Global Logistics Boosts Competitive Advantage

Logistics management is giving companies new ways to improve customer service, control costs and make the most of opportunities in emerging markets. As a result, the global expansion equation is being revised as companies employ world-class logistics based on advanced information technologies.

Once upon a time, location was the word that companies invoked to ensure competitive advantage for their operations. The right location meant access to resources and to markets. Then, transportation and technology advances began landing double blows, speeding the downfall of distance as a deal-breaker in industrial and corporate development decisions. At the same time, ?going global? has become an operational imperative for many firms to survive — never mind succeed — in today?s business world. Location matters, but in different ways than before.

Increasingly, companies began seeking to boost their competitive advantage by employing another ?L? word: logistics. Over the past few years, a groundswell of activity has surged around logistics, encompassing a broad sweep of corporate supply-demand strategies that stretch from the raw materials to the ultimate customer.

Getting the goods there is what matters in the end. Managing movement has become the means. There?s plenty of truth in the old saw ?time is money.?

Global logistics represents a US$400 billion industry that’s very broad. It encompasses all modes of transportation, warehouses and storage facilities, inventory placement strategies, and distribution channels. Billions are spent each year on specialized computer software and third-party vendors to plan and manage efficient movements. Then there’s costly infrastructure — the roads and rails, seaports, airports, teleports, locks and bridges. Add to all that the development of high-tech, intermodal transfer facilities, which combine two or more transportation modes for the efficient transfer of goods.

Overcoming Obstacles

But even in the United States, with one of the best transportation systems in the world, the obstacles are daunting.

For example, 2 billion hours are spent in gridlock on U.S. highways each year, estimates the Intelligent Transportation Society of America, a public-private consortium of 1,000 industries, public agencies, universities and research facilities. The annual cost of congestion on U.S. roadways alone accounts for $48 billion in lost productivity.

Global logistics excellence has provoked a revolution in manufacturing and in shipping. Companies are focusing on managing logistics from a supply chain perspective. Firms are seeking competitive advantage with world-class systems based on such complex strategies known among technologists as ?enterprise resource planning solutions? and ?transaction-based process integration.?

The bottom-line results are ones executives can appreciate. World-class logistics cut costs, save time and improve customer service.
Manufacturing becomes more nimble, inventory can be reduced and just-in-time shipping is possible. For example, re-evaluating a company?s distribution network is a far more complex task today than a few years ago, but one for which far more sophisticated tools now are available.

Sum of the Parts

For example, more companies are opting for a single, real-time electronic system throughout the supply-demand chain, facilitating faster and better reactions to customer requirements. Increasingly popular software organizes and connects such daily tasks as entering orders, tracking product shipments, scheduling production and updating sales forecasts. From sales of less than $1 billion in 1996, supply chain information services are expected to grow to $6 billion by 2001.

Bob Jacobs, professor of operations management at Indiana University, sees a dizzying array of conflicting trends in a crucial aspect of logistics management, the location of distribution centers. Some of the developments point to a possible eventual reduction in overall space dedicated to pure distribution.

In the packaged goods industry, for example, Jacobs is closely watching the effort of Cincinnati, Ohio-based Proctor & Gamble to change its marketing strategies. “Proctor & Gamble wants to cut the variety of products and offer fewer [price] deals. Previously, grocery stores had warehouses to take advantage of deals,” he explains. “If large packaged goods companies institute more consistent pricing, they’ll smooth out the supply chain and eliminate the need for many warehouses.”

Manufacturers also want their suppliers close by, Japanese-style, Jacobs notes. “The suppliers’ reaction is often not to set up a warehouse just to store finished goods, but to set up a final assembly plant to customize final orders,” he says.

— Laurie Joan Aron, a New York City-based freelance writer who covers the logistics industry, and Associate Editor Audrey Pennington collaborated on this article.