The logistics manager of an organization is under obligation to find answers to many questions regarding quality, quantity, source, time, price, place, transportation, and terms and conditions of the purchases to be made. All these questions are termed as the R’s of scientific logistics management in the modern world.
The main objective here is to ensure that the product fulfills the purpose for which it is being bought. The basic job of the logistic manager is to understand the type, brand and detailed specification of the products required. It is then the job of the customer to examine and approve of the technical specifications of the product. For example, in case of plant equipment and tools, the specifications are to be passed by plant engineer. The office machinery and stationary are to be approved by the office in charge. Similarly it is the duty of the distributor to explain the requirements of the customers.
Every company needs to know the correct time at which the materials be purchased without delaying the process of production. Time taken from requisition of material to examination of the materials constitute total lead time of the organization. It includes supplier time, logistics time, and physical verification time in the whole progress. It will give an idea to the purchase department about the level at which the order for new material be placed so that it won’t affect the working of the organization.
The most important decision for a logistics manager is to decide about the quantity of material to be bought and amount of goods to be supplied to the customers. The quantity bought should be such that it leads to minimization of total cost. Buying more will result in more carrying cost and less ordering cost and buying less will result in lower carrying cost but higher ordering cost. Hence optimal cost can only be reached through Economic Order Quantity.
The ultimate objective of every business is to earn a profit. Hence, deciding on the fair price of the product is a very important step in the whole logistics process. Generally, the final price is dependent on many factors such as raw material prices, efficiency of manufacturing process, availability of labor at reasonable prices, availability of other factors of production, prices offered by other competitors, cost of transportation and warehousing and margins or commissions offered to the distributors.