The demand for global logistics managers is expected to remain high for the foreseeable future. Entry-level jobs pay on-average more than $80,000 per year. Logistics, in general, refers to the management of material, service, information and capital flows into and out of an enterprise. According to McKinsey and Company, by 2025 over 80 percent of goods traded will be produced in countries different than where they are consumed. Thus, demand exists for students who are educated in how to manage the complications associated with global logistics such as distance, time, exchange rates and customs barriers. Efficient management of global logistics has a major impact on a firm’s bottom line. The purpose of this article is to provide an overview of basic logistic problems, global logistics macro trends and the concept of fast-cycle logistics.
Basic Logistic Problems
In order for logistics to add to your bottom line, managers face two unique challenges: 1) how to lower the costs of value creation, and 2) how to add value by better serving customer needs. Logistics managers must seek simultaneous solutions for minimizing costs, maximizing efficiency and service, managing just-in-time inventory systems, optimizing degree of ownership of logistics services, managing returns, reducing shipping errors, damage and/or shrinkage, determining the optimal location of production and distribution facilities and keeping up with rapidly changing regulations, environments and technologies. Broadly, these tasks can be classified as either core logistics services, value adding services and support services. Logistic management decisions are hierarchical in nature progressing from operational to tactical to strategic. One of the basic strategic decisions is how much of the logistical process to handle in-house and how much to out-source:
First Party Logistics (1PL) – The supplier
Second Party Logistics (2PL) – The company purchasing the product that is being stored or shipped
Third Party Logistics (3PL) – The company that provides warehousing and transportation outsourcing
Fourth Party Logistics (4PL) – An integrator that assembles the resources, capabilities and technology of its own organization and other organizations to design, build and run comprehensive supply chain solutions
Macro-Trends in Global Logistics
From 2008 through 2028, the world economy is projected to grow at an annual rate of 3.1 percent. World cargo traffic is expected to grow at 5.4 percent per annum for the same period. Trade between the triad of North America, Europe and Asia will continue to make up the bulk of global logistics transactions and flows. As the degree of integration of global economies continues to grow, expected trends include an increase in the flow of high-tech, high-value goods, fast-cycle logistics, increased importance in the impact of technology and technological innovation, new models of asset flexibility and improved flexibility in customer service costs per ton shipped. Managers of global logistics deal with unique challenges including distance, exchange rate fluctuations and the role of foreign intermediaries. Basic decisions include mode of transportation utilized, warehousing and inventory management and intra-company versus inter-company (3PL) logistic Management. Decisions related to the first two include:
Concerns: Modes of Transportation
Cost of transportation
Concerns: Warehousing and Inventory Management
Hedging against inflation or exchange rate fluctuation
Benefiting from tax differences
Logistic integration and rationalization
Fast-cycle logistics requires real-time access to the information needed to make strategic and operational decisions. The goal is to move from purchase orders to continuous replenishment. Of critical importance is replacing truckload or container load economics with route economics. Fast-cycle logistics requires managing and motivating trade partners for performance, developing and deploying the metrics of fast and frequent, developing the expertise needed to guide the change process and institutionalizing fast and frequent management practices. The keys are information technology, information sharing, strategic partnerships and shorter manufacturing cycles, all made possible through increased information systems integration. Barriers to fast-cycle logistics include the lack of real-time visibility or access to data, incentives to order in large batches, truckload or container load economics, poor trading partner performance, inadequate metrics and insufficient process management.
Strategic Management of Global Logistics
Utilizing fast-cycle logistics may provide your company with a competitive advantage and higher margins. The key is to integrate the management of logistics and information systems into the strategic focus of the business while keeping the overall focus on customer satisfaction. By strategically managing global logistics, you can differentiate yourself from your competitors. Fast-cycle logistics allows companies to do business faster and smarter through replacing inventory with information and managing inventory in motion rather then at rest. Fast-cycle logistics provides global logistics managers with the opportunity to reduce overhead and obsolescence while speeding time to market.
Specializing in global logistics management provides marketing and management students with exciting career opportunities for the foreseeable future. Chart your course for success today.