Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

1.1.3 The Product Life Cycle, Logistics and Operations Management, the Synchronization of Supply and Demand, and the Role of Inventories

Intended learning outcomes: Produce an overview on the product life-cycle. Differentiate between terms such as logistics, operations, logistic management, operations management, and value-added management. Describe supply, demand, lead time, and costomer tolerance time. Explain the problem of temporal synchronization between supply and demand as well as the role of various kinds of inventories in solving this problem.




Products are made by converting goods. The use or utilization of products leads to their consumption or usage.

Consumption of goods (by the consumer) means, according to [MeWe18] the act of consu­ming or using up, and also, according to [Long15], the amount of goods that are used (up). 

Goods that are used up must be disposed of properly. There is thus a life cycle to products.

Put simply, the product life cycle consists of three stages: design and manufacturing, use (and ultimately consumption), and disposal, which can be connected with recycling.[note 101]

Figure 1.1.3.1 shows the product life cycle. Design, manufacturing, service, and disposal are seen as value-adding processes,[note 102] symbolized by an arrow pointing in the direction of value-adding. Use is itself a process; however, it is a value-consuming one.

Fig. 1.1.3.1        The product life cycle.

The life cycle of material products generally begins with nature and leads from design and manufacturing to the consumer. A consumed product must then be disposed of, possibly connected with recycling of components. In the most general case, the life cycle ends once again with nature, in that the materials are returned to the earth.

The life cycle of nonmaterial products begins with an issue about which something is decla­red. This issue, in a broad sense, can also be seen as ultimately connected to things in nature, whether to objects or at least to human thinking about objects. Disposal ends with the information being erased or deleted. In the broadest sense, then, it is also returned to nature.


Quiz on Chapter 1.1.1/1.1.3.: Goods, Products and the Product Life Cycle

Logistics is involved with products over their entire life cycle:

Logistics is the organization, planning, and realization of the forward and reverse flow and storage of goods, data, and control[note 103] along the entire product life cycle.

Logistics management is the efficient and effective management of logistics activities to meet customers' requirements.

The term “operations management” is very similar to the above definition of logistics management.

Operations, according to [RuTa17], is a function or a system that transforms input to output of greater value.

Operations management, according to [APIC16], is the planning, scheduling, and control of the activities that transform input into finished goods and services.

Operations Management also denotes concepts from design engineering to industrial engineering, manage­ment information systems, quality management, production manage­ment, accounting, and other functions as they affect the operation. According to [RuTa17], it denotes the design and operation of productive systems — systems for getting work done.

It also makes sense to view the other functional terms found all along the company’s value chain, namely, procurementproduction, and sales, from the management perspective. In the literature, functional terms are usually defined clearly and distinctly. In contrast, for management terms — like procurement management, production management, and sales management — there often are no formal definitions. In practical usage, however, these terms are increasingly similar to the definitions given above for logistics or operations management. This is not surprising, for it is impossible to conduct successful operations management if it is applied to only a part of the value chain. For this reason, we assume in the following that there are no significant differences among all these management terms.

Value-added management can thus be used as a generalized term for all the types of management mentioned above.[note 104]

Figure 1.1.3.2 shows a graphical representation of how the terms fit the company’s world.

Fig. 1.1.3.2        Assignment of terms to value-added management.


This animation shows a graphical representation of how the terms fit the company's internal and external activities
Click on the start button to begin the demonstration.


A fundamental problem in logistics management is temporal synchroni­zation between supply and demand. Here are some basic definitions, according to [APIC16].

Supply is the quantity of goods available for use. 
Demand is the need for a particular product or component. The demand could come from any number of sources, e.g., customer order or forecast, an interplant requirement, or a request from a branch warehouse for a spare part, or for manufacturing another product.
Actual demand is composed of customer orders, and often allocations of components to production or distribution.
Demand forecast is an estimation of future demand. Demand prognosis is used here synonymously.
Lead time is a span of time required to perform a process (or a series of operations). In a logistics context, it is the time between the recognition of the need for an order and the receipt of goods. 
Customer tolerance time, or demand lead time, is the time span the customer will (or can) tolerate from order release to the delivery of the product or the fulfillment of the service. 
Delivery lead time is the total time required to receive, fill, and deliver an order, from the receipt of a customer order to the delivery of the product or the fulfillment of the service.[note 104] 
The delivery policy is the company’s objective for the time to deliver the product after the receipt of a customer’s order.

In a market-oriented economy, the consumer expresses a need as demand for a product. A manufacturer then attempts to fulfill the demand. In principle, design and manufacturing are thus controlled by demand: They should begin only when the need has been validly formulated.[note 105] In the world of practice, this ideal orientation of the producer toward the consumer is usually not possible. On the one hand the delivery lead time may be longer than the customer tolerance time. Obvious examples are medications, groceries, or tools. On the other hand, in nature, many basic materials are ready at a point in time that does not coincide with the timing of the consumer’s need. Obvious examples are foodstuffs and energy.

Storage of goods over time plays an important role in solving this problem, allowing temporal synchronization between supply and demand.

Storage is the retention of goods (i.e., parts or products) for future use or shipment (cof. [APIC16]). 
Warehouse, store, or, more precisely, goods store are possible terms for the infrastructure for the storage of goods. 

Inventory includes all physical items in any form that can be found in the company. Inventory appears as:
- On-hand balance, which is the inventory of stored items, for examp­le, items used to support production (raw materials), customer service (end products or spare parts), and supporting activities (MRO items).   
- In-process inventory, or work-in-process (WIP), meaning goods in various stages of completion throughout the plant.   
- In-transit inventory, or transportation inventory, meaning goods moving between two locations and owned by the company in accordance with the agreed-upon inco­terms, which are terms used in international commercial transactions. 

Inventory at sufficiently high levels in the value-adding process may allow the company to meet the customer tolerance time. But there are also dis­advantages. Inventory ties up capital and requires space. Because of limited shelf life (that is, the length of time an item may be held in inventory before it becomes unusable), goods may perish, become obsolete, dama­ged, or destroyed. Keeping an inventory only makes sense where stored goods will be turned over rapidly enough. In order to minimize these disadvantages, inventory must therefore be positioned at the right levels during design and manufacturing (and, analogous­ly, disposal). This means that goods to be stored should ideally involve none of the disadvantages mentioned above. In Figure 1.1.3.3, there are two stores within design and manufacturing.

Fig. 1.1.3.3        Storage of goods within logistics.

A goods store decouples the processes upstream and downstream from this point, and therefore demand from supply. The following definitions reflect this point of view:

Decoupling is the process of creating independence between use and supply of material. Decoupling inventory is the amount of inventory kept at a decoupling point ([APIC16]). 

Decoupling points are the locations along the value-added process where inventory is placed to create independence between processes or entities ([APIC16]).

Decoupling points constitute a degree of freedom in logistics and operations management. Their selection is a strategic decision that determines delivery lead times and the inventory investment — that is, the dollars that are in all levels of inventory [APIC16].



Course section 1.1: Subsections and their intended learning outcomes

  • 1.1 Basic Definitions, Issues, and Challenges

    Intended learning outcomes: Produce an overview on terms of the working environment and of business life. Explain service orientation in the classical industry, product orientation in the service industry, and the industrial product-service system. Disclose the product life cycle, the synchronization of supply and demand, and the role of inventories. Produce an overview on supply chain management, the role of planning and control as well as the SCOR model.

  • 1.1.1 Important Terms of the Working Environment and of Business Life

    Intended learning outcomes: Produce an overview on terms of the working environment, such as work, task, process, method, object, etc. Explain terms of business life, such as value-added, business process, material, product, service, classical (or conventional) industry, etc. Present terms of the service domain such as customer service, service in the originary sense, service industry, etc.

  • 1.1.2 Service Orientation in the Classical Industry, Product Orientation in the Service Industry, and the Industrial Product-Service System (IPSS)

    Intended learning outcomes: Differentiate between a (primary, ore core) product, a product in a broad sense, and a product in the most comprehensive sense. Produce an overview on industrialization of service. Present the industrial product-service system. Explain product-oriented, use-oriented, and result-oriented services as well as their degree of intangibility.

  • 1.1.3 The Product Life Cycle, Logistics and Operations Management, the Synchronization of Supply and Demand, and the Role of Inventories

    Intended learning outcomes: Produce an overview on the product life-cycle. Differentiate between terms such as logistics, operations, logistic management, operations management, and value-added management. Describe supply, demand, lead time, and costomer tolerance time. Explain the problem of temporal synchronization between supply and demand as well as the role of various kinds of inventories in solving this problem.

  • 1.1.4 The Supply Chain, Supply Chain Management, and Integral Logistics Management

    Intended learning outcomes: Differentiate between a logistics network, a production network, a procurement network, a distribution network, and a service network. Describe the concept of the supply chain. Produce an overview on supply chain management and on integral logistics management.

  • 1.1.5 The Role of Planning and Control and the SCOR Model

    Intended learning outcomes: Produce an overview on planning, in partcular on supply chain planning. Differentiate between production planning and control (PPC) and a PPC system. Present the Supply Chain Operations Reference (SCOR) model. Describe levels 1 and 2 of the actual SCOR model.

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