Business Logistics Term Paper

Supply Chain refers to the complex network of relationships that companies maintain among trading partners to find, produce, and deliver products and services to customers. Procurement, planning, distribution, logistics, and customer service are the principal players within the chain. They guarantee the movement of the products and services from the origin to the customer. The objective is to create value, build a competitive infrastructure, synchronize the offer with the demand and measure performance.

The supply chain value proposal has the emphasis to share information, make strategic allies to warranty long term stability, and the possibility to compete in the global market. Supply chain and more specifically logistics are of great importance in the economy since they can greatly affect the cost of production. This directly impacts the final price of the product or service to the consumer, thus having a profound effect on the profit of a company.

According to the U.S Chamber of Commerce, transportation and logistics represent only 7.7% of the U.S GDP. In contrast, the two countries with the fastest growing economies, China and India, have a logistics GDP percentage of 16% and 12% respectively. Logistics is therefore a competitive advantage and a deciding factor for succeeding in the global market. Efficient Logistics translate into increased profits. AMR Research concluded that the average total return of the top 25 supply chain companies in the U.S. was 18% compared to 6% for the Dow Jones Industrial Average. The study also suggested that countries with efficient logistics systems experience and additional 1% GDP growth and a 2% increase in trade.

The purpose of this essay is to find and demonstrate the relationship between logistics and the economic competitiveness. It will also explain the importance of Supply Chain and Logistics in the global economy as well as internally within an organization. Lastly, it will corroborate logistics complications with low performance and higher costs.

Economic Competiveness refers to the ability of a country to create, produce, and distribute services and products in the international market in a manner that yields profit. In order to achieve this, a country must incorporate technological advances so that the products are of the same or of higher quality than the competition and with lower or competitive prices. As a country enters and begins placing its products and services in other countries, it must be able to adapt to the new environment in order to meet the needs of the customer. It may also be able to take a business sector that had not been producing profit in the past and revitalize it. Lastly, an efficient and effective production chain is needed in order to achieve competitiveness.

On the other hand there are several factors that impede an economy from thriving in the marketplace causing a higher product price paid by the consumer: increasing shipping and storage costs, tariffs, taxes and import quotas, and economic policies that favor one sector more than others. These factors reduce the added value of the production process since they are not controllable by the business entity. In unison with each other, these end up having a profound effect on a county’s economy.

In essence, competitive advantage is reached once a country is able to unite the internal factors and favorable attributes of a certain organization with the external factors that affect it. Internal factors are those such as the unique processes and products and services that make that organization different from others. The external factors are those that the organization has no control over but ultimately rule the placing and price of the product. It is therefore necessary to examine the qualities of an organization and determine where in the international spectrum, it will be at its upmost point of profitability taking all factors into consideration.

According to the book Contemporary Logistics, logistics is that part of Supply Chain Management that plans, implements, and controls the efficient flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers’ requirements. Marketing is responsible for generating and stimulating the demand and the role of logistics is to satisfy it accurately. This is an important relationship because cost reduction and effectiveness can only be achieved through a detailed analysis of the demand in terms of level, location, and time. Logistics is therefore not a functional activity but instead is a model or a framework. It is a planning mechanism and a way of thinking that will allow efficient forecasting and risk mitigation

Logistics plays a significant role within a business since it allows an increase in competitiveness and improves the profitability by undertaking the challenge of globalization. It also coordinates all the factors that influence in the purchasing: quality, reliability, price, packaging, distribution, protection and service. Depending on how well the logistics plan is formulated this will give forth a competitive advantage to the economy which will be reflected in the positive earnings, growth and development.

Logistics Related to Economic Competitiveness

Logistics has two profound impacts that directly affect the development of the economy, companies and of the individual. First off, the macro impact is related with the circumstances associated with the accessibility of the forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption. This includes factors such as the conditions of the country’s infrastructure in terms of roads, ports of entry and exit and airports. Countries with poor transportation/road systems have a great disadvantage in logistical costs. This difficulty directly affects the price of the good, taking away from that country’s competitive advantage.

The World Economic Forum launched a report that examined supply chain barriers on international trade related to infrastructure and concluded that these impediments have a higher effect on trade than tariffs. This means that reducing supply chain barriers could increase world GDP over six times more than removing all tariffs. A clear example is Brazil, whom adopted an electronic freight system but failed due to the lack of supporting information and communication technology. This happened when the government servers crashed, delaying the logistical operations, thereby reducing efficiency by 4%. When the study measured the effect of tariffs, it determined that the impact was much more conservative at only 0.7% of the GDP.

On the other hand the micro impact it is related to the competitive advantage that each firm can contribute to the economy. There are many activities that a firm performs such as designing, producing, marketing, delivering and supporting its product that can add value. The point here is to measure the added value of each of these activities to ensure a logical order in the logistical process that will create efficiency. Logistics has the power to make the processes leaner, and optimal to have better results and reach the desired competitiveness.

The World Economic Forum came out with the Logistics Performance Index, which this year rated 160 countries. The top 10 on the list are: Germany, Netherlands, Belgium, United Kingdom, Singapore, Sweden, Norway, Luxembourg, United States and Japan. The six main attributes to compute the final scores were: Customs, infrastructure, international shipments, logistics quality and competence, tracking and tracing and timeliness. Interestingly enough, 7 of the 10 countries in the logistics ranking are in the top 10 Global Competitiveness Index.

In regards to the Competitiveness Ranking there are 12 pillars that are used to estimate the level of productivity and competitiveness of a country. The 12 pillars are: Institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market development, technological readiness, market size, business sophistication, and innovation. Following the purpose of this essay the pillar pertinent to this matter is infrastructure. The World Economic Forum stated that effective modes of transport, including, quality roads, railroads, ports, and air systems, enable entrepreneurs to get their goods and services to market in a secure and timely manner. This also facilitates the movement of human capital by enabling the placement of workers in the most suitable jobs.

There seems to be a direct correlation between infrastructure and competitiveness. The Logistics Index ranked Germany 1st, Singapore 2nd, and Netherlands 3rd in this area. These same countries also appeared in the Competitiveness Index ranking Singapore 2nd, Germany 5th and Netherlands 8th.

Germany for example is globally renowned for its transportation system that has enabled it to become one of the world’s leading economies. In the past 25 years, the country’s transportation efforts have greatly impacted the unification of East and West Germany. The road infrastructure has eased the exportation of goods from the internal parts of Germany to the ports. Meanwhile, it also helped the country develop plants and manufacturing centers in the east side of Germany which 25 years back was much underdeveloped.

Singapore consists of only 277 square miles. Despite its small size the road infrastructure is very well planned and expansive consisting of a network of 1,940 miles of highway that lead to the coast of the city-state. Singapore’s port is one of the busiest in the world, yet with efficient planning, it enables a receipt and dispatch of an average of 140,000 vessels per year. This not only serves the transportation of goods by container but also permits the export of refined products in the world’s 3rd largest refinery producing over 1 million barrels per day.

The structures and challenges of the economic and business environment move towards logistics to the top and with high expectations to continue playing an important role. That recognize all the effort made to manage efficiently the resources given.

Logistics must support the business as a whole with clear goals of decreasing the costs and increasing the profits. It is demonstrated that the leadership is active and visible through the eyes of a competitive economy where only the strongest ones will last and continue providing results.

Finally there is a direct relationship between logistics and the competitiveness of a country. If the government country guarantee the necessary elements to have a worthy logistical process, this will have positive effects in the development and growth of it.

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