Page 267 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Logistics and Supply Chain Management

Notes Introduction

For the most part, managers confront a new and challenging assignment when they are asked to
participate in a logistical system reengineering. Because of the rapid rate of change in almost
every facet of logistical operations, managers can expect considerable discontinuity when they
try to use previous experience to guide the creation and integration of new logistical
competencies. Therefore, success or failure may depend on how well the planning team is able
to quantify the forces at work and rationalize them into a logical and believable action plan.
Having a comprehensive understanding of the theoretical constructs that serve as the foundation
of logistical integration provides an important step toward conceptualizing an integrated strategy.
In earlier units, the essence of logistical strategy was identified as achieving least total cost
operations while simultaneously maintaining flexibility. Flexibility is the key to providing
high-level basic customer service while maintaining sufficient operating capacity to meet and
exceed key customer expectations. To exploit flexibility, an enterprise needs to achieve a high
level of logistical process integration. Integration is required at two operating levels. First, the
operating areas of logistics must be integrated across a network of facilities supportive of
market distribution, manufacturing, and procurement requirements. Such network integration
is essential if a firm is using logistical competency to gain competitive advantage. Second,
integration must extend beyond a single firm by supporting relationships across the supply
chain. This unit presents a framework to assist managers in achieving such integration.

12.1 Enterprise Facility Network

Prior to the availability of low-cost dependable surface transportation, most of the world’s
commerce relied on movement by water. During this early period, commercial activity
concentrated around port cities. Overland transport of goods was costly and slow.

Example: The lead time to order custom clothing from across the continental United
States could exceed 9 months.
Although the need for fast and efficient transport existed, it was not until the invention of the
steam locomotive in 1829 that the transportation technology revolution began in the United
States. Today, the transportation system in this country is a highly developed network of rail,
water, and air, highway, and pipeline services. Each transport alternative provides a different
type of service for use within a logistical system. This availability of economical transportation
creates the opportunity to establish a competitively superior facility network to service
customers.
The importance of location network analysis has been recognized since the middle of the 19th
century, when the German economist Joachim von Thunen wrote The Isolated State. For von
Thunen, the primary determinant of economic development was the price of land and the cost to
transport products from farm to market. The value of land was viewed as being directly related
to the cost of transportation and the ability of a product to command an adequate price to cover
all cost and result in profitable operation. Von Thunen’s basic principle was that the value of
specific produce at the growing location decreases with distance from the primary selling market.
Following von Thunen, Alfred Weber generalized location theory from an agrarian to an
industrial society. Weber’s theoretical system consisted of numerous consuming locations spread
over a geographical area and linked together by linear weight-distance transportation costs.
Weber developed a scheme to classify major materials as either ubiquitous or localized.
Ubiquitous materials were those available at all locations. Localized raw materials consisted of
mineral deposits found only at selected areas. On the basis of his analysis, Weber developed a

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