Theories on Logistics

Logistics is the process of working to meet a demand while reducing cost and waste.
Logistics is the process of working to meet a demand while reducing cost and waste. (Image: Jupiterimages/ Images)

Logistic theories influence how companies store, distribute, stock and restock merchandise, both on shelves for customers and for raw goods during the production process. Logistics involves a fundamental adherence to supply and demand, working to ensure that you supply the necessary components to meet the demands of your growing industry.

Logistics Basics

Under the ideal conditions for logistics, departments will use the same quantity that is supplied during a certain period of time. The period of time is generally the time between shipments of new materials. This theory is the same in all areas of logistics, including production and merchandise sales. Unfortunately, managers find it impossible to predict the exact demand for a given item. As a result, inventory is used to compensate for times when demand may be higher than the supply.

Reverse Logistics Theory

Reverse logistics is the process of recapturing value from finished goods, reducing waste and creating additional value from already finished goods. Strategies for reverse logistics include the remanufacturing of returned merchandise, the return of unsold goods and the repurchase of sold goods for the purpose of reselling parts or reusing old parts. The costs involved with reverse logistics include transportation to return finished goods, the cost in employee time and the parts to reconstruct the repurchased goods and return them to the shelf.

Inventory Theory

A company’s inventory is its surplus of products stored off of the main sales floor. Inventory allows companies to restock merchandise quickly and efficiently once the customer purchases the available stock of similar merchandise from the sales floor. The cost involved with an inventory is calculated by the overall space used to store unstocked items as compared to the chance that additional customers will want to purchase similar merchandise before another scheduled shipment can arrive. If the overall benefit from using stockroom space to hold inventory is lower than the cost of upkeep for the space, utilities, maintenance and the reduction in space to store other items, a company may decide to reduce its inventory.

Supply Chain Management Theory

Supply chain management is another inventory theory where the distributor incurs the financial burden of inventory in order to provide a regular and efficient restocking of multiple sites from a single location. For instance, if you own a store with a low or minimal inventory space and you run out of a product, you can receive new merchandise from a local branch distribution office to restock your supply. A local distributor can restock your shelf quicker than if you had to order the products directly from a more distant supplier.

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