Logistic management - Logistics Essay Example

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1.                  Introduction

By definition, logistics means the management of corporate operations ranging from acquisition, storage, moving, and delivery of goods within the supply chain. Any barrier in supply chain will result in the late delivery of goods or deferred services. The situation suggests that logistics management is critical part in a company that determines the company’s success.

The situation is much challenging for a company that enables customers to design their own goods. This mass customization scheme will influence the way a company design their logistic management in order to ensure customers receive products as they design. From the manufacturers or producers point of view, this mass customization scheme must stay reducing inventories.

This ideas leads to a bigger picture that is to create winning supply chain management (SCM) that provide benefits for the company including faster time-to-market, reduced costs, and allow all parties in the supply chain to better manage current resources and plan for future needs.

Concerning the logistics issue, this paper aims at reviewing production and operation management and it implications on an overall corporate strategy. The discussion will specifically address the problems to suppliers doing business with Wal-Mart under the Just In Time logistic system and solutions.

 

2.                  Logistic Management

Logistic management is the process of integrating the supply chain throughout the entire organization, thus supporting corporate operations by ensuring that all the required products and equipments are always available in the right amount, the right place and the right moment. Efforts toward the achievement of these philosophical standards have been performed by all organizations hoping to provide the best value to customers.

Supply chain management is an often mentioned subject in business discussions. Nevertheless, many still fail to grasp the core meaning of the term. In many respects, logistics or supply chain management is nothing if not cooperation to gain mutual benefits from joint operations. The value generated from logistic management comes from mutual trust and visibility. In a beneficial logistic management arrangement, the competitive and mutually hostile attitude must give way to the creation of trust and confidence generated from shared information. Information sharing, along with combined skills, taking advantage of joint experience and knowledge are the vary foundations for the growth of supply chains.

After understanding this core principle, the next important step is logistic management is calculating costs of cooperation. There is a crucial role for activities of identifying the core capabilities of the parties involved and how the can contribute to cost savings and quality enhancements. This is also an important foundation of successful logistic management activities.

The next important step is positioning the supply chain. The partners should be positioned according to the corporate plans and in support of the goals and objectives of the company. Geographic positioning and allocation of production responsibilities are important to generate the most out of logistic collaborations (‘Supply Chain’, 2007).

Results of SCM system is
·         Improved time-to-market or product delivery

·         Costs efficiency

·         Enabling all involved individuals in the supply chain to manage current resources and project the future needs.

3.                  Wal-Mart: Background of Developing Winning Logistic System

3.1.            Corporate Overview

Wal-Mart is a giant retailer that originates its services in the U.S. the company, like other retailers; present a vast selection of high-quality merchandises, friendly service, and attractive campaign like “Every Day Low Prices”.

As of May 31, 2006, Wal-Mart operates 1,163 stores, 2,056 Supercenters, 566 SAM’s clubs, and 104 Neighborhood Markets in the United States. Currently, the company operates several overseas units in Argentina (12), Brazil (293), Canada (278), China (57), Costa Rica (128), Germany (87), Guatemala (120), Honduras (37), Japan (395), Mexico (797), Nicaragua (35), Puerto Rico (54), El Salvador (58), South Korea (16) and the United Kingdom (321).

Due to their extensive presence, the retailer currently serves over 138 million customers on weekly basis. In addition, the company also employs about 1.6 million associates (Walmart, 2006).

In order to take benefits of the emerging information technology, in January 2000, Wal-Mart decided to set up online stores named Walmart.com (http://www.walmart.com/). The online subsidiary’s headquarter is in the San Francisco Peninsula near Silicon Valley, the strategic location gives lots opportunities for Wal-Mart to as the retailer exists in a location that possess large pool of IT and Internet executives and technical talents.

 

3.2.            Key Success Factors

It is widely known that the key success of Wal-Mart. Largest giant stores, not only in the U.S. Marker but also worldwide is the ability of the company to offer several things as following:

a)      low prices strategy, vast selection, and superior’s service keep the customers coming in the door

b)      Superior inside the store processes. This factor is significantly important since logistics play important role in determining the success of retailers anywhere in the world. By employing appropriate logistics processes, Wal-Mart can ensure that it can keep prices low while keeping the right goods on the shelves.

 

The two factors are two important success factors for Wal-Mart. The two factors are working hand-in-hand in contributing the success to the company. This is because Wal-Mart’s logistics demands are considerable.  The company must coordinate with more than 85,000 suppliers, manage billions in inventory in its warehouses, and bring that inventory to it retail shelves.

However, while logistics management is common to any retailers, I note that its pricing strategy is well organized. For this reason, I discuss in more details about the pricing strategy of Wal-Mart and the way Wal-Mart can offer such low prices to its customers.

 

4.                  Wal-Mart, JIT, and Challenges of Suppliers

4.1.            Wal-Mart Vulnerability: Logistic Objective

Wal-Mart is widely known to be a retailer with the largest logistics places. In my opinion, this situation is vulnerable since Wal-Mart should set up several warehouses to place a huge number of logistics.

In addition, Wal-Mart has a “hub-and-spoke” network of 103 massive distribution center (DC), which is intentionally located across the country. The key characteristic of Wal-Mart’s stores is that there is no store location is more than a day’s drive away from a distribution center (DC).

4.2.            Just In Time

The raising problem on logistic management has driven the needs to set up suitable supply chain management. There are three benefits of conducting SCM as following:

Improved time-to-market or product delivery
Costs efficiency
Enabling all involved individuals in the supply chain to manage current resources and project the future needs.
In Japanese terms, the above objectives refer to Just-In-Time. The key point of conducting JIT is to balance supply and demand. According to O’Brien and Springman (2004), two conditions underlie the supply and demand balance.

o   Depending only to supply side may incur unnecessary capital expenditures, inventory investments or suboptimal solutions.

o   To obtain balanced supply and demand, supply chain managers must figure out customers’ demands and make the demands’ patterns

 

However, the implementation of Just-In-Time also has pros and cons. The pros occur as Just-In –time implementation would improve time-to-market or product delivery. This reduction of design cycle time by 50% will generate revenue more than double. In addition, Just-In-Time also supports costs efficiency by eliminating vast number of inventory will provide better cash flow for the company.

On the contrary, the Just-In-Time will also provide drawbacks especially because people who request for a particular product may wait for longer time to obtain the required products (Myers, 2004).

 

4.3.            Just In Time: Suppliers’ Challenges

For Wal-Mart, the implementation of Just-In-Time will reap several benefits as elaborated above. However, the situation will drive suppliers of Wal-Mart to alter their business process to be in line with Wal-Mart’s requirement. In general, the challenges that suppliers face are quite similar to Wal-Mart logistic challenges, especially overstocking problem.

Overstocking is main problems for companies that deal with distribution channels. The challenges may get intense as retailers face random demands; i.e. at one place happens stock-out position but at the other retailers, there are number of inventories.

According to some researches and corporate experiences, there is a number of disadvantages caused by overstocking that suppliers of Wal-Mart may face as the result of Just-In-Time system that Wal-Mart carries out as following:

Worse Management à Overwhelmed Inventory
The key issue in the increased number of inventory is the fact that most managements do not concerns about the need to implement resource planning. It is the result of miscalculation of demands and thus production. In some cases, overstocking occurs because suppliers (in case of Wal-Mart) are afraid of having low stocks to cope with Wal-Mart’s demands. Unfortunately, miscalculation of demands will cost the companies with high level of inventories.

Increased Inventory Costs
The existence of overstocking causes unfavorable situation especially regarding the emerging costs like pilferage cost, inventory cost, and warehouse or storage costs. In India, for instances, costs of inventory accounts for Rs 1 per unit per day (Satyendra and Venkata, 2005)

Maintenance Costs
Overstocking also presents other problems: increased maintenance costs and therefore will significantly reduce the companies’ tight margins.

 

5.                  Recommendations

5.1.            Recommendation for Wal-Mart

Since the key vulnerability of Wal-Mart’s store is on logistics strategy. I suggest that Wal-Mart set up sophisticated distribution strategy that link Wal-Mart to its suppliers, therefore, Wal-Mart should not set up many warehouses since the suppliers that do so.

Wal-Mart should learn from a successful retailer such as Proctor & Gamble that uses information for tailoring its product availability to specific local regions. Information system that Wal-Mart has should also benefit Wal-Mart by enabling the retailer to customize product offering to customers.

As a retailer Wal-Mart should also aware of the possible threats from other giant retailers such as the UK’s Tesco, French’s Carrefour, and many others. The key issue that Wal-Mart should deal with in the future is the ability of a retailer to make their merchandise more accessible to customers and to offer them unrivalled levels of choice and newness.

 

5.2.            Recommendation for Suppliers: Information Technology Approach

Considering the importance to eliminate overstocking problem at warehouses, there are several approaches that corporations may adopt. However, in general, the approaches employ information technology as following:

Use of information technology that enables resource planning and demands assessment will significantly reduce the costs that associated with overstocking including opportunity losses, damaged or obsolete stock, and the needs for warehouse space, missed orders etc (TimberSys, 2007).
Using IT-based stocking system that offer several benefits as following:
o   Auto-update of inventory records that update the system every time new goods are received and sold

o   Web-based application that enables managements and suitable staffs to monitor stock records from a remote location all over the world

o   Multiple search capability that enables users (managements or authorized personals) to sort out stocks by type of products, arrival date, etc

o   Customized reports (short and full reports) generation that provides users with snapshot stock information

(TimberSys, 2007)

 

One useful IT-based application that will improve logistic and supply chain management is using EDI (Electronic Data Interchange). EDI is the changing and processing of information using electronic methods for completing business transactions based upon the purpose of profitable standards and practices.

In addition, an essential element of implementing EDI is the application of process developments to improve business processes, generally but not essentially, ahead of the integration of technologies assisting the electronic exchange of business information (“Electronic Data Interchange”, 2006).

EDI have many benefits such as offers a safe electronic exchange, decreases the requirement for data entry, and presents quick and computerized verification of document receiving. In corporations, the most important part of the development of EDI was the foreword of new regulations among staff members and productively changing their performance at the level. At this time, all the users such as EDI controllers, merchandisers, managers, clerks and call centre agents are optimistic about the new electronic operating system technology even though there was some preliminary anxiety from some staffs (“EDI – Electronic Data Interchange”, 2005).

Therefore, the use of EDI for suppliers is beneficial since many companies cannot afford to permit their supply chain to get unbalanced either way with today’s competitive markets and profit margins. The days of product catalogs, a telephone and a fax machine are gone, and these companies could keep their supply chain swallowing easily. Nowadays, to handle a supply chain, company needs computers, an internet connection, cautious planning, and cooperation (“EDI Logistics & Supply Chain Spotlight Event in London, UK”, 2005).

 

6.                  Implementation Schedule

 

No
Communication

Activities
Time Schedule
1
Problem Identification due to Wal-Mart JIT system
July – August 2007
2
Developing alternative of logistic management to serve Wal-Mart
September 2007
3
Incorporating information technology in supply chain management
October – December 2007
4
Advance EDI
January 2008

Reference:

 

E-Commerce/EDI – Logistics & SCM. (2005). Retrieved July 25, 2007 from http://www.logistics.about.com/od/ecommerceedi/index.htm%3Fterms%3Dreverse+auction+software&w=edi+logistics+industry&d=Zj2AXJIFNi8d&icp=1&.intl=us

EDI – Electronic Data Interchange. (2005). Retrieved July 24, 2007, from http://www.transflo.net/%3Ffuseaction%3Dlogistics.edi&w=edi+logistics+industry&d=GM5V0ZIFNumO&icp=1&.intl=us

EDI Logistics & Supply Chain Spotlight Event in London, UK. (2005). Retrieved July 25, 2007 from http://www.commerce-connections.com/CCWEB.nsf/e0da500e5ddc9cb980256afa0066aaa3/6f29ae3560944d098025704d005cadfd/$FILE/Seminar%2007-09-05%20PDF.pdf

ELECTRONIC COMMERCE/ELECTRONIC DATA INTERCHANGE GLOSSARY (EC/EDI). (2004). Retrieved July 24, 2007 from http://www.sba.gov/gopher/Ecedi/Info/eced2.txt&w=electronic+data+interchange+logistics+industry&d=GsQkUpIFNg-B&icp=1&.intl=us

Electronic Data Interchange. (2006). Retrieved July 25, 2007 from http://www.inovis.com/electronic-data-interchange.jsp&w=electronic+data+interchange+logistics+industry&d=FCohUpIFNg2h&icp=1&.intl=us

Myers, Laurel K. (2004). Eliminating the Iron Mountain. Retrieved July 25, 2007 from http://www.almc.army.mil/ALOG/issues/JulAug04/C_iron.html

O’Brien, Kevin and Brian Springman. (2004). Optimizing Supply Chains, Understanding Demands. Retrieved July 25, 2007 from http://www.crmbuyer.com/story/35892.html

Walmart. (2006). Corporate Profile. Retrieved July 25, 2007 from http://investor.walmartstores.com/phoenix.zhtml?c=112761&p=irol-irhome

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