Integrating a logistics and supply chain is an incremental process, with priority typically given to the highest potential returns on investment. Based on strategies, needs, and potential returns, different priorities and approaches may be assigned to the supply chains of different segments of a business. The integration process can be expensive and is, in many respects, an exercise in resource allocation.
Many companies adopt an approach that begins at home and gradually works outward through the supply chain. The first step is to make in-house improvements, such as inventory reductions that can reduce working capital, warehousing, and transportation costs. An analysis of in-bound logistics can often reveal opportunities for savings. From there, the integration effort expands outward.
Logistics and SCM interfaces with other corporate functions, the major ones being with production, marketing and finance. There are many occasions when the importance of these corporate relationships has been emphasized, not least because of the move to a cross-functional, process-oriented view of the supply chain. This importance is particularly valid where the planning of corporate strategy is concerned.
There are two key points that bear re-emphasis at this stage. First is the fact that logistics is, for many companies, such an integral part of the corporate being. Because of this, the second major point becomes apparent – the need for logistics planning and strategy to be recognized and used as a vital ingredient in the corporate plan.
The first point – that logistics is such an important element within a company’s total business structure – can be illustrated using the interrelationships of logistics with other functions:
- With production – Production scheduling, Production control, Plant warehouse design, Raw material stocks, etc
- With marketing – Customer service, Packaging, Distribution centre location, Inventory levels, Order processing, etc
- With finance – Stock-holding, Stock control, Equipment financing, Distribution cost control, etc
The need to include the planning of logistics and distribution into the overall corporate plan is thus self-evident. Even within this strategic framework it can be seen that distribution and logistics factors should provide a vital input. Within the strategic planning process, such elements as market analysis and policy determination cannot be derived without an understanding of customer service requirements and channel choice alternatives. With any policy assessment exercise and in any subsequent determination of competitive strategy, knowledge of key logistics elements is essential. Any factors related to the procurement, storage and movement of goods must, of necessity, be relevant to the determination of a company’s business plan.
