The Growth of Business Logistics

Logistics as a subject area has faced considerable change in recent years. Before modem conceptions of what logistics management represents today are presented, it is

useful to briefly set this in context with how the vision of logistics has evolved over the last four decades.

Five distinct eras can be identified from Bowersox’s (2007) and Mandrodf s and Davis’s (1992) summaries of changes in logistics.

2.4.2.1.1 The Total Cost Concept

In the early 1950’s Bowersox (2007) noted that the typical manager of transport, “was expected to continuously lower the cost per hundredweight (CWT) to move products and materials”. In 1956 the total cost concept was first proposed by Lewis et al. in their paper, “The Royal Air Freight in Physical Distribution”. This article reshaped the argument which moved from optimising costs associated with individual logistics activities such as transport to minimising the total costs of the entire delivery process.

The focus of attention therefore moved in the ensuing years from functional focus to an emphasis of minimising delivery costs across the whole firm. Indeed, Bowersox (2007) cited that a break away group, including himself, from the American Marketing Association after discussing the total cost concept formed the National Council of Physical Distribution Management (NCPDM) in December 1963.

2.4.2.1.2 Incorporating the Customer

Beyond the narrower focus of internal processes of the firm, the need to understand that the goal was to deliver products to the end consumer began to drive an extension of the total cost concept to include external as well as internal costs. The management of a channel through which the products were delivered to the end consumer and potentially containing many entities became the common view of what logistics consisted of. Bowersox (2007) added that this change was given great support and credence following a lecture to NCPDM from Drucker (1965) entitled, “Physical Distribution: The Frontier of Modem Management”. He defined physical distribution as, “the whole process of business” and stated that many opportunities for considerably improved performance remained untapped.

2.4.2.1.3 The Systems Concept

In the 1970s this evolved further as businesses were forced to react to economic turbulence. The control of costs became even more paramount, “forcing logisticians to

develop dynamic delivery systems that could change in response to changing conditions” (Mandrodt and Davis, 1992). The same authors cited companies such as Quaker Oats and Whirlpool who incorporated capabilities to be flexible in their physical distribution systems combining a number of co-operating organisations towards a common goal - known as, “the systems concept or integrated logistics”

(Lambert and Stock, 1993).

2.4.2.1.4 Information for Inventory

New technology development supported this expanded vision of logistics and facilitated the development of further refinement and innovation in the logistics field.

The idea of developing capability around information management ensuring accurate and up-to-date stock accounts were maintained allowed for lower levels of inventory in many cases. In 1985 NCPDM replaced the term physical distribution with logistics (Bowersox, 2007) and became the Council of Logistics Management (CLM) in the United States.

2.4.2.1.5 The Customer Service Concept

Throughout the evolving vision of logistics, the importance of incorporating the customer into logistics solutions became increasingly critical. The retention of customers was viewed as vital to better optimising a firm’s on-going profitability potential. Through the 1980’s and 1990’s, as noted earlier in the review of SCM, the importance of customer value rather than a narrower focus on cost minimisation began to develop. The classic trade off of cost versus service was increasingly focussed upon. Mandrodt and Davis (1992) argued that logistics organisations, rather than being limited in service provision to what the company could do, evolved to understanding and providing what the customer wanted. This required a new customer service philosophy to be developed which they termed as “service response logistics”.

2.4.2.1.6 The Collaborative Enterprise

As discussed earlier in this chapter, the emergence of SCM in the late 1980’s and through the 1990’s to today, further extended this thinking of optimising total system performance for the benefit of the end-consumer. Supply chain integration was emphasised as critical to this endeavour (Stevens, 1989 and 1990) and the concept of

supply chain collaboration and alignment emerged and were developed (Bowersox, 2007).

2.4.2.1.7 The Networked Era

In the last decade this evolution of logistics has continued to show great dynamism.

Traditional “bricks and mortar” firms have been re-invented along with new non-asset based entities with the goal of leveraging opportunities from the wider industrial network, not just the supply chain network (Mason et al, 2007). Globalisation has continued apace extending the importance of logistics in managing longer and more complex material movement and SCM has become more sophisticated so that logistics practice is seen to be more critical to the fulfilment of the goal of integrated SCM. In reflection of these changes the CLM in the United States officially became the Council of Supply Chain Management Professionals (CSCMP) in 2005. Logistics was positioned as a “supportive process” in the broader field of SCM. The recent unprecedented large increases in fuel prices have also elevated the criticality of logistics strategically as invariably it is an escalating and substantial cost which needs to be closely scrutinised.

In summary, the logistics concept has been highly dynamic and has evolved considerably as demands upon it have changed and as capabilities have grown in terms of mind-set, organisational structures, and organisational cultures supported by considerable developments in technology.

2.4.2.2 Definition and Purpose of Modern Logistics Management