Introduction
Logistics is the process of strategically managing the procurement, movement and storage of materials, parts, and finished inventory (and the related information flows) through an organisation and its marketing channels in such a way that current and future profitability are maximised through the cost-effective fulfillment of orders.
The term logistics has evolved from the military’s need of spare-parts supply, but is now widely accepted to include activities like purchasing, transport, warehousing, organizing and planning of these activities. Logistics managers need general knowledge of each of these functions, and specific knowledge of the industry, commodity, or business protocols governing the product types being managed.
In business, logistics may have either internal focus, or external focus covering the flow from originating supplier to end-user, see supply chain management (http://en.wikipedia.org).
Global Logistics
Logistic systems are providing solutions into today’s fierce global market competition; the introduction of products with short life cycles and the heightened expectation of customers that forced manufacturing enterprises to invest in and focus their attention on the system. This, together with changes in communications and transportation technologies, for example, mobile communication and overnight delivery, has motivated continuous evolution of the management of logistics systems.
In these systems, items are produced at one or more factories, shipped to warehouses for intermediate storage and then shipped to retailers or customers. Accordingly, to reduce cost and improve service levels, logistics strategies must take into account the interactions of these various levels in this logistics network. This network consists of suppliers, manufacturing centers, warehouses, distribution centers and retailer outlets, as well as raw materials, work-in-process inventory and finished products that flow between the facilities.
According to the Council of Logistics Management, it is the process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements.
When we use the term “Global” with logistics, we talk about imports from Asia to the U.S.; we talk about exports to Europe; we talk about movements within North America – and we talk about more; products, components and finished goods, which never touch the U.S. They move from a vendor in Singapore to a manufacturing plant in the Philippines. Or they move from Hong Kong to Germany. They move within Europe. Global supply chain. Worldwide logistics. Exciting and dynamic (Craig, T. 1996).
With such a complex scope of locations, plants, warehouses, vendors and customers, the five key issues of logistics are especially critical with global logistics – movement of product, movement of information, time / service, cost, integration (within your company between you and your customers and between you and your vendors).
Just How Important Logistics Is?
Companies wanting a slice of the ballooning electronic commerce market cannot ignore logistics, according to industry giant United Parcel Service.
Ross McCullogh, UPS e-commerce vice-president, told the Internet World Asia at Hong Kong ’99 conference recently that many new companies failed to take into account how to move goods to customers. “Every single day we move 12.4 million packages, and inside those packages are the commerce transactions, many of which occurred across the web … Every day we link 1.6 million people selling something to seven million people buying something,” McCullogh said. Over the past four years, he had read around 1000 business plans from companies planning to launch new businesses, of which more than 95 per cent failed to consider logistics. Many businesses also failed to take into account issues such as taking and processing customer orders. “The bottom line is you cannot separate e-commerce from the logistics/supply chain. They are two sides of the same coin,” McCullough added. Companies hoping to cash in on the e-commerce boom had to understand how to minimize their inventories and how to track orders to ensure they had complete control of their supply chain (Business Asia, 1999).
Influences and Factors
Within the five critical issues of global logistics are additional influences and factors. For example, time zones. People in the Far East, Europe and North America are all networking at the same time. There is too great a difference in the time zones. This means there must be firm understanding of plans and strategies by each element. Or, there are cultural factors. Different cultures view and understand business topics differently. These understandings and their complexities can compound if the strategies and plans for doing business are not the result of collaborative effort with input by all groups. Plus the company is much decentralized. Different global areas have to meet their own needs, yet must work together to share product and information to make it happen.
All this comes into play, for example, with air freight forwarder and ocean carrier selection. Given the needs of all parties as to cost, availability of space/equipment, responsiveness and delivery/cargo release, a pool of forwarders and carriers can be selected. Primary and secondary designations are assigned for the respective origin-destination lane. But if special situation arise, the origin plant should be given the flexibility to use other than the primary forwarder. He must stay within the list of approved forwarders. Yet if special price, space or other matters develop, he has the explicit approval to make changes. He does not have to wait to contact someone in the U.S. or other location.
Or, conversely, instead of price, he must understand when service is required. Service does not mean getting it on the plane. Service means getting it delivered within the time demanded. A great rate is not good if the shipment does not arrive in time. Or delivering the shipment via a destination airport which delays actual door delivery is not acceptable either. Everyone must understand the responsiveness and adjust as circum-stances dictate.
This is just discussing shipping in the global company. Doing it requires integration, information, transfer of product, service and cost – in other words, logistics. Change, and responding to them, as to service or cost should be recognized in the information, data and communication used among the regions. It takes more than late night phone calls and faxes.
Vanilla Strategy
From the teamwork, they develop the Vanilla Strategy. (You have to give these things names. Not sure why, but you do). The key aspect is shipping partially made units -vanilla models- to the plants for final assembly. Shipping the basic models this way creates cost and time savings and postponement manufacturing to reduce inventories and create value-added. If a country has clearly demonstrated a strong ability to accurately forecast its sales requirements, a certain portion, say 75%, of their finished product will be sent to them from the Philippines and will arrive per the work week sales they planned. It will not go to the plant in Germany or the U.S. This will save cost and time. But if a country is not very good at forecasting, it will get a lesser portion, say 25%, of its quarterly requirements direct from Asia. A country which is good at forecasting may get 50% of its requirements directly.
Then for the remaining units, Vanilla kicks in. This means units will be finished at the higher labor cost plants in Germany and the U.S. However, there will be freight savings by shipping the partially-completed units in the special, reusable pack. This offsets the labor. In addition, there is less need for air freight. As part of the program, the plant in Germany will print keyboards. Rather than buy finished keyboards from the supplier’s facility in Malaysia and then having problems if the various country requirements change, they will buy mostly blank units. This improves their responsiveness to sales changes. In addition, they are able to reduce inventory by 20%. In addition, the German plant will supply the country’s weekly requirements within 48 hours of its request.
Not bad. Logistics cost savings, less rework, lower inventories, less hassle within the company and with the suppliers. Better sales responsiveness and more sales. This did not cover every aspect with global logistics, but hopefully it gave you some understanding, especially as to the five key issues of logistics. There is movement of product, movement of information, time/service is important, as is cost, and there is integration.
Global logistics is dynamic, not only in what is done but the way it is done. No where can this be better illustrated is with the technology and the movement of information. Text and spreadsheets can be moved between different departments and companies via E-mail. Even freight booking and management is going hi-tech. There is a new web site recently developed by Net Logistics in alliance with Microsoft. Its address is http://www.wwship.com. This is a new, pioneering and exciting way for logistics users and providers to find, gather, and exchange information. A database; book shipments; obtain rates; global E-mail and more: Electronic global commerce. The potential is unlimited. Timely, cost effective and global. It will significantly aid global logistics.
Third-Party Logistics Provider
A third-party logistics provider (abbreviated 3PL) is a firm that provides outsourced or “third party” logistics services to companies for part or sometimes all of their supply chain management function. Third party logistics providers typically specialize in integrated warehousing and transportation services that can be scaled and customized to customer’s needs based on market conditions and the demands and delivery service requirements for their products and materials.
Examples of 3PL providers include: Freight Hauling Logistics (FRHL), C.H. Robinson Worldwide, Exel, Total Logistic Control, Federal Express, DHL, UPS, TNT N.V., Trinity Transport, Inc., BAX Global Inc., ECS warehouse, TVS Logistics services, Transfreight and Nexus Distribution.
A 3PL provides integrated logistics services (i.e. the complete set of logistics activities from the buyer to the seller). A 3PL is assets based unlike a 4PL (fourth-party logistics provider)
Retail Logistics
All manner of retailers are waking up to the power of logistics, realizing that they entail more than trucking and distributing goods. For without good information about sales and insight into customer needs, the finest distribution center and transport capabilities are likely to send the wrong thing to the wrong place at the wrong time. Effective logistics therefore require an efficient information system as well as good transport, distribution center, and store-handling capabilities.
And that’s just the start. Those who excel at logistics in today’s environment use logistical expertise not only to survive, but to sustain real competitive advantage. They have discovered that just as one strategy does not work for all retailers; neither does one logistics system suit everyone. No longer a generic capability, logistics can be tailored to support each company’s distinct strategy. Fashion leaders, for example, need to make speed their priority, and typically incur higher transport costs, whereas discounters focus more on cost and would not consider flying in goods from the Far East for speedy delivery.
Senior executives thinking about how to compete should therefore consider how to tailor their own logistics. To do so they’ll need a sound understanding of the fundamentals of good logistics, as well as logistics’ new capabilities. Only then will they be able to make the choices and trade-offs required to deliver their specific strategy (Dvorak, R. E. & Paasschen, F. V. 1996).
Logistics alliances – formal or informal relationships between companies and logistics providers – are rapidly emerging in Europe, North America, and, increasingly, the Far East. While no precise information is available, we estimate that annual value in Europe and North America is over billion, with a number of leading providers enjoying almost billion in revenues. The success of these alliances means that they are poised to become a building-block in the coming “network economy”: a system in which companies focus on their core competencies and outsource other activities to external providers that can perform them more quickly, more cheaply, and more effectively.
A survey of alliances in the automobile, electronics, and packaged consumer goods industries discovered that logistics alliances often bring in large service and cost benefits which come from more efficient operations, tailored logistics solutions, an expansion in services, and the capture of synergies and scale effects (Lal, S. et al. 1995).
Logistics alliances are proving to be powerful tools for enhancing supply chain performance. The best are based on close working arrangements, a shipper lead in design and evaluation, a tendency to outsource almost everything, ambitious targets, and a strong performance ethic. Most concerns about losing control, insufficient provider knowledge or capability, and “putting all the eggs in one basket” seem quickly to fade.
Supply chain management
Supply chain management is very important in controlling the operations of the supply chain to satisfy customer requirements as efficiently as possible. Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption. Supply chain event management (abbreviated as SCEM) is a consideration of all possible occurring events and factors that can cause a disruption in a supply chain. With SCEM possible scenarios can be created and solutions can be planned.
Some experts distinguish supply chain management and logistics management, while others consider the terms to be interchangeable. From the point of view of an enterprise, the scope of supply chain management is usually bounded on the supply side by your supplier’s suppliers and on the customer side by your customer’s customers.
Supply chain management must address the following problems:
- Distribution Network Configuration: Number and location of suppliers, production facilities, distribution centers, warehouses and customers.
- Distribution Strategy: Centralized versus decentralized, direct shipment, cross docking, pull or push strategies, third party logistics.
- Information: Integrate systems and processes through the supply chain to share valuable information, including demand signals, forecasts, inventory and transportation.
- Inventory Management: Quantity and location of inventory including raw materials, work-in-process and finished goods.
Trade Routes
Which route was considered preferable (or not) for use by groups of merchants and their armed and logistical escort, depended on a number of background factors, including an overall political and economic situation in areas to be crossed, travellers’ mode of transport, their navigation skills and knowledge of geography (and weather patterns), as well as on the actual ease, speed, safety and profitability of such journeys.
Credit:ivythesis.typepad.com
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