The Relevance of Logistics
There are several factors that underline the growing importance that logistics plays in the global economy:
  • The friction of distribution. Distributing goods, parts and raw materials has an economic cost which usually accounts for 10 to 15% of the GDP. For developing countries, this share can go in the range of 25% while it can be 6 to 8% for advanced economies. Transporting, holding inventories and processing orders all involve a cost. Any improvement in logistics, such as lower costs, less time or higher reliability, thus has direct commercial benefits.
  • Growing materials demands. Social and economic factors have favored a growth of consumption and of the associated material flows. Economic development involves large accumulation of infrastructure investments. Further, rising incomes as well as differences in consumer preferences involve a wide variety of consumption patterns.
  • Complexity of value chains. Many consumption goods are getting more complex, a trend that is associated with the growing number of parts and the requirement to effectively manage these inventories. All the tasks involved in making goods available to the final consumer (research and development, fabrication, distribution, marketing) are increasingly embedded.
  • Spatial division of production and consumption. The ability to use global comparative advantages has favored a spatial division of production with processes such as outsourcing and offshoring. Similarly, the global division of production requires more complex distribution capabilities to markets that are often distant. Crossing international jurisdictions involves additional managerial and operational complexity. Many retailers have regional or national distribution strategies requiring the management of vast inventories.
  • Sustainability. Environmental concerns are permeating freight distribution with incentives towards better energy and material efficiencies. The issue of recycling, often labeled as reverse logistics, is also gaining in importance.