Today, the most important “success criteria” for the owners and shareholders of a company; growth, increase in market share and increase in profitability and their sustainability.
Growth; It can be achieved by selling more to existing customers, gaining new customers and selling to new geographic markets. Growth allows to have more market share than competitors.
The only way to sell more to existing customers is if customers are satisfied with the company and the goods it sells, and even if customers are loyal to the company and the goods it sells. The new customer, who is sold for the first time, must first be satisfied and then his loyalty must be achieved.
Net profitability is actually the only tangible result of all the efforts of the company. Today, being able to work “profitably” is much more important than the size of turnover.
If a company cannot actually produce and sell a very different product today and in the future, the success criteria that the company and its shareholders expect, today and in the future, only the supply chain that is designed and managed correctly and in particular logistics are provided.
Perceiving logistics as Supply Chain and Logistics Management as Supply Chain Management and mistaking it as logistics=supply chain actually makes it difficult to manage both correctly and may lead to not realizing the expected benefits from them. Logistics-related movements are part (perhaps the most important part) of the “supply chain” and these movements affect the supply chain positively or negatively, but logistics, “supply chain” and managing logistics are not “managing the supply chain”.
Correctly designed and managed logistics ensures that the supply chain, which covers all processes from the supplier to the customer, is efficient, effective and effective.
While the importance of supply chain and logistics is gradually increasing in a competitive environment, it is much better to realize that logistics does not consist of only transportation and / or storage, and that the logistics perceived as a %22cost center%22 is actually a %22profit center%22 for the company and a %22benefit and value creation center%22 for the customer. is being done.
If we go back about 200 years…
The word logistics, known as logistique in the book The Art of War (1838) by the general Baron Henri de Jomini, was actually first used in the Scots Magazine and Edinburgh Literary Miscellany (January 1810, page 286) at the University of Göttingen. Military Sciences Academy Instructor, Engineer Lieutenant Dr. The book “The Elements of the Art of War” (Dr. Muller, published in 1811 in “The Elements of the Science of War”), which is known as the first book on the theory and practice of modern warfare (it examines the movement of soldiers under the title of “logistics”) written by Willam Muller The word logistics was used while giving information about the War.
In the Independent newspaper (1905) “…keeping a supply chain with India unbroken, and of fighting for the capture of fortified passes at altitutes of 14,000 to 18,000 feet, were very great” and in the Glasgow Herald (Herald Scotland) newspaper (October 1912) “Balkan “The Bulgarian staff trust largely to the power of their Army to subsist on the country. In the various links of the supply chain are carried eight days’ supplies, and the staff relies on the distances carrying them from on center where supplies can be collected either by rail or requisition to another” the word “supply chain” was used.
Arch W. Shaw is the first person to use the concepts related to “logistics” outside the military scope in his book “Some Problems in Market Distribution (1915)”, what is said today about the importance and function of logistics.
Dr. Donald J. Bowersox wrote the first textbook titled “Physical Distribution Management: Logistics Problems of the Firm (1961)” and explained how logistics should be.
Peter Drucker, in his article “The Economy’s Dark Continent” written in Fortune Magazine (April 1962), stated that “logistics is the unknown part of the economy; that logistics is neglected due to the ignorance, indifference and indifference of the people who manage and direct the companies and the US economy about the logistics aspect of their business; He wrote that for every $1 that the consumer spends on goods, almost 50 cents goes to activities that occur after the goods are produced, and that logistics is half the game, but it goes unnoticed.
Keith Oliver, in an interview with the Financial Times (04.06.1982), used the term Supply Chain Management for the first time and stated that supply chain and specifically inventory management is now essential for European and American manufacturers to compete against Japanese manufacturers.
So why was logistics neglected in the words of Peter Drucker?
From the 1800s until the end of the 1950s, logistics was associated with %22military service%22, and trade was not much associated with life.
Japan improved its production from 1950 with the contribution of William Edwards Deming, and from the 1960s Japanese products began to challenge European and American manufacturers. In his speech in Japan in 1950, Deming emphasized that not only the quality of the product is sufficient, but also the transportation must be very good.
After World War II, American producers, who only focused on sales, wanted to create the impulse (motivation) to buy in the customers with the advertisements they prepared with Pavlovian (conditioning) and Freudian (id, ego, superego, passion, desire) methods. There were no logistics-themed advertisements such as “on-time delivery”, but “logistics”-themed advertisements for the last 10 years, although very common, those who do the logistics business do not receive the reputation they deserve today and remain in the shadows). From the 1970s, after the implementation of the US Declaration of Consumer Rights (1963), consumers; started to become conscious, selective, “decision maker” instead of being motivated, and tend towards affordable goods that simplify purchasing (deciding according to recommendations, easy access to what one wants, easy and effortless purchasing). With the effect of this change in customers, private label goods (private label) and discounts stores began to appear very often.
The collapse of the USSR in 1989, the collapse of the Berlin Wall and especially after the completion of the Uruguay Negotiations in 1994, accelerated globalization and Multilateral Trade Liberalization and developing countries (from ¼ of the world trade in the early 1970s to the end of the 1990s). European and American manufacturers entered a competitive environment that they were not used to. India, Korea, Singapore, and especially China (which had isolated itself from the West during Mao’s time) allowed Foreign Direct Investment (FDI) in 1978 following Mao’s death and became the developing country that attracted the most FDI in 1993 after 2002. passed the United States in the year) began to play an important role in world trade.
The aforementioned has caused many companies to have problems with sales and customer loyalty and companies have had to find other things for “competition” rather than just “advertising”, “sales techniques” and “we sell anyway” convenience & confidence.
From the mid-1960s to the mid-1990s, companies focused on either pre- or post-production processes and their inventory with MRP I, MRP II, QR, ECR, CRM, ERP, but not on the supplier-to-customer process, the “supply chain” as a whole. .
Since the mid-1990s, companies that see that it is no longer sufficient to produce quality goods and / or sell through very good sales techniques and advertisements, or simply to manage their own companies or only pre-production or production time very well, are no longer sufficient to compete with the customer. They started to work to develop cooperation with all stakeholders involved in the whole process (supply chain) from suppliers to customers, and to manage this chain that adds “value” to the customer (design, planning, coordination, control, correction & improvement).
In addition, the use of personal PCs in 1979, the difficulties experienced by companies producing in other countries in this complex structure (borders, laws, international goods movement, stocks in different places, etc.), the development of technology and especially information technologies, the economic crises in the 2000s ( production was adversely affected due to the decrease in demand due to the decrease in the income of consumers due to the decrease in the income of the consumers due to the recession, shrinkage, very slow growth), the change in customer behavior with the rapidly developing e-commerce since the beginning of the 2000s (the desire to use the goods purchased in cash as soon as possible) and even the customers Factors such as its focus on the “environment” contributed to the supply chain gaining much more importance and the development of the Supply Chain Management approach.
The “success criteria” I mentioned in the first line of my article can only be achieved today with an efficient, effective and effective supply chain. On the other hand, logistics, which provides the two-way (supplier – company – customer and customer – company – supplier) movement of the Supply Chain at the same time, if it is designed and managed correctly, the supply chain will be successful as a result and the success criteria must be achieved. can be done.
5 key elements (cost, time, inventory, information sharing, hazards) in the supply chain are very important.
- The supply chain cost, when viewed as a whole, constitutes a significant portion of the cost of producing the goods to be sold to the customer. Pricing in accordance with market conditions is very important for retaining customers and gaining new customers.
- Time is the period from the moment the customer places an order until the delivery of the goods to the customer, and from the moment the purchase order is given to the supplier for the supply of raw materials and/or semi-finished products or auxiliary materials, until the time they are entered in the inventory records. Especially if there is a %22special production%22 for a customer, these two periods should be considered as a whole.
- Inventory for the supply chain; raw materials for production, semi-finished products and chemicals used for production, etc. auxiliary materials and auxiliary materials such as final product and parcel for sale. Especially if there is a %22special production%22 for a customer, these two inventories should be looked at as a whole.
- Information sharing is that everyone within the scope of the supply chain, including the customer, has the necessary information as soon as the information is created.
- Measures should be taken against losses caused by hazards that the company can and cannot control (natural events such as earthquakes, pandemics such as Covid-19, countries making trade difficult, etc.) and their effects should be reduced (Crisis Management).
Logistics, which is the most important part of the supply chain and ensures the movement of this chain, is no longer just the %22operation%22 but the service offered to the customer (internal customer, external customer).
Today, service quality is as important as product quality and service quality depends on logistics performance . By consumer ordered goods (paid in advance as in e-commerce), customer when the customer wants (at the promised time) wherever he wants (to be ready where he goes to buy) with the desired features (solid, full) and at the promised price (without additional cost) and, if necessary, logistics-related (damage, delay, missing, incorrect) return problems without difficulty solving , logistics service quality . In addition, logistics workers to solve problems and difficulties related to logistics movements. competency (knowledge, skills), these employees and even the equipment and facilities used for logistics Sharing the information regarding the outward appearance (the vehicles delivering to the customer are clean, the employees do not smell of sweat, the clean and tidy warehouse) and the logistics activities are accurate and timely, affects the logistics service quality . The fact that these are not one-off and continued without interruption increases the trust of the customer. Correctly designed and managed logistics and the resulting logistics service quality :
- It affects the cost of production of the good. E.g:
- Low (or improving) logistics costs (supplier-to-manufacturing, production-to-customer, storage, packaging, return, reverse shipping, recycling…) enables the company to be competitive for its selling price and to sell with a higher profit margin. It allows it to enter the markets with competitive prices.
- The shortening of logistics time reduces the cost of holding (transporting) inventory .
- The shortening of the logistics time reduces the damage rate of the goods.
- Correct management of hazards (theft, loss, damage, traffic, etc.) excluding natural disasters that will affect logistics reduces (or even resets) the insurance premium or compensation (delay, damage, missing).
- It reduces (or even resets) the return of goods and the costs incurred for them, which are “damaged, incomplete, wrong” delivered to the customer due to logistical movements.
- With the right packaging, the rate of damage to the goods will decrease, so insurance premiums and compensation payments will be reduced, handling costs in warehouses and distribution will also decrease, complaints and returns can be reduced and waste from packages can be reduced.
- It ensures that the planned logistics time is not prolonged and even shortened by improving it if possible .
- The fact that the planned logistics period is not extended, and even shortened, if possible, reduces CO2 emissions and air pollution caused by logistics (fuel consumption, electricity consumption in warehouses).
- It increases “availability” on the shelf and reduces the risk of “knockout”.
- It provides logistical flexibility to react quickly to changes in the market (instant demand increase, etc.).
- It enables quick and rapid reaction to different hazards (logistical flexibility for supply from different countries or sales to different countries).
- It facilitates the implementation of nature protection policies by facilitating the recycling process.
- It enables easier and quicker access to different geographies for export and easier sales there.
- It facilitates imports from different geographies.
- It ensures that customers are offered a value-added service (repackaging, etc.).
- As the number of %22touches%22 to the goods will be reduced thanks to the reduction of logistics movements (direct shipment, use of pallets in transportation, etc.), the probability of %22damage%22 and %22handling%22 costs can be reduced with each touch.
- Correct transport structure (number of vehicles) and correct storage structure (number, area, number of handling and stowage equipment, etc.) reduce the company’s %22investment%22 and %22depreciation%22 costs.
- Correct logistics personnel structuring reduces the company’s %22human resource%22 related costs.
- Logistics service quality enables the first-time customer to buy again (satisfaction) and the existing customer to buy more of the company’s goods (loyalty).
- It improves the company’s financial ratios (Cash Flow, Collection Period of Trade Receivables, Inventory Holding Period, Cash Cycle, ROI, ROA).
Logistics service quality, even when a logistics company (3PL) is used for logistics processes, customers perceive every problem that 3PL will create as if the company that sold the goods to them caused it.
Often conflicting goals such as high customer service, low inventory management, and low unit cost can actually be achieved simultaneously and simultaneously thanks to the “supply chain” and its logistics.
BUT today, every stakeholder of the supply chains, and even every department of the company, is acting for their own interests rather than acting for the benefit and interests of the customer, putting the customer at the centre, and making “decisions” that may adversely affect all stakeholders, regardless of the supply chain as a whole. If the supply chain is managed in this way, the desired benefits from Supply Chain Management and, in particular, Logistics Management, cannot be achieved and even bigger problems may be experienced than the current situation, costs may increase and even customer losses may occur.
It should not be forgotten that a good only benefits the customer when it is used by the customer and creates a value for the customer. Correctly designed and managed %22Supply Chain%22 and in particular %22logistics%22 ensure that the goods are available on the shelf at an affordable price. For example, according to studies conducted in the last year, the most important reason for customers to switch to a %22different product%22 apart from %22price%22 is the %22availability%22 of the product and %22logistics%22 problems with the current product.
In summary, logistics, which is the most important part of the supply chain, is as important as the goods that companies produce and want to sell, whether it is conventional commerce or e-commerce.
The last sentence is “logistics”, the sole resort for companies…
