Nov 15, 2018 in Business

Logistics Essay

Logistics

Despite the short-term fluctuations of the economy, the international trade continues to grow at a remarkable pace. One of the most significant trends of the XX century is the international expansion of industry. Currently, all large companies are significantly involved in the business outside their countries. At the heart of such trade is the understanding that the organization can buy goods from a supplier in one country and use logistics to move and sell them at a profit in another country. The improved communications, transport, financial schemes and trade agreements mean that organizations are now looking across the entire globe for the best performance of their operations. All the above-mentioned facts contribute to the importance of logistics both on local and global scale. Therefore, the following essay is focused on identifying the primary challenges logistics managers have to face, the impact of globalization on logistics networks and the tools for overseeing and supervising them.

The Challenges of Logistics

During their work, the logistics managers face a variety of challenges. However, it is possible to identify the most typical of them that must be contended with to operate the logistics networks as efficiently as possible. Addressing such issues can improve the efficiency of logistics network management and bring the most tangible benefits to the company.

The first challenge is connected to the minimization of the logistical costs. It includes the use of outdated or rather the non-use of modern technologies, such as specialized automated systems of product processing. However, the modern market requires high-quality services that are provided to large volumes of logistics operations. Moreover, the efficiency of management is often hampered by weak logistics infrastructure at the level of enterprise, country and on a global scale. For example, at the enterprise level, the primary need is the minimization of logistics costs. Such measure requires an efficient system of control and monitoring, the introduction of modern IT to track the movement of products and goods and increase productivity. In order to reduce the cost of storage and processing, it is necessary to have enough storage space to meet modern requirements (Enarsson, 2006).

The next challenge involves the organization of logistics network. In particular, many CEOs do not have a clear idea of the place of logistics in the structure of the company. For example, it is difficult to explain to producers that every item needs a label indicating its code. The absence of labels leads to the problem of identification. Another problem that may influence the performance of the companies, which have grown from a small business, is that there is no structuring when some departments are strictly liable for the performance of a narrow range of tasks or even individual processes. Often, the company does not possess a detailed cost accounting system for logistics (transport, storage costs and so on). Sometimes, there is no understanding of the reasons for the businesses to have expensive software for warehouse management. Therefore, it is often used for other purposes or is not used at all (Enarsson, 2006).

The final challenge is directly connected to the supply chains management (SCM), namely, the CEOs lack of understanding of current problems of the company and an attempt to introduce a standard SCM system or copy it from another company. Therefore, managers must remember that the most efficient approach to SCM is the analysis of the problems, current forms and algorithms of work and the development of the goals of change (often at the expense of attracting external consulting). Moreover, it is necessary to identify the measures to achieve the objectives and solve specific problems (Enarsson, 2006).

The Impact of Globalization

The period of globalization is the prospect of the further development of logistics in the global economy. Therefore, the operation on a global scale has a direct impact on logistics of large companies. In particular, such stage is characterized by increasing complexity of market relations, a macro-economization of business processes and severe competition. In turn, such factors result in the emergence of the following trends in the development of logistics (Waters, 2007):

  • The increase in the number of transnational corporations positioned in the international market as global companies and the competition between them;
  • The advent of the global companies to the national markets;
  • Strengthening of the role of political factors in decisions on the formation and development of transport corridors;
  • The increasing role of ports in attracting the traffic and the growing competition between the ports of certain regions;
  • The penetration of transportation services of large foreign companies on the national markets;
  • The expansion of the requirements list for the quality of logistics services.
 

In terms of logistics, the supply chain of the product consists of several levels of suppliers, as well as the several levels of consumers. In such case, the suppliers provide the resources necessary to perform basic operations from the original sources and transport the goods to end users (Waters, 2007). Outside the global space, the separate entities of the business process are primarily focusing their efforts on activities related to the management of internal costs. However, within the global space of logistic integration, the results of cost management are assessed in terms of the functioning of the logistics system as a whole. At the same time, at the level of missions, competitive and business strategies, the enterprises remain in full independence. Therefore, when forming an overall integrated logistics strategy, the global company must consider the following issues in the important areas of interaction and cooperation of the participants of the global supply chain (Rushton & Walker, 2007):

  • The determination of the optimal level (degree) of logistical integration of trade partners to form alliances and logistics centers;
  • The standardization and design of products to determine their prices in the final link of the chain;
  • The coordinated development of participants in the supply chain;
  • The development of a system of measurement of total costs of the global supply chain participants;
  • The logistics design as an extension of the production design, i.e. the simplification of the design of products, facilitation of their production and assembly, development of packaging, ways and means of transport, warehousing and storage;
  • The global positioning of logistics infrastructure;
  • A common policy of inventory management in order to minimize the overall size of the entire supply chain;
  • The synchronization of costs with the phases of product life cycle and the development of activities for logistics recycling;
  • The definition of a coherent degree of the global information transparency and sharing of information systems and software products.

Tools and Methods of Global Logistics

On a global scale, most organizations simultaneously participate in several supply chains, because they purchase materials from a wide range of suppliers and sell their products and services to many clients. From the point of view of a typical organization, each of its supply chains has internal and external communications. However, it is unlikely that by being combined, such chains become a part of the formal inter-organizational initiatives related to supply chain management. Thus, managers should focus on overseeing the most critical supply chains, which have the greatest potential in terms of a competitive advantage achievement and, therefore, ensure the success of the organization. Currently, there are many tools and methods for overseeing the global logistic networks, including Delphi method, SWOT-analysis, benchmarking and many others (Nyhuis & Wiendahl, 2009). However, it should be noted that the visualization of logistic processes is the most fundamental tool for supervising the global supply chain. Such tool includes the use of relationship mapping method in order to describe the business processes of the global network from a qualitative point of view. In particular, it suggests defining the following components of the process (Christopher, 2011):

  • The customers of the business process and its output;
  • The suppliers of business process and its input;
  • The requirements that must be applied to the input of the business process and the result to be obtained at the output;
  • The internal flow of the action of a business process.

However, it should be noted that the method of relationship mapping gives an insight only for a certain part of the network. Therefore, in order to simplify the control procedure and define the above-mentioned critical supply chains, manager may construct a block diagram of a logistics network with a detailed reflection of its constituent activities. In theory and practice of supply management, there are several methods of such visualization. The first of them is the order-to-payment model (supply chain S-model), which consists of three streams: customer orders, physical goods or services, and cash. Visually, such model resembles the Latin letter S, graphically illustrating the main flows circulating in the logistics network from the customer’s order to the payment for products. However, it provides limited information on particular business processes, so it is advisable to combine it with the method of relationship mapping (Nyhuis & Wiendahl, 2009).

Another available tool, which provides the opportunities of the two mentioned methods, is the SCOR-model (supply chain operations reference model) that was developed by the Supply Chain Council. Such model provides an efficient analysis, planning and control of the logistics network and is recognized as a cross-industry standard. It allows implementing the activity-based representation of the logistics network and decomposing it in the following way: a global logistics network – a critical supply chain – a key business process – a process of logistics – a logistic operation. Such process decomposition of the supply chain is inextricably linked with the concept of logistics business processes. Its purpose is to bring the key logistics business processes in line with the strategy of the enterprise, supply chain structure perspective and the organizational structure of the logistics management (Christopher, 2011).

The data acquired as a result of such supervision may be used to adjust some of the elements of the logistics network. It should be noted that the implementation of various initiatives related to supply chain management often achieves much more than just bringing the current logistics processes in line with the logistics processes of partners. The supply chain management creates a platform for a clear improvement in logistics activities throughout the entire network. As a result, even the roles of the organizations participating in the global logistics network may change (Christopher, 2011).

In conclusion, it is possible to say that the international trade continues to grow very quickly. Moreover, all the components of such trade depend on the efficiency of logistics, which is dedicated to the movement of materials around the globe. However, both on global and local scale, logistics may face a number of challenges. Some of the problems can be solved by simple administrative approvals (reorganizing, overseeing and supervising the network with the use of available methods and tools), while the others are settled through such major initiatives as the creation of trade alliances and logistics centers. Therefore, the importance of logistics will only grow in the following years.

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