Importance of logistics management and globalization
Logistics management is an important part of any manufacturing company’s success rate; it basically controls and manages the movement of goods from one place to another, via rail, sea, air or road. Logistics management is that part of the supply chain management that plans, controls and implements the effective, efficient forward and reverse flow and storage of services, goods and necessary information between the point of origin and the point of destination, in order to meet the client’s requirements (Importance of Logistics, 2012).
In simple words, if an Indian company wants to buy capital equipment from U.S., the Indian company would hire a logistics company based in India or U.S to enable them ship the good. The logistics company would decide as to how it needs to bring in the equipment, what would be the mode of transportation? What is the estimated time of shipment? What is the weight of the equipment? Is the equipment hazardous/ non hazardous? What are the terms of the contract?
Thanks to globalization and its frenetic pace, the concept of logistics has taken a whole new dimension. Today, organizations hire logistic companies and consultants to advise them on factors such as effective supply chain managements, best delivery time, effective delivery routes, and mode of shipment along with custom clearance issues. One of the examples that exemplify the growing importance of logistics management is that MIT (Massachusetts Institute of Technology) has elaborated its logistics program and has introduced a master’s degree in logistics in its school of engineering (Matthews, 2004).
Outsourcing is one of the biggest reasons for the growing importance of logistics management. As described earlier, logistics management is a combination of effective transportation management, inventory, freight management and handling. Most of the companies appoint third party logistic providers (3PL’s) for shipping their goods (Importance of Logistics, 2012). Due to this, many organizations that specialize in logistics management are coming up in the U.S. More companies mean more personnel requirement which leads to increase in the number of job openings.
Importance of logistics management in today’s business scenario
Some of the main reasons why logistics management has become so important for organizations are:
- Increase in the complexity of the subject: Thanks to globalization, there is an uncertain and variable demand for different products (Matthews, 2004). Let us take an example of crude oil. The supply and demand of crude oil does not depend on any single factors. In depends on several global factors such as speculations, wars, sanctions, climate, spot prices, market fluctuations, future projections, quality and unconventional resources (Agnihotri, 2013). Because of this, it is very difficult to predict the demand for goods and services, and for this very reason, organizations have no option but to appoint logistic companies and consultants.
- Outsourcing: Since most organizations are outsourcing their logistic operations, more and more logistic companies are mushrooming in the market. Many companies in U.S., such as Jarrette Logistics Ltd, have more than tripled their revenues, thanks to outsourcing (Matthews, 2004).
- Creation of more job opportunities: As seen from above, the logistic industry has created a lot of high valued jobs and it represents a good growth opportunity for the U.S. economy. Today, lot of young graduates and executives are attracted by opportunities that are available in logistics management.
- Increase in the amount of international uncertainty: The demand for logistics management has increased, thanks to volatility and uncertainty (Matthews, 2004) that is associated with today’s globalized economy. For example, a political unrest in Egypt can cause the prices of commodities such as oil to shoot up, which causes an imbalance in supply- demand ratio. Because of such a fluctuation in supply and demand of goods and commodities, companies require flexibility in their logistic operations that can only be provided by expert logistic management consultancies.
Organizations that operate globally must focus on resolving their logistic issues, if they want to compete in the global market. For an organization to remain competitive and ahead of its competition, it needs to ease out its supply lines and become flexible in its operations (Matthews, 2004).
The essence of an effective logistics management operation
Although the concept of logistics management appears to be simple and straight forward, the reality is that it sometimes becomes complex and difficult to execute. It is interesting to have a look at some of the important results that an effective logistics management operation should yield (Importance of Logistics, 2012).
- Increase in the revenues for all the stake holders: If the logistics management operation is handled effectively by the manufacturing company or by a third party logistics company, it would result in the increase in revenues, for both manufacturing and the logistic company that are involved. An effective logistic management operation will allow the manufacturing company to ship its goods to the desired destination in a proper way. This would lead to higher customer satisfaction, timely payments, increased customer goodwill and increased scope of getting more business. For a logistics company, an effective logistics management would result in faster deliveries, timely payments, less turnaround time and higher productivity.
- Reduction in overall transportation and operating costs: By combining and planning their logistic operations in an effective manner, companies can save a lot of costs that would be related to transportation and overall operations.
- Improved customer service and overall satisfaction: Who does not like timely deliveries? An effective logistic management practice would ensure that the final customer gets his consignment delivered on time, which would result in increased customer loyalty and satisfaction.
Logistics management is more of an art, which requires its stakeholders to effectively manage the flow of goods and materials from source to its final destination. In today’s global scenario, this art needs to be refined and developed as per the company’s requirements. In countries such as U.S, the logistic industry has created thousands of new jobs that have given a boost to its economy!
Matthews, R. (2004). Globalization Creates Logistics Jobs in U.S. Retrieved April 09, 2014 from online.wsj.com
PLS Admin (2012). The Importance of Logistics Management. Retrieved April 09, 2014 from info.plslogistics.com
Agnihotri, G. (2013). Decoding the Myth of Oil Pricing. Retrieved April 09, 2014 from www.oilandgasiq.com