CC BY
96Russian Journal of Logistics and Transport Management, Vol.2, No.1, 2015
© Mariusz Jedlinski University of Szczecin
DYNAMIC LOGISTICS STRATEGIES IN THE COMPANY LOGISTICS
POTENTIAL MANAGEMENT
Abstract
The article concerns challenges of the dynamic management of the company logistics system potential. The modern economy requires a change in the principles existing in logistics optics, as the aggressive and usually negative influence of turbulent environment requires revising the previous seemingly unchangeable priorities and statements included in the classic approach to logistics. The article covers a synthesis of key definitions and aggregation of priorities of the logistics system and logistics processes implemented by the company, as well as the original scheme of the dynamic logistics management concept. Considerations are of the cross-cutting and synthesizing nature, which result in the demonstration of the main advantages of a dynamic logistics approach to the multi-faceted challenges and in particular to the efficiency of the logistics system in the modern economy.
Keywords: logistics, logistics system, dynamic logistics strategies, parameterization of the effects of the logistics system.
1 Introduction
Economic literature often points out that the fundamental aims of the modern company are primarily its survival and then development (quantitative and qualitative). It seems fully justified because such behavior usually leads to the achievement of planned long-term profits, which results in an increase in the value of the company itself (intrinsic value). It also ultimately helps to maximize the benefits for its owners (shareholder value). On the other hand, it must be remembered that an inherent feature of the modern economy is its constantly growing uncertainty. This fact makes it more difficult for companies to predict even the near future accurately. Moreover, there is a challenge to forecast the occurrence of unexpected events, which makes the loss of the ability to prepare for them in advance. As a result, managerial staff can only specify a maximum probability of a given situation, provided that it is identified - and still this identification is usually very subjective and not accurate. Some justification is that the business practice hardly knows probability distribution, even in relation to at least one decision taken by managers. Hence, from time to time the global economy is hit by financial crises, which result in economic crises.
Thus, bearing in mind those conditions, it can be seen that there is a very definite trend of ‘economics of uncertainty’. This phenomenon indicates that the
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managerial staff lacks reliable information to effectively and efficiently manage business processes, and traditional quantitative models are now of little educational value. This approach should be also used to analyze the logistics system, which if properly set up and maintained, provides the customer with the spatiotemporal benefits while delivering material goods.
It is generally accepted that the logistics strategy of the company is an example of a typical functional strategy, which contributes to the competitive advantage of enterprises in the area of logistics. It means that in every company, depending on the level of aggregation, it is possible to distinguish a strategy that applies to the given area. It is the sphere of logistics; the area refers to a particular business line or is of a general nature, as it applies to the entire company.
Logistics strategy is, therefore, the decomposition of the general policy of the company or its business line divided into the functional area strategy. Examples would be supply, production, and distribution. The functional strategy is implemented at the level of functional logistics subsystems, i.e. transport, storage, inventory management, packaging or communication system.
Consequently, there is practically no problem with defining the substance of logistics strategy, its levels, factors that determine its contents and finally functional areas. However, still the priority becomes the already mentioned information. It means that, for logistics managers, this information must be usefully determined on the basis of its verifiability. In other words, it should be expressed applying other values by the use of the same method of measurement (e.g. Key Performance Index - KPI). Besides, it is necessary to ensure its representational faithfulness, which means that the values obtained must describe something that actually happened or existed (e.g. about given strategic clients).
Finally, there is neutrality of information, which means that it is not created to cause a predetermined result or a type of behavior. It should be objective so as to create a real potential for improvement. In summary, only such an approach provides full credibility of obtained, aggregated and distributed information. Consequently, the use of this information can create preconditions to make the right decisions and provide logistics managers with real opportunities for taking practical actions.
2 The logistics system of the company and its main features
It can be assumed that the logistics system of the company has been already widely described in the literature since it was clearly defined and structured. However, too often, the description of this system does not include aspects connected with its abilities and skills, which result from its characteristics. Therefore, there is a justified need to define the relationship between the logistics strength and the ability of the logistics system of the company. These
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options create its logistics potential, which in its essence, is the aptitude to carry out a particular work by the logistical system. It requires the use of a given force, at a specified time, in an effective and efficient manner. For obvious reasons the principle ‘ability’ of the logistics system requires to be considered in two dimensions, i.e.:
- General ability (i.e. current capability), which is a fundamental skill for the correct implementation of the logistics system processes,
- Particular ability, which is the configuration of general abilities and special abilities. They allow logistics system to perform logistical work at a higher level than the competition. These abilities determine the strategic potential of the company’s competitive differentiation.
It is also important to mention the fact that the skills at work are acquired. In other words, they are practical ability, which allows the logistics system of the companies to perform certain actions, or create a logistics product. Moreover, the skills at work are improved (e.g., with each deliberate use of resources, the logistics system develops the skills). The more complex the degree of difficulty of the logistics product or method, the more noticeable the improvement as it creates the best practices.
It should be noted that logistics systems of companies are deliberately arranged and connected elements, such as functional areas within functional spheres along with the relationship between them and between their properties. It determines the flow, storage and transformation of the main logistics stream and the auxiliary stream. As a result, the logistics systems include such features as:
- Compliance - based on the design of the logistics system in the way that ensures its adaptation to the environment. Thus, it minimizes the effect of friction with the environment (e.g., adapting it to the local and distant environment in terms of power and interaction),
- Optimization - is necessary to ensure the best possible adaptation of the logistics system to the environment to make it effective and efficient in operation,
- Reliability - in terms of performance of the main and auxiliary functions,
- Parsimony - the principle of creating the simplest logistic systems of companies without excess (useless) elements,
- Encapsulation - striving for deliberate isolation of the logistics system from undesirable or unforeseen environmental influences,
- Equifmality - organizational and functional structure of the logistics system of the company formed as a result of the different designs of the project, with additional effects, which cannot be derived only from the properties of the system components, e.g. the effect of synergy,
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- Homomorphism - means that virtually all logistics systems of the company are essentially unique, because each of them has the potential of individual parameters and operates in a particular and specific configuration of the environment.
Only such a perception of logistics system of the company allows understanding its two states - the static and dynamic one. However, while static state is a passive state, the dynamic properties of the logistics system relate primarily to:
- Consistency (cohesion), which provides a synergy effect because it creates a link between the individual elements, where a change made in any of these elements leads to change in the other. Therefore, logistics system is also much more than the sum of all parts, and sometimes something different in terms of quality.
- Additivity (variability), which is an extreme case, i.e. anergy, due to the lack of any links, where change made in any element does not lead to a change in any other factor
It worth noting that both cohesion and variability (as synergy and anergy) are not two different properties of the logistics system. They are the extreme cases of the same property varying only in the level of implementation.
3 Parameterization of the logistics system effectiveness
The development of logistics system is paramount. Regardless of its width, understood as the amount and type of logistics functions performed, the previous statement is correct. Without dependence on its depth, meaning the quantity and type of management functions. To a large extent the support for the logistics system of the company is determined by the influence of the environment and, therefore, should be associated with two critical areas, i.e.:
- Logistics management,
- Flow process control.
Thus, of significant importance in the management process becomes the ability to focus only on what is important and what leads to the intended economic effects of this action. Therefore, modern logistics optics should be based on the system-orientated logistics processes (synergy of their functional division). It should be implemented in the global supply chain that - as far as possible - meets the requirements/expectations of customers. Of the main importance is in terms of providing the expected utility of time and place of the moving goods. The next is as full as the possible availability of information about the objectives, process and outcomes of the process (its critical parameters). It should be at the agreed sales price (based primarily on the total cost of the process, including external costs). Meanwhile, possible requirements/expectations of the environment (the aspect of sustainable development) also should be taken into account. Moreover, so, logistics optics
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has its origins primarily in the strategy adopted by the company, the market needs of customers and the existing conditions of the local and distant environment.
Rationality of the logistics operation, which is a methodological rationality and, therefore, a subjective one from the point of view of praxeology, should be considered in two variants. It means that, on the one hand, striving for customer satisfaction is in line with the first principle of rational action. At the same time, striving for the efficient use of resources in the process of customer service is, on the other hand, which consistent with the second principle of rational action. The resulting final effect of a logistic system operation in each situation may be placed in the range from 0% to 100%. Figure 1 shows the essence of this dual approach to assessing the reasonableness of the logistics operation.
Fig. 1. Rationality of the logistics operation. Source: Own study.
Without a doubt, the characteristic of each logistics management is its dynamics. Therefore, at this point it is important to highlight the need to formulate a model of dynamic logistics concepts, which can be defined as ‘6 + 1’. It means that the ideas have been grouped into three consistent and at the same time antagonistic pairs, i.e.: the subjective-objective functional structure, the number ofparameterized components and dynamics of logistics processes.
There is a single element representing ‘cross-cutting thinking’ optics in logistics operation (Figure 2). This is important, because the universal essence of logistics management comes down to the following words: ‘Speed up what you can, delay if appropriate, add where it is necessary, recognize where you can, leave what is necessary, get rid of the unnecessary, connect what is common, divide what is different, adjust if necessary.’ Only such an approach clearly exposes the dynamism and heuristic nature of the approach to logistics management.
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Dynamic logistics concept
t Subjective-objective functional structure 1 t The number of parametrized components i t Dynamics of logistics processes l
- Cross-cutting thinking —►
Fig. 2. Model ‘6+1’ of the dynamic logistics strategies. Source: Own study.
As already mentioned, there can be distinguished a group of logistics concepts that are related to the subjective-objective analysis of the logistics system and processes. On the one hand, they consist in a connection concerning, among other things, integration of logistics channels in order to increase the efficiency and effectiveness of the joint action. This approach allows for the implementation of the idea of the Total Pipeline Management (TPM). It also includes striving to balance supply and demand by building connections between production and trade, which are designed to provide rapid response and obtain the desired level of Efficient Consumer Response (ECR). Finally, the more traditional aspect in this area is the involvement of suppliers in comanagement of logistics processes that concern their customers, for example in the form of the Co-Managed Inventory (CMI). However, an antagonist side of concepts mentioned above is another group that relates to a division. It is related i.e. with the formation - between the supplier and the recipient of logistics space for logistics operator, who becomes the Third Party Logistics (3PL), which, however, often moves toward contract logistics - Lead Logistics Provider (LLP). More and more often, there is an agreement to transfer these rights to the supplier in terms of total inventory management supported by the customer -Vendor Managed Inventory (VMI). Besides, more and more companies use external sources for their logistics potential - outsourcing - to ensure an adequate balance between specialization and diversification of business, which determine e.g. the efficient use of resources.
The second area is the group of concepts based on the optimizing activities aimed at a rational formation of the set size (number of parameterized components). It characterizes both the logistics system parameters, as well as the logistics process parameters. On the one hand, they consist of a systematic effort to make reductions, which may relate to, among others, shortening logistics cycle - Short Logistics Cycle (SLC). This approach also applies to the reduction of the required amount of inventory in the supply chain - Zero Inventory Stock (ZIS). The idea of Lean Thinking (LT) appearing in this area attempts to
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eliminate all forms of non-use or wastage during the execution of logistics processes. The characteristic aspects are also a strategic reduction of the number of suppliers - Strategic Sourcing Singles (SSS), despite more and more common global sourcing. The requirement of this approach is the need to ensure standardization in the use of Electronic Product Code (EPC). Additionally, it is striving to ensure that the Unit Load Concept (ULC) meets the same level of requirements imposed during its movement through the various functional spheres and within the relevant subsystems. On the other hand, the concepts in this group may also focus on increasing the ‘economies of scale’. That is, the Overall Effectives, allowing to receive relevant economic benefits by the company (network). More often logistics systems are also required to respond appropriately to emerging market needs, which manifests, in a particular ability, to meet rapidly customer requirements - Logistics Quick Response (QLR). In this way, it is possible to ensure maximization of outcomes for the entire supply chain, while reducing expenditures required for maintaining a specified level of inventory. This ability results directly from the increased desire to build Turbologistics Systems (TS).
The third group of logistics strategies includes concepts oriented to the dynamics of logistics processes. From one point of view, these are activities based primarily on the immobilization, which is related to the responsibility of the company for respecting time in logistic processes. It can be achieved by refraining from starting product flow, if the product is not finished until the customer places a formal order. It also includes the delay in time of the end product delivery until the moment resulting from the adopted sales strategy or techniques to delay the determination of the finished product destination -Assembly Postponement (AP). There are also applied approaches to select a particular Decoupling Point, which is the place of decoupling the customer’s order. In other words, it is the area stimulated by customer orders (agile processes) from the area that is determined by the forecasts of the company (lean processes).
From the other point of view, an alternative measure is, of course, launching, related for example to the need for continuous improvement of processes - kaizen. That is to prevent, for example, the Snow Ball Effect (SBE) in the form of accumulation of partial area-competence difficulties that can lead to dysfunction or even paralysis of the entire logistics system. A significant approach is also the desire to produce only, what is required by the customer. However, this requires the use of a flexible manufacturing system - Agile Manufacturing. The same happens when the aim is to increase the efficiency of work as this requires the relocation of the production site and the associated distribution system - Commercialization.
The last, fourth and inherently single group of strategies concerns crosscutting thinking in shaping logistics events. This group consists of mixing, which aims to create logistics, rolling, technology and storage mixes in the context of
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current trends towards the individualization of customer service - Customization. In practice, it is the realization of the ‘trade-up’ relations, which allows for the optimal configuration of global logistics costs. It is also a straight way to increase the level of logistics excellence (World Class Logistics - WCL). It can be obtained through the implementation of a combination of logistics practices that enable companies to offer the customer in the selected segment of the market higher and more comprehensive level of service than the competition.
4 Conclusions
Demonstrated benefits of using dynamic logistics concepts in business practice and an efficient and effective management of the logistics system potential, also in relation to the increasingly integrating supply chains, seem indisputable. The dynamic approach appears to be an attractive instrument in view of the continuous search for new ideas. Both concepts, as well as their realization by a set of dedicated methods, techniques and tools, better than ever support the possibility of increasing the competitiveness of the company’s logistics potential. They also help to improve networks in which company operates. It also guarantees access to useful management information on the logistics activities, and, therefore, becomes a well-documented basis for making strategic decisions by logistics managers about the long-term investment and development perspectives.
References
Jedlinski, M. (1998). Logistic Systems Management. Trials and Studies: University of Szczecin, Szczecin, Poland.
Jedlinski M. & Frankowska, M. (2011). The Effectiveness of the Distribution System. Warsaw: Polish Economic Publishing House, Poland.
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