Thursday, February 20, 2014

Logistics in Supply Chain

In the previous weeks of our SCM course we have discussed themes such as customers’ demand and achievement of strategic-fit, products’ design and development, and inventory management. All these topics are related to the subject examined last week: logistics.

This topic is critical for companies, and it drastically influences their supply chain for several reasons. Let’s analyze them focusing on transportation.

First of all, companies’ main goal is to satisfy demand and do it profitably. In order to do that, companies have to meet demand by providing desired products, but they also need to deliver them as quickly as possible, so that customers will appreciate the service and build loyalty towards the company. We may recall the example of the high fashion dress seen on TV on day 0, bought on day 1 and received on day 2. This was possible thanks to an efficient production line, but also to effective logistics.

Second, some companies set up the product design and development phases precisely thinking of how the product will be shipped. For example, [1] Ikea’s designers create all their products in such a way that all the necessary pieces to assemble the object fit in a certain box with pre-specified dimensions. This is because Ikea doesn’t want “to ship air”, maximizing the number of products shipped and limiting the cost of transportation. On the same line of Ikea is [2] Tata with its Nano, the most inexpensive car in the world. Since assembly is outsourced, Tata realized Nano with a modular design and a revolutionary building procedure, so that all its components are shipped and can be efficiently assembled by different entrepreneurs. 

Sometimes, companies prefer to use low cost transportation (on rails or water) and place more frequent orders. This may be done specifically to reduce inventory costs, or also for other reasons, as is the case, for instance, with food products, in order to avoid that they expire.

More and more often companies outsource partially or entirely the management of their supply chain to specialized firms. [3] Brooksint and [4] Essintial are two examples of business firms which externalized several services, such as the management of the inventory or the entire logistics. Sometimes transportation companies themselves propose to take care of different services. This is the example of UPS:  initially UPS was involved in distributing Toshiba’s products and recovering all the products which need assistance. Now, UPS has an own assistance department which is in charge of repairing Toshiba’s products. So, UPS recovers, repairs and brings back to the customers products that must be repaired.

What is the future of logistics? How can technology help in increasing its efficiency? RFID tagging, which allows for better tracking of shipments and assets, is a useful way to manage logistics, but it may raise privacy or security concerns, especially if the transported products are sensitive or particularly valuable. In order to meet customers’ needs at best, companies will need to find a practical, profitable solution to guarantee a timely but at the same time secure shipment. So what’s next for logistics management?


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