International marketing is becoming more important to companies as the world shifts from distinct national markets to linked global markets. Globalization brings homogenization of consumer needs, liberalization of trade, and competitive advantages of operating in global markets. Companies are forced to think and act globally in order to survive in such a dynamic environment. All these elements have a deep impact on the development and the positioning of companies on international marketplaces where competition is cruel. Furthermore, another significant change concerns the customers since they are more demanding in term of quality, lead time and order fulfilment.
In this context, firms must be more and more flexible and reactive to anticipate and to adapt to such changes. This quest for flexibility and reactivity affects the conception and the management of firms and more generally their logistic systems and contributes to the development of partnership relations, to the emergence of mergers or strategic alliances between companies. As a result, a firm can no longer be considered as an isolated entity but as a component of a wider supply network. International Firms have begun to implement various strategies in order to remain competitive in world market.
Logistics is one of the key areas in the process of international marketing as the delivery of goods to the buyer is as important as any other activity in business and marketing. Quite often, the most crucial part in International trade is the timely delivery of goods at a reasonable cost by the exporter to the importer. In fact, the prospective buyer may be willing to pay even higher price for timely supplies.
The emergence of logistics as an integrative activity, with the movement of raw materials from their sources of supply to the production line and ending with the movement of finished goods to the customer has gained special importance. Earlier on, all the functions comprising logistics were not viewed as components of a single system. But, with emergence of logistic as an important part of corporate strategy due to certain developments in the field of international marketing has gained special significance.
Upon Completion of this course, you will be able to:
- Have an in-depth Knowledge of Logistics management.
- Describe how Logistics networks operate.
- List key benefits of Logistics chains.
- Describe best practices in Logistics management
- Understand Logistics Handling
- Understand the Nature of Global Logistics and How it works
- Describe International Marketing Logistics and Supply Chain Management
- And many more
SECTION 1: GENERAL OVERVIEW OF LOGISTICS MANAGEMENT
Logistics Role in the Economy/Organization
The scope and influence of logistics has evolved in the late 1940s. In the 1950s, and 60s, military was the only organization which used logistics. The scope of logistics has been extended beyond the army, as it has been recognized as one of the important tools for developing competitiveness. Competitive advantage means the company has the ability to differentiate itself, in the customer’s eyes, and also is operating at a lower cost and greater profit. Logistics facilitates in getting products and services as and when they are needed and desired to the customer.
Customers are the focus of any activity. The primary reason behind this being that ultimately every product, service or idea finally needs to cater to the customer’s requirements. According to Lalonde Bernard J, “Customer service as a complex of activities involving all areas of the business which combine to deliver and invoice the company’s product in a fashion that is perceived as satisfactory by the customer and which advances the company’s objective”. Customer service, as a concept has many aspects to it. Logistics management has a major role in enhancing the customer satisfaction and also retention and thus creating a lifetime customer value.
Procurement is usually done in order to meet the needs of the manufacturing function or other internal functions for which buying is made. It enables access to external markets, supplier development and relationship management and also relationship to other functions It is the buyers and suppliers who are usually engaged in procurement transactions, which usually begins with the buyer receiving and paying for the order. When designing the procurement process, it is important to consider goods that the process will be used to purchase. The two main categories of purchased goods are direct material and indirect materials.
Inventory decisions are high – risk and high – impact in nature from the logistics perspective. Inventory Management is an integrated process, which aims to operationalize a firm’s as well as the value chain’s inventory policy. It is a strategic area in logistics and has an overall impact on the efficiency and effectiveness of the entire supply chain. It is basically a practice of planning, directing and controlling inventory so that it contributes to the profitability of business. Since it is necessary to have an optimum minimum of multiple types of inventory, inventory management is essential. There are three methods for inventory management – The first one being a reactive or pull approach, which uses the customer demand to pull the product through the distribution channel. Another philosophy is the planning approach, which proactively schedules the product movement and also its allocation through the channel according to the demand forecast. The final approach, hybrid logic combines the former versions and results in an inventory management philosophy, which responds to product as well as market environments.
SECTION 2: LOGISTICS HANDLING
Materials Management is the process of management which co-ordinates, supervises and executes the tasks associated with the flow of materials to, through, and out of an organization in an integrated fashion. There is maximum utilization, conservation, elimination of wastes, and thus avoidance of unnecessary delays.
An element of strategic importance in the logistics system. A proper decision-making regarding warehouse is necessary to ensure effectiveness of marketing. The warehouse acts as an important link in the supply chain of a manufacturing company. It serves as the interface area for production, market, customers and suppliers. Functionality of warehousing covers operations like holding, consolidating break bulk, cross docking, postponement, mixing, packaging, and information handling. Public, private and contract storage are the different types of warehousing operations.
Packaging is a marketing tool related to the performance of marketing function. The basic objective behind packaging is to prevent damage to the product during storage, transportation and handling, when it is in movement for distribution in the market. It forms an important cost element of goods and represents 5 – 30 per cent of the value of goods, depending on the type of product. It has a significant impact on the cost and productivity of the logistical system. The main cost elements are the purchase of packaging materials, introducing automated or manual packing operations, and further the need for disposal of material. A systems approach is necessary to manage packaging. Any central planning logic, which is designed to control total distribution costs, must keep in mind the costs related to packaging.
With the environment becoming very competitive over the past 10 to 15 years, speed has become an unmistakable competitive advantage for firms. Transportation helps an organization to achieve this advantage by ensuring that the right product reaches the right place and at the right time. Achieving this competitive advantage require effective functioning of transportation activities. There are various modes or transport like road, rail, air, pipeline etc, the transit time being an important consideration. After the mode has been chosen, the logistics manager can choose the type of transport mode, i.e., whether to opt for common carriers, contract carriers, exempt carriers, private carriers or freight forwarders. Transportation management not only deals with settling an efficient transportation activity center but also continuous evaluation and management activity of the transport department.
SECTION 3: INTRODUCTION TO GLOBAL LOGISTICS
The global company seeks growth of its business by extending markets while at the same time seeking cost reduction through scale economies in purchasing and production and also through focused manufacturing or assembly operations. While the logic of globalization is strong, it also presents a few challenges. One challenge is that world markets are not homogenous; there is a requirement for local variation in a lot of product categories. Secondly, unless there is a high level of co-ordination, complex logistics of managing global supply chains may result in higher costs. Both these challenges are related.
Logistics Planning: Logistics network planning is crucial for companies with global operations in order to gain competitiveness. Formulating a logistics network strategy also depends on factors such as unit value of the product, markets and competition. For example: A firm’s strategy to develop new markets and relocate facilities will trigger the need for sourcing of raw materials with reference to the delivery time frame, logistics cost, and reliability. So the formulation of logistics strategies should consider the location of production facilities, sourcing of materials and components and product- market characteristics.
Role of 3PL & 4PL
Logistics involves getting the right goods to right place at the right time at the right cost in the right condition. To survive in today’s highly competitive markets, companies are focusing on their core competencies to adopt outsourcing as a strategic solution to improve quality of service and also reduce cost of key and non-core activities. An accepted trend today is to form a collaborative relationship with logistics service providers on the basis of the backbone of information technology, for integrating knowledge based supply chain. Business organizations across the world are struggling for competitiveness for both growth and survival. Customers are demanding more and more value-added services from prospective suppliers for the amount spent.
Selection of a service provider is a strategic one and has long-term effects upon the customer service capabilities of an organization. Major issues to be considered before deciding on a 3PL or 4PL partner:
Switching cost: Outsourcing logistics services results in reorganizing the existing assets of a company in tuning with the working methodology of the service provider. It includes activities such as management of existing assets, fully or partly to the service provider, deploying existing assets on lease to service provider and divesting existing assets and completely switching over to the usage of a logistics infrastructure by the service provider.
SECTION 4: THE NATURE OF LOGISTICS AND SUPPLY CHAIN MANAGEMENT
Logistics and supply chain management (SCM) are far-reaching activities that have a major impact on a society’s standard of living. In western developed societies, we have come to expect excellent logistics services and only tend to notice logistical and supply chain issues when there is a problem.
PDM is concerned with ensuring that the individual efforts that go to make up the distributive function are optimised so that a common objective is realised. This is called the ‘systems approach’ to distribution management and a major feature of PDM is that these functions be integrated. Because PDM has a well-defined scientific basis, this chapter presents some of the analytical methods which management uses to assist in the development of an efficient logistics system. There are two central themes that should be taken into account
Distribution strategy is influenced by the market structure, the firm’s objectives, its resources and of course it’s overall marketing strategy. All these factors are addressed in the section on selecting Distribution Channels. The first strategic decision is whether the distribution is to be: Intensive (with mass distribution into all outlets as in the case of confectionery); Selective (with carefully chosen distributors e.g. specialty goods such as car repair kits); or Exclusive (with distribution restricted to upmarket outlets, as in the case of Gucci clothes). The next strategic decision clarifies the number of levels within a channel such as agents, distributors, wholesalers, retailers. In some Japanese markets there are many, many intermediaries involved.
In contrast to the older, multi-story structures that dot cities around the country, modern warehouses are long, one-story buildings located in suburban and semi-rural settings where land costs are substantially less. These facilities are often located so that their users have easy access to major highways or other transportation options. Single-story construction eliminates the need for installing and maintaining freight elevators, and for accommodating floor load limits. Furthermore, the internal flow of stock runs a straight course rather than up and down multiple levels. The efficient movement of goods involves entry on one side of the building, central storage, and departure out the other end.
SECTION 5: CONCEPT OF INTERNATIONAL MARKETING LOGISTICS
“Logistics is the process of planning, implementing and controlling the efficient, effective flow and storage of goods, services and related information from point of origin to point of consumption for the purpose of conforming the customer requirement”. This definition clearly points out the inherent nature of logistics and it conveys that Logistics is concerned with getting products and services where they are needed whenever they are desired. In trade Logistics has been performed since the beginning of civilization: it’s hardly new. However, implementing best practice of logistics has become one of the most exciting and challenging operational areas of business and public sector management. Logistics is unique, it never stops! Logistics is happening around the globe 24 hours a day, seven days a week during fifty-two weeks a year. Few areas of business involve the complexity or span the geography typical of logistics.
The development of interest in logistics after industrial revolution and world war II contributed to the growth in scope of logistical activities. The following areas are the major scope of logistics:
1. Demand forecasting
2. Distribution communication
Let us discuss the relevance of marketing and logistics. Logistics is some time referred as other half of marketing. Marketing experts have recognized that for developing a position of sustainable competitive advantage, a major source is superior logistics performance. Thus, it can be argued that instead of viewing distribution, marketing and manufacturing as largely separate activities within the business, they need to be unified, particularly at the strategic level. One might be tempted to describe such an integrated approach to strategy and planning as “Marketing Logistics”. Business can only compete and survive either by winning a cost advantage or by providing superior value and benefit to the customer.
Supply chain management (SCM) has been defined as "a process-oriented approach to procuring, producing, and delivering products and services to customers. SCM has a broad scope that includes sub-suppliers, suppliers, internal operations, trade customers, retail customers, and end users. It spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption. Supply chains are dynamic and complex reaching into many customers and back into many suppliers throughout the world. It exists in both service and manufacturing organizations, although the complexity of the chain may vary greatly from industry to industry and firm to firm.
Supply chain management is a cross-functional approach to managing the movement of raw materials into an organization and the movement of finished goods out of the organization towards the end-consumer. As corporations strive to focus on core competencies and become more flexible, they have reduced their ownership of raw materials sources and distribution channels. These functions are increasingly being outsourced to other corporations that can perform the activities better or more cost effectively. The effect has been to increase the number of companies involved in satisfying consumer demand, while reducing management control of daily logistics operations. Less control and more supply chain partners led to the creation of supply chain management concepts. The purpose of supply chain management is to improve trust and collaboration among supply chain partners, thus improving inventory visibility and improving inventory velocity. Several models have been proposed for understanding the activities required to manage material movements across organizational and functional boundaries.
Since logistics advanced from 1950s, there were numerous researches focused on this area in different applications. Due to the trend of nationalisation and globalisation in recent decades, the importance of logistics management has been growing in various areas. For industries, logistics helps to optimise the existing production and distribution processes based on the same resources through management techniques for promoting the efficiency and competitiveness of enterprises. The key element in a logistics chain is transportation system, which joints the separated activities. Transportation occupies one-third of the amount in the logistics costs and transportation systems influence the performance of logistics system hugely. Transporting is required in the whole production procedures, from manufacturing to delivery to the final consumers and returns. Only a good coordination between each component would bring the benefits to a maximum.
SECTION 6: SUPPLY CHAIN MANAGEMENT AND SUSTAINABLE LOGISTICS
Logistics is that part of the supply chain management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers’ requirements. Although the terms ‘logistics’ and ‘supply chain management’ are often used interchangeably, they refer to two aspects of the process. According to the following diagram, logistics refers to what happens within one company and forms one of the many supply chain processes. Supply chain management, on the other hand, encompasses a wider number of operations run by a larger network of businesses that work together to deliver goods to customers and manage returns and wastes. Logistics management is an integrating function which coordinates and optimizes all logistics activities which may include orders processing, inventory management, materials planning, warehousing, network design, inbound/outbound transportation, fleet management, outsourcing and to varying degrees sourcing and procurement, data processing, production planning, packaging and customer services. The main aim of logistics is to coordinate these activities in a way that meets customer requirements at minimum cost (Green Logistics 2010).
The concept of sustainability is strategic and an integrated element of companies’ operations and supply chain networks. Sustainability is defined as “a development that meets the needs of the present without compromising the future generations to meet their own needs. Sustainability requires a balanced commitment and approach to humanity and profitability. An important concept and central theme of this paper is sustainable supply chain management. To understand the meaning in a broader sense, sustainable supply chain management, is defined as “the management of material, information and capital flows as well as corporation among companies along the supply chain while taking goals from all three dimensions of sustainable development, i.e., economic, environmental and social, into account which are derived from customer and stakeholder requirements”.
Aside from the internal and external pressures, companies have also faced obstacles to integrate sustainability within their daily supply chain operations. Internal obstacles are considered resource costs, lack of knowledge, lack of training, lack of integration of information technology (IT) systems, and poor organizational structure. Today, consumers are endlessly seeking lower prices; however, the resource costs incurred to integrate sustainability into the supply chain processes are generally expensive and not reasonable enough to offer low selling price to their customers. “An investigation of green purchasing practices in US firms revealed that resource cost concerns are the most serious obstacle for taking environmental factors into account in the purchasing process.”
Companies implementing sustainability practices throughout their supply chain operations will need to be aligned with the triple-bottom line (3BL) philosophy. The triple-bottom line (3BL) concept encompasses a wider notion that institutes the environmental, economic, and social goals which must be met simultaneously while delivering value and financial gains. This essentially means that sustainability ensures the long-term viability and continuity of the business while taking proactive measures and responsibility for current and future living conditions. The objective of a sustainable supply chain enables a company to meet and satisfy the triple-bottom line (3BL) approach.