International Logistics Management and Global Supply Chains

Defining Logistics and Its Origins

The word "logistics," together with the actions it entails, has its origins in military provisions and equipment supply processes. Logistics in business emerged during the 1950s, when materials supply and product shipping became increasingly complex in an era of growing globalization. Nowadays, business circles employ the term to describe the efficient storage and flow of goods between their points of origin and points of consumption. Global supply chains form a key part of the logistics process and cover tasks such as storage, transportation, shipping, and receipt, in addition to managing all of the above. In the field of business, logistics may be applied to information, inventory, transportation, materials handling, warehousing, packaging, security, and disposal (Robert, 2012).

The official definition of "logistics" is provided by the CSCMP (Council of Supply Chain Management Professionals) — the distinguished global SCM professional association. According to the Council, logistics refers to the part of SCM responsible for planning, implementation, and control of the effective and efficient reverse and forward flow, as well as the storage of services, goods, and corresponding information between points of origin and consumption, for the purpose of meeting consumer requirements. The CSCMP also provides a shortened definition: logistics represents the management of inventories that are in motion or at rest (Robert, 2012).

The Role of Logistics in Corporate Strategy

Efficient and effective SCM is gaining increasing prominence as a significant and valuable means of remaining competitive in a global market and improving company performance. This is because SCM directly influences rivalry among firms. At the start of the 1990s, globalization intensified competition, and corporations vied to deliver services and products to the right place at the right time. Globalization led organizations to realize that, in order to be competitive in both local and global markets, they needed to improve internal efficiencies as well as their entire supply chain. Only then could they rise above competitors in terms of efficiency and effectiveness (Muhammad et al., 2013). Corporations need to understand SCM concepts and practices to become more competitive and increase company profits (Childhouse & Towill, 2003; Moberg et al., 2002; Power et al., 2001; Tan et al., 2002).

Global value chains and supply networks are an increasingly prominent element of international trade and commerce, with value-adding activities occurring across several countries for a single product. Modern production typically implies that a product crosses a number of borders, undergoes processing and accrues components in multiple settings, and finally ends up on a retail shelf. The driving force behind this "splintering" of the production process is the pursuit of efficiency: total production expenses can be reduced by allocating different parts of the production process across different nations. Logistics represents a crucial service — without it, international supply chains would not be feasible. Decreased costs and increased service quality among logistics firms ensures better outcomes for customers and consumers (Outlook on the Logistics & Supply Chain Industry, 2013).

In Kihlen's 2007 work (p. 169), the author critiques the conventional approach to logistics, drawing on research into logistics' role in company strategy and logistics-centered business models. Kihlen recommends a move away from a purely integrative approach to logistics toward one that is more holistic — that is, a move from logistics that concentrates solely on operational efficiency to logistics that becomes part of organizational strategy, thereby operating on an international level where the focus is on overall global effectiveness, not only on local efficiency (Mats & Jakob, 2010).

Operative Excellence and Distinctive Capabilities

Kihlen argues that logistics' principal aim should be the provision of "operative excellence," which denotes the ability of organizations to tailor their operational leanness and agility, and to accept local inefficiencies, in order to achieve global effectiveness and efficiency. Operational excellence is about carrying out company operations with an overall organizational strategic aim in mind, thereby avoiding costly sub-optimization in the pursuit of established goals, while reaching the required level of operational efficiency that contributes to the firm's overall performance (Mats & Jakob, 2010). In other words, organizations that possess operative excellence, while not necessarily being highly efficient in every specific process, will display high efficiency at the global and overarching level (Kihlen, 2007, p. 189).

Consistent with the findings of Carranza and colleagues (2002), empirical research has established that the logistics of leading global corporations is quite frequently aligned directly with company strategy — for example, in areas of profitability, market defense, diversification, and growth. An important conclusion derived from these findings is that in high-performance organizations, logistics' significance lies in combining high flexibility to changes in the global market with low costs and high operative excellence. From a corporate strategy perspective, logistics is not measured using a conventional logistics scale; rather, it is measured using the same overarching organizational measures — chiefly growth and profitability (Mats & Jakob, 2010).

In theory, logistics' role in company strategy combines a resource-centered, inside-out view with an industrial, outside-in approach. Furthermore, it implies that logistics must cultivate "distinctive capabilities." Barney (1991, 2001) defines these capabilities as resource characteristics that lead to sustainable competitive advantage. Researchers maintain that logistics can become such a distinguishing capability if it is regarded as a valuable, difficult-to-imitate resource that satisfies the condition of rareness. This argument is elaborated as follows (Mats & Jakob, 2010):

First, logistics represents a valuable resource that contributes to increased consumer value — for instance, through lower costs and superior service delivery — and may be viewed as an implementation of value-based logistics as opposed to transaction-based logistics. Second, logistical capabilities represent a multifaceted combination of organizational routines, physical assets, knowledge, and personnel skills that require time to cultivate and integrate. Furthermore, logistics capabilities may necessitate the forging of collaborative bonds with customers and suppliers, which are difficult to establish and fulfill the condition of scarcity. Third, the complexity of logistics means that imitating any organization's logistical capabilities is inherently difficult, and this produces competitive advantage.

References

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Abrahamsson, M., & Brege, S. (2004). Dynamic effectiveness — Improved industrial distribution from interaction between marketing and logistics strategies. Journal of Marketing Channels, 12(2), 83–112.

Barney, J. B. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120.

Carranza, O., Maltz, A., & Antun, J-P. (2002). Linking logistics to strategy in Argentina. International Journal of Physical Distribution & Logistics Management, 32(6), 480–496.

Childhouse, P., & Towill, D. R. (2003). Simplified material flow holds the key to supply chain integration. Omega, 31(1), 17–27.

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Kihlen, T. (2007). Logistics-based competition — A business model approach. Linkoping Studies in Science and Technology, Dissertation No. 1144, Linkoping University, Sweden.

Mats Abrahamsson & Jakob Rehme. (2010). The role of logistics in retailers' corporate strategy — A driver for growth and customer value. Supply Chain Forum: An International Journal.

Moberg, C. R., Cutler, B. D., Gross, A., & Speh, T. W. (2002). Identifying antecedents of exchange within supply chains. International Journal of Physical Distribution and Logistics Management, 32(9), 755–770.

Muhammad, Naseer Qayyum, Murtaza Ali, & Khuram Shazad. (2013). The impact of supply chain management practices on the overall performance of the organization. Proceedings of 3rd International Conference on Business Management.

Outlook on the Logistics & Supply Chain Industry 2013. (2013). Global Agenda Council on Logistics & Supply Chain Systems 2012–2014. World Economic Forum, Geneva, Switzerland.

Power, D. J., Sohal, A., & Rahman, S. U. (2001). Critical success factors in agile supply chain management: An empirical study. International Journal of Physical Distribution and Logistics Management, 31(4), 247–265.

Robert Jones. (2012). Logistics: What it is and why it's important to your company. Retrieved from logisticsdegree.net.

Tan, K. C., Lyman, S. B., & Wisner, J. D. (2002). Supply chain management: A strategic perspective. International Journal of Operations and Production Management, 22(6), 614–631.