Logistics Competitive Framework

In today’s dynamic business environment, competitive pressures and the customer’s demands are forcing the majority of firms to shift their priorities to understand the logistics supply chain process in order to deliver superior value to the customer. To fulfil this objective, logistics has left behind the old role of warehousing, transportation and material storage and handling to assume a new role that is much more comprehensive and pervades through the entire supply chain of the firm. There is no doubt that logistics is indispensable to the supply chain process for its efficiency and effective­ness in providing superior service to the customer. It is a powerful tool for gaining a competitive edge with support from the emerging technologies. The operational process of logistics today cov­ers conceptualization, purchasing, processing, distribution, after-sales service and customer satis­faction. The new competitive framework of logistics as a service function includes responsiveness, reliability, relationship and rationalization. As customers today seek added value, logistics strate­gies need to be augmented with the above-mentioned service variables.

1. Responsiveness

Responsiveness refers to the speed in responding to customer demand. It needs to be reflected in all phases of the transaction. In the competitive environment, a response to the customer’s pre­sales enquiry is of prime importance in getting a potential order to be fulfilled in shorter lead time. The degree of responsiveness can be enhanced through the use of the latest information and com­munication technologies. A winning logistics strategy is to supply the material in accordance with the customer’s needs in terms of the lot size as well as place and frequency of delivery. In order to reduce inventory-related cost, the customer may demand frequent deliveries in small lots. Deliver­ies may further be required at various assembly centres that are in proximity to the markets. Under such circumstances, the emphasis in formulating the logistics strategy will be on developing a flex­ible system for the customized requirements of strategic customers. The deciding factor in respon­siveness strategy is differentiation, which can be speedily achieved through mass customization with a flexible back-end support in all the three phases of transaction process, so as to have the winning edge in competitive markets.

2. Reliability

Reliability is the factor that decides the degree of trust a customer has in your capability to honour a commitment. The supplier has to exhibit certain service characteristics for being perceived by the customer as a reliable supplier of products or services. The inventory-planning exercise at the customer’s end is based on certain assumptions of the reliability factor that the supplier exhibits. A higher degree of reliability in material delivery will help the customer release some of his resources to be used for productive purposes. Consistency in on-time delivery performance will help the customer reduce the inventory level or operate on the just-in-time (JIT) system. Hence, the prime objective of the logistical system should be reliability in meeting customers’ service needs according to the assumptions in their planning exercise for resource allocations and risk bearing.

3. Rationalization

Today, many leading companies across the world are adopting the rationalization approach in logistics to reduce cost and enhance customer service. This involves reducing the supplier base and working in partnership with select-few suppliers. The buyer treats the supplier’s facility as an extension of his/her own facility and shares the information, experience and resources for mutual benefits. The rationalization approach reduces the transaction cost and allows the buyer to operate on the JIT system so as to take inventory-related cost out of the supply chain. With better control on material movement, customer service capability is enhanced and is leveraged for competitiveness.

In competitive markets where products are at the maturity stage in their life cycle, leading firms resort to the strategy of mass customization. However, this strategy works well only when product designs are rationalized to have minimum standard components or parts to offer variety in product or service. With the existing logistics product portfolio, the service provider may cater to the dif­ferent logistics service needs of a variety of customers, but certainly not all segments of customers. The logistical strategy should be to rationalize and organize the service modules in such a way that, with permutation and combination, the specific logistical needs of a large number of customers are met and a wider coverage is possible.

4. Relationship

In the prevailing competitive environment, organizations are trying to reduce their supplier base and develop a partnership with a few suppliers who are reliable and ready to mutually share the benefits. Firms are spending huge amounts in customer relationship management (CRM) programs to develop a long-term relationship for customer retention and reduce the risk element in demand management. Partnering with the right supplier, whose operations the firm considers as an exten­sion of their own, will help in enhancing the supply chain efficiency and effectiveness. A relationship based on mutual trust will help in sharing the information, knowledge and resources for mutual gains in cost reduction, which may be leveraged for competitiveness. Leading business firms across the world now consider logistics as the best route to form a partnership with suppliers, customers and channel members. It can develop a long-term relationship to collectively fight on the competi­tion front.

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