Logistics as a Strategic Function of the Organization

Introduction

Globalization and internationalization of business demand new ways and methods of operations management and logistics. There is strong competition among export-oriented industries which try to achieve sustainable competitive advantage. The strict consumer demands and alliances between industries do not provide a favorable environment for new entrants. The role of the intermediaries (a third party) is to improve and coordinate operations between two or more companies taking into account global economic situation and fierce competition. For many companies, process improvement in transportation is a rational way of translating experience and thought into marketing action. It is a pragmatic, organized procedure for analyzing situations and meeting the future. Based on information about ends and means to determine various causal relationships, trends, and patterns of behavior, it is concerned with the selection of alternative strategies.

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Strategic Functions of Logistics

Logistics and strategic planning

For modern companies, planned activity is goal-directed and achieves a more efficient expenditure of marketing resources. Process improvement necessitates classification of a company’s goal or objective; but recently there has been a change in the perception of planning. A company first specifies goals and then develops plans to carry them out, thus being able to achieve the goals. Goals thereby determine plans -plans are ways of reaching goals. Another dimension of the relationship between goals and plans stems from the fact that an organization does not have a single corporate goal; it has multiple goals. Thus, a decision that at first appears to be a compromise among conflicting goals actually creates a major-goal. This goal is the weighted average of all corporate goals rather than a single goal. As the basic vehicle for matching ends with means, or marketing resources with market opportunity, marketing planning becomes the mechanism through which a company is brought into line with the external environment (Eboch, 1998). Planning is an essential function of transportation management, which has a forward-looking, integrated, and balanced view of total action. Transportation planning encompasses the perspective of the future, the types of objectives established, and the strategies and tactics to be employed. Through transportation planning, the fundamental strategies of the business enterprise are conceived on the basis of market needs, forces, and opportunities; and marketing is implemented as a philosophy of business operation and a way of corporate life (Harris, 1989).

While significant attention is usually focused on the customer service needs of the firm’s external customers, it is equally important to identify the needs of the firm’s internal customers/users as well. Alternatively, internal value creation involves concentrating on how the organization can function more effectively and efficiently for all its constituents, both internal and external to the firm (Hage, 1999). A first step is to get employees to understand whether the next customer in the pipeline is internal or external to the organization, even though this distinction should make no difference in terms of the quality of service offered. In their continuing quest for new ways to establish and maintain a competitive edge, many leading companies are recognizing the unique and meaningful types of customer value which can be contributed through logistics management. These companies agree that product quality and consistency are of exceptional importance, they argue that the elements of logistical service also create significant value for their customers. This viewpoint is in sharp contrast to the traditional, yet fast-changing, marketing paradigm relating to the importance of the tangible product form itself (Murphy and Wood, 2005).

The main success factors are process improvements, shipment optimization, reduction of transportation costs and improved quality. Demand characteristics are directly related to physical-distribution systems. Where demand is widely variable, then distribution facilities are usually concentrated in fewer locales. Where demand is continuous and rather consistent, as is the case for some food products, distribution facilities can be decentralized (Murphy and Wood, 2005). A highly variable demand makes it difficult to design effective physical-distribution systems and control costs, while a stable demand permits it. In between these extremes, where demand patterns can be discerned through analysis, as with seasonal products, reasonable distributions systems may be approximated. High-value items, if heavily stocked, mean a heavy inventory investment and hence increased costs. Their storage is often minimized. For them transportation is a modest amount of the total price. Physical-distribution systems are geared to the optimization of the system as a whole rather than of any part of it (Baudin, 2005).

Process improvement is crucial for transportation excellence as it allows companies to reduce number of employees and improve service quality. Effective allocation can only be achieved, however, through planned behavior. Although finance and production have long been planned, marketing activity has not. Often it has been performed rather haphazardly. The emphasis on planning of marketing operations (which is new, and has been stimulated by the marketing management concept) is now widely applied (Murphy and Wood, 2005). Process improvement is concerned with predetermining courses of marketing action. It is based on both marketing intelligence and the assessment of opportunities, since it deals with the future in respect to both perspectives and operations. Marketing programming and marketing action are its major objectives, which are achieved through organizational implementation. Two general approaches to marketing planning exist: a deterministic or general formula approach, and a dynamic approach. The former, a rather static approach, usually details the marketing planning procedure as follows:

  • determine objectives or goals;
  • set up a plan to achieve them;
  • control the elements to make sure they conform to the plan.

The sequence is goals, plans, and control. This approach ignores the realities of marketing situations. The dynamic approach stresses that retailers should plan for change. It underscores the fact that plans are not merely the results of objectives, but that plans affect objectives. The goals and objectives can be changed, as can the plans. Changes in market opportunities, for example, result in changes in company objectives and hence changes in marketing planning. In addition, a company might purposely set out to change its marketing plans in the sense of improving them (Simchi-Levi et al 2008).

Management focus in logistics is expanding beyond the existing company structure to involve suppliers and vendors. Sino-Japanese Alliance regards the role of suppliers and vendors as essential to achieving satisfaction for the firm’s external customers (Murphy and Wood, 2005). Historically, however, many firms treated their customers with respect and dignity, while simultaneously bearing down hard (and frequently unmercifully) on their suppliers and vendors. This type of action is counterproductive to a truly value-added perspective. By spending more time interfacing with suppliers and vendors, interorganizational alliances/partnerships are evolving which enable a firm to willingly commit performance capabilities to customers in advance, and then perform to expectations. This same study identified a number of representative measures of logistical customer service. Included were product availability, order cycle time, distribution system flexibility, distribution system information, distribution system malfunction, and post sale product support. Considerable attention is directed toward the integrative aspects of logistics, and the fact that the length and consistency of the customer “order cycle” is emerging as a key concern of firm wide interest. In effect, the integrative aspects of logistics have qualified this area to be a major contributor to the creation of customer value (Baudin, 2005).

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As one of the most significant managerial functions, process planning is a prime responsibility of the top marketing executive. The very nature of critical day-to-day operations, the pressures of time, and the tendency to act rather than plan, frequently cause executives to neglect this function. Process planning provides retailers with a forward-looking view of the total enterprise. It is the basis for determining the fundamental strategies to be employed and the objectives, programs, and resources required. Process improvement is to a business enterprise what thinking is to an individual (Simchi-Levi et al 2008). It supplies the rational means for achieving maximum market-striking power and results from the resources in hand. Transportation planning is closely related to problem solving. Transportation planning constitutes an intentional, unified approach to the solution of various transportation problems. Although the specification of a plan for solving a problem is the first step, execution must accompany planning to achieve results. Planning is neither automatic nor impersonal (Stroh, 2006).

The supplier erroneously believes the customer wanted first morning delivery. They try to develop a system to deliver on the first morning, but the system they devise can do no better than the second. They fail to control it adequately, and deliver on the third. Furthermore, they make no effort to tell the customer anything about the system’s capabilities. The customers are happy; they are getting the service they wanted. The supplier, however, is wasting effort (and cost) trying to provide a service greater than what the customer wants. Perhaps the hardest part of the quality implementation program is to design the process to be sure that the service provided consistently meets the specifications that management has developed from the customer’s requirements. The evolution toward using quality as a strategic weapon demands effective design efforts. Inventory is a barrier to improvement in customer value (Stroh, 2006).

Technological changes

Technology [permits flexibility and is used as a strategic tool. In this case, the most significant trend is the growing recognition of third party logistics as a means to creating customer value. Also, business firms can direct greater resources toward logistics and that the senior logistics executive is becoming more visible and involved on a firm wide basis. As a result, logistics managers have been actively repositioning their efforts in the interests of facilitating cross-functional coordination in order to best serve the customer. It is encouraging to see logistics managers work closely and consistently with their counterparts in areas such as marketing, manufacturing, finance, and general management (Stroh, 2006). This type of activity is a significant factor in helping to eliminate the so-called functional-silo syndrome that has been so negative and characteristic of the past. The rational of using technology can be identified by three success factors: effectiveness, efficiency and differentiation. Efficiency refers to the organization’s ability to provide the desired product/service mix at a level of cost that is acceptable to the customer. This concept implicitly identifies the need for logistics to manage its resources wisely and to leverage expense into customer value whenever possible. The interests of efficiency are well served, for example, by the current interest in and trend toward the use of activity-based cost management systems (Murphy and Wood, 2005).

The main benefits of the technology are (1) lower total cost (through logistics improvements), (2) faster response to changing volume needs (through the closer location), and (3) faster provision of technical consulting help. They have also implemented the process changes enhancing value to be delivered to the customer and reducing sacrifice (Stroh, 2006). Similarly, manufacturing decisions that appear to reduce cost may in fact be unwise from a global system perspective. Product in long runs or delaying a switchover may reduce efficiencies and unit costs. As a result, revenue can be lost owing to the inability of manufacturing to respond quickly to customer needs (Murphy and Wood, 2005).

Firms such as Xerox, L. L. Bean, Frito-Lay, and McDonald’s are use third party logistics services. While these companies would surely agree that product quality and consistency are of exceptional importance, they would argue that the elements of logistical service also create significant value for their customers. This viewpoint is in sharp contrast to the traditional, yet fast-changing, marketing paradigm relating to the importance of the tangible product form itself. For instance, faced with a declining market share owing to increased offshore competition, it was clear that Xerox needed to consider some set of innovative logistical initiatives in order to achieve customer satisfaction (Murphy and Wood, 2005). Although Xerox targeted the high end of the market, its offshore competition was targeting the lower end. In order to attack the low end successfully to strengthen its market share, Xerox needed to rethink and rationalize its overall delivery system. A direct consequence of its involvement in third-party relationships is that Xerox has improved its ability to meet its customers’ needs. The delivery process has been streamlined, and overall costs have been reduced. Xerox sales personnel, no longer needed to train customers, can concentrate on selling and customer requirements. As a result, and with the assistance of Ryder, Xerox trimmed its logistics network from ten to two equipment logistics centers. Logistics providers performed a number of activities such as supplying warehouse equipment; performing preinstallation assembly tasks; delivering and installing product; training Xerox customers in the use of the equipment; and removing old equipment and preparing for shipping to specific locations (Murphy and Wood, 2005).

The rational of using the intermediaries in global logistics systems are (1) focus on core strengths, (2) technological flexibility, (3) other flexibilities (geographical locations, service offering, flexibility in resources and workforce size). Logistics represents a comprehensive process, one that not only incorporates a wide range of activities, but that also evidences key linkages with other strategic systems. The logistics function is changing rapidly as firms apply significant resources to effective management in this important area. Intermediaries provide unique and meaningful opportunities for achieving best net value (Murphy and Wood, 2005).

A role of a third-party provider of logistics services is evidence that a well-managed logistics operation can create value for a customer regardless of whether logistics is performed internally or externally to the firm. The actual degree of value added is dependent on how a company leverages its logistics resources and the ability to recognize the effect a third-party relationship can have. In both companies, a high priority is also placed on satisfying the needs of firms which are internal as well as external to the firm. For many global companies, the main problem is that a number of new tools and approaches have emerged as proactive elements of the logistics, but they are unable to invest in new technologies and resources. Using intermediaries, the companies are able to take advantage of the new strategic management process. Third party logistics (intermediaries) allow technological flexibility. “As requirements change and technology advances, and technology such as RFID become more prevalent, the better third party logistics providers update their information technology and equipment” (Simchi-Levi et al 2008, p. 251). Representative logistics activities include supply chain management (including inventory and materials management), transportation, and customer service (Murphy and Wood, 2005).

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Logistics and Quality

Today the prosperity of each enterprise is dependent on the interplay of many factors. The analysis of the recent activities of the companies has proved that the successes of companies are the issue that has undergone many changes. The introduction of TOM helped to change view on how both quality and business management are handled by the companies. The main objective of the paper is to analyze the Total Quality Management Implementation process and its major specifics (Beckford, 2002). These techniques are based on the diligent work of both workers and managers whose main objective becomes maximization of productivity and quality of the products. In general, the process includes several rather important procedures:

  1. monitoring of staff,
  2. the improvement of customer service.

The idea is based on the successful cultivation of Kaizen issue. The issue is concerned with the idea of company’s improvement that is being fulfilled with the involvement of all members of a company.

Just-In-Time, Quick Response, and Efficient Consumer Response are relatively new approaches to quality management. The main objective of this process is the improvement of company’s quality and performance. Traditionally, the process is aimed at meeting and exceeding the customer expectations. The final objective can be met by integrating all quality-related functions and processes that have occurred throughout the organization. Usually, the company bases its work on the use of a holistic approach to managing quality design and development. The same thing can be told about quality control and maintenance of the general processes that are projected to improve the overall performance of the company. Recent times have brought many approaches to management. Just-in-time (JIT) management principles have become the main principles that are used in modern managerial practices. The major part of the concepts that exist in the company have been existing during a relatively long period of time. The main specifics of JIT program is that it is directed towards ensuring that the right quantities of the people. Many people perceive this program as a material-control system (Beckford, 2002).

A great emphasis is put on training people in tools and techniques knowledge. So, knowledge of safety rules at working station by workers would eliminate accidents at work, thus making process more effective and productive. With the help of quality control process chart, a safety officer is able to analyze his actions directed onto training people in safety issues. For instance, safety issues are very important in glassmaking plant, where all the working processes can be analyzed with the help of Plan-Do-Check-Act strategy. Introduction and usage of different safety signs in the plant can be analyzed for effectiveness and practical value of such practice. Thus safety issues in a plant can be checked with the help of fishbone diagram. For example, there is a cause – workers do not know safety rules. The effect is frequent incidents in the plant. The cause can be steaming either from people, or process, or equipment. If equipment is not working properly, the incidents at working station could be also an effect. The scheme is divided into cause and effect parts, where cause can contain such categories as people, methods, machines, materials, environment, measurements, etc. Usually there would be found a relation between causes and effects in the diagram. Manufacturing and service quality improvements are an natural outcome of attaining the time reductions and balance shown above. To be sure, total quality is not simply a matter of putting things together right or serving consumers with speed, accuracy, and courtesy. Leadership in design, service, a atmosphere, rides and assistance is extremely important in the quality actually built into the product. Customer satisfaction lies not only in what is done at each organization and product development stage but equally in how the stages are linked to each other. Certainly, poor understanding of customers’ requirements and needs limits the potential of later stages. A poorly-designed service harshly constrains how much quality can be built into it, just as there is only so much promotion one can do with a poorly-made service (Calingo, 1996). Quality is essential to establishing a culture of quality and to focusing attention on customer satisfaction as a basic organizational value. The purpose underlying all quality efforts, of customer satisfaction enhancement efforts in general, is, at one level, to establish both methods and philosophies of working which lead to improved outputs (quality and value) as well as techniques for keeping track of progress toward these output aims. At another, more important and more permanent stage, quality assurance becomes internalized and not continues as an introduced possibility. In three organizations, employee responsibility for quality and the realization that lapses in quality, in effect, break the ties that bind one activity to the other, are the final aims of a successful quality program. Though customer satisfaction is by no means a notion, grounded as it is in specific needs, resources and actions, there is a sense of order underlying it and a sense of responsibility in its achievement that changes physical assessment (Calingo, 1996).

New relations with partners

For global companies, geographical flexibility is one of the main success factors and sources of competitive advantage. In some cases, “suppliers are requiring rapid replenishment, which in term, may require regional warehousing” (Simchi-Levi et al, 2008, p. 251). Also, linkages with other areas of the firm such as marketing and production/operations management are prevalent and meaningful. Issues related to cross-functional coordination and integration. The third party logistics process has several unique characteristics. First, it is comprehensive, extending from the original source of raw materials to the location of the final customer. In fact, the logistics process can, and does, span organizational boundaries in terms of encompassing very comprehensive, industry wide channels of supply and distribution (Christopher, 2005). The second characteristic is that it pertains to the flows of both product and information, and considers each as essential to the value-creating process. This concept has received broad acceptance and acknowledges the critical role of logistics in the overall area of information processing and management.

Recent years, many shipping companies sign cooperation agreements and enter strategic alliances in order to improve their market position and sustain competitive advantage. Many shipping companies form strategic alliances with channel partners including suppliers, customers, or intermediaries such as providers of transportation and/or warehousing services. Additional benefits to both parties typically include asset productivity, operational effectiveness, and cost efficiencies. Moreover, it is not unusual for one channel member to promote the existence of a meaningful relationship with some prestigious firm with which a strategic alliance has been developed (Christopher, 2005). The net impact is that logistical service is becoming recognized as an essential element of customer satisfaction in a growing number of product markets today. The intermediaries provide certain types of products and/or services that reduce costs and improve services. Thus, it is accurate to think of logistics as one of the strategic systems responsible for company’s image and brand loyalty. Although this premise should be of interest to people who are involved with logistics on a daily basis, it will also serve to highlight some of the value-creating properties of logistics for the benefit of others throughout the organization. In the interest of focusing attention on the new role of logistics management, the following four propositions have been formulated around key issues that need to be addressed. It is evident that the process improvement involves (1) corporate values and objectives; (2) the appropriate personnel; (3) personal values and objectives; (4) marketing opportunities; (5) marketing barriers; (6) the business organization and its resources; and (7) the time horizon and space dimension (Cohen and Roussel, 2004). All of these factors must be combined in an integrated network of activities. In each company subsystem, concessions must be made in order to achieve a unified plan. Temporal and spatial relations are particularly important). The major goal of transportation programming is programming the marketing mix (Drensek and Grubb, 1995).

Conclusion

Logistics is used to gain competitive advantage as it complements, rather than obstructs, company’s marketing objectives. A well-managed logistics operation can create value for a customer regardless of whether logistics is performed internally or externally to the firm. The actual degree of value added is dependent on how a company leverages its logistics resources and the ability to recognize the effect a third-party relationship can have. Strategic alliances through the supply chain are attracting many followers in other countries because they enable companies to carry out concurrent engineering and practice agile management. The follower strategy entails intensive competition in growth areas, and if a company can survive domestic competition it can achieve competitive strength in the world market. The development of partnership arrangements with suppliers, customers, other channel members, and external third parties is explained by the interest of achieving desired results in logistics. The overall impact of this trend is that customer service policies, as well as the wide range of logistics sourcing and procurement systems, have been overhauled and modernized in meaningful and productive ways. Transportation excellence is the main factor which helps many companies to save costs and deliver the best possible quality of services to their customers. Competition and pressures to reduce costs are also stimuli.

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References

Baudin, M. (2005). Lean Logistics: The Nuts And Bolts Of Delivering Materials And Goods. Productivity Press.

Beckford, J. (2002). Quality. Routledge.

Calingo, L. M. (1996). “The evolution of Strategic Quality Management.” International Journal of Quality & Management, 13 (9), pp. 19-37.

Christopher, M. (2005). Logistics & Supply Chain Management: creating value-adding networks. FT Press; 3 edition.

Cohen, Sh., Roussel, J. (2004). Strategic Supply Chain Management. McGraw-Hill;.

Drensek, Robert A. and Fred B. Grubb.(1995). “Quality quest: one company’s successful attempt at implementing TQM”. Quality Progress 28, no.9 pp. 91- 95.

Eboch, Karen, (1998). “The TQM Paradox: Relations among TQM Practices, Plant Performance, and Customer Satisfaction.” Journal Of Operations Management, pp. 59-75.

Harris N. (1989). Service Operations Management, Cassell.

Hage, J.T. (1999). Organizational Innovation and Organizational Change. Annual Review of Sociology. p. 597.

Murphy, P. R. Wood, D. (2005). Contemporary Logistics. Prentice Hall; 9 edition. Education.

Simchi-Levi, D., Kaminsky, Ph., Simchi-Levi, E. (2008). Designing and Managing the Supply Chain. McGraw-Hill/Irwin; Bk&CD-Rom edition.

Stroh, M. (2006). A Practical Guide to Transportation and Logistics. Logistics Network Inc.

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