1. GLOBAL LOGISTICS
MANAGMENT
A Competitive Advantage
for the 21st Century

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House Keeping
 Syllabus
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3. GLOBAL LOGISTICS
MANAGMENT
Chapter 1: Introduction to
Logistics

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Introduction
 Logistics is a word often heard but seldom
understood
 Definitions of logistics abound and are often
framed in the context of a single business,
military, societal or personal issue
 Logistics enables growth of business, global
commerce and our civilization

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The Historical Perspective
 Like many other areas of management,
logistics was originally associated with the
military
 Sun Tzu Wu (500 BC) in his The Art of War
discussed logistical functions and their
relationships with strategy and tactics
 Alexander the Great
 The Roman Armies
 Napoleon

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The Historical Perspective
 Management techniques and philosophies
developed by the military were adopted by the
commercial sector
 Logistics was the enabler and frequently the
determining factor in success of
 Colonization
 The industrial revolution
 Urbanization
 Centralization of commerce and power
 Increasing consumerism

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The Modern Perspective
 As we study logistics in this course we will
find that, at its heart, logistics addresses
issues of customer satisfaction
 The systematic management of the various
activities required to move benefits from their
point of production to the customer

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The Modern Perspective
 Traditional definition:
Logistics is the process of planning,
implementing and controlling the efficient,
effective flow and storage of raw materials,
in-process inventory, finished goods and
related information from point of origin to
point of consumption for the purpose of
conforming to customer requirements (Council
of Logistics management 1985)

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The Modern Perspective
Modern Definition:
Logistics is the continuous process of meeting
customer needs by ensuring the availability
of the right benefits for the right customer, in
the quantity and condition desired by that
customer at the time and place the customer
wants them, all for a price the customer is
willing to pay.

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The Modern Perspective
 Logistics means or is applied differently by
different organizations (or different parts of
the same organization):
 Materials Management – management of raw
materials and parts into the production processes
 Physical Distribution – management of finished
products through delivery to the customer
 A combination of both the above
*Production Management may be included in either or addressed
separately depending on the organization

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The Modern Perspective
Raw
Materials
Raw
Materials
Raw
Materials
Parts
Supplier
Parts
Supplier
Manufacturer
Distributor
Distributor
Customer
Customer
Customer
Materials
Management
Materials
Management
Logistics
Distribution
Management

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Components of Logistics Systems
 Customer service
 Inventory management
 Transportation
 Storage and materials
handling
 Packaging
 Information processing
 Demand forecasting
 Purchasing
 Facility location
 Reverse Logistics
 Warranty support
Many of these functions have traditionally been stand-alone
roles within the organization….BUT they are all related
because of their ability to impact customer satisfaction.

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The Modern Perspective
 Supply Chain Management
 The integration and management of inter and
intra business logistics to deliver customer
satisfaction at the lowest system cost.
Optimization of the value chain.

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The Modern Perspective
Raw
Materials
Raw
Materials
Raw
Materials
Parts
Supplier
Parts
Supplier
Manufacturer
Distributor
Distributor
Customer
Customer
Customer
Materials
Management
Materials
Management
Supply Chain Management
Logistics
Distribution
Management

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Components of the Logistics System
 ??

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Logistics in the Organization
Michael Porter’s concept of the value chain

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Logistics in the Organization
 Primary activities of the organization are
shown running vertically
 Ongoing production
 Marketing
 Delivery
 Servicing of the product or services, etc.

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Logistics in the Organization
 Horizontal activities are the support services
 Purchasing
 Human resources
 Facilities, etc.

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Logistics in the Organization
 Note that two of the five primary activities are
logistics activities
 Inbound logistics
 Outbound logistics
 Depending on the size of the organization and
the complexity of the products/services
provided, there is frequently a function with
Operations that addresses internal logistics.

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Logistics in the Organization
 The ultimate value a firm creates is a function
of the amount buyers are willing to pay for its
products/services
 Profit occurs when the value exceeds the total
cost of production/delivery activities
 Firms gain competitive advantage by
delivering at lower total cost than their
competition

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Logistics as a Competitive Edge
 Logistics is important strategically and
tactically in order to gain competitive
advantage
 Business is increasingly aware that well-
managed logistics systems can provide the
organization with a sustainable competitive
advantage

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Logistics as a Competitive Edge
 Appreciation of the importance of logistics is
a relatively recent phenomenon
 Lower labor cost
 Natural resources
 Large captive markets
 Technical advantage/expertise

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Logistics as a Competitive Edge
 Into the ’80s companies focused on improved
productivity and lower costs
 In the late ’80s, focus shifted to high quality
 In the ’90s, focus shifted to customer service
 Business strategies
 Lose advantage over time
 Window of opportunity for any given strategic
innovation is relatively narrow

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Logistics as a Competitive Edge
 In the early 1980s business strategy focused
on improved productivity and lower costs as
foreign competition eroded once strong
domestic markets
 Later in the 1980s, business strategic focus
shifted to include higher quality in goods and
services
 In the 1990s, business focus shifted to
excellence in customer service

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Logistics as a Competitive Edge
 Growing demand for time-based logistics
management
 Streamlining the flow of goods from supplier to
customer
 Reducing or eliminating activities that add time
but not value

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Logistics as a Competitive Edge
 Customers demand
 Faster delivery
 Continuous shipment tracking
 Electronic transfer of information
 Reduction of wasted time

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Logistics as a Competitive Edge
 The challenge for any organization is to focus
its skills on satisfying those customer needs
that offer the greatest opportunities for
obtaining a sustainable competitive
advantage.
 Speed of delivery may be important to those in
developed regions/countries
 Consistency of availability may be more
important to those in underdeveloped regions

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Interest in Logistics is Growing
 Searching for ways to capitalize on the new
markets
 Central and Eastern Europe
 China, India and the Russian Far East
 Central Africa
 Taking advantage of these opportunities
requires logistics systems that are often
different from those in developed countries

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Interest in Logistics is Growing
 Emerging Trade Blocks
 Give smaller countries economic advantage
 Simplifies economic transactions between
members
 Reshaping the perception of domestic vs.
international markets

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Customers Demand Greater Value
 Customers prefer perceived ‘highest customer
value’
 The difference between total customer cost and
total customer value
 Difficult for global companies to determine
with customers in many different markets
 Customers seldom lower their desired level of
delivered value

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Customers Demand Greater Value
Product
Value
Services
Value
Personnel
Value
Image
Value
Monetary
Price
Psychic
Costs
Energy
Costs
Time
Costs
Total
Customer
Value
Total
Customer
Costs
Customer
Delivered
Value

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Customers Demand Greater Value
 Transportation
 Complex framework of laws and regulations
 Recently deregulated (1977)
 Reorientation towards more competitive transport
system
 Opportunities for shipper to obtain better service and
lower prices
 Increased complexity for transport managers

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Customers Demand Greater Value
 Environmental concerns affect society’s
quality of life
 Logistics impacts are important in affluent
countries
 Willing to pay more for environmentally friendly
goods …recycling, “green” products/services, etc.
 Less important to those in developing countries
 More interested in raising their standard of living

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Customers Demand Greater Value
 Changing view of inventory
 Historically used to compensate for internal
problems that could result in customer
dissatisfaction
 Long runs for reduced set-up cost
 Sales force pressures
 Focus on inventory costs
 JIT results in lower cost but lower customer service
 Inventory management increasingly critical
management activity for global companies

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Customers Demand Greater Value
 Information technology
 The glue that holds the logistics system together
 Dramatic improvements in the past 20 years enable
systematic management of logistics
 Capability to fully automate the logistics system
is now available
 EDI
 Supply chain visibility
 Customer visibility of order fulfillment
 RFID, GPS, secure containers, etc.

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Customers Demand Greater Value
 Electronic commerce
 E-commerce rapidly taking hold
 Security issues
 Quick order placement requires quick delivery to
insure customer value
 Total logistics management (Supply chain
management) is the best approach to the problem
we have today

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Global Organization of Logistics
 Traditional approach to business concentrates
on geographic markets
 Global organizations must look at the whole
world as one potential market
 Sourcing
 Manufacturing
 Researching
 Raising capital
 Sales

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Global Organization Logistics
 Challenge is managing this global network
 Spread activities among nations to serve the
world market “locally”
 Coordinate among those dispersed activities to
minimize cost and maximize value for each
customer population served
 Outbound logistics, after-sales service and marketing
tied to buyer’s location
 Inbound logistics and manufacturing performed
anywhere

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The Logistics System
Customer
Service
Information
Systems
Materials
Management
Inventory
Management
Warehouse
Management
Transportation
LOGISTICS