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The impact of logistics in society and the economy, & advancements and future issues.
Logistics is a very interesting field, this is my first assignment, alpha copy. Please peruse and make corrections...
This is the first assignment of the subject Integrate Logistics Management, and is required to test our knowledge of the subject area of chapter 1, which deals specifically with the role of logistics in both the economy and individual organisations.
This report will comprise of 5 parts, the introduction (which you are currently reading), the aim of the project, the discussion which will cover the issues, the conclusion of the paper which closes the questions answered in the discussion and finally the recommendations.
The aim of this paper is to tackle issues embedded within the seven questions taken from the course text, which deal with the importance of logistics in the economy and an organisation. The questions are as follows:
1. How do improvements in logistics productivity affect the economy as a whole, as well as the position of individual consumers.
2. How is logistics related to the marketing effort? Be sure to discuss customer service, customer satisfaction, integration of efforts, and cost and performance outputs.
3. What are the different types of utility, and how does logistics directly or indirectly affect each one?
4. Why has logistics been receiving more attention as a strategic function of the organisation?
5. Based on the example shown in Table 1-3 and described on pp. 17-18, what is the increase in sales necessary to have the same impact as a savings in logistics of $350,000 if the net profit is 7 percent?
6. How have the role and performance of logistics been enhanced by the growth of technology? What do you see as key trends in the future?
7. Of the 13 logistics activities listed in Figure 1-1 and describe on pp 19-25, which do you believe will experience the most change in the next five years or so? Why?
After each of these questions have been answered, the conclusion will be drawn from these questions and the recommendations will be given.
Question 1: How do improvements in logistics productivity affect the economy as a whole, as well as the position of individual consumers.
Consumers around the world are on average becoming richer and more diverse, with an increased desire for goods & services and the increased wealth with which to attain it, economies around the world are increasing productivity and variety in order to keep up supply of the demand. As economies grow, so to does the need for logistics ¡V in the US, the 1999 figures show that it makes up a whopping 9.9% of the gross domestic product (Stock & Lambert, 2001).
Obviously, since logistics operations take up such a large portion of an economy, the advancements and improvements in this field will be of increasing importance to any nation since it can very easily affect economic components such as inflation, interest rates, productivity, exchange rates, energy costs and availability, the balance of national payments, unemployment figures and so on.
In recent years, the organisational interest in logistics has increased due to an evermore competitive marketplace and ways to stay ahead of competition and at the same time stay profitable. Advancements in logistics operations allow goods to be delivered on time more often, efficiency allows cost reductions, and lower input costs will mean greater profits for businesses.
Question 2: How is logistics related to the marketing effort? Be sure to discuss customer service, customer satisfaction, integration of efforts, and cost and performance outputs.
The marketing effort is based on the mantra ¡§¡Kachieving organisational goals depends on determining the needs and wants of the target markets and delivering the desired satisfactions more efficiently and effectively than competitors (Stock & Lambert, 1999)¡¨. So basically the marketing concept holds that a business exists to service customers, and alludes that whoever can provide the comparative best service will beat other competing business.
The place component of the marketing deals a lot with customer service provided by a business, undertaking such tasks as on-time delivery, high order fill rates and consistent transit times. By providing these services to a sustainably high level, (with regard, of course to the overall goal of a business, and understanding that trade-offs are an essential part of achieving this goal) a higher degree of customer satisfaction is more likely to be achieved in turn providing a competitive advantage in the form of more loyal customers.
Question 3: What are the different types of utility, and how does logistics directly or indirectly affect each one?
There are 4 types of utility - time, place, possession and form utility (or value).
Logistics firstly affects the time utility, in that logistics can provide value for the customer through delivering a product, or making available a product at the right time for purchase. One example is that the time utility for purchasing milk at the deli in the early morning would be high. Logistics is directly responsible for getting a product to its place of purchase or redistribution on time.
The place utility is deemed the value garnered from providing the good/service for purchase or consumption at the right place, for example the place utility for a McDonald¡¦s fast food outlet in an old folk¡¦s home would be fairly low I would imagine. Logistics is a function directly responsible for getting a product or service to its place of purchase.
Possession utility is the value a customer receives when they have the good in their hand or are experiencing the service, for example possession utility is nonexistent for the customer if the product is to arrive in 10 days time. Logistics is indirectly responsible, through time and place utility of delivering possession utility by providing the good/service for a customer to purchase at a given time and place.
Form utility is the value of an item which has been assembled from it¡¦s various components, so a car door would have a lot forum utility, but an entire car would have a high form utility. Logistics is indirectly responsible, through time and place utility of delivering the various components that make up form utility by providing the good/service for a customer to purchase at a given time and place in order to assemble the final product.
Question 4: Why has logistics been receiving more attention as a strategic function of the organisation?
Logistics has been receiving more attention as a strategic function of an organisation because more and more, it is being viewed as an avenue for gaining competitive advantage over a firm¡¦s competitors and less as simply a necessary passive tool that simply exists to support marketing (Remmel, 1991).
Question 6: Based on the example shown in Table 1-3 and described on pp. 17-18, what is the increase in sales necessary to have the same impact as a savings in logistics of $350,000 if the net profit is 7 percent?
0.07 x Ñ = $350,000
Ñ = $350,000 / 0.07
Ñ = $5,000,000
Therefore, in order for sales to have the same impact as a $350,000 savings in logistics, the firm needs to increase it¡¦s sales by $5,000,000.
Question 8: How have the role and performance of logistics been enhanced by the growth of technology? What do you see as key trends in the future?
The development of the computer technology, especially the microcomputer and the Internet have allowed for logistics practices to be undertaken more efficiently and effectively. Ordering can now be done computer system to computer system via EDI¡¦s (Electronic Data Interchange), orders are much more accurate, as is order filling, stock levels (especially with the advent of barcoding technologies) and document processing. Online capabilities now allow customers to track their packages and cargo to allow better planning. Technological advances have also allowed for better communication between clients and increased reliability has lead to greater control over production scheduling (JIT has as a result also become easier, freeing valuable capital previously frozen in buffer stocks).
There are two major trends that logistics will be concerned with in the future and these are the increased interest in undertaking effective (and increasingly global) supply chain management and the inevitable increased use of computer and Internet technology. Another major trend is towards the global enterprise, as businesses get bigger, it is likely they will spread around the globe to take advantage of location advantages, and so as a result more and more managers will undertake international authority and responsibility.
Question 9: Of the 13 logistics activities listed in Figure 1-1 and describe on pp 19-25, which do you believe will experience the most change in the next five years or so? Why?
There are a few certainties in the future for the field of logistics and business in general ¡V some of the most important are the increased use of information technology in operations, increased globalisation of firms and increased environmental pressures on firms (Driva et al, 1995).
Firstly, as increases in technological adoption occur, so too will the ability of management to undertake tasks such as demand forecasting, and to a much more accurate degree ¡V since much more accurate and complicated formulas arrive, which in turn require more processing power and more available historical patterns emerge. Inventory management will probably also be an area affected greatly by the increased use of computer systems, and will allow techniques such as JIT to be undertaken to a much more effective degree than currently. Order processing too, will be undertaken a lot faster, as EDI systems increased, evolve and become better understood ¡V hence increased adoption by businesses.
Globalisation will also increase, the world will become smaller with the aid of technology, companies will be able to operate as a unified presence ¡V even with parts of the firms on other continents with the advent of online conferencing. As firms grow larger, they will spread out more to take advantage of cheaper location resources, so plants and warehouse selection will be placed in the most advantageous locations, in order to maximise the use of funds.
And finally, environmental issues will become another important issue as our populations increase, and we become more aware of the damage that many organisations do in their pursuit of a better bottom line. Packaging and transportation will be greatly affected areas, packaging will move towards more recyclable type products, while transportation will need to undergo vast changes as fossil fuels become scarce and cycle time becomes more important as a competitive tool.
In conclusion to this report, there are a few things that can be drawn out from the answers given.
Firstly, questions 1, 4 and 6, proves just how much of an important function logistics really is within the scheme of things, as it can both save money for a business as well as give them a competitive edge. This is a far cry from the yesteryear view of logistics as a simply a ¡§back up¡¨ component of marketing ¡V it is now seen as a specialist field in its own right, with many complicated issues worthy of specialisation.
Question 2 shows how logistics is tightly related to the marketing function, and how it closely relates to customer service and retention of such customers.
Finally, questions 8 and 9 look at how certain changes within the business world have vastly affected the operations of logistics, and how these changes will evolve over time, how new changes and trends will emerge and how logistics will grow, adapt and evolve with this change ¡V for the better.
In response to the information that has been researched and discovered, we can now draw up a list of helpful recommendations for anyone reading this report. These are:
1. Logistics is important, businesses need to recognise this fact, and rather than adopt an ad hoc approach to undertaking this functions, treat this operation as another source of potential competitive advantage, much in the way that you would treat a winning marketing plan.
2. It is easier to save money through logistics than to increase sales in order to get the same amount of profit ¡V this alone should provide ample reason to take logistics more seriously.
3. Logistics is an ever evolving field, its best for businesses to keep up with news and developments in this area, because you can bet that your competition is.
4. Always keep in mind that the aim of efficient and effective logistics is to reduce the overall cost of doing something, so trade-off is an inevitable concept that must be understood and practiced.
Driva, H., Gilmore, G., Hunt, R. A. (1995), ¡§Future directions for logistics in Australia¡¨, International Journal of Physical Distribution & Logistics Management, Vol. 25, No. 3, Page. 24-32.
Remmel, U.M. (1991), ¡§Integration of Marketing and Logistics: A Way to Competitive Advantage in South Africa¡¨, International Journal of Physical Distribution & Logistics Management, vol. 21, no. 5.
Stock, J. & Lambert, D. (2001), Strategic Logistics Management, 4th Edition, McGraw-Hill Irwin, Sydney.
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