In 1991 the Council of Logistics Management, the renowned trade organization based in the USA, defined logistics as “the process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements”. Thirty-seven years after this definition, the focus on efficiency and effectiveness is more than ever prevailing when we think of the key words in our field.
Efficiency vs. Effectiveness
Supply chain managers at wholesale distribution and manufacturing companies might think that if a process is efficient, it is also effective. In fact, that may not always be the case. It can happen when a company is more concerned with internal process improvements than the needs of its customers, stakeholders, or the supply chain as a whole. It can also happen because of the relationship between the two concepts, which are interrelated, yet independent.
According to a white paper released by Industrial Marketing and Purchasing (IMP) Group, organizational efficiency is defined as an internal standard of performance, in particular related to how company’s resources – financial, human, technological or physical – are used in the best way possible. This definition of efficiency says nothing about improving customer service. You might have a very efficient supply chain that minimizes costs of materials and packaging but leaves your customers dissatisfied, because the service does not meet their requirements.
Effectiveness, on the other hand, focuses on results. IMP group defines it as an external standard of how well an organization is meeting the demands of the various stakeholders. So, to measure your supply chain effectiveness, you must pay attention to how your work is ultimately impacting customers and the supply chain as a whole.
Another relevant topic, gaining in importance during the past years, is flexibility, meaning the ability to configure the network in order to cope with seasonality, different distribution channels and customers’ evolving purchase behavior more and more efficiently. Centralization, aimed at containing costs and maintaining greater control over the service, clashes with the need of proximity, to cut delivery charges and times.
In the past few years, more and more attention has been devoted to sustainability, as well as to green attitude. As was amply demonstrated, for example, by the work “Omnichannel, Green and Partnership” presented at the Contract Logistics Observatory, of the School of Management of Politecnico of Milan, at the end of November 2018. A growing trend, which involves using new green technologies, such as LNG-fueled (Liquefied Natural Gas) vehicles and lithium-ion battery forklifts, offers benefits both on economic and environmental level.
This trend has been gaining ground since the past ten years, when players became aware that polluting logistics costs more than eco-friendly warehousing management.
The prerequisites for green logistics are:
- collaborative solutions that allow optimization of transport;
- keeping a medium-term perspective and considering the image improvement that companies can obtain by presenting themselves as absolutely respectful of the environment;
- lobbying the institutions to support this tendency, with rewarding interventions (i.e. tax relief) for green businesses.
Lastly, companies have been experimenting with the cooperation within the supply chain, as a way to gain two objectives at the same:
- a better service with lower environmental impact, especially in the case of sharing space in so-called logistic campuses;
- In addition to gains related to human resources optimization, it is possible to improve the loading rates of trucks, with savings in terms of energy, time and C0₂ emissions.