Logistics Value Generation
The key to achieving logistical leadership is to master the art of matching operating competency and commitment to key customer expectations and requirements. This customer commitment, in an exacting cost framework, is the logistics value proposition. It is a unique commitment of a firm to an individual or selected customer groups.
The typical enterprise seeks to develop and implement an overall logistical competency that satisfies customer expectations at a realistic total cost expenditure. Very seldom will either the lowest total cost or the highest attainable customer service constitute the appropriate logistics strategy. Likewise, the desired combination will be different based on the supply chain application and different for unique customers. A well-designed logistics effort must provide high customer impact while controlling operational variance and minimizing inventory commitment. Most of all, it must be relevant to the customer. Remember the EERS model from Chapter 1!
Significant advances have been made in the development of tools to aid management in the measurement of cost/service trade-offs. Formulation of a sound strategy requires a capability to estimate operating cost necessary to achieve alternative service levels.
Leading firms realize that a well-designed logistical system can help achieve competitive advantage. In fact, as a general rule, firms that obtain a strategic advantage based on logistical competency establish the standard of performance for their industry. Amazon, in recent years, is the best example of a firm using logistics to create a competitive advantage with its famous Prime service.
The Work of Logistics
In the context of supply chain management, logistics exists to move and position inventory to achieve desired time, place, and possession benefits at the lowest total cost. Inventory has limited value until it is positioned at the right time and at the right location to support ownership transfer or value-added creation. If a firm does not consistently satisfy time and location requirements, it has nothing to sell. For a supply chain to realize the maximum strategic benefit from logistics, the full range of functional work must be integrated. Decisions in one functional area will impact cost of all others. It is this interrelation of functions that challenges the successful implementation of integrated logistical management. Bowersox Figure 3.1provides a visual representation of the interrelated nature of the five areas of logistical work: (1) order processing; (2) inventory; (3) transportation; (4) warehousing, materials handling, and packaging; and (5) facility network. Integrated work related to these functional areas creates the capabilities needed to achieve logistical value.
For our Unit 2 DB, select and research a leading company known for Logistics Value Generation. Assess and explain how they create competitive advantage through their execution of each of the five areas of logistical work (see above). In reply to two of your classmates, compare and contrast their company’s Logistics Value Generation with your company’s Logistics Value Generation. Discuss what you learned and also what questions you have regarding your classmates’ DB 2 post.