Definition and evolution of logistics

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Definition and evolution of logistics But many who are first will be last, and many who are last will be first.” Matthew 19:30 AFTER WINNING BACK -TO-BACK World Series titles, Sparky Anderson, then manager of the Cincinnati Reds, was asked what it felt like to be on top of the world. His simple reply was, “Every dog has his day.” As logistics professionals, once the lowest professionals on the corporate totem pole, we are having our day. During this past year, logistics has been featured on the cover of the Wall Street Journal, Forbes, Fortune, and Business Week magazines. It is no wonder. •Logistics expenditures represent about 10 percent of the U.S. gross domestic product and are approximately $1 trillion annually (see Figure 1-1). •Global logistics expenditures exceed $3.5 trillion annually and represent nearly 20 percent of the sum total of the world’s GDP (see Figure 1-2). SUPPLY CHAIN STRATEGY •Most U.S. corporations spend between 8 percent and 15 percent of sales revenue on logistics activities (see Figure 1-3). Logistics is being recognized as perhaps the last frontier for major corporations to significantly increase shareholder and customer value. An excellent example is the Coca-Cola corporation. With the world’s most recognized brand, Coke is the envy of the world in marketing. With a route driver or order taker appearing in nearly every customer location, nearly everyday, Coke’s customer service is outstanding. With a product made for over a century by the same mixing of sugar, water, carbonation, and flavoring, theoretical capacities for production quality and efficiency are being reached. The linking of those world-class marketing, customer service, and production processes, logistics, is the next great frontier for Coca-Cola and many other enterprises. Logistics and its younger cousin, supply chain management, are popular but greatly misunderstood topics. Logistics and supply chain management are new concepts in private industry. A minority of the professionals who work in logistics have formal training in logistics. Logistics and sup- ply chain management cut across and draw from personnel in a multiplicity of disciplines. It is no wonder that confusion abounds and that a majority of logistics projects never reach their intended goals or wind up as cata-strophic failures. Add to this a marketplace that includes more than one thou-sand vendors of logistics software, three thousand transportation providers, and one thousand providers of third-party logistics, and we have a situation

ripe for unmet promises and potential. The unmet potential is evidenced by the fact that less than 30 percent of all logistics projects ever achieve their intended goals (if the project involves software, the success rate drops to less than 15 percent) and that logistics productivity in the United States in the last few years has remained flat. We believe (and our benchmarking supports) that the underlying cause of recent failures in logistics is that the tools, technology, and training available to logistics professionals are not keeping pace with growing logistics complexities. In short and ironically, there is not nearly enough logic in logistics! This observation is based on my work with Fortune 1000 clients in awide variety of industries and by statements made to me by many of the par-ticipants in our professionaleducation programs. This observation motivated me in 1992 to organize The Logistics Institute at Georgia Tech, to developthe Logistics Management Series of courses, to form Logistics ResourcesInternational, and to author this book — each endeavor with the commonmotivation to teach and illustrate the following:•A definition of logistics (Chapter 1, “The Definition, Evolution and Role of Logistics in Business”)•A methodology for logistics problem solving (Chapter 1)•A profile of logistics activity (Chapter 2, “Logistics Activity Profilingand Data Mining”)•A scoreboard of logistics performance measures (Chapter 3,“Logistics Performance, Cost, and Value Measures”)•A standard for world-class logistics practices in customer response(Chapter 4, “Customer Response Principles and Systems”), inventorymanagement (Chapter 5, “Inventory Planning and Management”),supply (Chapter

6, “Supply Management”), transportation (Chapter 7,“Transportation and Distribution Management”), and warehousing(Chapter 8, “Warehousing and Fulfillment Operations”)•An architecture for logistics and supply chain management systems(Chapter 9, “Logistics and Supply Chain Management Systems”)•A development program for logistics organizations (Chapter 10,“Logistics Organization Design and Development”)that consistently yields higher levels of customer service, higher corporatevaluations, and lower logistics costs. That definition, along with methodol-ogy, scoreboard, standard, architecture, and development program we call The Logistics of Supply Chain Management .The story begins here with the definition, evolution, and role of logis-tics in business. This chapter presents•A formal definition of logistics and supply chain management (Section1.1, “The Definition of Logistics”)•The evolution of logistics and supply chain management (Section 1.2,“The Evolution of Logistics and Supply Chain Management”)• Descriptions of the five interdependent logistics activities (Section1.3, “Logistics Activities”)• Logistics optimization (Section 1.4, “Logistics Optimization”) 4 SUPPLY CHAIN STRATEGY

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• Logistics master planning (LMP) methodology (Section 1.5,“Logistics Master Planning”)• Logistics conditions around the world (Section 1.6, “Logistics Around the World”) 1.1THE DEFINITION OF LOGISTICS I was recentlyasked by a large food manufacturer to help them develop aformal logistics organization. At the kickoff meeting, the participants spent the first 2 hours arguing with one another about who should be represented in the new organization. As utter frustration was setting in and the first meet-ing was about to adjourn by default, it finally dawned on me why we were not able to make any progress. Each person in the room came to logistics without a formal degree in logistics and from a different professional disci- pline. One came from marketing, another from sales, another from mater-ial management, another from manufacturing, another from warehousing, another from transportation, and another was the nephew of the chairman of the board. As a result, each had his or her own different definition of logis-tics. It is impossible to develop anything, let alone an organization, for a process that is not even defined, and where each of the major players speaks a different language. Remember what God did to humble the people who were trying to build a monument to themselves reaching all the way to Heaven? He gave the mall a different language, so that the people could not communicate with each other. As a result, they could not complete the construction of the tower. Weare the same way in logistics; if we can’t speak the same language, we can’t start, let alone finish a project. Our definition of logistics is simple. Logistics is the flow of material, information, and money between consumers and suppliers. The confusion in the definition enters when logistics is placed in context, when it is con-fused with many of the buzzwords that incorporate logistics, when it is mixed up with the objectives of logistics, and/or confused with the interdependent processes that make up logistics. To help clear up some of the potential confusion, we’re going to now review five different contexts for logistics that also serve as a presentation of the evolution of logistics. 1.2THE EVOLUTION OF LOGISTICSAND SUPPLY CHAIN MANAGEMENT

Paralleling advances in management theory and information systems, logistics has evolved in scope and influence in the private sector since the mid CHAPTER 1THE DEFINITION, EVOLUTION, AND ROLE OF LOGISTICS IN BUSINESS 5 to late 1940s. In the 1950s and ‘60s, the military was the only organization using the term logistics. There was no true concept of logistics in private industry at that time. Instead, departmental silos including material handling, warehousing, machining, accounting, marketing, and so on, were the norm. The five phases of logistics development — workplace logistics, facility logistics, corporate logistics, supply chain logistics, and global logistics — are plotted in time in Figure 1-4. Workplace Logistics Workplace logistics (see Figure 1-5) is the flow of material at a single work-station. The objective of workplace logistics is to streamline the movements of an individual working at a machine or along an assembly line. The principles and theory of workplace logistics were developed by the founders of industrial engineering working in WWII and post-WWII factory operations. A popular name today for workplace logistics is ergonomics. Facility Logistics Facility logistics (see Figure 1-6) is the flow of material between workstations within the four walls of a facility (that is, interwork station and intra-facility). The facility could be a factory, terminal, warehouse, or distribution center. Facility logistics has been more commonly referred to as material handling. The roots of facility logistics and material handling are in the mass production and assembly lines that distinguished the 1950s and 1960s. In those times and even into the late 1970s, many organizations maintained material-handling departments. Today, the term material handling has fallen out of favor because of its association with nonvalue added activities.

Definition and evolution of logistics

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