UNDERSTANDING BUSINESS LOGISTICS MANAGEMENT

Business Today – A Paradigm Shift

In the New Millennium

Globalization is integrating more and more national with the global economy.

World Trade is expanding at an exponential rate.

Technologies are advancing and becoming integrating force.

Customers are demanding value for money.

Marketers are experiencing competitive pressure.

Businesses are struggling not just for growth but even for survival.

These conditions has forced business organizations the world over to reevaluate their business process and the way they are delivering products and services to their customers.

Intense competition and proliferation of a variety of products and services has resulted in volatile markets, hence, it has become necessary for organizations to manage uncertainty.

Business firms across the world have started looking beyond organizational boundaries. For what?

To improve...

1) Costs

2) Quality

3) Reliability

4) Responsiveness

5) Relationship With customers to manage Inventory.

Today, in order to survive and remain profitable not only manufacturing organizations, but, trading companies all over the world are also concentrating on their core competencies and outsourcing peripheral processes and intermediate products.

Today, products are sourced form different parts of the world, assembled at different locations, and shipped to various destinations to ensure greater customer satisfaction.

These trends have resulted in numerous marketing opportunities across the globe.

The pursuit of growth and the need to access new markets have been propelling companies all over the world to search for sustainable competitive advantage.

As a result, the have become customer driven. That is, business firms are now focused towards achieving customer satisfaction.

In today’s, customer driven market oriented economies, business firms cannot afford to ignore the critical role of logistics management. If ignored it will probably be destructive for the business forms, not only in terms of its growth but even for its very survival.

Origin of the Word – Logistics

The English word logistics appears to have been derived from both the Greek Word logistikos and the French word logistique.

Logistikos is rooted in the concept of logic and means skilled in calculation.

Logistique is influenced by the French word loger meaning ‘to quarter (or lodge) soldiers.

Hence, the combination of logic, calculation, and quartering soldiers appears to have yielded the word.

The term logistics entered military terminology in the 18^th century.

The term logistics was first employed in a formal sense in the American lexicon in the late 19^th century.

The term received a written definition in q905 as that branch of the art of war pertaining to the movement and supply of armies.

But, it was not until World War II that the term began to be used pervasively co describe the movement and supply of armies, supplies of food and armaments to the war front.

The term logistics migrated to the business sector in the 1960s as academicians in marketing saw potential in applying the principles of military logistics to physical distribution of consumer goods.

More recently, the business community began viewing logistics as a component of a larger evolving concept, supply chain management.

Supply chain management is linking of all firms up and down the supply chain in a collaborative and seemless network.

Beginning in the 1970s, the term logistics crept into the lexicon of the common culture.

The word is not being used with regard to the supply support of activities from church picnics to the Olympics.

During the US famine relief efforts in Bangladesh in 1973 and in Somalia in 1992 and 1993, logistics was applied to the distribution of food.

Logistics Planning – The wisdom to realize when working on plan A, you’ll run into confilicts in executing plan Band being properly prepared, and successfully executing plan E. - Capt. John P. lavaerdure, Scott air Force Base, HQ Air Mobility Command, 1996] Logistics… in the broadest sense, the three big M’s of warfare – material, and maintenance. If international politics is ‘the art of the possible.’ And war is its instrument, logistics is the art of defining and extending the possible. It provides the substance that physically permits an army to live and move and its being. - James A. Huston, The sinews of war: Army logistics, 1775 – 1953, 1966

Logistics is the “practical art of moving armies.” - Genera; Antoine Henri Jomini

Logistics comprises the means and arrangements which work out the plans of strategy and tactics. Strategy Decides where to act; logistics brings the troops to this point. -General Antoine Henri Jomini. Precis de L’Art de la Guerre (The Art of War). 1838

What Logistics Management is About?

Every organization delivers products to its customers. Traditionally, we have decribed these products as either goods or services. Today, every product is really a complex package that contains both goods and services.

Car Manufacturers sell not only products but also give services through warranties, after sales service, repairs and finance packages.

It is more accurate to describe products as lying on the spectrum. At one end of this spectrum are products that are predominantly goods, such as cars and domestic hospitals, insurance organizations and education.

DEFINING THE WORD: MATERIALS Materials are all the things that an organization moves to create its products. These materials can be both tangible (such as taw materials ) and intangible (such as information)

RFID

Radio-frequency identification (RFID) is an automatic identification method, relying on storing and remotely retrieving data using devices called RFID tags or transponders.

An RFID tag is an object that can be applied to or incorporated into a product, animal, or person for the purpose of identification and tracking using radio waves. Some tags can be read from several meters away and beyond the line of sight of the reader.

Most RFID tags contain at least two parts. One is an integrated circuit for storing and processing information, modulating and demodulating a radio-frequency (RF) signal, and other specialized functions. The second is an antenna for receiving and transmitting the signal. Chipless RFID allows for discrete identification of tags without an integrated circuit, thereby allowing tags to be printed directly onto assets at a lower cost than traditional tags.

Today, RFID is used in enterprise supply chain management to improve the efficiency of inventory tracking and management. However, growth and adoption in the enterprise supply chain market is limited because current commercial technology does not link the indoor tracking to the overall end-to-end supply chain visibility. Coupled with fair cost-sharing mechanisms, rational motives and justified returns from RFID technology investments are the key ingredients to achieve long-term and sustainable RFID technology adoption [1].

BARCODING

A bar code (also barcode) is an optical machine-readable representation of data. Originally, bar codes represented data in the widths (lines) and the spacings of parallel lines and may be referred to as linear or 1D (1 dimensional) barcodes or symbologies. But they also come in patterns of squares, dots, hexagons and other geometric patterns within images termed 2D (2 dimensional) matrix codes or symbologies. In spite of there being no bars, 2D systems are generally referred to as barcodes as well.

The first use of barcodes was to automate grocery checkout systems, a task where they have become almost universal today. Their use has spread to many other roles as well, tasks that are generically referred to as Auto ID Data Capture (AIDC). Newer systems, like RFID, are attempting to make inroads in the AIDC market, but the simplicity, universality and low-cost of barcodes has limited the role of these newer systems. It will cost about US$0.005 to implement a barcode compared to passive RFID which still costs about US$0.07 to US$0.30 per tag.^[1]

Barcodes can be read by optical scanners called barcode readers or scanned from an image by special software. In Japan, most cell phones have built-in scanning software for 2D codes, and similar software is becoming available on smartphone platforms.

Developments in Supply Chain Management

Developments in Supply Chain Management

Six major movements can be observed in the evolution of supply chain management studies: Creation, Integration, and Globalization (Lavassani et al., 2008^a), Specialization Phases One and Two, and SCM 2.0.

1. Creation Era

The term supply chain management was first coined by an American industry consultant in the early 1980s. However the concept of supply chain in management, was of great importance long before in the early 20th century, especially by the creation of the assembly line. The characteristics of this era of supply chain management include the need for large scale changes, reengineering, downsizing driven by cost reduction programs, and widespread attention to the Japanese practice of management.

2. Integration Era

This era of supply chain management studies was highlighted with the development of Electronic Data Interchange (EDI) systems in the 1960s and developed through the 1990s by the introduction of Enterprise Resource Planning (ERP) systems. This era has continued to develop into the 21st century with the expansion of internet-based collaborative systems. This era of SC evolution is characterized by both increasing value-added and cost reduction through integration.

3. Globalization Era

The third movement of supply chain management development, globalization era, can be characterized by the attention towards global systems of supplier relations and the expansion of supply chain over national boundaries and into other continents. Although the use of global sources in the supply chain of organizations can be traced back to several decades ago (e.g. the oil industry), it was not until the late 1980s that a considerable number of organizations started to integrate global sources into their core business. This era is characterized by the globalization of supply chain management in organizations with the goal of increasing competitive advantage, creating more value-added, and reducing costs through global sourcing.

4. Specialization Era -- Phase One -- Outsourced Manufacturing and Distribution

In the 1990s industries began to focus on “core competencies” and adopted a specialization model. Companies abandoned vertical integration, sold off non-core operations, and outsourced those functions to other companies. This changed management requirements by extending the supply chain well beyond the four walls and distributing management across specialized supply chain partnerships.

This transition also refocused the fundamental perspectives of each respective organization. OEMs became brand owners that needed deep visibility into their supply base. They had to control the entire supply chain from above instead of from within. Contract manufacturers had to manage bills of material with different part numbering schemes from multiple OEMs and support customer requests for work -in-process visibility and vendor-managed inventory (VMI).

The specialization model creates manufacturing and distribution networks composed of multiple, individual supply chains specific to products, suppliers, and customers who work together to design, manufacture, distribute, market, sell, and service a product. The set of partners may change according to a given market, region, or channel, resulting in a proliferation of trading partner environments, each with its own unique characteristics and demands.

5. Specialization Era -- Phase Two -- Supply Chain Management as a Service

Specialization within the supply chain began in the 1980s with the inception of transportation brokerages, warehouse management, and non asset based carriers and has matured beyond transportation and logistics into aspects of supply planning, collaboration, execution and performance management.

At any given moment, market forces could demand changes within suppliers, logistics providers, locations, customers and any number of these specialized participants within supply chain networks. This variability has significant effect on the supply chain infrastructure, from the foundation layers of establishing and managing the electronic communication between the trading partners to the more-complex requirements, including the configuration of the processes and work flows that are essential to the management of the network itself.

Supply chain specialization enables companies to improve their overall competencies in the same way that outsourced manufacturing and distribution has done; it allows them to focus on their core competencies and assemble networks of best in class domain specific partners to contribute to the overall value chain itself – thus increasing overall performance and efficiency. The ability to quickly obtain and deploy this domain specific supply chain expertise without developing and maintaining an entirely unique and complex competency in house is the leading reason why supply chain specialization is gaining popularity.

Outsourced technology hosting for supply chain solutions debuted in the late 1990s and has taken root in transportation and collaboration categories most dominantly. This has progressed from the Application Service Provider (ASP) model from approximately 1998 through 2003 to the On-Demand model from approximately 2003-2006 to the Software as a Service (SaaS) model we are currently focused on today.

6. Supply Chain Management 2.0 (SCM 2.0)

Building off of globalization and specialization, SCM 2.0 has been coined to describe both the changes within the supply chain itself as well as the evolution of the processes, methods and tools that manage it in this new "era".

Web 2.0 is defined as a trend in the use of the World Wide Web that is meant to increase creativity, information sharing, and collaboration among users. At its core, the common attribute that Web 2.0 brings is it helps us navigate the vast amount of information available on the web to find what we are looking for. It is the notion of a usable pathway. SCM 2.0 follows this notion into supply chain operations. It is the pathway to SCM results – the combination of the processes, methodologies, tools and delivery options to guide companies to their results quickly as the complexity and speed of the supply chain increase due to the effects of global competition, rapid price commoditization, surging oil prices, short product life cycles, expanded specialization, near/far and off shoring, and talent scarcity.

SCM 2.0 leverages proven solutions designed to rapidly deliver results with the agility to quickly manage future change for continuous flexibility, value and success. This is delivered through competency networks composed of best of breed supply chain domain expertise to understand which elements, both operationally and organizationally, are the critical few that deliver the results as well as the intimate understanding of how to manage these elements to achieve desired results, finally the solutions are delivered in a variety of options as no-touch via business process outsourcing, mid-touch via managed services and software as a service (SaaS), or high touch in the traditional software deployment model.

Supply chain business process integration

Supply chain business process integration

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Successful SCM requires a change from managing individual functions to integrating activities into key supply chain processes. An example scenario: the purchasing department places orders as requirements become appropriate. Marketing, responding to customer demand, communicates with several distributors and retailers as it attempts to satisfy this demand. Shared information between supply chain partners can only be fully leveraged through process integration.

Supply chain business process integration involves collaborative work between buyers and suppliers, joint product development, common systems and shared information. According to Lambert and Cooper (2000) operating an integrated supply chain requires continuous information flow. However, in many companies, management has reached the conclusion that optimizing the product flows cannot be accomplished without implementing a process approach to the business. The key supply chain processes stated by Lambert (2004) ^[5] are:

• Customer relationship management
• Customer service management
• Demand management
• Order fulfillment
• Manufacturing flow management
• Supplier relationship management
• Product development and commercialization
• Returns management

One could suggest other key critical supply business processes combining these processes stated by Lambert such as:

1. Customer service management
2. Procurement
3. Product development and commercialization
4. Manufacturing flow management/support
5. Physical distribution
6. Outsourcing/partnerships
7. Performance measurement

a) Customer service management process

Customer Relationship Management concerns the relationship between the organization and its customers. Customer service provides the source of customer information. It also provides the customer with real-time information on promising dates and product availability through interfaces with the company's production and distribution operations. Successful organizations use following steps to build customer relationships:

• determine mutually satisfying goals between organization and customers
• establish and maintain customer rapport
• produce positive feelings in the organization and the customers

b) Procurement process

Strategic plans are developed with suppliers to support the manufacturing flow management process and development of new products. In firms where operations extend globally, sourcing should be managed on a global basis. The desired outcome is a win-win relationship, where both parties benefit, and reduction times in the design cycle and product development are achieved. Also, the purchasing function develops rapid communication systems, such as electronic data interchange (EDI) and Internet linkages to transfer possible requirements more rapidly. Activities related to obtaining products and materials from outside suppliers requires performing resource planning, supply sourcing, negotiation, order placement, inbound transportation, storage, handling and quality assurance, many of which include the responsibility to coordinate with suppliers in scheduling, supply continuity, hedging, and research into new sources or programmes.

c) Product development and commercialization

Here, customers and suppliers must be united into the product development process, thus to reduce time to market. As product life cycles shorten, the appropriate products must be developed and successfully launched in ever shorter time-schedules to remain competitive. According to Lambert and Cooper (2000), managers of the product development and commercialization process must:

1. coordinate with customer relationship management to identify customer-articulated needs;
2. select materials and suppliers in conjunction with procurement, and
3. develop production technology in manufacturing flow to manufacture and integrate into the best supply chain flow for the product/market combination.

d) Manufacturing flow management process

The manufacturing process is produced and supplies products to the distribution channels based on past forecasts. Manufacturing processes must be flexible to respond to market changes, and must accommodate mass customization. Orders are processes operating on a just-in-time (JIT) basis in minimum lot sizes. Also, changes in the manufacturing flow process lead to shorter cycle times, meaning improved responsiveness and efficiency of demand to customers. Activities related to planning, scheduling and supporting manufacturing operations, such as work-in-process storage, handling, transportation, and time phasing of components, inventory at manufacturing sites and maximum flexibility in the coordination of geographic and final assemblies postponement of physical distribution operations.

e) Physical distribution

This concerns movement of a finished product/service to customers. In physical distribution, the customer is the final destination of a marketing channel, and the availability of the product/service is a vital part of each channel participant's marketing effort. It is also through the physical distribution process that the time and space of customer service become an integral part of marketing, thus it links a marketing channel with its customers (e.g. links manufacturers, wholesalers, retailers).

f) Outsourcing/partnerships

This is not just outsourcing the procurement of materials and components, but also outsourcing of services that traditionally have been provided in-house. The logic of this trend is that the company will increasingly focus on those activities in the value chain where it has a distinctive advantage and everything else it will outsource. This movement has been particularly evident in logistics where the provision of transport, warehousing and inventory control is increasingly subcontracted to specialists or logistics partners. Also, to manage and control this network of partners and suppliers requires a blend of both central and local involvement. Hence, strategic decisions need to be taken centrally with the monitoring and control of supplier performance and day-to-day liaison with logistics partners being best managed at a local level.

g) Performance measurement

Experts found a strong relationship from the largest arcs of supplier and customer integration to market share and profitability. By taking advantage of supplier capabilities and emphasizing a long-term supply chain perspective in customer relationships can be both correlated with firm performance. As logistics competency becomes a more critical factor in creating and maintaining competitive advantage, logistics measurement becomes increasingly important because the difference between profitable and unprofitable operations becomes more narrow. A.T. Kearney Consultants (1985) noted that firms engaging in comprehensive performance measurement realized improvements in overall productivity. According to experts internal measures are generally collected and analyzed by the firm including

1. Cost
2. Customer Service
3. Productivity measures
4. Asset measurement, and
5. Quality.

External performance measurement is examined through customer perception measures and "best practice" benchmarking, and includes 1) customer perception measurement, and 2) best practice benchmarking. Components of Supply Chain Management are 1. Standardization 2. Postponement 3. Customization

Supply chain management

Supply chain management

Organizations increasingly find that they must rely on effective supply chains, or networks, to successfully compete in the global market and networked economy.^[2] In Peter Drucker's (1998) management's new paradigms, this concept of business relationships extends beyond traditional enterprise boundaries and seeks to organize entire business processes throughout a value chain of multiple companies.

During the past decades, globalization, outsourcing and information technology have enabled many organizations, such as Dell and Hewlett Packard, to successfully operate solid collaborative supply networks in which each specialized business partner focuses on only a few key strategic activities (Scott, 1993). This inter-organizational supply network can be acknowledged as a new form of organization. However, with the complicated interactions among the players, the network structure fits neither "market" nor "hierarchy" categories (Powell, 1990). It is not clear what kind of performance impacts that different supply network structures could have on firms, and little is known about the coordination conditions and trade-offs that may exist among the players. From a system's point of view, a complex network structure can be decomposed into individual component firms (Zhang and Dilts, 2004). Traditionally, companies in a supply network concentrate on the inputs and outputs of the processes, with little concern for the internal management working of other individual players. Therefore, the choice of an internal management control structure is known to impact local firm performance (Mintzberg, 1979).

In the 21st century, there have been a few changes in business environment that have contributed to the development of supply chain networks. First, as an outcome of globalization and the proliferation of multi-national companies, joint ventures, strategic alliances and business partnerships, there were found to be significant success factors, following the earlier "Just-In-Time", "Lean Management" and "Agile Manufacturing" practices.^[3] Second, technological changes, particularly the dramatic fall in information communication costs, which are a paramount component of transaction costs, have led to changes in coordination among the members of the supply chain network (Coase, 1998).

Many researchers have recognized these kinds of supply network structures as a new organization form, using terms such as "Keiretsu", "Extended Enterprise", "Virtual Corporation", "Global Production Network", and "Next Generation Manufacturing System".^[4] In general, such a structure can be defined as "a group of semi-independent organizations, each with their capabilities, which collaborate in ever-changing constellations to serve one or more markets in order to achieve some business goal specific to that collaboration" (Akkermans, 2001).