Report charts global changes in logistics strategies
By Staff -- Logistics Management, 2/1/1998
The character of world trade is changing. As sourcing becomes increasingly international and more companies transform themselves into multinationals, a global business revolution is developing. Instead of business divisions operating independently, the largest manufacturers are beginning to impose a unified, global structure on their international business. That has profound implications not only for sourcing and manufacturing, but also for logistics, say the authors of The Globalization of Logistics, a new report from Coopers & Lybrand Consulting.
The report identifies four "driving forces" behind the development of global logistics management. First is the globalization of retailing, including the overseas expansion of chain stores like Wal-Mart and Home Depot, catalog retailing, and Internet retailing. Second is the explosive growth in global sourcing, which allows manufacturers to purchase raw materials and labor-intensive finished goods in low-cost countries.
The third "driving force" is the development of regional trade hubs in places like Singapore and the Netherlands. These and other locations have become not only transportation hubs, but also centers for final product configuration and other value-added services. The fourth important development is the rise of global logistics-service providers, including third-party logistics companies. Either on their own or through alliances with local and regional providers, these companies are helping to make global logistics strategies possible.
Despite differences in products, markets, and logistics systems, companies are using three basic models to impose a global structure on their logistics operations. These include:
* Logistics councils. Each council includes members of the logistics organizations in each of the parent company's groups. They meet regularly to establish policies, take advantage of opportunities to leverage freight volumes, and develop joint projects. This approach maintains maximum local control over logistics operations while creating a mechanism for sharing information and implementing companywide projects. A disadvantage, though, is that logistics councils often lack the power to make changes quickly.
* Purchasing management and policy-setting organizations. These small, centralized organizations manage logistics contracts with providers, collect cost information, and set global logistics policies. Local organizations that report to the centralized group participate in formulating strategies and policies. A common problem for this kind of structure, say the consultants, is the development of parallel groups in local organizations. This can lead to conflicts in decision making and implementation of global policies.
* Central organization with a matrix reporting organization. Some companies have a central organization that reports to both a global policy-making body and to a local manager. It is difficult, however, to maintain a proper balance between local and centralized authority.
Implementing an effective global logistics-management strategy "provides the roadmap to achieve quantum benefits and improvements in the way we do business," the consultants say. Those improvements come in customer service, inventory levels, communications, and manufacturing costs. Typically, companies that have done so report savings of 15 to 20 percent in their overall supply-chain costs. Ultimately, the consultants conclude, a global logistics strategy enables companies to create a supply chain that delivers the lowest landed net cost while meeting or exceeding customer expectations.
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