Logistics- Essential to Strategy
Logistical considerations have always played a strategic role in business. Among retailers and wholesalers, they transcend inventory management and transportation to include one of the most critical factors in business success—location in relation to markets or sources of supply. Among manufacturers, logistics concerns itself with matters as basic as plant location, sourcing of raw materials, and standards of customer service. In recent years, changes in the business environment have forced companies, both large and small, to pay particularly close attention to how this function relates to others. Government regulations, the health of the nation’s transportation system, energy restrictions, and technological developments - all represent important considerations in the formulation of a business strategy. Many companies have responded to these challenges by developing competitive strategies based on such concepts as postponement and speculation, standardization, consolidation, and differentiation. These are companies in which management has conducted either formal or informal logistics audits, has redesigned systems to provide more effective support for corporate strategies, and has taken steps to ensure continued appraisal of opportunities over the long run.
Logistics can spell the difference between success and failure in business. For example, a few years ago a young engineer-entrepreneur began to build a company from scratch. His first product was liquid bleach. Actually, he didn’t know much about the business at that time. He knew that liquid bleach is nearly all water and that the U.S. market is divided between two large manufacturers- Clorox and Purex, and a number of smaller producers that sell branded and private-label bleach on a regional basis. He also knew that the market for private-label bleach in New England, where he wanted to be, was dominated by a manufacturer located in New Jersey.
So the entrepreneur decided to find a private-label bleach manufacturing company near Boston. This location provided his company with a distinct transport cost advantage over its chief competitor. But he did not stop there. He located his plant near a concentration of grocery chain retail outlets. This enabled him to sell his bleach under an arrangement in which retailers’ trucks were loaded with his bleach after making their retail deliveries and before returning to their respective distribution centers. Given this double cost advantage, he was able to go one step further. By adding other items to his product line, he was able to obtain efficient truckload orders from his retail chain customers.
