Global Logistics And Distribution Planning

Strategies for Management

Donald Waters

• Publisher: Routledge
• Year: 2018
• ISBN:
  9781351444736
• Edition: 1
• Topic: Technik & Maschinenbau
• Subtopic: Maschinen- und Anlagebau

The fully revised new edition of this well known and respected book is characterized by the more international perspective it has taken on through contributions from internationally known authors and a final section on international logistics which examines in turn strategies for West and East Europe, the Far East and North America.
Logistics has a key strategic role to play in the long-term plans of major companies, and is recognized as a vital part of every organization. To a large extent this crucial new role is due to an expanded view of logistics, which now includes all the activities related to the supply chain from initial suppliers through to final customers.
This book provides a wealth of useful ideas and practical information on all the current and future trends in logistics and distribution. Written by a host of contributors drawn from industry, constancy and education, this book provides new insights into the most significant aspects of logistics, including:

• developments in logistics
  
• supply chain strategies
  
• lean logistics
  
• efficient customer response
  
• logistics in different countries
  
• partnering and strategic alliances
  
• re-engineering the logistics function
  From logistics professionals, consultants, professors and students to managers from different backgrounds who want an appreciation of current trends in the subject, this book is essential reading.
  About the author: Donald Waters, a past member if the Institute of Logistics and currently a member of the Canadian Association of Logistics Management, has lectured weekly on logistics, operational research and management science, and has brought his academic career to fruition as Professor of Operations Management at the University Calgary, Canada. He is also the author of Operations Management in the Kogan Page Fast Track MBA Series. Features

PART 1

Formulating a Logistics Strategy

This part of the book describes the development of logistics as a strategic function and discusses current thinking in the design of logistics strategies.

Chapter 1

Towards a Strategic View of Supply Chain Management

Donald Waters

Growing Importance of Logistics

Historically, organizations put all their effort into making products, and gave little thought to the ways that these were passed on to customers. ‘Supply chains’ remained an abstract concept, and ‘logistics’ was not a term that was commonly used in business. Distribution was an unavoidable cost of doing business – and this really meant transport, which was a low-skilled function that needed little attention. Drucker, recognizing the situation in 1962, described physical distribution as ‘the economy’s dark continent’ and said that this formed ‘the most sadly neglected, most promising area of…business’.

The view of logistics began to change when organizations realized how much they were spending just moving and storing products, but they had little idea of the true costs. In 1976, Ray could say that, ‘The whole area [of logistics costing] is clouded with ad-hoc approaches and untidy accounting procedures, to which there appears little underlying systematic ideology’. Little (1977) added that, ‘Identifying logistics costs through accepted accounting statements in the firm is very misleading’. By the 1980s the costs of distribution were becoming clearer, with surveys, for example by McKibbin, 1982; Ray, Gattorna and Allen, 1980; Firth et al., 1980; and Delaney, 1986, suggesting that logistics generally account for 15–20 per cent of costs. Organizations did not, of course, suddenly recognize these costs, and in 1994 Hill was still able to say that, ‘many distributors are unaware of the costs of the distribution service they provide’.

Despite the difficulties of identifying logistics costs, many organizations were surprised by their scale and started looking for savings. This was the catalyst for the increasing attention paid to logistics, which is now recognized as an important – and essential – function in all organizations. A 1996 survey by Deloitte and Touche in Canada (Factor, 1996) had 98 per cent of respondents saying that logistics and supply chain management is either ‘critical’ or ‘very important’ to their company. The same survey emphasized the rate of change in the area, with over 90 per cent of organizations either currently improving their supply chain, or planning improvements within the next two years.

Reducing costs was perhaps the initial incentive for organizations to examine their logistics, but a fuller list of reasons includes:

• organizations’ realization that moving and storing products is expensive, and that these costs can be reduced;

• a growing emphasis on customer satisfaction – which inevitably relies on efficient logistics;

• more organizations adopting a process focus – with logistics an integral part of the whole process of satisfying customer demand;

• new developments in operations – eg just-in-time (JIT) and total quality management – which need new approaches to logistics;

• a general trend towards the integration of operations – including strategic alliances, partnerships and collaborations;

• a realization that decisions about the supply chain have a strategic significance for the organization;

• changing attitudes towards transport – increasing congestion on roads, government policies of increasing the real cost of road transport, privatization of the rail network, etc;

• improved systems and communications – especially electronic data interchange (EDI), but including item coding and electronic point of sales (EPOS);

• substantial growth of international trade, with growing power of free trade areas such as the European Union and the North American Free Trade Area.

Integrated Supply Chain Management

When organizations tried to reduce their logistics costs, their initial studies looked at the separate functions – location of facilities, procurement, inventory control, warehousing and transport. But it soon became clear that the best approach was through integration – not looking at these functions separately, but considering the supply chain as a whole. This recognition has led to a continuing trend, as organizations stopped looking at transport and moved on to study broader physical distribution, then logistics and finally supply chain management. At each stage there has been more integration, with an increasing range of activities recognized as being part of the supply chain.

In practice, the terms ‘logistics’ and ‘supply chain management’ are now used interchangeably, so the Institute of Logistics (1998) can give the following definitions:

Logistics is the time related positioning of resources, or the strategic management of the total supply-chain.

The supply-chain is a sequence of events intended to satisfy a customer. It can include procurement, manufacture, distribution and waste disposal, together with associated transport, storage and information technology.

With this broad definition, logistics is inherently linked to other operations and can include – or at least affect – almost every function within an organization. This approach is consistent with the process focus adopted by many organizations, which no longer see themselves as supplying products, but as using a process to satisfy customer demand. Logistics is a key part of this integrated process.

The latest stage of integration in logistics is ‘quick response’, that evolved into ‘efficient customer response’ (ECR). This links the separate stages of the supply chain, so that a customer buying a product from a retailer automatically sends a message back through the chain to trigger a response from the manufacturer and other suppliers. When, for example, a customer buys a pair of jeans in a clothes shop, the EPOS system automatically sends a message back to the wholesaler to say that the stock needs replenishing, then back to the manufacturer to say that it is time to make another pair of jeans, and back to suppliers to say that they should deliver materials to the manufacturer. The result is ‘a focus on the consumer, the development of partnership relationships between retailers and their suppliers and an increased integration of the components of the supply-chain’ (Szymankiewicz, 1997). As Hutchinson (quoted in O’Sullivan, 1997) says, ‘ECR means meeting consumer wishes better, faster and at less cost’ and then he adds, ‘Is there anybody, wishing to remain in business, who believes that his or her company should not be striving to meet the wishes of the customer of their products and services better, faster and at less cost?’

There are clear benefits from this kind of integration of the supply chain, including:

• genuine co-operation between all parts of the supply chain;

• eliminating duplication of effort, information, planning, etc;

• eliminating operations that do not add value to the customer;

• improving efficiency and productivity to reduce costs;

• reducing stocks and response times;

• having actual demand trigger replenishments along the chain;

• being more responsive to customers;

• sharing information and links systems; and

• using available technology including EPOS, EDI and automated order processing.

Organizations are clearly seeing these benefits, and are moving towards greater integration. A recent survey by PE Consulting (1997) found that 57 per cent of companies had some form of integrated supply chain management. Most of the integration consisted of transport, warehousing and inventory, with fewer organizations including functions such as production planning, procurement or sales order processing. Significantly, more than 90 per cent of companies expected an increase in integration over the next three years, with a quarter of companies moving to ‘fully integrated’ systems (although there were obviously some different opinions about what this meant). Only 2 per cent of companies had currently established ECR functions, but this is forecast to increase to 37 per cent over the next three years.

Despite the different understandings of what ‘full integration’ and even ‘ECR’ mean, there is clearly an important move towards more integration of the supply chain. But this is not universal, and good ideas do not necessarily translate into practical implementation. Szymankiewicz (1997) noted this saying that, ‘In the grocery sector ECR is often regarded as an established way of doing business…[but] overall there is more talk than action’. For a variety of reasons – ranging from an unwillingness to share information to a lack of appropriate technology – many organizations are still missing this opportunity to both raise customer service and lower costs.

Strategic Logistics

As organizations have taken a broader view of logistics, it has moved up from a largely operational function to having a wider strategic significance. But what exactly does this mean? Every organization has a hierarchy of decisions that we describe as:

1. mission;

2. corporate strategy;

3. business strategy;

4. functional strategies;

5. functional tactics;

6. functional operations.

The mission gives an overall view of the organization’s purpose. Then the corporate and business strategies refer to the whole organization and show how the mission will be achieved. These plans might include decisions about organizational structure, geographical locations, competitive position, amount of diversification, acquisitions policy, profitability, resource use and so on. Lower down the hierarchy are the decisions – strategic, tactical then operational – within each organizational function, for instance marketing, finance and operations.

By saying that logistics has developed a strategic role, we mean that some of the decisions are made higher up this hierarchy. They have moved up from operational decisions within, say, marketing, into the business and corporate strategies. This recognizes that some logistics decisions are so important that they set the direction for the business as a whole. It is fairly easy to see that decisions to form an alliance with major suppliers, introduce ECR, use vendor-managed inventories, or design a new distribution system will have strategic effects. Such decisions are clearly made by senior managers, are important, have long-term consequences, involve many resources and so on. They are also less structured, involve more uncertainty and risk, and have less firm data with which to work.

Of course, as with every other function, most logistics decisions are made at the lower tactical and operational levels. But its broader strategic role has an effect on decisions at all levels, and in many ways the context of decisions has changed. For example, the traditional aim of moving products through the supply chain with lowest possible costs has been replaced by a broader objective of achieving customer satisfaction while meeting a series of long-term objectives. Cost has changed from an objective to be minimized to a constraint.

Designing a Logistics Strategy

Having recognized that logistics has a strategic importance, the next stage is to set about designing a strategy. Ballou (1981) suggests that a logistics strategy concerns decisions about the following four areas:

1. customer service;

2. facility location;

3. inventory policy; and

4. transport.

A more general view says that a logistics strategy consists of all the long-term decisions that affect the supply chain – and can include sourcing, research, forecasting, procurement, the environment, production planning, recycling, property and a whole range of other activities (Institute of Logistics, 1998). With this broader view, a logistics strategy is a key part of a business strategy, and...