Characterization of logistics

Modern logistics is responding to companies’ growing needs by applying new approaches and innovative concepts. Service, added value and system efficiency all play a large role here.

• Service orientation
• Value and usage orientation
• System and total cost orientation
• Efficiency orientation

Service orientation

Service makes a difference

With products becoming virtually identical, the company that offers the best service increasingly gains an edge over its competitors. In such cases, individual customer service actually becomes a bigger factor in a purchase decision than a good price. The logistics industry has recognized this need and is responding with new offers. Excellent delivery service, for example, contributes to customer satisfaction and creates an obvious difference among competitors. But delivery time is not the only critical factor here. The reliability, quality and flexibility of the delivery are just as important.

Logistics services must inspire

Customer satisfaction has become an important goal at nearly every company. And the reason is obvious: A company can start a long-term relationship with satisfied customers and can ultimately generate additional profits in the long term. In this context, a focus on the customer is a key prerequisite for creating regular or repeat customers. To achieve this, the company must remain in close contact with the customer in order to react quickly to changes in that particular customer’s needs.
In a time when many competing products are alike, logistics services that extend beyond basic requirements are becoming increasingly important. They create a good way for companies to stand out from the competition and ensure high customer satisfaction.
By taking this approach, logistics is venturing into areas that extend far beyond traditional warehousing and transport activities. In a reflection of this change, the supply chain can be lengthened from the point of sale Point of sale to the point of use, enabling someone like a dinnerware producer to equip stadiums during the World Cup. In performing these tasks, logistics assumes the traditional functions of specialty retailer and sales representative.
Another area experiencing far-reaching innovation is spare-parts logistics Spare-parts logistics . In this area, the short cycle time Cycle time required for the repair and replacement of defective parts represent both a challenge and an incentive for innovation. In addition, shortened product life cycles, technological advances and manufacturer-specific installation of neutral, functional components are additional challenges faced in efforts to offer products and services from different manufacturers as a type of one-stop shopping One-stop shopping . The list of examples could be continued ad infinitum. This in itself is a clear sign that the rise in customer orientation goes hand in hand with further differentiation of logistics services.

The elements of supply service

Generally speaking, logistics services are services related to the material supply of a company (supply service) and to the delivery of goods to customers (delivery service). Both the delivery and supply services are largely comprised of the delivery time, delivery reliability, nature of the delivery and delivery flexibility.

The elements of delivery service

Value and usage orientation

The special value of logistics

Customers judge the value of merchandise not only by quality, but also by availability. Logistics can increase this value. Suppliers or distributors, for instance, can offer the customer increased added value by taking over logistics activities like free delivery. Such performance-oriented concepts improve customer satisfaction and create competitive edges.

Assumption of the customer’s value-creation logistics activities by the supplier

How logistics creates value

Logistics activities are necessary if a customer is to make optimal use of goods and products. In this context, one also speaks of the utility value of merchandise. This utility value can be increased not only by improving the characteristics of the merchandise, but also by improving the availability of the merchandise.
The effective, or actual, availability of merchandise can be optimized in various ways. On one hand, a supplier or vendor of merchandise can improve his own logistics activities. On the other hand, he can take over further logistics activities for his customer and increase efficiency as a result. The logistics service is sold to the customer together with the merchandise and provides added value to the supplier or vendor in the process.
For instance, the supplier can deliver the goods to the customer’s receiving department. He can also offer the customer a full range of logistics services – from shipment, acceptance, receiving and warehousing to provision of the items to the production line and inventory management.

However, it makes sense for the customer to outsource logistics activities only if this decision will lower logistics costs or if a higher level of services can be provided while logistics costs remain stable. Apart from the supplier, such logistics services can also be offered by logistics service providers.

System and total cost orientation

Considering the big picture

Commercial value-added processes and logistics activities are characterized by a multitude of interrelationships. A company that ignores these relationships can quickly experience huge cost disadvantages. For this reason, modern logistics concepts are characterized by a new focus on systems and total costs. As a result, overarching business issues and interrelationships are considered from the start to minimize costs.

Interrelationships require systems thinking

Systems thinking is a fundamental aspect of logistics. In this process, consideration is given to many individual, interlinked elements. The entire logistics system can be broken down into tasks to be performed: order processing, warehousing, packaging and transport. In addition, a distinction between the various phases of the flow of goods and information can be drawn: procurement, production, distribution, reverse and spare-parts logistics.
However, to be able to explain the entire logistics system, we cannot merely consider the individual elements in isolation. In the same way, we cannot merely consider the system as a whole. To grasp the entire logistics system, we must consider all of the individual elements in the context of their interaction with one another.
The objective of systems thinking is to avoid sub-optimal isolated solutions when logistics decisions are made, e.g., solutions that are optimal only for warehousing. Rather, when the interrelationship of resources and processes is taken into consideration, the objective is optimized broad solutions.

 

Efficiency orientation

The optimal relationship between quality and costs

Companies always strive to optimize their work while reducing their costs. A system is considered to be efficient when the ratio between performance and costs is optimal. As a result, planning of logistics activities is never restricted solely to the cost or performance objective. Rather, the task is to combine both objectives perfectly.

Input and output perfectly balanced

Logistics thinking never focuses solely on costs. It must also consider performance. Logistics costs can be justified only if they result from related logistics services.
In the design of efficient logistics systems, both the logistics costs (input) and the logistics performance (output) must be considered as objectives. In this process, neither sole consideration of the aim of minimizing costs nor exclusive attention to the goal of maximizing service is desirable. Rather, a perfect balance between the two objectives is the ultimate goal.

Recommended reading

Logistiksysteme | Pfohl 2004
Logistics and Supply Chain Management | Christopher 2004
Marketing Logistics | Christopher / Peck 2003

References

Logistiksysteme | Pfohl 2004
Logistikmanagement | Pfohl 2004
dhl - discover logistics - course - characteristics