The Art of Logistics Management
How is it that supply chain and logistics management can make such a difference? After all, isn’t logistics “merely” a company’s management of material, product, and information flows in the supply chain? Those who work in the field of logistics recognize difficulties associated with getting the right product to the right place at the right time in the right quantity and condition at the lowest possible cost. It involves not only a lot of heavy lifting, but also deep thought, and decisive action to provide promised service at the lowest cost.
Back in 1962, renowned management guru Pet Drucker once referred to logistics as an untapped source of innovation and opportunity, calling it the economy’s “dark continent.” Four decades later, logistics management is only somewhat better understood among business practitioners and the general public. It is regarded as an afterthought among many companies, as a necessary cost of doing business that has little viable input on corporate strategy. Yet, ask the CEOs of the leading companies noted above what role logistics management plays in their enterprises. Excellence in logistics provision not only supports the mission of these companies but, in fact, also serves as a focal point in their very competitiveness.
Take Wal-Mart, for instance. How well does its model of “every day low pricing” stand in the absence of cross-docking and economies of scale in transportation, keeping costs below those of rival retailers? And, at the end of the day, what good are “every day low prices” if the products are not on the shelf in sufficient quantity and quality? So, it is not only the low prices but also the exceptional service that differentiates Wal-Mart from rivals.
Wal-Mart enjoys fewer product stockouts than its competitors not because of higher inventories but because of better inventory management achieved thought high-frequency replenishment. Order cycle times (the time from order placement to order delivery) are forty-eight hours or less for U.S. stores, allowing store shelves to be replenished of stores support in-stock objectives, but it also provides for “fresher” products. Like availability, the timeliness of product delivery has become a key differentiator in many markets. “Freshness” is obviously important for perishable consumer products like fruits, vegetables, dairy products, baked goods, and infant formula, but now it is also commonly advertised as important for products like soft drinks and beer. The waste of obsolete inventory is created when supplies are left unclaimed at the time of their expiration.
Timeliness in Logistics Management
In logistics management, to take the concept of timeliness a step further, it is important to get the goods in the hands of customers while the product is in peak demand or “hot.” This is especially true of fashion goods or products with very short life-cycles. Getting the product to market first can often serve as the make or break moment for many products and perhaps the make or break moment for entire companies when their future hinges on a critical product introduction. Customer loyalty finds its roots in the first experience that customers enjoy (or despise) with a product or company. Being first to market with a product or service that meets previously unmet need offers a way to establish satisfaction that, over time, leads to loyalty. The benefits accrued by having loyal customers are well documented, including openness to new products, interest in collaboration, resistance to competitor’s claims, price stability, and lower cost of sales.
Begin first to market means having the first crack at being the industry leader. Logistics management plays an important role in support of bringing innovative products and services to light. By effectively coordinating material flows with suppliers and managing distribution with intermediaries and customers, the logistics organization can help the company to “make the boat” rather than miss it. Along with a thorough understanding of internal operations, this physical connection to suppliers upstream in the supply chain and customers downstream allows logistics to assume a leadership role in the realm of supply chain management.Share