Five Pillars of Logistics
There are five pillars one must consider to improve logistics management: speed, accuracy, consistency, low cost, and customer satisfaction. Speed means that how fast the logistic management can process from order processing to goods delivery. This means that fast that the logistic can perform the 5 Rs. Accurate means that the firm performs the 5 Rs without fail. Delivering goods to customers at the right product, place, time, cost, and condition will raise customersâ€™ satisfaction level. In long-term, this satisfaction will lead to customer retention. If less customer defection, firmâ€™s profitability will increase as they said, â€œretain customers is easily ...view middle of the document...
Total Cost Concept
Source: adapted from McKinnon, A. "The Effects of Transport Investment on Logistical Efficiency", Logistics Research Centre, Heriot-Watt University, Edinburgh, UK.
As per the figure above shows, as the shipment size increase, transportation costs will decrease, while warehousing cost increase. This is because of the more goods we shipped in, the cheaper as the transportation cost is fixed, so when we ship more goods, the transportation cost per good will decrease. As more goods we import or produce, the more space we need to stores, therefore the warehousing costs increase. The cutting point represents the lowest total logistics costs where there is a balance of transport costs and warehousing costs can be achieve. This balance is the common goal of logistic operations.
This shows that one of the major goals of organizations is to reduce the total cost of logistics activities rather than focusing on each activity in isolation as the attempts to reduce cost of individual activities may lead to increase in total cost (Stock & Lambert).
The Systems Approach
The system approach defined as, â€œall functions or activities need to be understood in terms of how they affect, and are affected by, other elements and activities with which they interactâ€ (Stock & Lambert, 2000). This means that we should view the system as whole. Here, trade-offs happened. Unfavourable factors should be traded off with favourable factors (Stock & Lambert, 2000). Those who operates individually might think that in the system they appears doing well; in actual fact, when view in total system, this system might be performing poor. Dead stock, excess inventory, and wastage of materials might happen if without fully understanding the supply chain management. Understanding this system can also improve the efficiency of the system as a whole. To get around this issue, organizations like Hewlett-Packardâ€™s DeskJet Division have taken system approach to manage inventories in the supply chain (Stock & Lambert, 2000).
Supply Chain Management (SCM)
SCM has been defined as, â€œthe process for designing, developing, optimizing, and managing the internal and external components of the supply system, including material supply, transforming materials and distribution finished products or services to customers, that is consistent with overall objectives and strategiesâ€ (Spekman, Kamauff & Myhr, 1998). But, according to Stock & Lambert, Strategic Logistic Management (p38), the definition of SCM is, â€œthe integration of key business processes from end user through original suppliers that provides products, services, and information that add value for customers and other stakeholdersâ€. This approach is very hard to implement, but it offers significant potential to customers and firms within the supply chain (Stock & Lambert, 2000). For instance, the implementation of SCM has contributes Cisco System to...