logistics management in era of globalization...

2017.04.23.

1

TRENDS IN LOGISTICS AND SUPPLY

CHAIN MANAGEMENT

Assoc. Prof. Pavel Ceniga, PhD.

UNIVERSITY OF ŽILINAFaculty of Operation and Economics of Transport and Communication, Department of Economics

SLOVAKIA

TRENDS IN LOGISTICS AND SUPPLY CHAIN

MANAGEMENT

The main topics of the lecture:

1. Logistics, the Supply Chain and CompetitiveStrategy, Competitive Advantage, the ChangingCompetitive

2. Logistics and Customer Value, the Marketing andLogistics Interface, Customer Service

3. The Supply Chain in Globalization Context,Trends towards Globalization

4. Creating a Sustainable Supply Chain; Reduce,Reuse, Recycle


MANAGEMENT

The important questions:

• What is the difference between Logistics andSupply Chain Management?

• Many people use 2 terms interchangeably butwhat is the relationship between both terms?

• Here, on the beginning, you will learn about themeanings of most common Logistics and SCMterms.

• We will seek adequate answers to 10 identifyingmatters.


MANAGEMENT

1. What is the Difference Between Logistics andSupply Chain Management?� "Logistics typically refers to activities that occur within the

boundaries of a single organization and supply chains referto networks of companies that work together andcoordinate their actions to deliver a product to market.

� Also, traditional Logistics focuses its attention on activitiessuch as procurement, distribution, maintenance, andinventory management.

� Supply Chain Management (SCM) acknowledges all oftraditional logistics and also includes activities such asmarketing, new product development, finance, andcustomer service“(from Essential of Supply Chain Management by Michael

Hugos)


MANAGEMENT

2. What is Logistics?� We will dig deeper to see more simple meaning of

logistics as below,

� "Logistics is about getting the right product, to the rightcustomer, in the right quantity, in the right condition, atthe right place, at the right time, and at the right cost (theseven Rs of Logistics)" - from Supply Chain Management: ALogistics Perspective By John J. Coyle et al.

� In the past, various logistics tasks are under differentdepartments but now they are under "logisticsdepartment" and report to the same logistics head,

� We would like to point out that the word "logistics" endswith the "s". Without the "s" (logistic), it means a kind ofmathematical function showing exponential growth.


MANAGEMENT

3. What is Logistics Management?

� We will also explore more deeply about Logisticsmanagement as below,

� "Logistics Management deals with efficient andeffective management of day-to-day activity inproducing the company’' s finished goods andservices" - from Integral Logistics Management byPaul Schönsleben.

2017.04.23.

2


MANAGEMENT

4. What is the Difference between Inbound and

Outbound Logistics?� Another interesting (but less common) term is inbound

and outbound logistics. Let's find out its meaning as below,� "Inbound Logistics refers to movement of goods and raw

materials from suppliers to your company. In contrast,Outbound Logistics refers to movement of finished goodsfrom your company to customers“

� Purchasing and warehouse function communicates withsuppliers and sometimes called "supplier facing function".Production planning and inventory control function is thecenter point. Customer service and transport functioncommunicates with customers and sometimes called"customer facing function“.


MANAGEMENT

5. What is Transport and Logistics?

� The term transport and logistics is broadly usedto refer to one type of industry classification asbelow,

� "Transport and Logistics refers to 2 types ofactivities, namely, transportation (traditionalservices such as air/sea/land transportation,warehousing, customs clearance) and Logistics

(value-added services which including informationtechnology and consulting)"


MANAGEMENT

6. What is International Logistics and Global

Logistics?� International Logistics, Global Logistics and Global Supply

Chain is one of the most ambiguous group of terms outthere. They are used interchangeably and often referred tointernational production and transportation activities.However, more concise definition of international logisticsor global logistics is as below,

� "International Logistics (also known as Global Logistics)focuses on how to manage and control overseas activitieseffectively as a single business unit. Therefore, companyshould try to harness the value of overseas product,services, marketing, R&D and turn them into competitiveadvantage“.


MANAGEMENT

7. What is 3PL or Third Party Logistics?� The concept of Third Party Logistics or 3PL appeared

on the scene in 1980s as the way to reduce costs andimprove services which can be defined as below,

� "3PL or Third Party Logistics refers to the outsourcingof logistics activities, ranging from a specific task suchas trucking or marine cargo transport to broaderactivities serving the whole supply chain such asinventory management, order processing andconsulting.“

� In the past, many 3PL providers didn't have adequateexpertise to operate in complex Supply chain structureand process. The result was the inception of anotherconcept.


MANAGEMENT

8. What is 4PL or Fourth Party Logistics?� Fourth Party Logistics or 4PL is the concept proposed by

Accenture Ltd in 1996 and it was defined as below,� "4PL or Fourth Party Logistics refers to a party who works

on behalf of client to do contract negotiations andmanagement of performance of 3PL providers includingthe design of the whole Supply chain network and controlof day-to-day operations.“

� You may wonder if a 4PL provider is really needed.According to the research by Nezar Al-Mugren from theUniversity of Wisconsin-Stout, top 3 reasons whycustomers would like to use 4PL providers are as below,

o Lack of technology to integrate supply chain process,o The increase in operating complexities,o The sharp increase in global business operations.


MANAGEMENT

9. What is Supply Chain?

� We know for the fact that Supply chain refers to"network" but let's have a closer look at it asbelow,

� "Supply Chain is the network of organisationsthat are involved, through upstream anddownstream linkages, in the different processesand activities that produce value in the form ofproducts and services in the hands of the ultimateconsumer" - from Logistics and Supply ChainManagement by Martin Christopher.

2017.04.23.

3


MANAGEMENT

10. What is Supply Chain Management?

� Each researcher defines Supply chain management

differently. However, we would like to provide thesimple supply chain management definition as below,

� "Supply chain management (SCM) refers to thecoordination of production, inventory, location, andtransportation among the participants in a Supply

chain to achieve the best mix of responsiveness andefficiency for the market being served" - fromEssential of Supply Chain Management by MichaelHugos.

1. Logistics, the Supply Chain and

Competitive Strategy

• Competitive advantage:� A central theme of this part of lecture is that effective

logistics and supply chain management can provide amajor source of competitive advantage,

� In other words a position of enduring superiority overcompetitors in terms of customer preference may beachieved through better management of logistics andthe supply chain,

� The foundations for success in the marketplace arenumerous, but a simple model is based around thetriangular linkage of the company, its customers andits competitors – the ‘Three Cs’. Figure 1 illustrates thethree-way relationship.

Figure 1 Competitive advantage, the ‘Three Cs’1. Logistics, the Supply Chain and


• Competitive advantage:� The source of competitive advantage is found firstly

in the ability of the organisation to differentiate itself,in the eyes of the customer, from its competition, andsecondly by operating at a lower cost and hence atgreater profit,

� Seeking a sustainable and defensible competitiveadvantage has become the concern of every managerwho is alert to the realities of the marketplace,

� It is no longer acceptable to assume that goodproducts will sell themselves, neither is it advisable toimagine that success today will carry forward intotomorrow.



• Competitive advantage:

� Let us consider the bases of success in anycompetitive context,

� At its most elemental, commercial success derivesfrom either a cost advantage or a value advantage or,ideally, both,

� It is as simple as that – the most profitablecompetitor in any industry sector tends to be thelowest-cost producer or the supplier providing aproduct with the greatest perceived differentiatedvalues.



• Competitive advantage:

� Put very simply, successful companies either havea cost advantage or they have a value advantage,or – even better – a combination of the two.

� Cost advantage gives a lower cost profile and thevalue advantage gives the product or offering adifferential ‘plus’ over competitive offerings,

� Let us briefly examine these two vectors ofstrategic direction.

2017.04.23.

4



1. Cost advantage:� In many industries there will typically be one

competitor who will be the low-cost producer andoften that competitor will have the greatest salesvolume in the sector,

� There is substantial evidence to suggest that ‘big isbeautiful’ when it comes to cost advantage,

� This is partly due to economies of scale, which enablefixed costs to be spread over a greater volume, butmore particularly to the impact of the ‘experiencecurve’,

� The experience curve is a phenomenon with its rootsin the earlier notion of the ‘learning curve’.



1. Cost advantage:

� However, the blind pursuit of economies of scale throughvolume increases may not always lead to improvedprofitability – the reason being that in today’s world muchof the cost of a product lies outside the four walls of thebusiness in the wider supply chain.

� Hence it can be argued that it is increasingly throughbetter logistics and supply chain management thatefficiency and productivity can be achieved leading tosignificantly reduced unit costs,

� Logistics and supply chain management can provide amultitude of ways to increase efficiency and productivityand hence contribute significantly to reduced unit costs.



2. Value advantage:

� It has long been an axiom in marketing that‘customers don’t buy products, they buy benefits’,

� Put another way, the product is purchased not foritself but for the promise of what it will ‘deliver’,

� These benefits may be intangible, i.e. they relatenot to specific product features but rather to suchthings as image or service,

�In addition, the delivered offering may be seen tooutperform its rivals in some functional aspect.



2. Value advantage:

� Unless the product or service we offer can bedistinguished in some way from its competitorsthere is a strong likelihood that the marketplacewill view it as a ‘commodity’ and so the sale willtend to go to the cheapest supplier,

� Hence the importance of seeking to addadditional values to our offering to mark it outfrom the competition,

�What are the means by which such valuedifferentiation may be gained?



2. Value advantage:� Essentially the development of a strategy based upon

added values will normally require a more segmentedapproach to the market,

� When a company scrutinises markets closely itfrequently finds that there are distinct ‘valuesegments’,

� In other words, different groups of customers withinthe total market attach different importance todifferent benefits,

� The importance of such benefit segmentation lies inthe fact that often there are substantial opportunitiesfor creating differentiated appeals for specificsegments.



2. Value advantage:� Equally powerful as a means of adding value is service.

Increasingly it is the case that markets are becoming moreservice-sensitive and this of course poses particularchallenges for logistics management,

� There is a trend in many markets towards a decline in thestrength of the ‘brand’ and a consequent move towards‘commodity’ market status,

� Additionally, there is increasingly a convergence oftechnology within product categories, which means that itis often no longer possible to compete effectively on thebasis of product differences,

� Thus the need to seek differentiation through means otherthan technology, many companies have responded to thisby focusing upon service as a means of gaining acompetitive edge.

2017.04.23.

5



• Seeking the high ground:

� In practice what we find is that the successfulcompanies will often seek to achieve a positionbased upon both a cost advantage and a valueadvantage,

� A useful way of examining the available options isto present them as a simple matrix (Figure 2),

� Let us consider these options in turn.

Figure 2 Logistics and competitive advantage



• Seeking the high ground:� However, an increasingly powerful route to achieving

a cost advantage comes not necessarily throughvolume and the economies of scale but insteadthrough logistics and supply chain management,

� In many industries, logistics costs represent such asignificant proportion of total costs that it is possibleto make major cost reductions through fundamentallyre-engineering logistics processes,

� The other way out of the ‘commodity’ quadrant ofthe matrix is to seek a strategy of differentiationthrough service excellence.




� Customers in all industries are seeking greaterresponsiveness and reliability from suppliers; theyare looking for reduced lead times, just-in-timedelivery and value-added services that enablethem to do a better job of serving their customers,

� Figure 3 clearly presents the challenge: it is toseek out strategies that will take the businessaway from the ‘commodity’ end of the markettowards a securer position of strength based upondifferentiation and cost advantage.

Figure 3 The challenge to Logistics and Supply

chain management




� One thing is certain: there is no middle groundbetween cost leadership and service excellence,

� Indeed the challenge to management is to identifyappropriate logistics and supply chain strategies totake the organisation to the top right-hand corner ofthe matrix,

� Companies who occupy that position have offers thatare distinctive in the value they deliver and are alsocost competitive,

� Clearly it is a position of some strength, occupying‘high ground’ that is extremely difficult forcompetitors to attack.

2017.04.23.

6

2. Logistics and Customer Value, the

Marketing and Logistics Interface

• Marketing and Logistics Interface:� Even though the textbooks describe marketing as the

management of the ‘Four Ps’ – product, price,promotion and place – it is probably true to say that,in practice, most of the emphasis has always beenplaced on the first three,

� ‘Place’, which might better be described in the wordsof the old cliché, ‘the right product in the right placeat the right time’, was rarely considered part ofmainstream marketing,

� There are signs that this view is rapidly changing,however, as the power of customer service as apotential means of differentiation is increasinglyrecognised.



• Marketing and Logistics Interface:

� In more and more markets the power of thebrand has declined and customers are morewilling to accept substitutes,

�Even technology differences between productshave been reduced so that it is harder to maintaina competitive edge through the product itself,

� In situations like this it is customer service thatcan provide the distinctive difference betweenone company’s offer and that of its competitors.




� Two factors have perhaps contributed more thananything else to the growing importance of customerservice as a competitive weapon.

� One is the continual increase in customerexpectations; in almost every market the customer isnow more demanding, more ‘sophisticated’ than heor she was, say, 30 years ago.

� Likewise, in industrial purchasing situations we findthat buyers expect higher levels of service fromvendors, particularly as more companies convert tojust-in time logistics systems.




� The second factor is the slow but inexorabletransition towards ‘commodity’ type markets,

� By this is meant that increasingly the power of the‘brand’ is diminishing as the technologies ofcompeting products converge, thus making productdifferences difficult to perceive – at least to theaverage buyer,

� Faced with a situation such as this the customer maybe influenced by price or by ‘image’ perceptions butoverriding these aspects may well be ‘availability’ inother words, is the product in stock, can I have itnow?



• Marketing and Logistics Interface:� Since availability is clearly an aspect of customer service,

we are in effect saying that the power of customer serviceis paramount in a situation such as this,

� This trend towards the service-sensitive customer is asapparent in industrial markets as it is in consumer markets,

� Hence companies supplying the car industry, for example,must be capable of providing just-in-time deliveries directto the assembly line,

� Similarly a food manufacturer supplying a largesupermarket chain must have an equivalent logisticscapability, enabling it to keep the retail shelf filled whilstminimising the amount of inventory in the system.




� The evidence from across a range of markets suggeststhat the critical determinant of whether orders arewon or lost, and hence the basis for becoming apreferred supplier, is customer service,

� Time has become a far more critical element in thecompetitive process,

� Customers in every market want ever shorter leadtimes; product availability will overcome brand orsupplier loyalty - meaning that if the customer’spreferred brand is not available and a substitute is,then the likelihood is a lost sale.

2017.04.23.

7



• Delivering customer value:

� Ultimately the success or failure of any businesswill be determined by the level of customer valuethat it delivers in its chosen markets.

� Customer value can be defined quite simply asthe difference between the perceived benefitsthat flow from a purchase or a relationship andthe total costs incurred.

� Another way of expressing the idea is:



• Delivering customer value:� Total cost of ownership’ rather than ‘price’ is used

here because in most transactions there will be costsother than the purchase price involved,

� For example inventory carrying costs, maintenancecosts, running costs, disposal costs and so on,

� In business-to-business markets particularly, asbuyers become increasingly sophisticated, the totalcosts of ownership can be a critical element in thepurchase decision,

� ‘Life-cycle costs’, as they are referred to in the militaryand defence industries, have long been a critical issuein procurement decisions in those markets.




� One way to define ‘competitive advantage’ issimply that the successful companies willgenerally be those that deliver more customervalue than their competitors,

� In other words, their ratio of benefits to costs issuperior to other players in that market orsegment,

� Logistics management is almost unique in itsability to impact both the numerator and thedenominator of the customer value ratio.




� This point becomes clearer if we expand the ratioas follows:

� Each of the four constituent elements can brieflybe defined as follows:

o Quality: The functionality, performance andtechnical specification of the offer.




o Service: The availability, support andcommitment provided to the customer

o Cost: The customer’s transaction costs includingprice and life cycle costs

o Time: The time taken to respond to customerrequirements, e.g. delivery lead times.

� Each of these four elements requires acontinuous programme of improvement,innovation and investment to ensure continuedcompetitive advantage.



• Customer service:� It has been suggested that the role of customer

service is to provide ‘time and place utility’ in thetransfer of goods and services between buyer andseller,

�Put another way, there is no value in the product orservice until it is in the hands of the customer orconsumer,

� It follows that making the product or service‘available’ is what, in essence, the distributionfunction of the business is all about

�‘Availability’ is in itself a complex concept, impactedupon by a galaxy of factors which together constitutecustomer service.

2017.04.23.

8



• Customer service:� These factors might include delivery frequency and

reliability, stock levels and order cycle time, forexample,

� Indeed it could be said that ultimately customerservice is determined by the interaction of all thosefactors that affect the process of making products andservices available to the buyer,

� In practice, we see that many companies have varyingviews of customer,

� LaLonde and Zinszer2 in a major study of customerservice practices suggested that customer servicecould be examined under three headings:



• Customer service:

� LaLonde and Zinszer in a major study of customerservice practices suggested that customer servicecould be examined under three headings:

o Pre-transaction elements

o Transaction elements

o Post-transaction elements

� The pre-transaction elements of customer servicerelate to corporate policies or programmes, e.g.written statements of service policy, adequacy oforganisational structure and system flexibility.



• Customer service:� The transaction elements are those customer service

variables directly involved in performing the physicaldistribution function, e.g. product and deliveryreliability,

� The post-transaction elements of customer serviceare generally supportive of the product while in use,for instance, product warranty, parts and repairservice, procedures for customer complaints andproduct replacement,

� Table 1 indicates some of the many elements ofcustomer service under these three headings.



Table 1 The components of customer service





2017.04.23.

9




� In any particular product/market situation, some ofthese elements will be more important than othersand there may be factors other than those listedabove which have a significance in a specific market,

� Indeed the argument that will be developed later isthat it is essential to understand customer service interms of the differing requirements of differentmarket segments and that no universally appropriatelist of elements exists,

�Each market that the company services will attachdifferent importance to different service elements.




� It is because of the multivariate nature of customerservice and because of the widely differingrequirements of specific markets that it is essential forany business to have a clearly identified policytowards customer service,

� It is surprising perhaps that so few companies havedefined policies on customer service, let alone anorganisation flexible enough to manage and controlthat service, when it is considered that service can bethe most important element in the company’smarketing mix.




� A considerable body of evidence exists that supportsthe view that if the product or service is not availableat the time the customer requires it and a closesubstitute is available then the sale will be lost to thecompetition,

� Even in markets where brand loyalty is strong a stock-out might be sufficient to trigger brand switching,

� It is because of the multivariate nature of customerservice and because of the widely differingrequirements of specific markets that it is essential forany business to have a clearly identified policytowards customer service.

3. The Supply Chain in Globalization

Context, Trends towards Globalization

• Trends towards Globalization:� Global brands and companies now dominate most

markets,

� Over the last two decades there has been a steady trendtowards the worldwide marketing of products under acommon brand umbrella (e. g. Coca-Cola, IBM or Toyota),

� At the same time the global company has revised itspreviously localised focus, manufacturing and marketingits products in individual countries,

� Now instead will typically source on a worldwide basis forglobal production and distribution.



• Trends towards Globalization:� The logic of the global company is clear: it seeks to grow

its business by extending its markets whilst at the sametime seeking cost reduction through scale economies inpurchasing and production and through focusedmanufacturing and/or assembly operations,

� However, whilst the logic of globalisation is strong, wemust recognise that it also presents certain challenges:

o Firstly, world markets are not homogeneous, there is still arequirement for local variation in many product categories,

o Secondly, unless there is a high level of co-ordination thecomplex logistics of managing global supply chains mayresult in higher costs and extended lead times.



• Trends towards Globalization:� These two challenges are related:o on the one hand, how to offer local markets the variety

they seek whilst still gaining the advantage of standardisedglobal production and,

o on the other, how to manage the links in the global chainfrom sources of supply through to end user,

� There is a danger that some global companies in theirsearch for cost advantage may take too narrow a view ofcost and only see the purchasing or manufacturing costreduction that may be achieved through using low-costsupply sources,

� In reality it is a total cost trade-off where the costs oflonger supply pipelines may outweigh the production costsaving (Figure 4).

2017.04.23.

10



Figure 4 Trade-offs in global logistics



• Trends towards Globalization:

� The trend towards global organisation of bothmanufacturing and marketing is highlighting thecritical importance of logistics and supply chainmanagement as the keys to profitability,

� The complexity of the logistics task appears to beincreasing exponentially, influenced by suchfactors as the increasing range of products,shorter product life cycles, marketplace growthand the number of supply/market channels.



• International Aspects of Business Logistics

� It is expected that the source of competitive advantage inthe 21st century will be training and skills of workers.Other challenges lie ahead logistics strategies and supplyof businesses.

� The growth of interest of corporate management oflogistics: the rising cost of logistics, the opportunity to uselogistics as a means of competition, the increasingdemands of customers and end-effects logistic tooperational costs, the margins and the return on assets(the key elements increasing the productivity of capital).



• Global issues:

� Contemporary society is developing so dynamicand often unpredictable ways to categorize globalproblems causing considerable difficulties,

� Global issues are an integral part of economicdevelopment and growth of the company itself,

� The primary task of the company shouldtherefore be to create an arrangement that wouldbe the process of globalization in harmony,



• Global issues:

� Any problem that can be called Global has twolevels - economic and non-economic,

� By the most part those problems prevailingeconomic plane above the non-economical, wherenotably the military aspects, administrative,ideological, ecological and health,

� In view of the above it is to be clearly andprecisely define what actually the problem isglobal and what is not.



• Entrance on international Markets:

� Systematized the general factors that affect internationalbusinesses entering global markets, can be classified asfollows:

o Market potential,o Geographical diversification,o Excess production capacity and low cost advantage as a

result of achieving economies of scale and effects ofexperiential curve,

o Generating growth in foreign markets through productson the domestic market, approaching the end of its lifecycle,

o Sources of new products and ideas,o Foreign competitors in the domestic market.

2017.04.23.

11



• Process management with business input to another country:

� Framework as recommendations in answer to thequestion may be mentioned:

o Start from the broadest possible perspective,

o Select the right product,

o Select the appropriate resources,

o Propose Supply chain,

o Make a model to be evaluated,

o Take a final decision.



• Proposal global Supply chain:

� The experiences from practice worldwidedeployment of production capacities,presented consulting offices in this area canbe divided into six steps and withinspecified recommendations for decision-making.



• Step 1: General view of the problem in all respects:� Consider whether a new Supply chain cost reduction shall

not exceed the cost of production and not destroy thelevel of customer service in the domestic market,

� To define strategic goals and to decide whether low-costproduction is indeed a key objective or only short-termmeans,

� Define the risks arising from the fact that the company willoutsource the work, which was considered to be the main,

� Evaluate the impact of the current and potentialcustomers,

� Address the guarantee for achieving superior quality in aspatially remote enterprise.



• Step 2: Choosing the right product:� In terms of demand for the product:

o Come into consideration products whose price is the key factor,o For products with highly variable demand, it is necessary to

count on a high level of stocks; inventory costs, including thecost of storage can easily exceed the cost of individual savings inproduction,

� In terms of product life cycle:

o Suitable products at the stage of maturity, it means with readilypredictable demand for which it is important to reduce costs,

� From the labour costs and material costs point of view to givepreference to products with a high share of the work:

o If the proportion of labour costs is less than 20% of the productvalue, then increase the cost of the Supply chain absorb thesavings achieved.



• Step 2: Choosing the right product:� In view of the strong points of supply and demand:o Consideration should be given, for example, whether there are unique

sources of dominance or customer demand,o Final assembly and product individualization is conveniently carried

out as close as possible to customers,

� In terms of production variability:o Suitable products are composed of a small number of different

components with simple and quick installation and with high addedvalue.

� In terms of distribution of production capacities:o The best solution is usually the only moving part of the production

volume of the types of products and retention of capacity in situ tocover urgent requirements of specific customers.



• Step 3: Select the appropriate source:� An important consideration when choosing a country is

not only the height of wage rates, but also the level oflogistics infrastructure. It is considered necessary in thelong term and not only in the medium term,

� Should be analysed convenience of operating their owncapacity or outsourcing capacity operating of owncapacities. Operating its own capacities is a long-termcommitment and substantial investment, but it is likely tobring lower unit costs and good protection technology -but only if is found effective local management team,

� It is necessary to find such suppliers, the delivery of whichwill give the trust and in quality, timeliness and continuity,because it is not easy to quickly solve problems arisingfrom long distance.

2017.04.23.

12



• Step 4: Design the Supply chain:� In terms of the equipment:

o It is important to pre-allocate the right equipment in thelogistics chains, including production facilities, and avoidthe problem of inadequacy and additional rationalizationcosts,

� In terms of establishing a communication must answerquestions:

o How will the extended Supply chain driven,o As the enterprise's information system will deal with

extended chain and how to handle ties with the suppliers,as will be provided an overview of the processes in thechain, unless it can be direct physical inspection of eachworkplace,

o How are suppliers adjust to pull principle.



• Step 4: Design the Supply chain:� In terms of planning and scheduling:

o It should come from the required customer service levelsand considers that the planning of supply with 100 percentconfidence would require a huge inventory,

o It is necessary to calculate the variability of demand, withpossible delivery times and the order quantity,

� In terms of logistics:

o It is essential to tackle local transport, storage, import andexport, either by their own or through a competitivelogistics provider.



• Step 5: Model evaluation results:� Supply chain model should include:

o Model stock levels, delivery times, and thecorresponding parameters customer service levels,

o Model financial implications of the extended supplychain, encompassing design unit costs savings,

o Conclusion of costs in production, the additional costsof operations, key indicators of time for whichcumulative revenues exceed cumulative costs, whichamong other things allows you to test the sensitivityof rated power to change the input,

o The Supply chain must be understood and studied asa whole by "suppliers of our suppliers" to "customersof our customers."



• Step 6: The final decision:

� It should be choosing between options:

o Adopt the draft documented the likely financialeffect,

o Adopt the draft as a way to reduce costs and increaseturnover, but conditionally change in approach to thepossible shifting of other product groups, respectivelyoperations than as initially identified,

o Dismissal due to the additional costs and risks ofcustomer service, which outweighed the cost effects -which means focusing on improving the existingsystem.



• The future of Logistics management –

megatrends:

� The literature on the future of logistics is rich withsome publications while not appreciate the impact ofthe crisis on the world economy, so it is quite difficultfrom them to formulate realistic conclusions from thecurrent perspective,

� After analysing expert estimates, surveys and othersources we can classify base megatrends developmentof logistics management in the future in five areas.



• Trends in Strategies:

� In addition to changes in priority objectives, weexpect a change in the position of logistics in thecompany structure,

� The importance of logistics is not only reflected ina separate organizational unit of logistics inbusiness but also in its growing share in thecreation of strategy and planning,

� The future of business lies in identifyingopportunities for logistics solutions and their useas a competitive advantage for marketing support.

2017.04.23.

13



• Trends in costs:

� As is evident from various surveys is the mostsensitive cost item in the company strategy,

� The future plans are also expected furtherdevelopment of lean logistics and just-in-timeassociated with outsourcing services,

� For a better understanding of logistics costs andmanagement transition is recommended forapplication methods Activity-Based Costing (ABC),which is used to capture costs by logistics activitiesand their use in their management within the conceptof Activity-Based Management (ABM).



• Trends in cooperation of Companies:� Another megatrend is the consolidation of markets in

sectors with high capital intensity. This will alsoinclude logistics and warehousing,

� It is expected that the wave of mergers andacquisitions an emerging since the beginning of thenew millennium will continue in the future. In thisway, achieved concentrations of the market canindeed provide a cost savings, but it also carries therisk of oligopolistic markets,

� Big companies will become even more a smallbusiness usually do not survive in the competition.



• Trends in cooperation of Companies:

� Medium-sized companies must specialize and findnew market space,

� In the future, may be such segments as the sectorreverse logistics, spare parts logistics, storage andpackaging, or financial services in logistics,

� Development of cooperation within the Supply chainsnecessitates a uniform system for communicationamong participants,

� The need for standardization on a national, Europeanand global level is an important issue and challengethe near future.



• Technology trends:

� Technologies enable the logistics industry to createsignificant added value,

� Advances in information technology and the spreadof the Internet have opened up opportunities to linkindividual information networks,

� Data centres in the world are able to record, process,store, and at the request of an authorized person toview the information anywhere,

� Further development of new technology: JIT, QR, ECR,EDI, Cross-docking, RFID etc.



• Trends in Environmental Protection:� Logistics should be so from that aspect to focus on

the following areas:o Green logistics - optimizing processes with respect to

their environmental footprint, life cycle analysis ofproducts, support reusable resources (plastic pallets,crates instead of cardboard),

o Externalities from transport - air pollution,greenhouse gas emissions, congestion, destruction ofexisting infrastructure, construction of roads going infarmland,

o Disposal of hazardous materials and separation ofrecyclable waste.



• Trends in Environmental Protection:� In the production of at least promote energy-

consuming products produced by recycling materials,� Documenting the environmental impact of material

resources and processes (few companies no certificatefrom their suppliers),

� Type of packaging materials and technologies mustface more stringent requirements for multipleusability and recyclability,

� Support for multimodal solutions, support thetransport modes with lower external costs (rail, rivertransport) - congestion main directions and trafficjams in cities.

2017.04.23.

14



• Megatrends – summary:� Logistics is characterized by secondary demand, which

means that the customer must be satisfied both with thesubject of primary demand, which becomes the basis forthe competitiveness of the 21st century, while thequalitative characteristics of logistics performance,

� Modern thinking process induced the need to manage theentire production process to delivery,

� And thus began the supply chains, whose ultimate goal isto optimize processes through integration of their ownindividual systems into one unit in order to achievemutually beneficial synergistic effect, which may take theform of cost reduction, risk reduction, reducing the time orelimination of certain practices.



• Megatrends – summary:

� The current globalization trends with revolutiontechnology solutions open up unprecedentedopportunities for cooperation,

� Interconnectedness while it also brings the risk offailure of cooperation must therefore be found ina competitive environment healthy balancebetween cost optimization and quality production,

� Those conclusions correspond with the indicatedcritical megatrends logistics management andrespect can be beneficial for the company.

4. Creating a Sustainable Supply Chain,

Reduce, Reuse, Recycle

• The triple bottom line:

� Perhaps one of the biggest issues to rise toprominence across every aspect of business andsociety in the opening years of the twenty-firstcentury has been ‘sustainability’,

� The growing concern with the environment, inparticular the possibility of climate changethrough global warming, has led to a focus on howhuman and economic activity has the potential toadversely impact the long-term sustainability ofthe planet.




� The definition of sustainability that is most widelyused originates from the United Nations BrundtlandCommission, which reported in 1987,

� Sustainability, the Commission suggested, was about:meeting the needs of the present withoutcompromising the ability of future generations tomeet their own needs,

� This definition can be further augmented by adoptingthe parallel idea of the ‘triple bottom line’,

� The triple bottom line concept emphasises theimportance of examining the impact of businessdecisions on three key arenas:



• The triple bottom line:� Environment (e.g. pollution; climate change; the

depletion of scarce resources, etc.),� Economy (e.g. effect on people’s livelihoods and

financial security; profitability of the business, etc.),� Society (e.g. poverty reduction; improvement of

working and living conditions, etc.),� These three elements – the 3Ps of people, profit and

planet – are inevitably intertwined and they serve toremind us that for a business to be truly sustainable, itmust pay regard to the wider impact of the activities itundertakes if it seeks to remain viable and profitable(Figure 5).



Figure 5 The triple bottom line: planet, people, profit

2017.04.23.

15




� In the context of supply chains we can build on thetriple bottom line philosophy to encompass the wideridea that sustainability is concerned with ensuring thelongterm viability and continuity of the business aswell as contributing to the future well-being ofsociety,

� Indeed, it can be argued that these two goals aremutually supportive, i.e. supply chain strategies thatbenefit the wider environment are likely also toinvolve the business in less cost in the long term asthe result of a better use of resources.



• Reducing the transport-intensity of supplychains:

� As global economic growth continues, so too doesinternational trade increase and hence transport,

� The continued upward trend in global sourcing hasinevitably led to products travelling greater distances,

� The end result is an increase in what might be termedthe transport-intensity of the supply chain,

� Transport intensity can be measured in a number ofways, but at its simplest it is a reflection of themiles/kilometres travelled per unit of productshipped.

4. Creating a Sustainable Supply

Chain, Reduce, Reuse, Recycle

• Reducing the transport-intensity of supply chains:

� Since the transport of raw material and finishedgoods globally is estimated to consume 15 millionbarrels of oil each day – almost one fifth of the world’sdaily production6 – there is clearly a correlationbetween transport intensity and a supply chain’scarbon footprint,

� Not only is there an economic benefit to be gained byimproving transport intensity but also a potentialpositive environmental impact – this is the concept ofeco-efficiency which is now rapidly becoming a majorissue in global commerce.




� What practical steps can organisations take toimprove the transport-intensity of their supplychains?

o review product design and bill of materials

Product design can impact transport-intensitythrough the physical characteristics of the product,its density, the choice of materials (includingpackaging materials), the ease of recycling, reuseand end-of-life disposal.



• Reducing the transport-intensity of supply chains:o review sourcing strategy

As we have previously noted, many sourcing decisions haveled to a migration to low-cost country locations. This oftenhas led to products being moved greater distances. Globalsourcing decisions will increasingly need to factor the carbonfootprint into the total cost of ownership.o review transport options

Clearly different transport modes have different impacts oncarbon and other emissions. The design of vehicles andvessels is also increasingly influenced by the need to improvefuel efficiency. There are also arguments for increasing thesize of vehicle or the vessel to achieve lower transportintensity per unit.



• Reducing the transport-intensity of supplychains:

o Improve transport utilisation

Research has highlighted that vehicle capacity isoften poorly utilised.

It is suggested that empty running because of thelack of return loads means that up to a third of thetrucks on the roads of Europe are running empty.

More use of shared distribution, better vehiclerouting and scheduling, and better loading can alsodramatically improve transport-intensity.

2017.04.23.

16




o Use postponement strategies

If standard, generic products can be shipped in bulkfrom their point of origin and then assembled,customised or configured for local requirements nearerthe point of use, there may be an opportunity to reduceoverall transport-intensity.

A further incentive to reduce the transport-intensityarises from the continued upward pressure on oil-basedfuel costs, which will only intensify as oil reservesbecome depleted.



• Reduce, reuse, recycle:

� The 3Rs of sustainable supply chain management– reduce, reuse and recycle are now starting toreceive much more attention in most companiestoday,

� There is a growing realisation that not only is astrategy focused on improving the environmentalimpact of economic activity good for all who liveon this planet, but because such strategiesconsume fewer resources the overall profitabilityof the business should also improve.




� many companies are now actively seeking to createmarketing strategies that emphasise the ‘greenness’of their supply chains,

� Whilst the more cynical observers may dismiss thesemoves as opportunism – what some have dubbed‘greenwash’ – there can be no question thatcustomers and consumers in markets around theworld are starting to demand that suppliers reducetheir various footprints.

� Strong evidence is emerging that consumers areincreasingly basing their purchasing on ethical andenvironmental criteria.



• Reduce, reuse, recycle:� Further pressure on businesses to reduce their

environmental footprints is coming from governmentregulation, often in the form of Emission Trading Schemes(ETS) or so-called ‘Cap and Trade’ legislation,

� For example, the European Union’s Emissions TradingScheme has recently been extended to cover a greaterrange of industries and is based on the principle thatcompanies have a basic allowance for carbon emissions – ifthey go beyond that level they have to buy additionalallowance from other companies who do not fully usetheir own allowance,

� Similar schemes are currently contemplated bygovernments around the world and in time their impact islikely to be significant.




� Since, as we have noted, most of a typicalbusiness’s total environmental footprint lies in itswider supply chain, particularly upstream of itsown operations, the need for supply chainmanagers to become more involved in managingthis footprint becomes apparent,

� Unless upstream suppliers are able to reducetheir own footprint the additional costs that theywill incur will inevitably end up in their cost ofgoods sold – and ultimately in the price of theproducts in the final marketplace.



• The impact of congestion:� One of the key issues when considering sustainable

supply chain solutions is traffic congestion and therelated infrastructure issues,

� In probably the majority of countries, developed anddeveloping, the creation of logistics infrastructure hasnot kept pace with the level of economic activity,

� This is true for all types of infrastructure includingroads, ports and railways,

� Gridlock on motorways, container vessels waiting tounload at ports and bottlenecks on the railways arecommon occurrences in many countries and add tocarbon emissions as well as adding cost to suppliersand customers alike.

2017.04.23.

17



• The impact of congestion:

� There have been a number of causes of thisproblem, including increased global trade, lack ofinvestment in capacity and the widespreadadoption of just-in-time practices:

o increased global trade:

With the growth in offshore manufacturing and theemergence of new markets alongside the removal oftrade barriers, the flow of products across bordershas increased dramatically.




At the same time the size of many container vessels hasincreased significantly – the new generation of containerships can carry upwards of 10,000 TEUs (20 footequivalent), which if laid end-to-end would stretch for60 kilometres or 37 miles.

When unloaded each of these containers may need tobe stacked on the dockside before being loaded out totrains or trucks, further adding to congestion.

Furthermore, in recent years the increase in containersecurity requirements has led to additional delays atboth the points of origin and destination.




o lack of capacity

Paradoxically in some developed countriesenvironmental concerns have led to unwillingness tobuild more infrastructure such as new motorways orport extensions.

Also, there has been resistance in certain countriesto introduce bigger trucks which might actuallyreduce congestion, since fewer would be required.

Equally in developing countries the sheer scale ofthe investment required to meet the demand isdaunting.




o Just-in-time practices

Over the last 50 years there has been a significantuptake across all sectors and supply chains of thephilosophy and practice of just-in-time (JIT).

Essentially this has led to smaller but more frequentmovements of products and materials.

Even though many of those who have adopted JIT haveattempted to mitigate its effects through aggregationand consolidation there can be no doubting that it hascontributed to an increase in shipments andmovements.




In the past it could be argued that the saving ininventory holding costs more than covered theadditional transport cost.

However, now that concern with environmentalissues has become much more prevalent, JIT in itscrudest form will increasingly be questioned.

The challenge for supply chain managers is to find asolution that enables the benefits of JIT to be gainedwithout incurring the potential environmentaldisadvantages.



• Smart Logistics:

� While congestion will probably continue to affectlogistics management for many years to come,particularly as economic growth and developmentcontinue, there is likely to be some alleviation as aresult of the application of what might be termed‘smart logistics’ and ‘intelligent transport’.

� The idea here is to combine the opportunitiesthat exist for greater partnership andcollaboration, both vertically and horizontally, inthe supply chain with advanced information andcommunication technology.

2017.04.23.

18




� Smart logistics works by aggregating andcombining individual shipments into consolidatedloads for final delivery,

� ‘Cross docking’ is an example of this ideawhereby different suppliers ship complete truckloads to a distribution centre, typically with eachpallet bar-coded or RFID-tagged with product anddestination details, for re-sortment andconsolidation with other shipments to the samefinal destination.




�The same principle can be used utilising ‘logisticsplatforms’ on the edge of large cities orconurbations to reduce individual deliveries tocongested locations,

�When advanced IT solutions such as dynamicvehicle routing and scheduling and intelligentagent modelling are used alongside thesecollaborative strategies,

� many things become possible – particularlyenabling the better management of constrainedcapacity against a backdrop of uncertain demand.

References

1. Gourdin, K. N., Global logistics management, Blackwell

Publishing: Oxford UK, pp. 94 – 102, 2006.

2. Grant, D. B. et al., Fundamentals of logistics management,

New York: McGraw- Hill education. 2006.

3. Erhart, Ch., et al., Delivering tomorrow towards sustainable

Logistics. Bonn: Deutsche Post DHL, 2010.

4. Chrisopher, M: Logistics & Supply Chain Management,

(Financial Times Series), 2011.

5. Pernica, P. 2004. Logistika (Supply Chain Management) pro

21. století, RADIX, Praha.

THANK YOU FOR YOUR ATTENTION

logistics management in era of globalization...

Documents