The traditional arrangement of goods flow included the processing of raw materials to manufacturers, with a storage function usually acting as a buffer. The flow continued via wholesaler and/or shipper to retailer, ending at the final customer. Delays were very common on all segments of this chain and accumulated as inventories in warehouses. There was a limited flow of information from the consumer to the supply chain, implying the producers were not well informed (often involving a time lag) about the extent of consumption of their outputs.
This procedure is now changing, mainly by eliminating one or more of the costly operations in the supply chain organization. Reverse flows are also part of the supply chain, namely for recycling and product returns. An important physical outcome of supply chain management is the concentration of storage or warehousing in one facility, instead of several. This facility is increasingly being designed as a flow- and throughput-oriented distribution center, instead of a warehouse holding cost intensive large inventories.
MODERN TRENDS IN THE DEVELOPMENT OF LOGISTICS
Due to new corporate strategies, a concentration of logistics functions in certain facilities at strategic locations is prevalent. Many improvements in freight flows are achieved at terminals. Facilities are much larger than before, the locations being characterized by a particular connection of regional and long-distance relations. Traditionally, freight distribution has been located at major places of production, for instance in the manufacturing belt at the North American East Coast and in the Midwest, or in the old industrialized regions of England and continental Europe. Large-scale goods flows are directed through major gateways and hubs, mainly large ports and major airports, also highway intersections with access to a regional market. The changing geography of manufacturing and industrial production has been accompanied by a changing geography of freight distribution taking advantages of intermediary locations.
The spatial structure of contemporary transportation networks is the expression of the spatial structure of distribution. Since in logistics lead and response times are important service factors, locations near main highways are of particular importance for distribution centers. Logistics is particularly sensitive to accessibility. The setting of networks leads to a shift towards larger distribution centers, often serving significant trans-national catchments.
However, this does not mean the demise of national or regional distribution centers, with some goods still requiring a three-tier distribution system, with regional, national and international distribution centers. The structure of networks has also adapted to fulfill the requirements of an integrated freight transport demand, which can take many forms and operate at different scales. Most freight distribution networks, particularly in retailing, are facing the challenge of the “Last Mile” which is the final leg of a distribution sequence, commonly linking a distribution center and a customer (store).
Another important geographical trend concerns the location and clustering of warehousing activity to suburban locations, also known as ‘logistics sprawl’. Technological changes in inventory management, lower transportation costs and global supply chain management have converged to incite the demand of large scale facilities in proximity to terminal facilities such as ports and airports and having access to a regional market. However, urban cores became increasingly expensive, congested and regulated areas. Under such circumstances, peripheral areas became increasingly attractive for distribution centers with their capacity to offer low cost real estate and access to major highways.
The impacts of e-commerce on the geography of logistics are little understood, but some trends can be identified. As e-commerce becomes more common, it is changing the spatial characteristics physical distribution systems:
The conventional retailing supply chain coupled with the process of economies of scale (larger stores; shopping malls) is being challenged by a new paradigm. It relies on large warehouses located outside metropolitan areas from where a vast number of small parcels are shipped by vans and trucks to separate online buyers. This spatially disaggregates retailing distribution, and reverses the trend towards consolidation that had characterized retailing (larger stores and larger distribution centers). Still, when online shopping reaches a large volume, parcel delivery companies have the opportunity to create economies through the consolidation of loads.
In the conventional retailing system, the shopper was bearing the costs of moving the goods from the store to home, but with e-commerce this segment of the supply chain has to be integrated in the freight distribution process. The result potentially involves more packaging and more tons-km of freight transported. Traditional distribution systems are thus ill fitted to answer the logistical needs of e-commerce, especially in urban areas.
LOGISTICS PERFORMANCE INDEX
Since cities are at the same time zones of production, distribution and consumption, the realm of city logistics is of growing importance. This issue is made even more complex by a growing dislocation between production, distribution and consumption, brought by globalization, global production networks, and efficient freight transport systems and logistics.
Based on a global survey of field operators, such as international freight forwarding companies and express delivery services, Logistics Performance Index measures the convenience of logistics systems in 155 countries. Logistics Performance Index helps build convenience and “friendliness” profiles of these countries ’logistics systems.
This index measures the effectiveness of the entire supply chain of logistics services in the country and gives an estimate from two positions: national and international.
International Logistics Performance Index provides a qualitative assessment of the country on six components based on the opinion of trading partners – experts in the field of logistics working outside the country. The International Logistics Performance Index is a total indicator of the performance of the logistics sector, which combines data on the six key components of efficiency into a single integrated indicator: the efficiency of customs operations, the quality of infrastructure, ease of organizing international supplies of goods, competence and quality of logistics services, the ability to track cargo, meeting delivery times.
National Logistics Performance Index provides a qualitative and quantitative assessment of the country, based on the opinions of experts in the field of logistics working in the country. It includes detailed information on the logistics environment, key logistics processes, institutions, information on the time of operations and cost.
Today LPI underlines that logistical costs in developing countries tend to be higher, which undermines economic development for the main following reasons:
- The regulatory complexity of distributing goods in developing countries involves higher logistic costs and is inciting distributors to maintain higher inventory levels to cope with uncertainty. Custom regulations are complex and prone to delays and road transportation can be subject to arbitrary tolls and inspections. This is reflected in higher final goods or component prices that are assumed directly or indirectly by consumers.
- Labor and infrastructure productivity in developing countries tend to be lower, which in many cases doubles logistics costs. The advantages of cheap labor can often be counterbalanced by lower levels of productivity. This also impacts the reliability of freight distribution with fluctuations in lead times and deliveries.
- Modal and intermodal capacity is inconsistent. While several terminal facilities, particularly ports, are modern with capacity on par with global standards, hinterland transportation can be problematic with road segments unable to effectively handle trucks of standard capacity.