Global logistics refers to the management and design of the system controlling and directing materials flow through, out and into the firm internationally to achieve minimum total corporate objective cost. It includes all the operations that are product related or movements of components which encompasses both imports and exports simultaneously. Its main components include materials management physical distribution and material sourcing (Sancha et al, 2015). Material management is the supplies, raw material and parts inflow through the given firm. Sourcing strategy is the linking factor between physical distribution and materials management. Physical distribution is the final movement of finished products to the firms customers and consists of inventory, warehousing, customer service, transportation, and administration (Diabat et al, 2014; Blumel, 2013).
Globalization refers to the worldwide motion geared towards trade, economic, communication, and financial integration (IVANOV, 2014; Kilic, 2015). It implies nationalistic and local perspectives opening to broader outlook of interdependent and interconnected world. Globalization involves free capital, services, and goods transfer across national boundaries. If applied indiscriminately it is very dangerous to fragile or smaller economies.
There are three main factors of globalization drive that influence firms to undertake global logistics operations. According to POPA (2014), the first is cost reduction. Companies are striving to get new ways to realize values in this increasingly competitive world. The key driver for the realization of new production values is the cost reduction in material, parts, and labor. Firms, therefore, will outsource when there internal cost is higher than the cost of outsourcing. Global logistics reduces production costs for most of the firms and therefore the reduced production cost encourages the firms to engage in global logistics in delivery of their goods and services. The second factor is quality of services accessible through global logistics (Olhager et al, 2015). Global logistics acts as an outsourcing source. Most companies engage in global logistics to help in the accomplishment of increased competitive advantage. The contractors availability makes it easier for firms to outsource non-core activities. The end result is improved service quality at very low cost. Quality management as a systems implementation forms the main driver to the survival of any logistic company.
The third factor is risk control. Companys involvement in global logistics ensures sharing of service risks. Risks are divided into performance and relational risks (Saleh & Roslin, 2015). The distinction between the two is very crucial since it affects strategic decisions. Relational risk is experienced when the clients refuse to act as per the business agreement. The unsatisfactory corporation has a lot of consequences to the logistics company. Performance risk mostly is more concerned with factors that affect the ability of the vendor to perform as per the agreement. These factors include technology, skills, and capital availability (von der Gracht & Darkow, 2013). Global logistics ensures risks sharing among many clients thus reduced risk burden for the companies involved.
The factors that enhance the move from domestic logistics to global logistics are numerous in number. The first factor is the integration process for instance economic block emergence and decreased tariffs have promoted global logistics at large scales (Shacklett, 2014). High level of economic integration increases the chances of trade between the concerned elements. The global logistics have been aggressively promoted by the growing economic integration levels across the world. An example of this process outcome is the European Union (Rinsler & Waters 2014; Bookbinder, 2013). The facilitator of the transactional capacity is the trade flow adjustment and transport network development. Free trade zones creation have also increased integration process thus increased global logistics.
The other factor is standardization which concerns setting up of ubiquitous and common reference frame over physical and communication flow. Standardization encourage global logistics in that those abiding by the standards have numerous benefits. These benefits include acquiring of reliable, compatible, and interoperable services and goods (Fleury & Fleury 2014). The overall result of these goods acquisition is lowered maintenance, production, and distribution cost. Availability of common measurement units and common operating telecommunication systems has encouraged the global logistics a great deal. The main international standard that has boosted the global logistics at the greatest extent is the use of container (Jean et al, 2015). It offers a uniform load unit which is easily handled by proper equipment at any terminal and using any available mode.
The other factor is the increase in transport efficiency due to improvements of infrastructure and transport modes innovations in their throughput and capacity (Deborah, 2014). The increased developments of ports through shipping networks have encouraged global logistics at huge extents. It has increased the transferability of different commodity parts plus finished products across the continent. The efficiency has also reduced the transport costs of commodities thus encouraging most companies to engage in global logistics.
Transactional efficiency that has improved over the decade is the other factor promoting global logistics. The financial sector has provided investment capital and some credit for global transactions including global logistics (Seroka-Stolka, 2014). Such example is the issuing of letter of credit in case of export contractor. Thus, the exporter have the payment guarantee until the customer receives the service or goods. This is important since international transaction delivery takes long time due to long distance coverage. The cargo is normally insured so that in the event of theft, damage or delays, the insurance company takes care of the problem.
Flexibility of production system is the other factor that promotes global logistics. These systems maintain a network consisting of geographical inputs that are diversified that in turn favor commodity, service, and parts exchange. A direct foreign investment encourages global logistics since it allows broader access markets at lower production costs (Song & Parola, 2015). China is the leading example of the system. It increased its global logistics due to the availability of many goods that they can trade.
Benefits that global logistics bring to the firms and its customers vary in number and intensity. Customers benefit from global logistics in that they get effective and efficient flow of services and goods. Effectively integrated and connected logistics allows effective communication among those involved (Gonzalez et al, 2015). The involved firms therefore share information easily and have quick response to the requirements needed to develop effective partnership together. Involvement of a firm in global logistic helps the company overcome information, planning, and effort duplication at every level of business transaction. At the same time it is easier for the firm involved to eliminate operations that are valueless to the customers (Georgise et al, 2014). Global logistics helps firms engage in efficient production of goods and services at reduced cost. These companies also experience reduced stocks and increased response time. The sharing of information between the firms and the customer enable the firms to have the replenishment trigger along logistic chain. The cost-based advantage is also enjoyed by these firms thus resulting in the reduced production cost (Olhager et al, 2015). The companies involved in the global logistics have great competitive advantage since they have access to improved customer service and cost control.
Global logistics is one of the major determinants of the current and future business trends worldwide. This is owed from the advantages that the logistics firms enjoy due to their global involvement in logistics. The customer satisfaction and reliance on the services offered by the global logistic firms makes the practice more modern and relevant within various economies. The drivers to global logistics such as the increased transport efficiency among others continue to develop with increased modernization thus making global logistic the future of the world businesses transaction line. The other relevance of global logistics comes from the fact that most firms aim at expansion of their operations to global levels and thus tend to engage in global logistics to realize this objective.
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