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Managerial issues that affect global logistics Essay Example

Managerial issues that affect global logistics Essay


Today’s competitive pressures compel companies to continually seek new ways of doing business – Managerial issues that affect global logistics Essay introduction. Supply Chain Management is one such area which can provide the companies with an effective tool to build an advantage over their competitors. Competitive advantage no longer resides with the company’s own capabilities, but with the relationships that the firm can forge with their external partners – the customers, the suppliers and other service providers, forming a net work called the Supply Chain.

More Essay Examples on Logistics Rubric

Logistics Management, which refers to the physical movement and warehousing of the materials, is an integral part of the total system. If the Supply Chain is not managed properly, then the delivery gets affected, resulting in customer dissatisfaction and hence loss of business.

Driven by customer demands for fast, efficient service and the need to reduce inventory and logistics cost, companies have discovered that their ability to manage effectively the entire supply chain, from raw materials to delivery of the finished goods to the customer, is a major source of competitive advantage.

Companies are looking out for emerging technologies to collect information along the supply chain for timely decision making. This overall integrated management of Supply Chain increases the competitiveness of the firm.


The global environment that characterizes today’s business world underscores the importance of developing strategies that go beyond the geographic boundaries of one country. Nowadays, it is common to see a company develop a new product in the United States, manufacture it in Asia and sell it in Europe. Until recently, however, many corporations focused their attention on the marketing, finance and production functions only. Such an approach is dangerously simple because it fails to recognize the importance of the activities that must occur between production and the actual purchase of the product. These are the logistics activities and they affect the efficiency and effectiveness of both marketing and production. Logistics impacts the nature and timing of a firm’s cash flows and, finally, its profitability.


This impact is even more pronounced in today’s dynamic global environment of substantial wage-rate differentials, expanding foreign markets, fast information links and improved transportation. As efficiency barriers of time and space break down and international markets become increasingly integrated, corporations must adopt a global dimension if their operations are to remain competitive. They must develop strategies to design products for a global market, and to produce and deliver them using a supply chain that rationalizes the firm’s resources to the maximum extent. This paper discusses the various managerial issues that affect logistics.




Logistics is the science of effective design and management of the firm’s inbound (materials management) and outbound (distribution) flow of physical goods and related information. The trend is now to take advantage of trade-offs and other economies that are available in the individual legs of materials management and distribution.  True efficiencies and corporate strategic advantages are not gained until both are fully integrated into one single logistics system.  Logistics is a critical component of this competitive response, and one with substantial pay-back potential. By one estimate, the world market spent $3.5 trillion on logistics-related activities in 1994. And whereas management has all but exhausted cost reduction opportunities in manufacturing, in logistics such opportunities abound. New management skills are required to take advantage of them.

Global forces that impact corporate operating environments include such factors as regional economic alliances (European Union, NAFTA, MercoSur, etc.), ever-changing government regulations, and an overall increased uncertainty due to political risks, exchange rate volatility, and other inconstant conditions. In addition, significant technological advances and transportation improvements affect the way companies do business. And there are market changes that result in new competitive pressures, such as service becoming more important than cost savings, sophistication of customers, and product life-cycle compression. The main message about these forces is that they are external to the company, but must be responded to in a proactive way to stay in the game.

Once the forces and consequences of the globalization process are understood, companies have to define how to organize themselves to take advantage of this dynamic process.



Global logistics is the process of planning, implementing and controlling the flow of stored raw materials, in-process inventory, finished goods and related information from point of origin to point of consumption for the purpose of satisfying global customer requirements while efficiently utilizing the firm’s global resources.


As a conceptual framework, global logistics can be divided into three dimensions: functional, sectoral, and geographic.


Functional Dimension: The functional dimension highlights the ability of global logistics to foster intra-company integration because it is the natural interface between manufacturing, marketing and finance. Traditional, functionally oriented corporate structures arbitrarily divide these activities into separate operating divisions. Managing activities by one function alone, however, can lead to sub-optimal performance because it subordinates broader company goals to the goals of the individual function. The logistics process cuts across all function, and so enables the creation of important interfaces.


Sectoral Dimension: The sectoral dimension or inter-firm integration refers to the efforts by supply-chain partners to coordinate and manage their activities as a single, unified entity, rather than as multiple separate entities. In the field of consumer goods, the grocery industry’s Efficient Consumer Response program has been one of the first successful attempts at sectoral integration. Producers and distributors (supermarkets) have jointly defined areas of cooperation, and have developed solutions that are derived from the demand factor — with satisfying the customer as the objective — rather than being product driven.


Geographic Dimension: Finally, there is the geographic dimension. Management of global logistics differs from management of domestics operations in several key ways. First, there is the need to identify and analyze factors that differ across nations and that influence the effectiveness of all functions. Such factors include worker productivity, process adaptability, governmental regulations and issues, transportation availability, culture and so on. Second, because of the physical distances involved in global operations, transportation and distribution take on greater significance. Clearly, geographically dispersed facilities and markets are much more difficult to manage.




By looking at the relationship among the three dimensions in the global logistics framework and by keeping in mind that the overall objective of optimizing the global logistics system is to maximize profitability three basic types of logistics orientations can be defined:


• Resource-oriented logistics

• Information-oriented logistics

• User-oriented logistics

Resource-oriented logistics is the management of capital, materials, people and other resources required in manufacturing products to be delivered to the final customers. Resource-oriented logistics focuses on the relationship between the functional and the geographic dimensions. We can best see this interplay by looking at the world as both a supply of resources and a market for customers. Global companies with a strong marketing emphasis, such as Nike, need to balance marketing expenditures with tight control over manufacturing costs. Therefore, they may opt to search in different locations for manufacturing sites that minimize labor expense. Or, they may want to centralize manufacturing in one location to obtain economies of scale.


Information-oriented logistics concerns the management of information as a source of competitive advantage. More than the flow of products, the logistics system is directly involved with the flow of information (e.g., availability of products, notice of shipment, delivery scheduling, needs etc.)


Information-oriented logistics is affected by the relationship between the sectoral dimension and the geographic dimension. Logistics partnerships, for example, offer the possibility of accessing information in areas not traditionally within the purview of a company. Suppliers may offer information on the latest developments for a component, while the transportation company may open access to new markets, such as mail order sales. The geographic dimension is the source of updates on changes that may be occurring in a different environment.

User-oriented logistics focuses on the final element of this chain, namely, the customer. Supply-chain partners can analyze the existing logistics system, identify its bottlenecks, redundancies, and other problems, and collaboratively improve it. The main objective is to not only win new customers but to maintain existing ones. By maintaining a user-oriented approach, the logistics system gains flexibility in responding to the needs of customers.


All three orientations attempt to rationalize resources in order to maximize profitability. The continuous synergies in resource-oriented logistics, information-oriented logistics, and user-oriented logistics are what define the dynamic nature of global logistics.


Companies face each of the orientations with different intensities, and without necessarily maintaining a particular orientation forever. The different forces affecting companies (internal or external) may cause a company to switch priorities. At a given point in time, a company may be driven by resource-oriented logistics and will focus on optimizing product production within an existing global network of manufacturing facilities. Subsequent changes in the structure of competition and existing distribution channels, however, may motivate that same company to coordinate more closely with members of the logistics network and to switch its main orientation to a user focus. This does not mean that the resource-orientation is not important (the company will still maintain the global network), but rather it means the new changes require the firm to emphasize cooperation with the distribution members of the logistics pipeline.



A logistics Manager is held responsible for the following:

·         Apply the cost efficiency-versus-demand responsiveness framework to strategic decision making in logistics and supply chain management.

·         Compute order quantities and reorder points that minimize (or nearly minimize) total relevant annual costs for inventory systems serving uncertain product demand and satisfying a variety of measures of customer service.

·         Compute the impact of risk pooling and aggregation on inventory levels in production and distribution systems.

·         Develop rate functions to estimate transportation freight rates, incorporate these functions in a total annual cost function, and compute cost-minimizing order quantity, reorder point, and/or reorder interval decisions that account for economies of scale in transportation costs.

·         Develop vehicle routing solutions using a number of heuristic methods.

·         Apply all of the above concepts to supply chain network design decisions and understand how these concepts map back to the cost-responsiveness framework.

·         Cost cutting through logistics is the ultimate goal.


Opportunities seldom occur without attendant problems. Some problems in the Global Logistics are mentioned below. The markets for solution providers are getting overcrowded making it a million rupee problem of identifying the right solution provider for manufacturing and service enterprises. On the other hand, prices of products are dramatically dropping making it even more imperative for companies to cut costs to maintain profit levels. This calls for quick response model building and implementation.


It may also be noted that the productivity paradox is present in most nations. That is, an improvement in capabilities (improved layout etc.) does not translate into orders. This calls for investigating the missing links. One observation would be that the manufacturing support activities are not up to the mark. Also, the infrastructural requirements for seamless supply chain integration are not present. For instance, an efficient road/rail network, or, 24×7 available high speed networks for enabling online transactions is yet to materialize.


Managerial perspective/capabilities (innovation, learning, strategizing) is missing among decision makers, especially those in charge of SCM duties.





Companies cannot excel in every dimension all the time, but the global dynamic requires them to adjust continuously and come up with new answers. Researchers regularly suggest new managerial models based on application of concepts like de-localization, modularization, delayed differentiation and postponement.

A logistics system module must be designed to (1) cover each logistics management and planning task in depth, and (2) provide an integrative perspective on logistics.  Focus must be in resolving those problems and activities found in middle and top level distribution management.  Since the field continues to evolve through organizational change, adoption of greater responsibilities, and application of new concepts, the candidate should generally be prepared for many questions that call for the development of proposals and supporting arguments dealing with such changes.  A truly effective logistics manager not only knows what changes need to be implemented, but also is persuasive in gaining top management approval of such changes.

To plan and operate effectively, logistics managers need to know how to develop a truly global network of warehouses, distribution centers and consolidation points, how to optimize multiple transport service types, and how to design information and communication systems that integrate the supply chain.

It was also observed that a crucial capability that an SCM to have is the ability to build personalized on-demand products which gels well with automotive and PC companies. This calls for tight supply chain integration and the possessing systems that monitor and trigger service activities.


With respect to core SCM decision making needs, it was felt that filtering out the right information from a heap of data is of utmost importance. This implies development of OLAP and data mining engines specific to SCM requirements. Also, models that can handle uncertainty in service networks are welcome, in conjunction with automation of Service Chain Networks. Other models that will be of interest to industry are in the area of pricing of products/services (Revenue Mgmt/Dynamic Pricing) in the presence of bundling.


At the end of the day, for modeling and optimization to succeed, it is extremely critical to educate the industry on OR tools, mathematical techniques, and their usefulness. This is one area that academia can help industry that will eventually help develop trust in modeling. Industry participants hence felt the need to promote closer relevance of academic research to industry.



·            Ricardo Ernst, Associate Professor, The Managerial Challenge of Global Logistics, Georgetown University,


·            N. R. S. Raghavan And Y. Narahari, Indian Institute Of Science, Bangalore, Academia – Industry  Perceptions On Manufacturing, Logistics, And Supply Chain Management: Some Issues And Concerns, Report On The Panel-Discussion Held As Part Of Itmls-2003, Bangalore, India

·            Logistics and Supply Chain Management for SMEs, Saturday, 25 November 2006 (9.30 am to 5.00 pm)