Logistics information systems: The strategic role of top management

Journal of Business Logistics, 1994 by Bardi, Edward J, Raghunathan, T S, Bagchi, Prabir K

The environment in which managers operate today is radically different from that of their predecessors. Consequently, the demand on today's management is markedly different. Bartlett and Ghoshal(1) argue that corporations that once succeeded with one-dimensional strategies have been forced to broaden their outlook for success in the changed environment.

It is common in today's environment for a company to design a product in one country, source in another, manufacture and assemble in yet another, and finally sell globally. In its simplest form, logistics is a transaction-intensive function tying together this spatially diverse operation. With the added diversity in global business, logistics poses a formidable challenge to manage effectively and efficiently a longer logistics pipeline involving multiple countries. The need for efficient information processing is essential to meeting this task.

The importance of logistics as a critical link in today's business environment has increased as firms implement the Just-In-Time (JIT) business philosophy. The IT impact on logistics has been discussed by many authors, who have pointed to the essential role of logistics as the provider of consistent, low lead time, damage-free deliveries.(2) Shipments are being made within narrow time limits to effect cost advantages in manufacturing and inventory, while transportation providers and vendors are called upon to meet exacting time demands requiring efficient logistics information systems (LIS).

LOGISTICS INFORMATION REQUIREMENTS

With the change in business from national to transnational, the need for a LIS is being recognized as an essential ingredient for success in today's global marketplace. As logistics channels become longer and more complicated, involving more channel members, efficient coordination becomes the key to effectiveness.

The LIS employed by a company determines the efficiency and competitiveness of the company in the marketplace. The ability to optimize logistics costs and service levels is affected by the LIS. Today's managers require information regarding both the spatial and temporal dimensions of a company's raw materials and finished products. Such knowledge enables optimizing the cost of moving and storing products as well as satisfying customer demands. In addition, a competitive advantage is obtained in the marketplace by companies that produce better logistics service at lower logistics costs.

The implementation of a LIS is motivated by a number of objectives including logistics service optimization, cost optimization, information integration, and customer linking. As companies attempt to compete in world markets, considerable attention is directed toward the quality of logistics service that can be utilized to differentiate the product in the marketplace. The physical completion of the sales transaction creates logistics service, acceptable or unacceptable to the customer. To satisfy customer logistics service requirements, companies are proactively managing logistics service levels by monitoring service levels of specified, quantifiable performance criteria. A LIS is a critical link in the provision of service performance measurements and the achievement of customer logistics service satisfaction.

The level of customer service provided by logistics is constrained by the cost of providing the logistics service. Optimization of logistics costs requires an analysis of the multiple logistics system component options that can be developed to achieve a desired logistics service goal. The various logistics system designs require varying amounts of resources and incur differential costs. Achievement of cost optimization for a desired level of logistics service necessitates an information system that is capable of providing cost data relative to existing performance so that system control, modification, and comparison with the cost of alternative systems are possible.

The integration of information from varied sources within the company is a goal that many companies are establishing. Information integration makes available to management from one or a limited number of sources multiple bits of information than previously were generated, analyzed, and stored by many throughout the organization. The integrated information source permits management to examine the operation of the organization in total, not in a fragmented, functionally isolated basis. Logistics cost and service are of considerable importance to the overall quality and efficiency of the operation, and logistics information is a critical component for integrated information.

Finally, the advent of the partnership philosophy governing the seller-buyer relationship has motivated companies to establish a LIS so as to provide the customer-desired logistics information and transactional activities. As the partnership concept matures, buyers and sellers are linked by computer for such logistics activities as inventory level determination, order placement, order status, order release, shipment routing, and shipment delivery status. A LIS is critical to the achievement of this level of buyer-seller coordination.