT).aspxin the Executive Master of Business Administration and Management (2013-2014). EOI, Madrid, Spain, 2014. Ortiz Torres, Maritza. Business Logistics. An effective method to manage inventories. Teaching material for the Business Logistics Module. Master in Business Administration. Economy faculty. University of Havana, Cuba, 2015.http: //biblioteca.idict.villaclara.cu/biblioteca/compendiosinformativos/sistema-de-gestion-de-produccionhttp: //cge.es/portalcge/tecnologia/innovacion/411tecnicas/Sistemas_Just _In_Time_ (JIT).aspx//biblioteca.idict.villaclara.cu/biblioteca/compendiosinformativos/sistema-de-gestion-de-produccionhttp://cge.es/portalcge/tecnologia/innovacion/411tecnicas/Sistemas_Just _In_Time_ (JIT).aspx//biblioteca.idict.villaclara.cu/biblioteca/compendiosinformativos/sistema-de-gestion-de-produccionhttp://cge.es/portalcge/tecnologia/innovacion/411tecnicas/Sistemas_Just _In_Time_ (JIT).aspx
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General comments on the work, author and consulting professor.
This work is based on investigative works, presented by the author, for the achievement of the Operations Management Module. Supply Chain Management, taught by Professor MsC. José Luis Montes Giménez, in the Executive Master of Business Administration and Management (2013-2014). EOI, Madrid, Spain, 2014. The professor is an Industrial Engineer from the ETSII, Polytechnic University of Madrid. Master in Nuclear Technology, ICAI. Master in Management Training, Euroforum-Insead.
The author of this work, MsC. Wilson Llauger Hung, is an Automation Engineer. Executive Master in Business Administration and Management, at the School of Industrial Organization (EOI, Madrid, Spain, 2014). Applicant for a Master's Degree in Business Administration, at the Faculty of Economics, University of Havana, Cuba.
The tutorship of this work was in charge of the MsC. Ana Luisa Espinosa Bernal. Degree in Economics. Master in Marketing and Business Management. Master in Marketing and Communication. Assistant Professor of the Department of Business Sciences, Faculty of Economics, University of Havana, Cuba. (email: [email protected]) (phone: +53 7 832 94 58)
