Evolution in Logistics Concepts

Prior to 1950, the logistical function was part of the physical distribution system in marketing. It was regarded as one of the supportive functions with cross-functional linkages and reporting, result­ing in repetition and duplication of work and resource wastages. This was a production-focused approach born out of the prevailing economic abundance. The movement of goods had been given very limited consideration because of limited and geographically concentrated markets. The only two important functions under physical distribution were storage and transportation.

It was during the 1980s, after the need of cost control in the physical distribution function was realized, that the logistics function was found to be a source of competitive advantage through its scope in cost controls and reduction. Firms started experiencing difficulties in the marketplace mainly due to the considerable increase in competition. This situation compelled firms to control costs for their survival. In the mid-1980s, it was realized that cost controls and customer satisfac­tion together could be achieved through a fully integrated logistical system. It was further felt that physical distribution and logistics were activities whose costs had neither been carefully studied nor coordinated. Therefore, the firms began to ensure coordination between the materials and physi­cal distribution functions for smooth flow of inventory. Thus, logistics became part of the material management function, which resulted in a change in the organizational structure.

In the early 1990s in India, the competitive scenario had become more intricate with the begin­ning of liberalization of the Indian and the world’s other economies. This resulted in a multiplicity of distribution and operating cost demands and innovation of new tools and techniques to reduce costs, instead of cost control as was the case earlier. Consequently, the need was felt for integration of materials management, physical distribution and manufacturing functions to keep the bottom line intact and simultaneously delight the customer. A new organization structure to meet the need was devised by the firms.

Also in the 1990s, the concept of the supply chain was accepted and logistics assumed a wider role to span the entire supply chain, right from the suppliers to end customers via the company’s manufacturing. Logistics had gone further for functional integration of business functions with the firm’s supply chain members. This led to the need for organizational structure with the emphasis now on process rather than the functions.

Again, in the late 1990s and beyond, owing to the advancement of information and communi­cation, there has been a revolutionary transformation in the organizational structure for logistics and supply chain management. The organizational structure now goes beyond the structure in the form of a virtual organization. The new management tools and techniques for inventory manage­ment are JIT, MRP, DRP, CRM and SCM. With the emergence of global competition, business firms began to look for the competitive advantage, which drove them to reorient their organization struc­ture on the supply chain concept. The new organizational structure for logistics and supply chain had brought about a paradigm shift from the functional to the process structure. The latter was introduced to meet the requirement for market responsiveness with a cross-functional approach to other functional areas and other partners in the supply chain.

Source: Sople V.V (2013), Logistics Management, Pearson Education India; Third edition.