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Logistic Framework: Concepts, Objective and Scope

Basic logistical service is measured in terms of:

(1) Availability

(2) Operational Performance

(3) Service Reliability

(1) Availability

Availability means having inventory to consistently meet customer material or product requirements. According to the traditional Paradigm, “higher inventory availability requires greater inventory investment”.

Technology is providing new ways to achieve high inventory availability without associated high capital investments. Developments in inventory availability are critical because of its fundamental importance.

(2) Operational Performance

Operational performance deals with the elapsed time from order receipt to delivery. Operational performance involves delivery speed and consistency.

Naturally, most customers want fast delivery. However, fast delivery is of limited value if it is erratic. A customer gains little benefit when a supplier promises next day delivery but, more than not, is late. To achieve smooth operations, firms typically seek first to achieve consistency of service and then to improve delivery speed. Other aspects of operational performance are also important. A firm’s operational performance can be viewed in terms of how flexible it is in accommodating unusual and unexpected customer requests. Another aspect of operational performance is malfunction and recovery. Few firms can promise and perform perfectly in every situation all of the time. It is important to gauge the likelihood of something going wrong.

Malfunction refers to the probability of logistical assortments, or inaccurate documentation. When such malfunctions occur, a firm’s performance can be measured in terms of required time to recover. Operational performance is concerned with how a firm handles all aspects of customer requirements, including service failure, on a day in and day out basis.

(3) Service Reliability

Service Reliability involves the quality attributes of logistics. The key to quality is accurate measurement of availability and operational performance. Only through comprehensive performance measurement is it possible to determine if overall logistical operations are achieving desired service goals. To achieve service reliability, it is essential to identify measures to assess inventory availability and operational performance. For logistics performance to continuously meet customer expectations, it is essential that management be committed to continuous improvement. Logistical quality does not come easy: it’s the product of careful planning supported by training, comprehensive measurement, and continuous improvement. To improve service performance, goals need to be established on a selective basis. Some products are more critical than others because of their importance to the customer and their relative profit contribution. The level of basic logistical service should be realistic in terms of customer expectations and requirements. In most cases, firms confront marketing situations wherein customers have different sales potential and some may require unique services. The managers must realize that customers are different and that services must be matched to accommodate unique preference and purchase potential. In general, firms tend to be overly optimistic when committing to average or basic customer service performance. Inability to consistently meet an unrealistically high basic service target might result in more operating and customer problems than if less ambitious goals had been made at the outset.

Unrealistic across-the-board service commitments can also dilute a firm’s capability to satisfy special requirements of high-potential customers.

Logistics is responsible for the movement and storage of materials as they move through the supply chain.

Logistics in Global Economy

It is an accepted fact that effective logistics system is important not only for domestic operations but equally important for global manufacturing and marketing. Domestic logistics focus on performing value-added services in a controlled business environment. Global logistics operations must accommodate all domestic requirements and also deal with increased uncertainties associated with distance, demand diversity and documentation.

Advantages of Globalization

Reduced number of suppliers

In the past, organizations have used a large number of suppliers. This encouraged competition, ensured that they got the best deal and maintained secure deliveries if one supplier ran into difficulties. The current trend, however, is, to reduce the number of suppliers and develop long-term relationships with the best.

Concentration of Ownership

Large companies can get economies of scale, and they have come to dominate many supply chains. There are, for example, many shops and transport companies – but the biggest ones continue to grow at the expense of small ones. The result is a continuing concentration of ownership, which can be seen in many logistics sectors ranging from food wholesalers to cruise lines.

Outsourcing

More organizations realize that they can benefit from using specialized companies to take over part of their logistics. Using a third party for materials movement leaves an organization free to concentrate on its core activities.

McKinnon says that, ‘Outsourcing has been one of the dominant business trends of the 1980s and 1990s’ and suggests that around 30 per cent of logistics expenditure is outsourced in the European Union.

Postponement

Traditionally, manufacturers move finished goods out of production and store them in the distribution system until they are needed. When there are many variations on a basic product, this can give high stocks of similar products. Postponement moves almost-finished products into the distribution system, and delays final modifications or customization until the last possible moment. You can imagine this with ‘pack-to-order’, where a company keeps a product in stock, but only puts it in a box written in the appropriate language when it is about to ship an order.

Recent Global Developments in Logistics Management

Logistics has come into vogue in strategic management in the past decade. Once a traditional industry of moving goods around, cargo transport has been transformed into a modern “logistics” business which creates value by integrating transportation activities and providing supporting services of facilitate the smooth operation of material flow, which constitutes a vital part in supply chain management.

  • Technological developments substantially compressing the product life cycle. Make-to-order and zero inventory have become industry benchmarks;
  • Changing consumer preferences require mass customization and quick response to market trends;
  • Due to price competition, reducing logistics costs is crucial to maintain the profit margin; and
  • The rise of e-commerce result in generating scattered/ piecemeal orders and the need for door-to-door delivery services.

In recent years, more and more operations are being explored for better supply chain management.

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