The
Wave of Global Logistics
Historically,
the function of logistics was perceived less for flow management
than for solving the more or less complex operational problems
of specific functions. From this point of view, the main
features of logistics were as follows: a fragmented logistics,
a main objective focused on the optimisation of physical
operations, the predominance of the economical perspective,
the operational level of the logistics skills and the quantitative
dimension for measuring the performance.
During the 1970s
and early 1980s, evolutions in the market, and pressure
developed by competitors in each industry caused, the logistics
model to change. The consequence was a micro-segmentation
of each market, with a huge increase of specific supply,
based not only on a wider range of finished goods but also
on the offer of services added to the products.
The model of
global logistics
The globalisation
of the economy and businesses, opportunities offered by
the development of new technologies related both to physical
(cross-docking, setting up hubs) and informational flows
(ERP – Enterprise Resource Planning; APS – Advanced
Planning and Scheduling Systems; CRM – Customer Relation
Management, Internet) enable the design of global logistics
frameworks. Such frameworks are based on co-operation and
include three poles of integration:
Functional
Integration: Effective operations and logistics management
are dependant not only on good co-ordination of physical
flows generated by the various operational functions (manufacturing,
physical distribution, after-sales service...). The launching
of new products, the withdrawal of obsolete products, promotion
campaigns and obviously packaging or the choice of a marketing
channel hold significant development potential, if marketing,
logistics and manufacturing operations can locate activities
in common in order to co-operate.
The second approach
of functional integration is to consider how the logistics
function integrates the objectives and constraints of the
other functions which have an impact on flow design and
management. Marketing is the key function providing a detailed
list of components of the service marketed to customers
and implemented by logistics. A delivery lead time of 24
hours implies different constraints for designing a physical
and informational distribution network than a delivery lead
time of one week.
Sectorial
integration: In traditional supply chains, vendors,
manufacturers, retailers and customers independently optimise
their own logistics and operations. As a result, they inadvertently
create problems and inefficiencies for other players in
the stream – all of which adds to the cost of the whole
system in the final analysis. Directions for co-operation
have been defined by both producers and retailers to implement
solutions pulled by the demand of customers more than pushed
by supply of products. In the sector of fast-moving consumer
goods, ECR (Efficient Consumer Response) projects are an
initial attempt to cross the co-operation boundary in we
have called sectorial integration.
Another key actor in sectorial integration is ‘third-party
logistics’ (3PL), which supports and stimulates co-operation
between producers and retailers in all industries. The 3PL
industry is undergoing a plethora of alliances, mergers
and acquisitions among the traditional carriers: post offices
such as the Deutsche Post and the Royal Dutch Post, and
integrators such as Fedex, UPS or DHL, in order to provide
the right solution to producers and retailers.
Geographical
integration: The global environment that characterises
today’s business world has revealed the importance
of developing strategies that go beyond the geographical
boundaries of one country. Wage-rate differentials, expansion
of foreign markets and improved transportation are breaking
down the time/space barriers between countries, forcing
logistics functions to take on a global dimension. Here
again, 3PL play an incentive role by providing physical
solutions such as planes, hubs, collection systems, final
deliveries and informational solutions to trace and track
flow from start to finish. 3PL allow companies to send items
over long distances in the shortest time possible, at a
lower inventory carrying cost.
Through the interactions
among the three poles of the global logistics framework,
logistics participates actively in defining and achieving
the goals of corporate strategy. By recognising the strategic
level of logistics, the upper management in firms takes
on the responsibility of resolving challenges which are
often antagonistic, and of designing global solutions that
respect local market features. Logistics expertise is thus
a key component in the dynamics of mass customisation.
Author: Michel Fender,
Dean, ENPC MBA
