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Logistics as a competitive advantage

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Logistics as a competitive advantage

Global business has been undergoing a period of quick transformation. Trends towards globalization, integrated logistics and the development of information and communication technology are all reforming the world’s trading models and consequently physical trade flows.

In order to be globally competitive, businesses are organising strategic worldwide networks that can deliver an effective and high quality response to demand from any section of the world market. The effective and integrated organisation of such practice is often referred to as global logistics or supply chain management, and it has become the glamour of global competitive power.

Logistics has been called the last frontier that even at the nowadays time, the improvement of logistics has been the prime source of companies’ to make new profits and maintain competitive advantage. There are also couple instances where the logistics system has become the cause of obstacle in company’s overall management. The potential for decreasing total cost and for improving the class of services provided to clients can be raised through the elimination of these obstacles. Also, from the social standpoint, an effective logistics system could offer possibilities to decrease road congestion and environmental pollution, which could influence in raised macroscopic economic productivity.

The fast growing companies often dispute that their logistics functions can be restricting their growth if the supply chain is not optimised. Barney (2001) states that to understand the importance of logistics it has to be viewed from a competition perspective. Therefore, the company has to evaluate that logistics can be applied as tools for competition. When this is achieved, logistics will gain the role they need. It is not enough to state that logistics are significant and valuable; the reason for the importance, and how it can be organised, must also be understood.

It is even discussed in the literature (Li et al., 2004; Yusuf et al., 2004; Mentzer, Myers & Cheung, 2004) that a well developed strategy of supply chain management could grant competitive advantage for a firm. Li et al. (2004) states that in order to secure competitive advantage, the supply chain has to be managed efficiently. According to their research, there are five main dimensions of an efficient supply chain: strategic supplier partnership, level on information sharing, customer relationship, quality of information sharing and postponement. Yusuf et al. (2004) have found out agile supply chain capabilities in order to find out how companies may stay competitive. Li et al. (2004), also bring up information integration within other companies and long-term collaboration with suppliers and clients as the main characteristics of agile supply chain management. Beside these, they add several other aspects, for example, cooperation with competitors and alliances amongst complementary equals. However, Olavarrieta & Ellinger (2007) states that finding suitable companion for deep co-operation within supply chains can be not so easy, because the relationship can be demanding and complicated.

Barney (2001, 2005) uses the resource-based view to observe how companies can achieve sustained competitive advantages. As mentioned earlier, competition in today’s markets is not always between firms, but rather between supply chains and its elements (Li et al., 2004) Barneys model involves four empirical criteria for the potential of company resources reaching competitive advantage: value, immutability, rareness and substitutability. With a competitive advantage, a company has a better opportunity for strengthening their supply chain, and therefore supporting thefast-growth of the member companies.

Ahrens (2002) finds out several circumstances where fast-growth companies could collide with some obstacles within logistical operations. For example, it can be hard to know how to make optional the inventory levels without always knowing the often accidental demand fluctuations. Likewise, the capacity of the distribution system has to be well considered to be able to respond to the variations in customers’ needs. Especially when companies expand globally, which in most cases it is fast-growth companies, the strategic decisions concerning logistics will be of high priority. The linkage between logistics and other activities – such as research and development, manufacturing and marketing – in global companies is also pointed out by Kotabe and Murray (2004). When the decision for these problems are found, the company have taken a step closer to gaining competitive necessity from supply chain management.

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