Importance of logistics in business

The importance of logistics systems lies in the fact that it leads to ultimate consummation of the sales contract. The buyer is not interested in the promises of the seller that he can supply goods at competitive price but that he actually does so. Delivery according to the contract is essential to fulfilling the commercial and legal requirements. In the event of failure to comply with the stipulated supply of period, the seller may not only get his sale amount back, but may also be legally penalized, if the sales contract so specifies. There is no doubt that better delivery schedule is a good promotional strategy when buyers are reluctant to invest in warehousing and keeping higher level of inventories. Similarly, better and/or timely delivery helps in getting repeat orders through creation of goodwill for the supplier.

Thus, as effective logistics system contributes immensely to the achievements of the business and marketing objectives of a firm. It creates time and place utilities in the products and thereby helps in maximizing the value satisfaction to consumers. By ensuring quick deliveries in minimum time and cost, it relieves the customers of holding excess inventories. It also brings down the cost of carrying inventory, material handling, transportation and other related activities of distribution. In nutshell, an efficient system of physical distribution/logistics has a great potential for improving customer service and reducing costs.

Logistics has gained importance due to the following trends

  • Raise in transportation cost.
  • Production efficiency is reaching a peak
  • Fundamental change in inventory philosophy
  • Product line proliferated
  • Computer technology
  • Increased use or computers
  • Increased public concern of products Growth of several new, large retail chains or mass merchandise with large demands & very sophisticated logistics services, by pass traditional channel & distribution.
  • Reduction in economic regulation
  • Growing power of retailers
  • Globalization

As a result of these developments, the decision maker has a number of choices to work out the most ideal marketing logistics system. Essentially, this system implies that people at all levels of management think and act in terms of integrated capabilities and adoption of a total approach to achieve pre-determined logistics objectives.

Logistics is also important on the global scale. Efficient logistics systems throughout the world economy are a basis for trade and a high standard of living for all of us. Lands, as well as the people who occupy them, are not equally productive. That is, one region often has an advantage over all others in some production specialty. An efficient logistics system allows a geographical region to exploit its inherent advantage by specializing its productive efforts in those products in which it has been an advantage by specializing its productive to other regions. The system allows the products’ landed cost (production plus logistics cost) and quality to be competitive with those form any other region. Common examples of this specialization have been Japan’s electronics industry, the agricultural, computer and aircrafts industries of United States and various countries dominance in supplying raw materials such as oil, gold, bauxite, and chromium.

Furthermore Logistics has gained importance in the international marketing with the following reasons:

  1. Transform in the customers attitude towards the total cost approach rather than direct cost approach .
  2. Technological advancement in the fields of information processing and communication.
  3. Technological development in transportation and material handling.
  4. Companies are centralizing production to gain economies of scale.
  5. Most of the MNC organizations are restructuring their production facilities on a global basis.
  6. In many industries, the value added by manufacturing is declining as the cost of materials and distribution climbs.
  7. High volume data processing and transmission is revolutionizing logistics control systems.
  8. With the advancement of new technologies, managers can now update sales and inventory planning faster and more frequently, and factories can respond with more flexibility to volatile market conditions.
  9. Product life cycles are contracting. Companies that have gone all out to slash costs by turning to large scale batch production regularly find themselves saddled with obsolete stocks and are unable to keep pace with competitors’ new-product introductions.
  10. Product lines are proliferating. More and more product line variety is needed to satisfy the growing range of customer tastes and requirements, and stock levels in both field and factory inevitably rise.
  11. The balance of power in distribution chain is shifting from the manufacturers to the trader.

About Abey Francis

Abey Francis is the founder of MBAKnol - A Blog about Management Theories and Practices - and he's always happy to share his passion for innovative management practices. You can found him on Google+ and Facebook. If you’d like to reach him, send him an email to: [email protected]

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