"How to obtain a competitive advantage through logistics"
This paper presents the complexities and challenges companies are facing on its way to achieve a competitive advantage through logistics. If set up properly, a company can obtain a competitive advantage through logistics by taking the superior position within an industry regarding cost reductions, service diversity, flexibility and reliability, as well as satisfying and constantly exceeding customer expectations and requirements. The most essential steps on a company’s way to achieve a competitive advantage contain reaching a high level of logistical value proposition and logistical management integration, supported by highly skilled employees and information technologies.
In nowadays fast-moving business and consumer environments, companies need to be able to satisfy and exceed high consumer expectation, which require a high level of logistical competency. For a company in order to meet and exceed these high standards, logistics management cover the fields order processing, inventory, transportation, the combination of warehousing, materials handling and packaging, all integrated in an interacting facility design, according to D. Bowersox, Closs, Cooper & J. Bowersox (2013).
Logistical Value Proposition
According to D. Bowersox, Closs, Cooper & J. Bowersox (2013), the key strategic issue is how to perform above industry average regarding inventory availability, operational performance and service reliability, in order to achieve a competitive advantage.
Inventory availability is one of the measurements of basic logistical performance. Especially the progress in information technology in the last couple years has led to an intensified flexibility for serving the high customer expectations and difficult market circumstances.
Another component of basic logistical performance measurement is the operational performance. The main cornerstones for operational performance depict delivery speed and consistency. As stated by D. Bowersox, Closs, Cooper & J. Bowersox (2013), it is beneficial to emphasize delivery consistency, before seeking to target delivery speed improvements.
Ultimately, service reliability puts its focus on the quality-side of logistics. Regarding that, it emphasizes the consistent and accurate measurements of inventory availability and operational performance, which determines to what extent target service goals are satisfied and exceeded. To sum up, in order to achieve a competitive advantage through logistics it is necessary to perfectly align operating competency and commitment to customer expectations, as described by D. Bowersox, Closs, Cooper & J. Bowersox (2013). Therefore, a company needs to provide high customer impact, while simultaneously managing operational and inventory fluctuations.
Integrated Logistical Management
D. Bowersox, Closs, Cooper & J. Bowersox (2013) outline that the overall goal of a company’s supply chain is the perfect integration of logistical processes, including as well participating firms and the customers, in order to gain a competitive advantage. As stated in the introductory part, logistics departments face interrelations of functions. Order processing contains one of the functional areas. Its key task is to provide reliable delivery and accurate information within the logistics system. Especially for forecasting and the communication of customer requirements need to highly rely on the order processing performance.
Furthermore, inventory depicts another key functional area. A fitting inventory strategy includes a successful combination of core customer segmentation, product profitability, transportation integration, time-based performance and competitive performance, according to D. Bowersox, Closs, Cooper & J. Bowersox (2013). These components outline the tight connection of inventory functions with the facility network and customer service levels. Nonetheless, it can be assumed that inventory strategies are more beneficial to gain customer service advantage than to lower logistics costs. D. Bowersox, Closs, Cooper & J. Bowersox (2013) stress that a company’s willingness and efforts to meet customer’s delivery expectations are a major competitive factor. Regarding the competitive advantage gained within the facility network, inventory strategies contribute by stocking an appropriate range and assortment of products at a warehouse to be able to provide consolidated shipments.Responsible for the geographical movement and positioning of inventory is the transportation department. The most essential determinants of transportation contain cost of transport, speed of transportation and transportation consistency. The logistical system has to be based on the balancing act between transportation cost and service quality, as similarly observed in the other functional areas.
In contrast to the discussed functional areas, warehousing, material handling and packaging contain one combined unit. Especially materials handling can contribute to the achievement of a competitive advantage by keeping the product handling times as short as possible in order not to risk product damages, which probability of damage is rising with the time of handling the product. In general, D. Bowersox, Closs, Cooper & J. Bowersox (2013) state that warehousing, material handling and packaging encourage speed and overall ease of the product flow, in fact those functional areas are efficiently integrated in the logistical system.The last functional area contains the facility network design. Regarding that, it can be outlined that the number, size and geographical relationship of facilities have a huge influence on customer service goals and logistic cost. Furthermore, the importance of the appropriate design increases for multinational companies. Due to the fact that product assortments, customers, suppliers and manufacturing requirements are changing on a frequent basis, a firm’s ability to continuously redesign their facility network is indispensable, as described by D. Bowersox, Closs, Cooper & J. Bowersox (2013). Therefore, it can be assumed that the facility network design and the redesign ability as described above, contain the biggest contributors to achieving a competitive advantage.
Besides these functional areas, in a company’s ambition to achieve logistical integration, the six operational objectives responsiveness, variance reduction, inventory reduction, shipment consolidation, quality and life cycle support must be simultaneously accomplished.
Overall, it needs to be emphasized that logistical value propositions and integrated logistical management goals, in order to lead to a competitive advantage, cannot be achieved by only relying on external logistical providers, as many companies do. Therefore, as stated by Eisenhardt & Martin (2000), it is especially the combination with a unique set of operational and dynamic capabilities created and owned by the firm, which results into a competitive leaderships within industries.
According to Lai, Zhao & Wang (2006), IT has a major influence on achieving a competitive advantage through logistics. Firstly, they argue that better information technologies drive delivery speed and reliability, customer satisfaction and order accuracy, which have been named early in the context as one of the most essential components to achieve logistical management integration. Furthermore, they stress that high level information technology results into major cost advantages.
The human factor and its contribution within the processes has been ignored until this point. Nonetheless, D’Aleo and Sergi (2016) discovered a strong relationship between the human factor and a company’s score in logistics-related indictors from the global competitiveness index and logistics performance index. Especially for EU’s logistics sector the human factor was determined to be the main driver of competitive advantage, as argued by D’Aleo and Sergi (2016). Furthermore, it can be assumed that investing in human capital will provide a firm to maintain or achieve a competitive advantage by contributing of new ideas, innovation and creation of new work methods. Additionally, investments in human capital like skills trainings or certification programs can lead to improvements regarding productive resources. According to D’Aleo and Sergi (2016), it is recommendable to first invest in human capital in order to maximize the capacity of human resources to drive competitive advantage, before investing in machinery. Nevertheless, to provide a high competitiveness level it is essential for a company to rely on a strong interconnection between high efficiency levels of its infrastructure and institutions and the human factor.
As it became clear in the course of this article, obtaining a competitive advantage through logistics is a highly complex approach, which especially needs highly skilled people and information technologies in order to organize and align all the requirements necessary to create logistical value proposition and logistical management integration. Nonetheless, in these fields there is a high improvement potential, which can lead a company to a competitive advantage and continuous success by performing above industry average though clever decision-making within logistical operations.
Bowersox, D., Closs, D., Cooper, M., & Bowersox, J. (2013). Supply Chain Logistics Management.
D' Aleo, V., & Sergi, B. (2016). Human factor: the competitive advantage driver of the EU’s logistics sector. International Journal of Production Research, 642–655.
Eisenhardt, K., & Martin, J. (2000). DYNAMIC CAPABILITIES: WHAT ARE THEY? Strategic Management Journal, 1105-1121.
Lai, F., Zhao, X., & Wang, Q. (2006). The impact of information technology on the competitive advantage of logistics firms in China. EmeraldGroupPublishingLimited, 1249-1271.
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- Tobias Hinterwimmer (Author), 2018, How to obtain a competitive advantage through logistics, Munich, GRIN Verlag, https://www.grin.com/document/457320