Logistics and Distribution Management - Assignment Example

Logistics and distribution management There are two basic aspects of logistics management that can be examined in detail here which would give one a clear picture of the trend now along with whether or not this is infact the best practice. One shall also seek to qualify the statement that logistics management in essence seeks to reiterate the corporate goals of the organization. The two trends in question here are those of supply chains and logistics and distribution outsourcing along with the concept of integration and how it has an impact on logistics and distribution management. The report shall also seek to examine the trends not just in theory but with regards to the practices and contrasting styles of logistics management required due to contrasting styles of retail as followed by Marks and Spencer, and TESCO both companies listed on the FTSE 100. Logistics and distribution occupy a position of supreme importance in all businesses across the world most of all in retail. A successful and well managed logistics and distribution operations are the basic keys behind a business that hopes to thrive and do well. Logistics and distribution management experts manage the transportation and distribution of goods, materials, labor and other commodities right from the source to the market. Computer software, communications networks and other technologies are used to bring the distribution process to order. If one was to understand the concept of logistics and distribution in the management of the company, one has to basically follow a process that starts at the source, or at the place where the company gets its raw material, to the manufacturing unit, to the warehouse, the distributing units and finally to the retail space. Logistics and in turn distribution are the departments that are supposed to be take care of the efficient movement and storage of the product from the source i.e. its initiation till the time its gets to the access point for customers. Logistics are in essence the activity of transport, which is basically a second order activity i.e. it is generated by other economic activities. As such the demand for logistics and distribution depends heavily on the overall growth of the economy. One can, for instance take the example of the growth story of freight traffic in Europe after the formation of EU and an integrated system of trade. With the growth of industrial production from 1.8 in 1990 to 3.4 in 1998, the freight in kms covered in Europe grew from 1.9% to 4.0% in the same period. The figures therefore seem to suggest a story that the existence of logistics is dependent on the growth of production. While true in the theoretical sense, the reality works inversely. Imagine having a manufacturing unit in place with no way of transporting raw materials to it and finished goods out of it. Logistics delivers a service that is multifaceted and largely intangible. “Good Service is pretty hard to measure and difficult to quantify and in fact the contribution of logistics at the national level is almost impossible to document. Logistics and distributions help in the creation of time, place and even form utility, through the management of processes that enable companies to get goods to get to the right places at the right time in the right condition at the right costs. These are the most basic utilities that are performed and these have in fact been recognized and put on record for a number of years. Changing costs of resource inputs and changing technology concepts have meant that the characteristics of logistic systems have changed radically in physical and organizational terms. Levels of service that are expected out of the logistics department have also increased over time. Simultaneously however the demands to reduce logistic and distribution costs have also grown. This demand has made its presence felt in manifestations like cross docking and efficient customer response, and in new organizational structures like supply chain management. It has to be remembered that the goals and objectives of the logistics and distribution system has to align with corporate goals which can in turn include a return on investment, employee satisfaction, growth, cost reduction and environmental quality among other things. There are thus no universal measures of logistic performance. Modern commerce requires a better arrangement and management of the logistics and distribution system of the organization because of the fact that most businesses are now working on production units that are more centralized. Manufacturing units are set up, the world over keeping in mind costs of production that seem to be escalating now more than ever. With the emergence of a world without boundaries, most conglomerates find it a better bet to set up their manufacturing units in countries where labor costs are much less compared to the originating point of the company. Big names like Cadbury now have set up manufacturing units in China because of the low costs of production. Finished products are imported out of Chinese territory and sold to the world thereby pushing up the costs of logistics and distribution. One of the most remarkable shifts in corporate strategy and operational activity in recent times has been the externalization of production to the extent that corporates are now thoroughly dependent on external resources. The reason for the trend, at least at the superficial level is the core-periphery model that has seen an impact. Centralized operations like design, services and facilities management and logistics, among many others have now been taken over by suppliers. This is in fact on of the direct outcomes of the processes of integration in the world economy. What one needs to notice here is the fact supply chains that extend beyond the boundaries of a country or more recently of a continent will automatically push up the logistics cost of the corporation in question thereby making it clear that the importance of an effective management of this department is absolute must in the success of any given corporate that seeks to grow big. Big names like Mattel for example set up units that were purely international. With regards to logistics and distribution it has to be remembered that these are only one of the aspects of the supply chain that starts at the source and ends at the consumer. Despite this logistics contributes to about 10%of any given retailers cost and hence reduction in the costing in logistics can significantly help to bring down the cost of the product or inversely bring up the profit. When considering a logistics strategy one needs to take into consideration the cost of distribution which in turn has to be weighed against customer service levels that the company wants to offer. There has infact always been a tussle between logistics cost and service. Service levels can be defined in terms of product availability, the intermittent period between order placement until delivery of product, information accessibility and accuracy and other aspects of customer service. It is infact here that the inter mingling of logistics with that of IT and trackers comes into the picture. Technology has made it easy to order products on the internet. Vice versa it is also easy to be able to track the movement of the product from one pint in the supply chain to another point. A case in point is this regard is the usage of radio frequency identification (RFID) pilots at Marks & Spencer (M&S). The technology has been effectively used at the item level tagging throughout the supply chain in Marks and Spencer, the UK's largest seller of clothing. In addition to operating nearly 700 stores in some 30 countries, Marks and Spencer also owns more than 190 Brooks Brothers clothing stores in the US and Asia; it also offers furniture, food and financial services. Marks and Spencer Logistics controls an annual budget of over £300M working through four major contractors who employ over 8000 staff in 30 sites; they use over 800 vehicles to move merchandise in excess of 90M km a year. The logistics practices of any given corporate can be and in fat should be undersold only in consonance with that of the growth of the business itself. Warehousing and building of distribution centres will happen only when there is in fact a growth of business in the vicinity thereby prompting the need for storage space. Marks and Spencer in its initial phases for example, supported a distribution strategy in Europe from southern Britain itself. It was infact only with the growth of the demand operations in Spain and France that warehouses were built in order top support operation there. It also has to be understood in this regard that logistics and distribution need to make use of a number of variables in technologies especially in case of products that have a limited shelf life or are perishables. Examples would mean groceries, ice creams, milk products among others. Effective logistic management also has to seek to eliminate as many middlemen as is possible. This would not just help in reduction costs but also in an easier and better management of logistics. In this regard one of the key components of logistics and distribution discussed above can also come into the picture, that of logistics outsourcing. Service providers in this case were commissioned to operate sites on the basis of their relationship with the retail chain in UK. Excel was the contractor operating the DCs in France and in Spain. Having observed the changing concepts of logistics managements one can now look at the changing face of logistics management in TESCO. Tesco plc is a British-based international grocery and general merchandising retail chain. It is the largest British retailer by both global sales and domestic market share with profits exceeding £3 billion. In 2008, Tesco became the world's fourth largest retailer, the first movement among the top five since 2003. Currently the third largest retailer based on revenue, Tesco is second only to Wal-Mart in terms of profit, having surpassed Carrefour in 2009. There has been a process of change in this regard that has helped modernize TESCO’s supply chain (Jones and Clark 2002). These changes were prompted by the fact that TESCO has moved from being standardized, conforming and domestic retailer to one where retail and supply challenges seemed to be growing. The challenges involved internationalization and the development of successful home shopping. As of 2003, Tesco.com covered 96% of the UK population geographically and had annual sales measuring over 447 pounds. The level of logistics involved is evident in the numbers. A fleet of 10,000 temperature controlled vans deliver 110,000 orders a week, which was a 65 per cent of the UK grocery market. The basic idea was simple. Each store would have a stock that was as per the demand of the store customer. There is an initiative to produce store specific planograms, this being dependent completely on the replenishment of exact stock requirement. The basic focus is on primary distribution and factory gate pricing in order to reduce the costing in bound logistics. This kind of a strategy is basically in keeping with the new age theory of primary distribution, thereby requiring the full cooperation from everyone including the primary retailers. The analysis however that has been made here is largely with respect to large scale retailers and the focus, attitude management and goals of SME retail groups will probably be on a plane which is lot different than the analysis that has been made above. Conclusion In conclusion therefore it may be stated that the findings of the report are in fact very fascinating. Logistics while being a second tier activity in most businesses is infact a mirror of the set goals and policies of the corporate. Thus a showroom based retailer like M&S requires logistics in a different manner as compared to a primary distributor like TESCO. Outsourcing with respect to logistics and distribution is without doubt a thing to stay simply by virtue of the fact that it is probably more profitable than to be owning and being responsible for an ownership Reference: Marks and Spencer, accessed on April 23, 2009, < http://en.wikipedia.org/wiki/Marks_and_Spencer> TESCO, accessed on April 23, 2009, < http://en.wikipedia.org/wiki/Tesco> Logistics, accessed, April 22, 2009, Handbook of supply chain management and Logistics, Ann Brewer, accessed, April 22, 2009, http://books.google.com/books?id=Do6SH2K3hy0C&pg=PA390&lpg=PA390&dq=Christopher,+M.,+Logistics+and+Supply+Chain+Management+(London,+1992).&source=bl&ots=MiPCYQTZIg&sig=1UyH1mS5qVaK28OoUqyL-3jzfgM&hl=en&ei=pFXvSZbcNZWNkAXThMSnDw&sa=X&oi=book_result&ct=result&resnum=9#PPA36,M1 Handbook of supply and logistics management, Alan Rushtoun, Published in 2004, accessed on April 22, 2009, http://books.google.co.in/books?id=gppMxoElceIC&pg=PA93&lpg=PA93&dq=alan+rushton,+logistics+and+distribution+management,+google+book&source=bl&ots=RxumZhpRda&sig=h8H250GYeF4heLM1NVpGyjZj-rs&hl=en&ei=Kj_vSbj3JJiHkQXEs6iYDw&sa=X&oi=book_result&ct=result&resnum=5#PPA9,M1 Marks and Spencer set out plan, accessed, April 23, 2009, http://www.logisticsmanager.com/Articles/7971/Marks++Spencer+sets+out+plan.html M&S broadens use of RFID in supply chain, accessed on April 23, 2009, http://www.computing.co.uk/computing/analysis/2169876/broadens-rfid-supply-chain Logistics and Retail management, John F and Leigh S, published in accessed on April 23, 2009, < http://books.google.com/books?id=-9Ja0ZQ6gSMC&pg=PA57&lpg=PA57&dq=logistics+practices+of+Marks+and+spencers&source=bl&ots=0EjW3-sBa6&sig=Z6KTyIBvL4tfJ9j3uyvWXDSqKzs&hl=en&ei=ryPwSY_qLpiNkAXL96T1Cg&sa=X&oi=book_result&ct=result&resnum=5#PPA57,M1> Read More