Logistics And Supply Management Management Essay
Any organization has to improve and develop its supply chain and logistics processes to be successful and gain competitive advantage in the market. Measuring delivery performance is very important for managers to be able to make decisions about the balance between cutting expenses and continuing to provide good service. Leaders and managers have to think and act fast in order to try and minimize the harmful effects of the economic downturn on their organization, in terms of both its performance and future growth. It is very important to have in place a system to settle accurately the company’s delivery performance. With the data gathered from such measurements, analysts and strategists will be able to balance the necessity for cost efficiency with maintaining a good level of performance. Detailed and real time data will make it much easier to see the patterns because managers will be better able to know how exactly the entire supply chain and certainly logistics functions. This study will explain importance of logistics and supply chain management on financial performance for companies, and review of selected companies which has improved their financial performance by using effective and efficient logistics and supply chain management process.
How do Logistics and Supply Chain Management effect on financial performance? And to what degree is this implemented at JJ Food Service Ltd. A review of this selected company has improved its profit by changes in this area.
1.2 The Research topic and Questions
Research topic focuses logistics and wider supply chain management activities, which are essential areas for companies’ financial performance. Logistics and supply chain management impacts not only upon the profit and loss account of the business but also upon the balance sheet. Logistics is also increasingly being recognised as having a significant impact upon Economic Value Added and Shareholder Value. It is likely that in the future, decisions on logistics strategies will be made based upon a thorough understanding of impact they will have upon the financial performance of the business.
David M. Anderson (2004) is stated that There is the opportunity to reduce total cost in supply chain and logistics, which is responsible for many unnecessary overhead expenses to generate forecasts, count inventory on hand, generate purchase order inputs through Material Requirement Planning systems, place purchase orders, wait for parts to arrive, receive materials, warehouse, etc.
This research will focus on importance of logistics and supply chain management on financial performance in the organization and its effectiveness. This topic has been chosen for many reasons. Firstly, managing logistics and supply chain processes are essential for companies to reduce unnecessary costs and to give best service to consumers. Secondly, managing delivery performance during financial recession periods often proves its importance, because it provides valuable data by which to make effective decisions. Cutting down in particular is a decision that should be carefully considered in order to balance savings with losses in financial performance. Finally, keeping performance levels high during economic downturns can really help the company keep and attract customers.
2 The Research Aim and Objectives
2.1 The Aim of the Research
Logistics and supply chain management need to justify the cost of delivery activities and it is necessary to measure the impact of these management activities on financial performance.
2.2 The Objective of Research
It is very important to consider all issues of logistics and supply chain management related to financial performance to meet the research aim. Following research activities will be considered:
- To identify the importance of logistics management activities in the company.
- To identify the importance of supply chain management activities in the company.
- To investigate the relationship between logistics and supply chain management and company’s financial performance.
- To examine the total cost analysis of logistics and supply chain management.
- To draw conclusion about how important logistics and supply chain management are for the company’s financial performance.
3 Literature Review
3.1 Overview of Logistic and Supply Chain Management
3.1.1 Logistics Management
What is logistics management in the sense that it is understood today? “There are many ways of defining logistics but underlining concept might be defined as follows: logistics is the process of strategically managing the procurement, movement and storage of materials, parts and finished inventory (and the related information flows) through the organisation and its marketing channels in such a way that current and future profitability are maximised through the cost effective fulfilment of orders.” (Christopher, M., 1998, p: 4)
3.1.2 The Mission of Logistics Management
The mission of logistics management is to plan and co ordinate all those activities necessary to achieve desired levels of delivered service and quality at lowest possible cost. Logistics must therefore be seen as the link between the marketplace and the operating activity of the business. (Christopher, M., 1998, p: 13)
“The role of logistics is changing from one of warehousing and transportation to one of providing an integrated set of services that delivers the right products, in the right quantities, in the right quality, at the right time all for the right cost.” (Roman L. W. and Michael W. M., 2005, 329 330)
It is now accepted that the need to understand and meet customer requirements is a prior condition for survival. At the same time, in the search for improved cost competitiveness, logistics management has been the subject of a massive renaissance.
3.1.3 Supply Chain Management
“The definition of supply chain management is the management of upstream and downstream relationships with suppliers and customers to deliver superior customer value at less cost to the supply chain as a whole.” (Christopher, M., 1998, 18)
The supply chain is not only includes the manufacturer and suppliers, but also transporters, warehouses, retailers, and customer themselves.
According to Hugos M. (2006) supply chain management is the coordination of production, inventory, location, and transportation among the participants in a supply chain to achieve the best mix of responsiveness and efficiency for the market being served in lowest cost.
It must be identified that the concept of supply chain management is in fact no more than an extension of the logic of logistics. Logistics management is primarily concerned with optimising flows within the organisation supply chain management recognizes that internal integration by itself is not sufficient.
Logistics is essentially a planning orientation and framework that seeks to create a single plan for the flow of product and information through a business. Supply chain management builds upon this framework and seeks to achieve linkage and co ordination between processes of other entities in the pipeline. Thus for instance one goal of supply chain management might be to reduce or eliminate the buffers of inventory that exist between organisations in a chain through the sharing of information on demand and current stock levels.” (Christopher, M., 1998, 17)
3.2 Impact of Logistics and Supply Chain Management on Financial Performance of Business
“Probably one of the main reasons that the adoption of an integrated approach to logistics and supply chain management has proved so difficult for many companies is the lack of appropriate cost information. The need to manage the total distribution activity as a complete system, other cost areas has implications for the cost accounting systems of the organisation. Typically, conventional accounting systems group costs into broad, aggregated categories which do not then allow the more detailed analysis necessary to identify the true costs of servicing customers with particular product mixes. Without this facility to analyse aggregated cost data, it becomes impossible to reveal the potential for cost trade offs that may exist within the logistics system.” (Christopher, M., 1998, 71)
“Generally the effects of trade offs are assessed in two ways: from the point of view of their impact on total cost and their impact on sales revenue. For instance, it may be possible to trade off costs in such a way that total costs increase, yet because of the better service now being offered, sales revenue also increases. If the difference between revenue and costs is greater than before, the trade off may be regarded as leading to an improvement in cost effectiveness. However, without an adequate logistics oriented cost accounting system it is extremely difficult to identify the extent to which a particular trade off is cost beneficial.” (Christopher, M., 1998, 72)
3.3 The Concept of Total Cost Analysis
Seuring and Goldbach (2005) stated that in recent years, many companies have extended the scope of their cost management efforts as a result of increasing competition. Cost management covers all activities aiming to improve the efficiency of a company or supply chain. For that reason supply chain management can be defined as a cost management. Therefore, such companies have to improve their supply chain management activities for financial efficiency.
Many problems at the operational level in logistic management arise because all the impacts of specific decisions, both direct and indirect, are not taken into account throughout the corporate system. Too often decisions taken in one area can lead to unforeseen results in other areas. Changes in policy on minimum order value, for example, may influence customer ordering patterns and lead to additional costs. Similarly changes in production schedules that aim to improve production efficiency may lead to fluctuations in finished stock availability and thus affect customer service. (Christopher, M., 1998, 72)
A further feature of logistics decisions which contributes to the complexity of generating appropriate cost information is that they are usually taken against the benchmark of an existing system. The purpose of total cost analysis in this context is to identify the change in costs brought about by these decisions. Cost must therefore be viewed in incremental terms the change in total costs caused by the change to the system. Thus the addition of an extra warehouse to the distribution network will bring about cost changes in transport, inventory investment, and communications. It is incremental cost difference between the two options which is relevant accounting information for decision making in this case. (Christopher, M., 1998, 73)
3.4 Principles of Logistic and Supply Chain Costing
According to Christopher, M. (1998) the problem of developing an appropriate logistics and supply chain oriented costing system is primarily one of focus. What is required is the ability to focus upon the output of the distribution system, in essence the provision of customer service, and to identify the unique costs associated with that output. Traditional accounting methods lack this focus, mainly because they were designed with something else in mind.
The successful achievement of defined mission goals involves inputs from a large number of functional areas and activity centres within the firm. Thus an effective logistics and supply chain costing system must seek to determine the total cost of meeting desired logistics objectives and the costs of the various inputs involved in meeting these outputs. Interest has been growing in an approach to this problem, known as “mission costing”. (Christopher, M., 1998, 75)
Because logistic costs can account for such a large proportion of total costs in the business it is critical that they be carefully managed. However, it is not always the case that the true costs of logistics are fully understood. Activity based costing methods provide some significant advantages in identifying the real cost of serving different types of customer or different channels of distribution.
3.4.1 The Financial Control of Logistics Costs
“The key to managing the full logistics system is to have a clear picture of all the costs associated with each activity (this called activity based costing). Looking at reducing specific costs and making a clear analysis of each cost can lead to greater total saving cost.” (Voortman C., 2004, 84)
18.104.22.168 Practical Applications of Total Cost Analysis
- Having fewer distribution centres can lead to minimise of warehousing and an increase in turnover, but will increase transportation costs.
- Cost trade off is essential. One must be able to explain how changes in each cost contribute the total cost.
- The quality of accounting data influences management’s ability to:
- Reduce costs in unnecessarily expensive areas of the business.
- Increase deliveries or reduce inventories.
The following research hypothesis has been set.
4.1 Null Hypothesis
Logistics and supply chain management do not need to justify the cost of delivery activities and it is not necessary to measure the impact of these management activities on financial performance.
4.2 Alternative Hypothesis
Logistics and supply chain management need to justify the cost of delivery activities and it is necessary to measure the impact of these management activities on financial performance.
5 Research Methodology
5.1 Research philosophy
According to Easterby, S, Thorpe, R, Jackson, PR (2008) there are various types of research methodology methods, however there are two contrasting research traditions highly as known such as positivism and social Constructionism.
The relationship between data and theory has been argued by philosophers. Failure to think through philosophical issues such as this can seriously affect the quality of management research, and they are central to the notion of design (Easterby, S, Thorpe, R, Jackson, 56)
“The key idea of positivism is that the social world exists externally and that its properties should be measured through objective methods, rather than being inferred subjectively through sensation, reflection or intuition” (Easterby at al, 57). The view that provides the best way of investigating human and social behavior originated as a reaction to metaphysical speculation. (Aiken, 1956)
Positivism has been chosen as the philosophy of the research to meet the research objectives.
5.2 Research approach
This study involves a combination of deductive and inductive approaches, which is known as ‘abductive’ approach. The abductive approach stems from the insight that most great advances in science neither followed the pattern of pure deduction nor of pure induction (Kovacs & Spens 2005).
Wass & Well, (1994) stated that based on the literature review, it can be shown that there might be a possible relationship between Logistics and Supply Chain Management and financial performance of the company. Hence, the deductive approach will be adopted in this research. It is clear that the major strengths of the deductive approach are its testability against empirical data by using statistical techniques and its generalisability.
5.3 Research Strategy
Strategies for research are as followed: experiment, survey, case study, action research, grounded theory, ethnography and archival research. Some of these clearly belong to the deductive approach, others to the inductive approach. However often allocating strategies to one approach to the other is unduly simplistic. (Sounders at al , 2009)
A case study will be employed in the research. The main strength of case studies lies in their capacity to explain the presumed causal links in real life interventions (Bryman 1988). The other distinctive application of case study is to describe an intervention and the real life context in which it occurred (Yin, 2003:15). Clearly, this research strategy fits particularly well with the research inquiry mentioned above. The single case study here can be viewed as the representative or typical case which is believed to be typical of many other organizations in the same industry (Yin, 2003:40).
5.4 Research methods
In order to meet the research objectives, it is essential to select the research methods. Mainly, this part includes information about data collection and data analysis,
5.4.1 Data collection
Based on the major methodological issues associated with existing research, the data will be largely collected through three chief sources, namely:
1) Academic literature,
2) Semi structured interview and self completion questionnaires,
3) Company document analysis.
These triangulation methods have been seen to help in cross checking the findings from each of the methods used, thus contributing to a greater reliability and validity of results (Silverman 2000). However, the main drawback of triangulation is that it may not be suitable for further replication, as it is costly and time consuming (Cassell& Symon, 1994). The main strengths and weaknesses associated with each research methods therefore will be examined below in order to provide a sound explanation of the specific selection of research methods.
Secondary data collecting will help to understand the effectiveness of logistics and supply chain management.
Semi structured interview and self completion questionnaires will help to show how company manage these activities and how they improve their financial performance by doing effective logistics and supply chain management. Owing to the limitation of survey methods, semi structured interview provide a richer source of data for understanding peoples’ view, experience and perceptions (Kvale, 1996). As one of my research inquiries is ‘explanation’, the use of semi structured interviews is viewed as the right approach for this type of inquiry and it fits all within the realism paradigm used in this study. In addition, the use of semi structured interviews in this research may also explore and explains themes that will merge from the questionnaires
The potential of using company documents is considerable. Firstly, it helps the researcher to look more closely at historical process and development in organization (Cassell and Symon, 1994). Secondly, they can provide information on issues that might be normally fairly inaccessible through other methods. Thirdly, they can check the validity of information deriving from other methods and supplement other sources of information. Finally, they can contribute a different level of analysis from other methods (such as the official policy and practice) (Bryman, 1988:150). However, the main weakness of using such secondary data would be that gaining access to some kinds of data might be of great difficulty, especially when it might contain sensitive information (Anderson, 2003).
5.4.2 Data Analysis
In this resource we will have huge Qualitative data which refers to all non numeric data or data have not been quantified and can be a product of all research strategies. (Saunders et al 2009)
To analyze the data, a short list will be made which includes data from online questionnaire to complex data such as transcript of in depth interviews or entire policy documents. Qualitative data analysis procedures help researcher to develop theory from data. They include both deductive and inductive approaches and range from the simple categorization of responses to processes for identifying relationship between categories (Saunders et al 2009)
6 Ethical Considerations
Sounder is stated ethics as the “norms or standards of behavior that guide moral choices about our behavior and our relationships with others”. In this work the researcher will follow the ethical principles and will get necessary approval from company to build this work.
7 Limitations of Research
Even the researcher assembles perfect time schedule there will be some unexpected delays during research period. The researcher will use some helpful way to overcome this barrier. Following actions which will be taken will help the researcher.
- Setting goals and planning
- Proper timescale
- Attainable deadline
- Be organized and sensible to time
- Balance between social life and study
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