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Introducing Logistics

1.1 Definition of Logistics

According to a widespread definition, logistics is the discipline that studies, in an organization (such as a private company, a public administration, a non-profit association, a military corps), the management and implementation of the operations concerning the flow of tangible goods (materials, food and medical supplies, refuse, equipment, weapons, etc.) from their sources (suppliers, mines, crop fields, etc.) to their points of utilization or consumption or disposal (retailers, landfills, army units, etc.) to meet the objectives of the organization. To this end, logistics requires the collection, integration, and processing of data from several sources in order to plan, organize, and control activities such as material handling, production, packaging, warehousing, and distribution.

The words "logic" and "logistics" both come from the Greek term lógos, which means, among other things, "order". However, while "logic" derives directly from Greek, "logistics" first passed into Middle French as "logis", meaning "lodging", and then into English.

Defence Logistics. The origins of logistics are of a strictly military nature. In fact, the discipline arose as the study of methodologies to guarantee the correct supply of troops with victuals, ammunitions, fuel, etc. Indeed it was the Babylonians, in the distant twentieth century BCE, who first created a military corps specialized in the supply, storage and delivery of soldiers' equipment. The relevance of logistics became apparent during the American Revolutionary War (1775-1783) when the lack of adequate supplies for the 12 000 British soldiers overseas during the first six years devastated the troop morale and contributed to their final defeat. In modern times, logistics played a key role in World War II where it helped the Allied powers to succeed. In modern times, the key concept in defence logistics is that of supply chain, defined as the set of processes, infrastructure, equipment and personnel ensuring that a specific vehicle or weapon is fully functioning in the theatre of operations.

Industrial Logistics. Only in the twentieth century, were logistics principles and techniques extended to manufacturing companies. In industrial logistics, a supply chain resembles a military one and is defined as the network of organizations (suppliers, carriers, logistics providers, wholesalers, and retailers, etc.), resources, activities, and information built around a company to produce and distribute a specific product to a specific market. Here, the goal of logistics is to manage the flow of materials and information from the extraction, harvesting or purchase of raw materials and components up to the delivery of the finished products to customers. In this sector, logistics activities are traditionally classified depending on their location with respect to the production and distribution processes. In particular, procurement logistics comes before the manufacturing process and consists of supplying raw materials and components to support the company's production plan. Internal logistics is about material handling and storage in production plants in order to feed production lines and the subsequent product packaging and shipment. Finally, distribution logistics falls after the production plants and before the market, and aims to supply sales points or customers. In this framework, procurement logistics and distribution logistics are collectively called external logistics.

Service Logistics. Logistics issues are also increasingly present in the service sector, for example in postal services, in urban solid waste collection, in the post-sales activities of manufacturing companies as well as in humanitarian organizations. Logistics service providers (LSPs), performing transportation or warehousing activities for other organizations, including manufacturing companies, also fall into this category.

Integrated Logistics and Logistics Alliances. Logistics activities may be carried out entirely by a specific function of the organization (see Section 1.5 for details). Otherwise, they may be jointly performed by multiple departments of the organization such as production, marketing, etc. (integrated logistics) or even in collaboration with different partner organizations (logistics alliances). Logistics alliances can be implemented in two different forms. The efficiency-oriented approach relies on contracts of a strictly operative nature that do not modify the organization's own strategy but simply tend to create synergies or economies of scale with the primary objective of minimizing costs. On the other hand, in the differentiation-oriented approach the company tries to forge exclusive alliances with some partners, not replicable by competitors, to generate an added value with respect to the competition.

An efficiency-oriented logistics alliance was implemented by SkyTeam, the second global airline alliance in the world, that in 2021 counted 19 members (Aeroflot, Aerolíneas Argentinas, Aeroméxico, Air Europa, Air France, Ita Airways, China Airlines, China Eastern, Czech Airlines, Delta Airlines, Garuda Indonesia, Kenya Airways, KLM Royal Dutch Airlines, Korean Air, Middle East Airlines, Saudi Arabian Airlines, TAROM Romanian Air Transport, Vietnam Airlines, and Xiamen Airlines). The alliance allows the collaboration among airlines in different forms: creating synergies in timetable design and ticket pricing, sharing information about customers, operating ground services, managing frequent flyer programmes, and airplane maintenance. In addition, customers of the SkyTeam airlines can benefit from a larger number of flights, with more destinations and connections as well as a larger number of lounges located within the network's airports. In 2021 SkyTeam transported about 675 million passengers over 15 500 daily flights reaching about 1000 destinations in 170 countries. The cargo branches of 11 of the 19 air companies cited above have also signed a strategic alliance, called SkyTeam Cargo, for freight transportation. The members of SkyTeam Cargo share airplanes and cargo buildings (see Section 6.3.2) located in 76 air cargo terminals worldwide (e.g., the cargo building located in the Vienna Airport is shared among China Airlines Cargo, Korean Air Cargo and Aerflot Cargo).

An example of a differentiation-oriented logistics alliance has been set up in 2019 between Unilever, a global Dutch-British consumer goods company owning the Algida ice cream brand, and Ferrero, a world-renowned Italian manufacturer of branded chocolate and confectionery products, including the Kinder brand of chocolate products and Nutella. The agreement concerned the launch of a new Kinder Ice Cream (whose recipe was created by Ferrero), produced and distributed by Unilever in various European markets (Germany, France, Italy, Austria, etc.). The partnership has clear mutual benefits. Ferrero may take advantage of Unilever's experience in the ice cream sector to take its Kinder brand to new attractive markets, without the cost of investing in a frozen food supply chain. On the other hand, Unilever may take advantage from the Kinder brand power to increase its sales and enlarge its product portfolio.

1.2 Logistics Systems

A logistics system is a set of interacting infrastructures, equipment, and human resources whose objective is, as a whole, the execution of all the functional activities determining the flow of materials among a number of facilities. Facilities may be plants, warehouses, landfills, sorting centres, air, and ground hubs where either production or assembly, disposal, consolidation, storage, packaging, distribution, etc. is carried out.

It is concerned with the flow of materials among facilities. For example, in a waste collection system, materials flow from households to waste recycling plants and landfills through a number of facilities such as transfer points and mixed waste sorting plants. In a postal system, letters and packages flow from the pickup points to the delivery addresses through mail sorting sites, air and ground hubs, regional distribution centres (DCs), etc. In a manufacturing system, materials flow from suppliers to production plants and then reach the distributions system and the retailers (or directly the final customers). The distribution phase may rely, depending on the cost structure and customer expectations, on a single layer of DCs or on a central distribution centre (CDC) and a number of regional distribution centres (RDCs). In any case, at each facility the flow of materials is temporarily interrupted, generally in order to change their physical or chemical composition (production, assembly), appearance (packaging), availability (storage), or ownership. Such logistics activities, along with transportation and material handling, constantly add value to the product, as it draws nearer the final customer. An exception to the downstream flow from suppliers to markets is when a defective product, or a product at the end of its life cycle, is returned to be repaired or disposed of (see Section 1.7.1).

Figure 1.1 shows a schematic representation of a logistics system in which the manufacturing process of the finished goods is divided into a transformation phase and an assembly phase, performed in different facilities. At the start are the suppliers of materials and components which feed the final manufacturing...