Logistics is the means of supply chain management which is vital for the retailers and the wholesalers to stay in business. However logistics differs from marketing or production in that the distributors or the producers or the end users do not see how the products and services are flowing from one intermediary to another till they have reached the end user. It is only when the end user finds his favorite brand to be missing on the shelf that anyone notices that something is wrong. So I agree with Steve Agg’s definition. It puts the spotlight on the importance of logics in ensuring the smooth operation of different business processes.
Intense competitive rivalry is one of the key characteristics of today’s business environment. Every business organization must constantly stay on its toes for new competitive challenges. As a result, constant change has become a fact of life. Business organizations which can cope with change most effectively are the ones which can stay on top of competition. That is the requirement for survival itself. As a result the management of a business organization must constantly formulate strategies that will give the organization a competitive edge. These strategies fall into one of three categories: differentiation, cost minimization and quick response (Blanchard 2005, p. 121). Differentiation is the objective of creating as many unique selling propositions as possible for the products and services that the business organization is selling. Cost minimization is the objective of enhancing the efficiency of different internal processes so that costs associated with making the products and services available to the end users are minimized. Quick response is related to the ability of logistics to make new products and services available to the end user in the shortest length of time. Therefore, if the business organization is to achieve a sustainable competitive advantage, then its management has to pay attention to the efficiency of its logistics.
Logistics is particularly important when the market does not have high barriers to entry (Scott 2006, p. 95). In the fast moving consumer goods industry for example, the management does not have to invest as much as it would have to if it were to enter the auto manufacturing industry. There is no doubt that being a manufacturer of fast moving consumer goods is a demanding move in terms of resource investments but it is not as capital intensive as the auto manufacturing industry. Therefore barriers to entry in this industry would be relatively lower. The repercussions of these circumstances for the existing manufacturer of fast moving consumer goods is that there would be a constant threat of new competitors entering the industry to make things even more competitive for the existing manufacturer. In this scenario, it is vital for the management of the existing manufacturer in the industry to ensure that it can deliver its goods to the end user in the quickest possible time. In that respect the importance of logistics cannot be overemphasized. In the fast moving consumer goods industry, consumers are particularly price sensitive. This has to do with the availability of substitute products. As mentioned before, intense competitive rivalry is the norm rather than the exception these days. This is particularly relevant to the fast moving consumer goods industry where a single product category can have hundreds of brands of competing price and quality. In this industry, products also enjoy a considerable level of brand loyalty. However the loyalty is not such that the consumer will refrain from using that product category if the favored brand is missing from the shelf. Consumer goods are related to basic needs. Therefore, if one brand is not available then the consumers will shift to a different brand which for the majority of the consumers will not be that different when it comes to experience of use. The consumer goods manufacturers therefore have a lot to lose by not paying adequate attention to the efficiency of their logistics.
It will be clear from the above that the importance of logistics is not to be taken lightly in terms of its strategic importance. It is important to spend time on emphasizing the role of logistics in contributing to organizational effectiveness because most of the stakeholders do not see the process of logistics at work. As a result they tend to forget that the strategies of differentiation, cost minimization and quick response matter to the process of logistics itself. When developing a product, the company that is producing it will have to engineer some features into it to make it stand out from the other products in the market. Of course this is the same product category and what the company is doing is developing a brand in that product category. Each brand in the product category will have some unique features in addition to the general ones so that different brands cater to the tastes and preferences of different consumer segments. This is the process of differentiation and this applies to the case of logistics as well. The management of a business organization has to constantly conduct research in order to make logistics more efficient and effective. As a result , the trend is for competing business organizations to constantly tinker with its distribution chain in order to structure it in such a way that it minimizes not only the cost of distribution but also ensures quick delivery to the end user (Shoshanah 2007, p. 223). The difference is that when it comes to achieving sustainable competitive advantage based on product development, the strategies of differentiation, cost minimization and quick delivery are three separate areas of processes while when it comes to achieving a sustainable competitive advantage on the basis of logistics, maintaining differentiation, ensuring cost minimization and quick delivery are strategies that are interlinked so that a successful end result is the same: a unique distribution chain of intermediaries which keeps costs down in making quick deliveries to the end user.
It is a fact that the area of logistics does not get nearly as much notice as marketing or production or even information technology and that fact is apparent from the trend that few students are interested in making a career in logistics. However the age of globalization in which business organizations are currently operating is bringing the role of logistics to the forefront. In the current international business environment, most business organizations are expanding overseas. The Asian rise to economic excellence and particularly that of China is the engine of growth behind this expansion. In fact the scope for international trade is to be congratulated on its luck for the economic opportunities to be found in Asia and China. The advanced economies in the West have matured. This means that demand is stagnating in this region. However in places like China and India where the middle class is experiencing a meteoric rise in terms of its purchasing power demand for different product categories is experiencing volcanic eruptions. Business organizations in the West, which have more expertise as a result of their years of experience in manufacturing these products, are in the best position to meet this demand. However, product development has to pay attention to keeping costs down particularly when selling to the Chinese consumers because they have not reached the same level of purchasing power that the consumers in the West have. Of course manufacturing operations are moving en masse to China and India because of the low cost of manpower there. This minimizes the cost of production. However there is also the cost of making the products available to the end user. This is where the issue of logistics comes in. In international business, the issue of logistics becomes even more important because for the businesses in the West moving to the Far East for example, it is an unknown territory because the mode of operations of traditional distribution intermediaries is unknown. For this reason, a lot of international businesses are outsourcing their logistics operations to third parties specializing in supply chain management (Blanchard 2005, p. 35).
Managing the supply chain is particularly thorny when it comes to international trade because now the goods and services are moving across national borders which involve different sets of rules and regulations. Therefore, businesses which are exporting their products rather than setting up their operations offshore are outsourcing logistics to third parties. This trend of outsourcing logistics has once again arisen out of intense competitive rivalry which has been particularly given an edge as a result of the process of globalization. The liberalization of the international financial system has also contributed to the development of this trend. Rather than generalization, specialization has become the order of the day. The three strategies outlined earlier, those of differentiation, cost minimization and quick response, are only facilitated by the process of specialization which is probably the reason as to why business organizations are busily identifying their core competencies and sticking to them rather than developing new competencies. Everybody is becoming lean and mean and a niche player, in the process giving their operations the competitive cutting edge. Because logistics is an invisible process, it stands the risk of losing out on this drive for the ultimate competitiveness. Why logistics has this disadvantageous feature of invisibility is not hard to distinguish. There is no performance management as such applicable to the department of logistics. The sales department is given certain targets as are the marketing department and the product department and the rest of the departments in the company. However no such targets are set for the logistics department. As a result, efficiency and effectiveness in that department is something that the management has time for only after it has finished with the rest of departments. In other words, the management has no time for logistics at all. Fortunately however, particularly for the international businesses, the process of logistics has developed an industry of its own thereby facilitating outsourcing of logistics operations and thereby ridding the management of an international business organization of a major headache that it has no way of directly addressing.
So far the analysis of the role of logistics in enhancing the efficiency and effectiveness of business operations has been limited to the flow of goods and services. These are the end products. These are commodities that the end user goes shopping for. As a result, when the topic of logistics does come up, the focus tends to be on the distribution of the end products rather than on the distribution of intermediate products one of the most important of which is information. Yet timely available of information is a critical area of concern for logistics. This is once again an indication of the critical role played by logistics in enhancing the efficiency and effectiveness of business operations. It is possible that greater availability of information has led to greater competitiveness. It is equally likely that greater competitiveness has spurred the growth for technologies that facilitate the flow of information. However the fact remains that the availability of information is key to achieving a sustainable competitive advantage whether it is by means of differentiation, cost minimization or quick response. To this end, business organizations are conducting both external benchmarking and internal benchmarking in order to give themselves a competitive edge. External benchmarking is particularly challenging because cultures vary considerably from one organization to another. Therefore elements of one organization cannot be copied in their entirety to another. There will be cultural resistance. However, external benchmarking is a must when it comes to differentiating products. To this end, relevant information must be collected and made available. This is the responsibility of the logistics department. More popular recently has been the use of internal benchmarking.
Internal benchmarking has been concerned with specialization and as a result its use has been garnering a lot of support in recent times (Cecil 2005, p. 210). As mentioned before, the strategic direction in recent times for business organizations has been to look within, develop a list of its internal strengths and make them available to the rest of the organization for furthering organizational effectiveness. This presents a great challenge in knowledge management. Even more challenging is to make the tacit knowledge available to the rest of the organization so that it can be applied to other processes wherever applicable. It is the responsibility of the logistics department to make that information available to an extent so that all the departments can have access and apply the information to their departmental processes. The objective of internal benchmarking is to develop a list of best practices which can be applied organization-wide. If one of the processes has been discovered to be particularly efficient, then all the other processes are benchmarked against that processes. Different organizations follow different methodologies for internal benchmarking. Multinational organizations with production plants worldwide can prepare a list of best practices from each of the plants and conduct an analysis to see whether these best practices can be applied to the processes of other plants. In a scenario such as this, the importance of logistics is difficult to ignore. In this case, the logistics involved is not just one of information, but also one of manpower. The information developed from one plant will have to be made available to the management of another plant. It can be done online. Then the issue becomes one of online logistics. However what is done most often it to draw up a list of personnel from different work processes and these personnel are assigned the task of developing the information and making the information available. Therefore the logistics involved in this case means freeing up manpower so that they can be diverted to the task of internal benchmarking. This is a challenging mobilization of manpower, and so this challenging logistics, because manpower is kept to a minimum in the interests of cost minimization and therefore the management of a business organization cannot divert manpower from one process to another without it having a disrupting effect on the processes that the manpower is moved away from (Cecil 2005, p. 84). Yet this has to be done because only personnel who have developed some sort of tacit knowledge over the years regarding the efficiency and the effectiveness of the processes that they have been assigned to can be used in the process of the internal benchmarking. This is a question of logistics and in the case of internal benchmarking it makes its presence felt though not to the conscious knowledge of the management. This is an example of the wide-ranging tacit influence of logistics in enhancing organizational effectiveness.
As mentioned before, the logistics of information can be carried out online. When it comes to internal benchmarking, online availability of information is not very helpful because this is the area of change management in which the management must show a personal interest in order to encourage the employees to adopt change. If the information is merely collected and then made available, then few employees will bother to take a look. One problem with internal benchmarking is that there will be a substantial level of employee resistance for the management to overcome. The only way for the management to overcome this resistance to change is to send delegation teams to different plants and offices to speak on behalf of the management. As a result, when it comes to internal benchmarking, online logistics is not very effective. However the fact remains that all business processes are now going online. In fact, the strategic direction of enhancing organizational effectiveness has been to reduce paperwork to the maximum extent possible by digitizing all the paperwork. As mentioned before, logistics encompasses flow of information as well. Therefore, by digitizing the flow of information, business organizations are now digitizing logistics. That business operations must be taken online is not open to argument. Therefore the management community subconsciously acknowledges the importance of logistics by business process reengineering whereby all the departments of an organization are tied through an Intranet. However such change management fails more often than not. The reason is that when the management of a business organization has decided to go online with their operations, what they have in mind is not more efficient supply chain management but adoption of fashionable technology. It is fashionable to have computers and printers quietly humming everywhere to take care of business. However this transition to technology, which in effect is transition to a more efficient supply chain management and more efficient logistics, has to be in alignment with the definition of organization effectiveness in the scenario it is being applied to. The other side of the coin of organizational effectiveness is strategic direction. When the management is considering enterprise resource planning, for example, to tie up sales, marketing, inventory and production online, it is considering the ability of the tying up process to reduce costs. This is the strategy of cost minimization. The reengineering that takes places in this respect has to be very carefully planned and implemented for strict alignment with the long term goals and objectives of the organization making the change. When successful, it has showed to have enhanced competitive edge to a considerable extent. So whether in the traditional sense of delivering goods and services or in the modern sense of delivering timely information, logistics makes a noticeable difference. However, in the traditional sense it does not receive the attention that it deserves because it is unseen and in the modern sense it is disguised as information technology.
According to the above, the management community is constantly working to improve the logistics of their operations without realizing it. So logistics makes a difference that is just as important as that made by other processes such as marketing, production or sales. The fact of the matter is that none of these processes would make sense if logistics were not working smoothly. And that is found to be true only when logistics breaks down. So invisibility is an indistinguishable feature of logistics and Steve Aggs nailed it.
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