The Relevance of Logistics

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 have 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 demand. Social and economic factors have favored the growth of consumption and the associated material flows. Economic development involves a significant accumulation of infrastructure investments and related freight flows. Further, rising incomes, as well as differences in consumer preferences, involve a wide variety of consumption patterns the logistics aim to fulfill.
  • 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 manage these inventories effectively. 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 efficiency. The issue of recycling, often labeled as reverse logistics, is also gaining in importance.