What can logistics accomplish?

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In recent decades, the term “logistics” has developed into a general term. This is a good thing. But what is not so positive is that “logistics” – especially in the media – is often misused and misapplied in some companies for all kinds of occurrences. So it is high time to shed some light on the jungle of definitions. We also do not want to make the mistake of asking so-called “what-questions”, i.e. questions about the “essence” of a thing or an object, e.g. “What is logistics”. After all, questions about the nature of a concept do not advance us either scientifically or in practice. Sp the first questions should be: What are the services provided by logistics?

Logistics and its services

In a broader sense, logistics services are always improvements in the supply environment of systems. Such systems can be enterprises, non-profit organizations, transport, hospitals, households, etc. These systems require physical supplies to exist. The physical supply service is primarily controlled by information. Thus the physical and informational supply service is one of the essential logistical services on a very abstract level.

Where do the individual services of logistics lie, insofar as they are perceived or recognized as valuable by the respective “customer”? These individual logistics services – as a rule – concern some typical and essential ones, which are briefly listed below:

  • Time of delivery
  • Adherence to delivery dates
  • Delivery capability
  • Delivery quality
  • Delivery flexibility
  • Security of supply
  • Delivery Transparency

This list shows, that the individual services of logistics are interdependent. For example, a short delivery time is in conflict with a high degree of adherence to delivery dates. Each performance value in logistics has a certain relationship with the other performance values. These relationships not only have to be conflictual, they can also be supportive and in some situations relatively neutral.

The increase of the logistic performance

If the individual performances are to be improved, the above mentioned points can be displayed in a shortened form.

  • Reduction of the delivery time
  • Increase of the delivery capacity
  • Increase of the delivery quality
  • Increase in delivery flexibility
  • Improvement of the security of supply
  • Improved delivery transparency.

All improvements in a logistic system, however, go hand in hand with necessary measures, which require either higher input costs (input = costs) or an exchange (trade-off) of delivery performance values.

Logistics and the economic principle – performance and costs

If we assume the theoretical case that everything in a company is optimized, then an improvement of an individual service is only possible with the deterioration of another individual service (Pareto-optimal condition) or the costs for the individual service increase. This is the essential premise of the economic principle. In other words: Services can be maximized for a given cost or, for a given service, costs can be minimized. Thus “logistics” is a profoundly economic discipline, even though in practice extensive technical and informational knowledge is often required.

On the basis of the above definition of the principle of economic efficiency, one can already see how far the theoretical concept is from practice.

In my 30 years of practice, I have never seen a single case of complete optimization. This complete optimization is called Pareto Efficiency (Pareto Optimum) in the economic community. A state is pareto-efficient if no single element of the system can be improved without making at least one other element worse.

The “Slacks” of the practice

In practice, neither a company is in a static state, nor is there any way that a system in a dynamic environment can ever be Pareto-efficient. Pareto efficiency is only a theoretical construct and can at best serve as a working hypothesis or as a guiding idea for improving the system or parts of the system. The downside of the increase in performance is always an increase in costs, which need not be exclusively logistical costs. This fundamental assumption of the complete optimization of a company logistics system is – as will be shown in further contributions – far from reality. Thus, it is precisely the “slacks in the practice”, i.e. the “sagging of the practice”, that are the cause for improvements on both the performance and the cost side.

Further information on the history of logistics can be found under “Once upon a time…: the beginnings of logistics and intralogistics”.

Image source: © JiSIGN – Fotolia.com

About Ernst Kurzmann

Ernst Kurzmann

Ernst Kurzmann is a lecturer in the fields of internationalization, logistics and supply chain management. He also holds a Master of Business Administration (FIBAA accreditation) and has been a business trainer and consultant in Austria for decades, specializing in statistical and mathematical calculations in logistics & supply chain management. Ernst Kurzmann gained his professional experience at renowned companies such as Unilever, Alcatel or PepsiCo. He has been self-employed for 20 years and has published his specialist book "Supply Chain Management. How to survive in the 21st century with networked thinking", which has become a bestseller in this field, among others. His current publication "ManagemANT - What specialists and managers can learn from ants. With Swarm Intelligence towards Corporate Success" was published in August, by the Frankfurter Allgemeine Buch Verlag F.A.Z.

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