Globalization and Internationalization of Business - Essay Example

Logistics Question Globalization and internationalization of business demand new ways and methods of operations management and logistics. There is strong competition among export-oriented industries which try to achieve sustainable competitive advantage. The strict consumer demands and alliances between industries do not provide a favorable environment for new entrants. The role of the intermediaries (a third party) is to improve and coordinate operations between two or more companies taking into account global economic situation and fierce competition. The logistics area encompasses unique opportunities to create value for the customer. Defined as "the management of product and information flows from original source to final customer in a manner which adds value to the external customer," (Baudin 2005, p. 5) logistics represents a key bundle of resources that can be applied successfully to the task of providing best net value for the customer (see Appendix table 1). Following Naylor (2002), the first is that of the logistics concept itself, and the proposition that it represents a comprehensive process that is of strategic importance as well as boundary-spanning in terms of significance. Second, global logistics systems provide unique and meaningful opportunities to create customer value. Third, a number of contemporary tools and approaches validate and facilitate the effectiveness of logistics to the task of value creation. Fourth, logistics is well positioned to take advantage of the new strategic management process. In fact, there is considerable justification to think of logistics as one of the key strategic systems responsible for providing certain customer-valued products and services. Intermediaries are often defined as a third party logistics which means “the use of an outside company to perform all or part pf a firm’s materials management and product destinations function” (Simchi-Levi et al 2008, p. 249). The main benefits of the intermediaries are (1) lower total cost (through logistics improvements), (2) faster response to changing volume needs (through the closer location), and (3) faster provision of technical consulting help (Stroh, 2006). They have also implemented the process changes enhancing value to be delivered to the customer and reducing sacrifice. Similarly, manufacturing decisions that appear to reduce cost may in fact be unwise from a global system perspective. Product in long runs or delaying a switchover may reduce efficiencies and unit costs. As a result, revenue can be lost owing to the inability of manufacturing to respond quickly to customer needs (Stroh, 2006). The advantage of third party logistics is that “they can manage many stages of the supply chain. Some third party logistics own assets such as trucks and warehouses, others may provide coordination services” (Simchi-Levi et al 2008, pp. 249-250). The quality of the service which the logistician provides results in the customer receiving the good at the right place, at the right time, in the right condition, and so on. This element is a cross-functional activity referred to as scheduling or delivery. Unfortunately, knowing the value of each element of customer service and providing the required level of that element are not the same. Designing a system to provide the right mix of service elements desired by customers is very difficult (Murphy & Wood, 2005). In their continuing quest for new ways to establish and maintain a competitive edge, many leading companies are recognizing the unique and meaningful types of customer value which can be contributed through logistics management. These companies agree that product quality and consistency are of exceptional importance, they argue that the elements of logistical service also create significant value for their customers (Murphy & Wood, 2005). This viewpoint is in sharp contrast to the traditional, yet fast-changing, marketing paradigm relating to the importance of the tangible product form itself. In recognition of the new emphasis on providing the best net value for the customers, logistics represents a key bundle of resources that can be applied successfully to this end. In effect, this formally recognizes the fact that customer value can be created by providing elements of customer service such as product availability, timeliness and consistency of delivery, and ease of placing orders. The net impact is that logistical service is becoming recognized as an essential element of customer satisfaction in a growing number of product markets today (Murphy & Wood, 2005). The intermediaries provide certain types of products and/or services that reduce costs and improve services. Thus, it is accurate to think of logistics as one of the strategic systems responsible for company’s image and brand loyalty. Although this premise should be of interest to people who are involved with logistics on a daily basis, it will also serve to highlight some of the value-creating properties of logistics for the benefit of others throughout the organization. In the interest of focusing attention on the new role of logistics management, the following four propositions have been formulated around key issues that need to be addressed (Christopher, 2005). Firms such as Xerox, L. L. Bean, Frito-Lay, and McDonalds are use third party logistics services. While these companies would surely agree that product quality and consistency are of exceptional importance, they would argue that the elements of logistical service also create significant value for their customers. This viewpoint is in sharp contrast to the traditional, yet fast-changing, marketing paradigm relating to the importance of the tangible product form itself. For instance, faced with a declining market share owing to increased offshore competition, it was clear that Xerox needed to consider some set of innovative logistical initiatives in order to achieve customer satisfaction. Although Xerox targeted the high end of the market, its offshore competition was targeting the lower end. In order to attack the low end successfully to strengthen its market share, Xerox needed to rethink and rationalize its overall delivery system. A direct consequence of its involvement in third-party relationships is that Xerox has improved its ability to meet its customers needs. The delivery process has been streamlined, and overall costs have been reduced. Xerox sales personnel, no longer needed to train customers, can concentrate on selling and customer requirements. As a result, and with the assistance of Ryder, Xerox trimmed its logistics network from ten to two equipment logistics centers. Third-party logistics providers, including Ryder, performed a number of activities such as supplying warehouse equipment; performing preinstallation assembly tasks; delivering and installing product; training Xerox customers in the use of the equipment; and removing old equipment and preparing for shipping to specific Xerox locations (Xerox Home Page 2008). The rational of using the intermediaries in global logistics systems are (1) focus on core strengths, (2) technological flexibility, (3) other flexibilities (geographical locations, service offering, flexibility in resources and workforce size) (Simchi-Levi et al 2008, pp. 250-251). Logistics represents a comprehensive process, one that not only incorporates a wide range of activities, but that also evidences key linkages with other strategic systems. The logistics function is changing rapidly as firms apply significant resources to effective management in this important area. Intermediaries provide unique and meaningful opportunities for achieving best net value. Frito-Lay, and McDonalds are global retailers depending upon on-time delivery and flexibility of services. Both of them use third party logistics services to improve their value chains and reduce transpiration costs. A role of a third-party provider of logistics services is evidence that a well-managed logistics operation can create value for a customer regardless of whether logistics is performed internally or externally to the firm. The actual degree of value added is dependent on how a company leverages its logistics resources and the ability to recognize the effect a third-party relationship can have. In both companies, a high priority is also placed on satisfying the needs of firms which are internal as well as external to the firm (Stroh, 2006). For many global companies, the main problem is that a number of new tools and approaches have emerged as proactive elements of the logistics, but they are unable to invest in new technologies and resources. Using intermediaries, the companies are able to take advantage of the new strategic management process (Baudin, 2005). Third party logistics (intermediaries) allow technological flexibility. “As requirements change and technology advances, and technology such as RFID become more prevalent, the better third party logistics providers update their information technology and equipment” (Simchi-Levi et al 2008, p. 251). Representative logistics activities include supply chain management (including inventory and materials management), transportation, and customer service. For global companies, geographical flexibility is one of the main success factors and sources of competitive advantage. In some cases, “suppliers are requiring rapid replenishment, which in term, may require regional warehousing” (Simchi-Levi et al 2008, p. 251). Also, linkages with other areas of the firm such as marketing and production/operations management are prevalent and meaningful. Issues related to cross-functional coordination and integration. The third party logistics process has several unique characteristics. First, it is comprehensive, extending from the original source of raw materials to the location of the final customer. In fact, the logistics process can, and does, span organizational boundaries in terms of encompassing very comprehensive, industry wide channels of supply and distribution. The second characteristic is that it pertains to the flows of both product and information, and considers each as essential to the value-creating process. This concept has received broad acceptance and acknowledges the critical role of logistics in the overall area of information processing and management. Third is that logistics represents a viable means to satisfy and create value for the external customers of the firm and/or the channel of distribution. It is this dimension that truly justifies the recent attention directed toward the new role of logistics management (Baudin, 2005). Flexibility in service offering is another advantage of using intermediaries in global logistic systems. Intermediaries “may be equipped to odder retail customers a much larger variety of services than the hiring firm” (Simchi-Levi et al 2008, p. 251). In this case, the most significant trend is the growing recognition of third party logistics as a means to creating customer value. Also, business firms can direct greater resources toward logistics and that the senior logistics executive is becoming more visible and involved on a firm wide basis (Christopher, 2005). As a result, logistics managers have been actively repositioning their efforts in the interests of facilitating cross-functional coordination in order to best serve the customer. It is encouraging to see logistics managers work closely and consistently with their counterparts in areas such as marketing, manufacturing, finance, and general management. This type of activity is a significant factor in helping to eliminate the so-called functional-silo syndrome that has been so negative and characteristic of the past (Baudin, 2005). The rational of using intermediaries can be identified by three success factors: effectiveness, efficiency and differentiation. Efficiency refers to the organizations ability to provide the desired product/service mix at a level of cost that is acceptable to the customer. This concept implicitly identifies the need for logistics to manage its resources wisely and to leverage expense into customer value whenever possible (Stroh, 2006). The interests of efficiency are well served, for example, by the current interest in and trend toward the use of activity-based cost management systems. Effectiveness refers to the issue of performance and whether the logistics function meets customer requirements in certain critical result areas (Christopher, 2005). The specific key areas include the following: product guarantee in-stock availability; fulfillment time; convenience; retail service; innovation; and market standing. Differentiation manifests itself in the ability of logistics to create value for the customer through the uniqueness and distinctiveness of logistical service. For example, the ability of the Limited Stores Distribution Division to mark and tag all merchandise prior to store delivery creates value for the company-owned retail stores within its overall system. Question 2 Recent years, many shipping companies sign cooperation agreements and enter strategic alliances in order to improve their market position and sustain competitive advantage. Many shipping companies form strategic alliances with channel partners including suppliers, customers, or intermediaries such as providers of transportation and/or warehousing services. Effectively, this type of relationship leverages a true "win-win" relationship into a strategic alignment of the capabilities of both firms. Additional benefits to both parties typically include asset productivity, operational effectiveness, and cost efficiencies (Simchi-Levi ET A 2008). Moreover, it is not unusual for one channel member to promote the existence of a meaningful relationship with some prestigious firm with which a strategic alliance has been developed. A very interesting example of a strategic alliance that centers around logistical capabilities is GRAND ALLIANCE including the following companies (P&O (UK), Hapag-Lloyd (Allemagne), NYK (Japan), NOL (Singapore). MAERSK/SEA-LAND alliance includes Maersk (Danemark), SeaLand (USA), Maersk (Danemark). Sino-Japanese Alliance includes Cosco (Chine), K Line (Japan) and Yang Ming (Taiwan). The advantage of these strategic alliances is that they open new opportunities for global companies and allow them to reduce costs of transpiration and improve delivery (Slack et al 2002). Despite the use of strategic management process and content models, many managers fail to maintain or improve their firms competitive position. The new globally competitive context requires that top management alter its current predispositions toward certain stakeholders and financial performance measures and refocuses a on continuously improving net customer value. These changes suggest new strategic management processes and new strategy content paralleling those in current models (Simchi-Levi et al 2008). Logistics is used to gain competitive advantage as it complements, rather than obstructs, company’s marketing objectives. A well-managed logistics operation can create value for a customer regardless of whether logistics is performed internally or externally to the firm. The actual degree of value added is dependent on how a company leverages its logistics resources and the ability to recognize the effect a third-party relationship can have. Strategic alliances through the supply chain are attracting many followers in other countries because they enable companies to carry out concurrent engineering and practice agile management. The follower strategy entails intensive competition in growth areas, and if a company can survive domestic competition it can achieve competitive strength in the world market (Stroh, 2006). The development of partnership arrangements with suppliers, customers, other channel members, and external third parties is explained by the interest of achieving desired results in logistics. It has become apparent that a "holistic" view must be adopted, one in which the "win-win" paradigm is recognized as being valid. Logistics has become a frontrunner in this regard among the various corporate functions. The overall impact of this trend is that customer service policies, as well as the wide range of logistics sourcing and procurement systems, have been overhauled and modernized in meaningful and productive ways (Stroh, 2006). The scope and role of logistics has evolved to the extent that many firms now believe that a strategic logistics orientation is required to create customer value and sustainable competitive advantage. The proposition that logistics can add value to a firms product and service offerings is a simple and intuitively appealing statement that firms have increasingly come to accept (Naylor, 2002). For MAERSK/SEA-LAND alliance, implementation of a value-added logistics process represented a challenge for firms because it involved a changing and repositioning of perspective and strategic outlook. Based on the premise that value was created when customer satisfaction was achieved, logistics evolved to mean much more than simply having the "right product, at the right place, at the right time, in the right quantity, and in the right condition" (Murphy & Wood 2005). Within this context, customer value is enhanced by adopting a total channel perspective of the logistics function (Slack et al 2002). The integration of attributes such as customization, flexibility, innovation, and responsiveness results in highly valued and expected levels of service that become the new standard for competitive advantage. While significant attention is usually focused on the customer service needs of the firms external customers, it is equally important to identify the needs of the firms internal customers/users as well. Alternatively, internal value creation involves concentrating on how the organization can function more effectively and efficiently for all its constituents, both internal and external to the firm. A first step is to get employees to understand whether the next customer in the pipeline is internal or external to the organization, even though this distinction should make no difference in terms of the quality of service offered (Naylor, 2002). Management focus in logistics is expanding beyond the existing company structure to involve suppliers and vendors. Sino-Japanese Alliance regards the role of suppliers and vendors as essential to achieving satisfaction for the firms external customers. Historically, however, many firms treated their customers with respect and dignity, while simultaneously bearing down hard (and frequently unmercifully) on their suppliers and vendors. This type of action is counterproductive to a truly value-added perspective. By spending more time interfacing with suppliers and vendors, interorganizational alliances/partnerships are evolving which enable a firm to willingly commit performance capabilities to customers in advance, and then perform to expectations (Naylor, 2002). This same study identified a number of representative measures of logistical customer service. Included were product availability, order cycle time, distribution system flexibility, distribution system information, distribution system malfunction, and post sale product support. Considerable attention is directed toward the integrative aspects of logistics, and the fact that the length and consistency of the customer "order cycle" is emerging as a key concern of firm wide interest. In effect, the integrative aspects of logistics have qualified this area to be a major contributor to the creation of customer value. Firms are becoming very proactive in how they approach the area of customer service. Considerable attention is focused on how to provide the customer with value-creating service prior to, during, and after the product itself is delivered. Much of the change is in response to aggressive customers who are beginning to insist that suppliers take formal steps to identify the customers needs and to provide the value that is desired. The ability to effectively manage information flow is viewed as a key to providing breakthrough levels of customer service. There has been a significant trend from transactional to contractual-driven systems. Buyers are valuing the longer term relationships with fewer suppliers, rather than treating each purchase or acquisition as a discrete event (Chase & Jacobs 2003). The customer wants to receive a delivery on the third morning after order placement. The supplier erroneously believes the customer wanted first morning delivery. They try to develop a system to deliver on the first morning, but the system they devise can do no better than the second. They fail to control it adequately, and deliver on the third. Furthermore, they make no effort to tell the customer anything about the systems capabilities. The customers are happy; they are getting the service they wanted. The supplier, however, is wasting effort (and cost) trying to provide a service greater than what the customer wants (Chase & Jacobs 2003). Perhaps the hardest part of the quality implementation program is to design the process to be sure that the service provided consistently meets the specifications that management has developed from the customers requirements. The evolution toward using quality as a strategic weapon demands effective design efforts. Inventory is a barrier to improvement in customer value (Chase & Jacobs 2003). The industrial-organizational microeconomic shift from producer power to consumer power in the emerging international markets points to the need for managerial leadership centered on creating and providing customer value (Case, 1989). Significant increases in the number of worldwide competitors have intensified this dramatic change in microeconomics. Following a timeless strategy, many of these new entrants offer better products/services while requiring less from the customer, thus creating a customer perception of increased net value (Chase & Jacobs 2003). Successful competitors recognize that organizational success depends on the customers perception and/or realization of the increased value of their products or services. Less successful competitors define and manage value from their companys perspective, not the customers, much to their detriment. The preceding examples suggest how success in the competitive creation of net value for customers contributes to organizational survival, prosperity, and longevity. A companys products and services must be continually chosen from among competing alternatives for that company to remain viable. Creation of best net value for the customer becomes the most critical strategic imperative and, therefore, is mandated (Chase & Jacobs 2003). A good example of increasing value for the customer is NEW WORLD ALLIANCE including APL/NOL (USA/Singapour), MOL (Japan), and Hyundai (Corée du Sud). Even if it meant helping to install some competitors products, NEW WORLD ALLIANCE attempted to integrate whatever the customer needed. NEW WORLD ALLIANCE recognized that the customers sacrifice entails more than just funds required in purchase. Given the organizations dependency on its environment, knowledge of customer value must not be taken for granted (Murphy & Wood 2005). Such knowledge represents the cornerstone of organizational sustenance. Managers must be led to work on strategic systems that advance the organizational agenda. The development of knowledge about customer value, which is taken for granted in the above definition of management, is a prescribed agenda for managerial leaders and a prerequisite for system improvement. Managerial leaders are responsible for developing and confirming knowledge of what customers value, as well as creating systemic ability to deliver it. Continuous improvement of net customer value becomes the preeminent integrating force, and therein the strategic and tactical imperative for viable organizations (Murphy & Wood 2005; (Slack et al 2002). In sum, strategic alliances among shipping companies and other logistics providers allows all parties to improve customer service and meet customers’ expectations. Logistics leaders are responsible for establishing the substantive and purposeful focus of the organization, that is, for establishing continuous creation of customer value as the strategic thrust. They are responsible for determining value elements, tracking discovered elements, and anticipating customer value changes. They must also provide the means of creating that value creating, providing, and continuously improving strategic organizational systems. Bibliography 1. Baudin, M. 2005, Lean Logistics: The Nuts And Bolts Of Delivering Materials And Goods. Productivity Press. 2. Chase R.B., Jacobs R.F. 2003, Operations Management for Competitive Advantage with Student-CD, Hill/Irwin; 10 edn. 3. Christopher, M. 2005, Logistics & Supply Chain Management: creating value-adding networks. FT Press; 3 edition. 4. Frito-Lay Home Page 2008. Available at: www.fritolay.com/ 5. McDonalds Home Page 2008. Available at: www.mcdonalds.com/ 6. Murphy, P. R. Wood, D. 2005, Contemporary Logistics. Prentice Hall; 9 edition. 7. Naylor J. 2002, Introduction to Operations Management, 2nd Edition Pearson Education. 8. Stroh, M. B. A 2005, Practical Guide to Transportation and Logistics. Logistics Network Inc. 2006. 9. Simchi-Levi, D., Kaminsky, Ph., Simchi-Levi, E. 2008, Designing and Managing the Supply Chain. McGraw-Hill/Irwin; Bk&CD-Rom edition. 10. Slack, B., Comtois C. McCalla R. 2002, Strategic alliances in the container shipping industry: a global perspective. Maritime Policy and Management. vol. 29 (1), pp. 65-76-88. 11. Xerox Home Page Available at: www.xerox.com Appendix Table 1 Logistics Process Read More