Logistics 101

Logistics can confound the newly initiated and veterans alike. So take out your notebook, sharpen your pencil, and take this Inbound Logistics short course on the fundamental concepts driving logistics theory and practice today.

Until recently, logistics activities had one primary focus—to minimize unit transportation costs for shipments to downstream customers.

"This focus worked well until the mid-1900s," explains Theodore Stank, associate professor of logistics and supply chain management at Michigan State University, "when people started thinking about logistics in the context of systems theory. Systems theory espouses managing an enterprise or organization as an integrated whole for total optimal performance—lowest total costs and optimum service level, for example—as opposed to managing discrete functions individually for lowest costs.

"Say a company decides to sit on inventory in order to build a transportation load and thereby obtain a lower freight rate," Stank offers by way of example. "This approach is fine if you're not accounting for the cost of inventory. But if you ask, 'What is it costing us to have the inventory sit on the warehouse floor for a few more days, you start to see the real cost of that decision."

"Companies began to realize that effective logistics is all about managing tradeoffs," notes Philip Evers, associate professor of logistics management at the University of Maryland's R.H. Smith School of Business. "When you minimize cost in one area, they often go up somewhere else. If you ship by rail, you may reduce your transportation costs, but your inventory carrying and packaging costs go up."

This kind of sub-optimization is a by-product of a functional orientation, explains Ed Marien, professor and program director, Executive Education, School of Business, University of Wisconsin.

Systems theory began to appear in logistics practice in the 1970s and 1980s. At the same time, a major shift in how organizations viewed...