Friday, September 28, 2007

Locative Solutions and a brief history of Logistics

I had the pleasure of hosting Dr. Charles Brown’s Marketing Club here at Exel’s Americas Support Center this morning. Yes, this group is from West Virginia University’s Business and Economics School. Since these soon-to-be executives were here to experience the real world, it got me to thinking about the history of logistics and the supply chain…damn! Am I starting to sound like an old man, or what?

Logistics has always been a critical part as one of the 4 P’s in Marketing: Product, Place, Price and Promotion. (Hey, someone tell me…do they still use the four P’s? That’s what I remember from my days at WVU’s B&E School). The “Place” component ensures the product is at the right place, at the right time, in the right quantity and the right quality. So, let’s take a stroll back in time to read about how the logistics discipline started and where it may be headed.

Military Roots
Logistics received recognition in military operations during World War II. It gained its momentum as it contributed to the effective distribution of machinery and supplies to troops. A service delivery failure here may mean an increase in unnecessary fatalities. Peter Drucker (a business guru in the 1960’s, who’s business acumen never seems to get old) identified logistics as a growing concern within business.

This generated more prominence towards the practice of logistics in the late 60’s.

DeregulationAs the economies in North America evolved in the 1970’s and 1980’s, transportation deregulation changed the competitive landscape of business. Carriers were free to charge their customers (Shippers) a competitive rate for their shipments. Warehousing companies that typically acted as surplus inventory storage locations, married up with transportation companies to offer customers full-service solution capabilities. This formed the beginning of the 3rd party logistics (3PL) business and paved the way for outsourcing logistical activities.

This was also a time when companies started to loose a ton money sourcing domestically…hence the boom to the economies of the BRIC markets…Brazil, Russia, India, and China…

GlobalizationWith the advent of globalization, firms began to seek ways of cutting their production costs. Thus, multi-national corporations re-located their factors of production to low-wage countries to gain a competitive advantage. Increasingly, more and more countries are joining the World Trade Organization (WTO) and opening their country to foreign capital investment. Retail giants like Wal*Mart exploit these new efficiencies and increase their imports from new emerging economies to reduce product prices in their stores. Thus, the new challenge is how to manage the product and information flows around the world. The increased pressure on managing these operations further underscored the importance of logistics as an area for optimization.

Ha! The advent of 3pl’s…organizations like Exel…and a drive to create PO to POP visibility in the supply chain. You know, Purchase Order to Point of Purchase.

Information Technology
Another contributor that led to an increased presence for logistics was the explosion in information technology and use of computers throughout the 1980’s and onwards. The cost of computing has decreased year after year since then and computing power rose exponentially. The use of the Internet and increased bandwidth capacity further enhanced and enabled quick connectivity and collaborative relationships that reduced inventories and created a Just-In-Time operating opportunity for organizations. These efficiencies reduced errors, increased fill-rates and cut overall operating costs for organizations. The 90’s created the need for fast info, and faster supply chains.

So, where do we go from here? Well, this is when the Balance Sheet shell game became popular. You know, the Dell model of production, and VMI. Oh yeah, and Enron…SarBox…etc.

Supply Chain ManagementAs the above factors fuelled efficiencies, logistics gained more prominence in organizations. A natural extension was to link the logistical operations from each firm to the entire supply chain. The new paradigm became known as the ‘systems approach’ to supply chain management and introduced the concept of trade-offs. In order to achieve least total supply chain cost, operational integration of the five main areas of logistics must be simultaneously optimized: Warehousing, Transportation, Inventory, Order Processing and Lot Quantities. Optimizing any one of these areas individually will sub-optimize the system as a whole. For example, a single warehouse in a network would achieve the lowest warehousing cost. This would create high transportation costs as suppliers ship over greater distances to ship products into the warehouse and conversely, outbound to its market distribution area. The addition of a second warehouse in the network would reduce transportation costs more than the marginal cost of operating the second warehouse, which would reduce total supply chain costs.

Flow Centers, Origin management, Control Tower over-site, and yes PO to POP fiscal visibility run rampant…who is leading the charge to create further supply evolution?

Future ChallengesAs the business landscape constantly changes with mergers & acquisitions and as globalization grows, there are corresponding changes in the supply chain that need to continuously be optimized to ensure least total supply chain costs. Radio Frequency Identification (RFID) and other technologies will continue to drive down inventories as better information is made available in a timely manner. Since supply chain activities cross over all functional areas in an organization (such as Marketing, Finance and Human Resources), new metrics must be developed to track true supply chain costs and identify the impact on new costs as corporate strategies change. Organizations that measure and benchmark these costs will have a sustainable competitive advantage going forward.

Yes, RFID, GPS, Smart Boxes, RF / Scan technologies are all evolving. Check this one idea into the back of your mind though…they will all blend into a new science supporting LOCATIVE Logistics or Solutions. What does locative mean?

Definition of LOCATIVE
Locative (also called the seventh case) is a case which indicates a location. It corresponds vaguely to the English prepositions "in", "on", "at", and "by". The locative case belongs to the general local cases together with the lative and separative case.

Further, there is a new usage of the word in Locative media….the Wikipedia definitions is:

The term 'locative media' was coined by Karlis Kalnins. Locative media is closely related to augmented reality (reality overlaid with virtual reality) and pervasive computing (computers everywhere, as in ubiquitous computing).

The technology used in locative media projects is e.g. Global Positioning System (GPS), laptop computers, the mobile phone, Geographic Information System (GIS), Google Maps. Whereas GPS allows for the accurate detection of a specific location, mobile computers allow interactive media to be linked to this place. The GIS supplies arbitrary information about the geological, strategic or economic situation of a location. Google Maps give a visual representation of a specific place. Another important new technology that links digital data to a specific place is RFID(Radio Frequency IDentification), a successor to Barcode (like Semacode).

William Gibson used this locative media angle in his latest book, Spook Country.

My suggestion to you though is this…the same basics (building blocks) of technology will not only drive the media, but our need to know where products are in the supply chain. Locative logistics will be born very soon…and we will need to create locative solutions/platforms to support the client’s needs.

Wow, even my head is hurting from this thought…any insight to share?

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Anonymous Anonymous said...

What a bunch of crap. 4 years at WVU and this is the best you can do. Must have spent too much time at Mutt's.

Anonymous Anonymous said...

Well, it was Dr. John's if you really need to know...

Blogger Anon said...

Yes we are still taught the 4 P's at B&E @ WVU.

Dr. Johns is no longer open.

Blogger Paulo D. said...

This is a really good post and made me think about all I know about SCM. I would like to read more about 'Locative logistics'.


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