Wednesday, 27 March 2013

The Challenges of Logistics Performance

The Challenges of Logistics Performance:
What affects Logistics Performance? (Cost, Time, Geography and Over Regulation)

Rokiah binti Abu Hassan


The first thing to consider in logistics, as always, is cost. Any businessman worth his salt knows that he will be in the losing end if the tries to reach for a global market yet incur high overhead expenses. It will not be a wise move to ship items to another location if the actual costs of the activities are not going to be retrieved by the expected profit.

The logistics industry is a dynamic and very fluid market where prices can change every week. Pricing in logistics is a combination of understanding the traditions of the routing used, the research put into the negotiations, and the timing of the negotiations. In order to obtain the best logistics costs, take into account the good faith of a long term agreement, the scale of your operations and move, and the priority of the move (transit time versus price).

How to Reduce Logistics Cost on Transportation? First, determine what you need to ship and determine the mode you'll use. Second, Plan for your projected needs for at least one year. Logistics providers base rates and rate agreements on either an immediate shipment basis (within 30 days), or based on a one-year agreement. If there is a large volume of shipments, it's possible to prepare a bid that could warrant special terms and conditions. Third, Solicit quotes from any vendor which can accommodate shipments. For small shipments less than a container, contact freight consolidators/brokers. Forth, Analyze quotes and read the terms/conditions of the quotes. Check the validity of the quote (Is it for a particular sailing, a month, a year?) and what surcharges it's subject to. Check if there are any value-added services available such as extended demurrage (time at the pier/airport), detention (time to keep the container), credit terms or volume incentive discount. Also ask if rates are subject to general rate increases, new surcharges, war risk or terminal handling charges. Fifth, Compare and counter offer the rate levels you were provided and lastly, Confirm that rates are filed in either a contract or in a governing tariff and regularly check the terms of the filing.


Another thing to consider is the time that it will take for the goods and services to be delivered to their destination.

In many instances, perishable goods do not reach the destination in the same fresh condition. This poses a risk to any businessman since the products will not be sold anymore. Sometimes, the products do reach the destination, albeit late. The downside here is that they would have just a few shelf days remaining. In a very short span of time, the products will perish and will no longer be fit for consumption. Ironically, this scenario means that it would take more days to transport the goods than the days they would be displayed on market shelves. As such, business owners simply refuse to ship items since they lose money instead of earning it.

Time is critical. With quickening obsolence and technology advancement, new products must be brought to market quickly. Customers do not want to carry any more inventory than they must. So their suppliers must be able to respond quickly to delivery orders to them. This demand for time reduction exists through out each link of the supply chain.

Company management may focus on different aspects and elements of cycle time. It's very possible they do not understand the total process. They may look at how long it takes to enter an order, or the warehouse time to pick and ship and order, the cycle time from order receipt to ship an order, manufacturing cycle time, time to prepare purchase orders or other measures of time. These are each elements of the total cycle time; they are not the entire process. Without an understanding of the entire cycle and its elements, companies can optimize one element and yet sub optimizes the overall system.

With logistics, the cycle time is significant and can be complex. In logistics, cycle time runs from the vendor shipping to you right through to your delivering the customer's order to him. This view of cycle time means there are both internal and external factors. These must be recognized and dealt with an order to manage and reduce the time. And the scope and complexity becomes significant if the vendor is located overseas and/or the customer order is for export. Very often company management does not understand the process and what all is involved to get materials into the manufacturing facility, or finished goods into a warehouse and to deliver orders--all within the time constraints to meet the customer's requirements.

Supply chain management, continuous replenishment, vendor-managed inventory, just-in-time and similar programs are customer driven. You must perform as the customer demands. Failure to meet the customer's expectations can result in penalties, charge backs and even the loss of his business.


 In relation to this, geography also plays a crucial role in logistics management. If a target global market is too remote, there is almost no practical way of reaching out to that geography. What needs to be identified is the source of the product and then a study is made regarding the feasibility of transport to that specifically remote location. With today's airplanes, this does not really post much of a challenge. However, you still have to consider the associated costs with effective transport of goods.

In most of the cases, geography plays a vital role in logistics management. The face of the matter is that you will have to often deliver the mandatory goods and services to the right person at the remote areas. That’s why you will have to really take care of geography along with good means of transportation


Last but not least, you will have to take note of a country’s over-regulation during your logistics management.
In short, although there are many challenges of logistics management but you can certainly reduce these concerns by your sheer planning, organization, and execution. There are many countries that have customer practices that are detrimental to their own economic development. Goods are stocked for so long in the customs bureau and they just get released after months of waiting. This kind of bad practice seriously impairs the goal of logistics.


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