Inside the margin of success

05/04/2015

Logistics is the backbone of the supply chain and focuses on performance and costs, but it can be trickier than walking a tightrope when decisions have to be made. Julius Caesar created the term “logista” to describe an individual who organizes troops and supplies during war time. To be victorious in the battle of commerce, one needs to have every move of their business plan mapped out in advance. But, as history has shown, there is no one way to win a war. Companies within the same industry can go about their logistical production in different manners, but still receive profitable end returns.

Two main forms of logistics exist: production and management. Production logistics focuses on the processes within an individual business; ensuring the correct amount of product is being machine-produced, and that the system is working efficiently. Companies that produce different models of a product each year concern themselves logistically with production, considering when a new product line is soon to be released – they want to move the remaining goods from the previous batch. Logistic management, also known as materials management, plans, implements and controls the efficient movement and storage of goods and services. Logistics management follows a good from its initial purchasing in raw form to the time it reaches the consumers.

Comparative Logistics
Electronics manufacturers based out of Chicago and New York may produce similar products and target the same audience, but their logistical management operations are not likely to be similar. For instance, the Chicago manufacturer outsources the production of the main product to a single company in China, while producing that product’s accessories through several different manufacturing organizations. These companies then ship the finished products directly do the distributors and retailers whom in turn distribute to stores throughout different regions and sell directly to the consumer. Those retailers and distributors, in this instance, are the first to have every piece of the product in the same place.

The New York company, on the other hand, takes a varied approach; outsourcing the production of their main product to multiple overseas producers as well as all of the accessories, similar to the Chicago company. Unlike the Chicago company, however, once the products are finished, New York’s goods are shipped to a single warehouse. To order either the main product or any of its accessories, consumers must visit specific locations or a single website such as Amazon. The website or designated vendors send a request to the warehouse which then ships the final product directly to the customer.

By the Chicago company keeping the production of their product centralized in one location, it decreases any logistical confusion and, if need be, allows for changes to be made quickly and efficiently. The opposite clearly applies then for the New York based electronics firm. By spreading the production of their main product out over several different manufacturers, communication becomes cumbersome and convoluted, especially if any of these companies outsource production of their own parts to other manufacturers. Immediate changes that are needed may not happen, thus slowing production. However, with outsourcing production over several different manufactures, the New York based electronics firm is safeguarded against disrupting production if a catastrophe should occur in one plant or another. Companies like Sony and Panasonic who have a significant portion of their production line centralized in one area were throttled and forced to shut down part of its manufacturing when Japan was hit with an earthquake in the spring of 2011. While the lull in production didn’t cripple either corporation, smaller companies with this model may not have been able to weather the storm. However, with the New York company only distributing its product through specific stores or a single website, logistics is lessened on the manufacturers behalf, given that they do not need to worry about implementing multiple 3PL shippers to transport their electronics to separate vendors and retailers; the outsourced warehouse would manage this aspect.

Fauxgistics
New York’s retailers are all under the same company umbrella, which gives the sales of their product more cohesion and exclusivity, similar to how designer clothing brands only offer their product in select high-end stores. Though, they do risk the possibility of intellectual property theft, such as Peerless Industries, an Illinois based company that produces flat screen television mounts. “Knockoffs of our products started showing up in markets here in our own backyard,” stated Michael Campagna, Peerless’ COO. “It wasn’t necessarily our supplier doing it—it was our supplier’s supplier.” Consumer electronics powerhouse, Apple, has also been plagued with having their products ripped-off and passed as genuine for years. Phony overseas stores even opened up using the company’s trademark logo and had the same décor and ambience as their genuine counterparts. As reported by Reuters in August, over 300 of these stores overseas came under inspection this year for passing Apple product clones with dozens of them being shut down. Oddly, some of those employed in these stores thought they truly worked for Apple.

Conversely, the Chicago electronics firm gains the opportunity of not having to control the managerial logistics of running the distributors and vendors day-to-day operations as the New York based company does, and with allowing this, the Chicago firm could possibly reach a broader spectrum of consumers. But, they lose the feeling of exclusivity, which could, in turn, detract from business.

Though, as both of these models show, there is no universal singular way to go about conducting logistics for a business. What works for one organization may not necessarily work for another. The key feature that both companies share is the notion of safeguarding; though, they each do so at different stages throughout the manufacturing and shipping process. Businesses need to weigh the pros and cons of all their logistics decisions before implementing one set way.