One of the considerably significant activities constituting the economy of a country is logistics. The term ‘logistics’ in itself could have many connotations, including military logistics relating to the movement of resources and retention of one’s supply lines while disrupting those of the enemy camp. However, business logistics referring to the routing of raw materials and finished goods, and more specifically, production or manufacturing logistics is all about movement of goods at different stages of production between various steps of the assembly line.
The IMF (1997) defines globalization as “the growing interdependencies of countries worldwide through the increasing volume and variety of cross-border transactions in goods and services and of international capital flows and also through the rapid and widespread diffusion of technology.” The phenomenon of globalization has a number of far reaching impacts, one of the areas being manufacturing logistics. The present brief assesses this impact and outlines a number of steps that transnational firms can take in order to harness the benefits of globalization and face the challenges that it presents.
Impact of globalization on manufacturing logistics
Following are some of the impact areas, direct and indirect on manufacturing logistics as a result of globalization.
Mergers and acquisitions
Organisations that are faced between the choice of organic or internal growth through reinvestment of capital and expansion of operations and inorganic growth through consolidation in the form of mergers and acquisitions (Bruner, 2004) often take the easy way out. This explains the popularity of strategic alliances, mergers and acquisitions over the past few years, an inevitable result of globalization. This is critical for the logistics function for these firms, especially if the acquisitions take the form of vertical integration, where the acquired firm is either from a supplier industry to the acquirer or a potential buyer, i.e. depending on whether the merger / acquisition is part of a downward or upward integration approach. In these cases, where such a supplier-buyer relationship is developed on a transnational basis, the considerations of manufacturing logistics take on critical significance in deciding the viability of the business post-merger depending on the distances between the merged entities, the perishability of products in question and the logistics infrastructure the combined entity has at its disposal.
A strong cohesion between warehousing and logistics
Another salient impact of globalization is a tightening of the overall Supply Chain Management concept. Supply Chain Management is the co-ordination of all parties, internal and external, including suppliers, partner organisations, internal departments, customers and ancillaries that are involved in the process of delivering a definitive output to the end-consumer. The activities involved within a supply chain are characterised by the Buy-Make-Move-Store-Sell (Govil & Proth, 2001) continuum, where the move and store steps epitomise the logistics and warehousing functions respectively. Given that products that are intermediaries in the production cycle may actually have to be transported across geographical locations as a result of globalization for further processing, it becomes critical for the warehousing function to be cognizant of the duration that it has at its disposal to store the product so as to avoid it becoming non-functional / perished by the time it reaches the next stage of production.
One of the major trends across all disciplines and activities that an organisation needs to undertake is outsourcing of these operations. The logistics function is no different, especially in Europe, as companies seek to build robust supplier and market networks within the Euro bloc so as to improve upon their time-to-market, reduce their costs, provide a better service to their customers, and entering new markets (Gattorna et al, 2003). As a result, there is an increasing realisation that logistics is not necessarily their area of core competence. This has made the role of third party logistics companies more central to the success of these client organisations.
Theory of Comparative Advantage
One important reason organisations actually look to expand their operations across national borders is the theory of comparative advantage, which explains how two parties to a transaction stand to gain when they trade if one of them enjoys cost advantages in the production of the specific commodity being traded relative to the other, and the second country has a tangible need for the goods in question. This means that transportation of goods in various stages of production from one location to another is critical to organisations especially if these manufacturing facilities are situated in different countries. This underlines the impact of globalization on the manufacturing logistics function, expanding the geographical scope of the activity.
Steps that can be taken to address globalization
Increasing use of technology and communications in logistics management
This relates to the marked increase in the use of technological solutions for various activities associated with logistics management. A third party logistics firm or the logistics function within a manufacturing organisation needs to directly align its technological connectivity and abilities with those of their client firms or departments, so as to enable a real-time information-sharing network with their clients. This in itself would go a long way in ensuring that turnaround times are shortened and the luxury of evaluating multiple transportation options given a requirement for shipping goods from point A to B is available to the logistics firm and their clients.
Enterprise wide Resource Management (ERM)
Over the past few years, there has been a marked increase in the use of technological solutions for various activities associated with logistics management. This extends from the concepts of e-procurement to technological advances in order management and inventory control, right until booking sales via e-orders and delivering the same on an automated basis. Each of these technological advances has a significant impact on the logistics function, as it is essential that they establish connectivity with each of the networks of these other entities that form part of the supply chain.
Lean thinking warehousing strategies
The practice of JIT (Just in Time) has become widely prevalent over the past two decades as cost saving techniques towards optimising the efficiency and effectiveness of the logistics function. However, it also has the effect of leaving a manufacturing organisation exposed to any glitches in the JIT delivery, potentially causing the manufacturing activity to be completely stalled, thereby interrupting production and possibly affecting sales. A possible solution to this is to accept a residual inventory cost as a fait-accompli, and build in some spare capacity in the downstream manufacturing process (Jolly, 2003), thereby addressing a bulk of the risks associated with JIT logistics and warehousing, like damage / spoilage, and at the same time, eliminating the likelihood of non-availability of components which would affect production.