Term Paper

Topic: Logistics integration system

Inha University in Tashkent

School of Logistics,
May, 2020

Course name: Logistics Management

Professor’s name: Jose Tongzon
Section number: 001
Prepared by: Team 3
Members:
Kamolova Khilola U1911125
Bekchanova Aziza U1911118
Ten Janna U1911113
Gulyamov Diyor U1911124
Abdurashidov Abdulvokhid U1911116
Abstract
From 1990 years, the term of logistics integration or integrated logistics has spread all over the
world to the point of changing traditional logistics. The concept of integration of logistics system let
to solve logistic problems from production to inventory management as these processes demanded an
integration. The main point of this paper is to analyse the integrated logistics by researching reliable
and scientific resources, to find why this concept has become important, how to achieve a well-
structured integrated policy with cost minimization and revenue maximization. Moreover, to provide
the case of integrated logistics in real life.
Introduction
Logistics plays an important role in every stage of production and inventory management. The
Council of Supply Chain Management Professionals gives the following definition of logistics:
‘Logistics management is that part of supply chain management that plans, implements, and controls
the efficient, effective forward and reverse flow and storage of goods, services and related
information between the point of origin and the point of consumption in order to meet customers
requirements’ (SCM Definitions and Glossary of Terms, 2020). Therefore, we underlined that
logistics influence activities of supply chain management. Thus, this fact creates a demand for a well-
developed system that links processes of supply chain and logistics for optimizing global
performance in this sphere. Here this system is called ‘the integrated logistics’.
Logistics integration
Kenderline and Larson (1988) define integrated logistics as tying all activities associated with
logistics into one system and distribution cost can be reduced and customer service can be maintained
with the help of this system. Bowersox et al., (1986) state that financial resources and employees,
which are focused on production, procurement, and distribution of the product, need to be planned,
allocated, and controlled in order to become cost efficient. It can be defined as logistics integration
(Ibid.). Successful companies tend to increase integration and emphasize working with key suppliers
and customers to plan and operate, which allows to rule the company efficiently (Stank, Keller, and
Daugherty 2001). A fierce competition in the market make firms to develop their internal processes
(e.g, process control and inventory management) as well as develop an integrated value chain
processes with clients and suppliers (Prajogo and Olhager, 2012). Owing to this quality, flexibility,
and delivery can be increased, cost can be decreased, and, as a result, competitiveness can be
maintained (Ibid.). Frohlich and Westbrook (2001) state the delivery of materials from suppliers
must be coordinated well, so that companies can have sustainable manufacturing process. It results in
an interconnected operation between firms and suppliers, where their boundaries become vague
(Stock et al., 2000).
How logistics integration can be achieved.
Bowersox, Closs, and Stank (1999) introduce six competencies that are required to achieve integrated
logistics.
Competencies Defintion
The establishment of “lasting distinctiveness” with top customers
Customer Integration (Stank, Scott, and Keller, 2001, p.33). Owing to this, firms can
provide products or services that competitors cannot (Ibid.).
Making internal process seamless to meet requirement of clients
Internal Integration (Stank, Scott, and Keller, 2001). Connecting all internal processes to
meet client’s requirements at the minimum cost level (Ibid.).
Making external operation seamless and in accordance with internal
operation process (Stank, Scott, and Keller, 2001). Collaboration
Material/Service Supplier Integration
with external suppliers enables to benefit from their experience and
lower the costs (Ibid.).
Technology and Planning Integration Implementation of informational technology that is able to support

Measurement Integration
Relationship Integration
the various segments of the market (Stank, Scott, and Keller, 2001).
Information systems are required that enable “flow of product, cash,
and operating information” (Stank, Scott, and Keller, 2001, p.34)
Integration of a measurement system that allows to measure
processes and strategies (Stank, Scott, and Keller, 2001).
Measurement system allow management to get reliable feedback on
supply chain and helps to make efficient decision (Ibid.).
Development and implementation a common mental framework of
mutual dependency and collaboration with suppliers and clients
(Stank, Scott, and Keller, 2001). Producers, business partners, and
clients can establish linkages with an entity to ensure share
objectives and vision and boost collaboration (Ibid.).

As it was mentioned before, logistics management has a significant impact on the activities in the
supply chain, which are undoubtedly interrelated and must be coordinated for good performance. It
leads to the development of integrated management policy. Integration means not only finding and
applying the right policy but also implementing it in a such way that all participants in the supply
chain can accept it. However, despite everything, integration is not easy to achieve, since it leads to
an overly complex optimization problem.
Since implementing supply chain management (SCM) requires integration from the source to
distribution throughout the supply chain, integration is a successful concept for effective SCM.
Supply chain integration works on the principles of commonality in decision making, vision,
technology, and trust between customers and manufacturers. The goal of supply chain integration
(SCI) is an effective way to ensure an accurate and timely flow of goods and services for maximum
value to customers at low cost and minimum time.
Lambert emphasizes the need for knowledge and understanding of the supply chain structure
highlighting the three main components of a company's network structure:
 Identification of supply chain members
 The structural dimensions of the network
 Business - supply chain processes
The above aspects clearly show the importance of integration, since logistics, which is part of the
supply chain, will undoubtedly affect the overall efficiency of the supply chain.
However, even though logistics integration provides such benefits, each process of logistics performs
separately in many cases. The main reason for this is related to the fact that integration is typically too
difficult to achieve. Therefore, we analyse if the logistics integration is beneficial for the efficiency of
logistics.
Daugherty, Ellinger, and Gustin (1996) list some factor that impacts on successful logistics
integration:
Factor Definition.
According to research, the most important factor
in implementing logistics integration is top
Top management support
management, because they have authority to
change situation and influence workers (Ibid.).
The second biggest factor is closely linked with
the first. However, even top management can
bring workers a perception of change, chances
Corporate-wide commitment/attitude change.
of commitment can be unsuccessful.
All workers should widely understand a need of
change and all advantages of its (Ibid.).
To achieve integrated system employees should
be ready to complex changes. Therefore,
Intra-organizational communication/training.
professional training, and clear targeted
responsibilities and goals are needed (Ibid.).

The importance of external and internal logistics integration

Gopal and Cypress (1993) define supply change management as “the physical network that begins
with supplier and ends with the customer”. Daugherty et al., (1996) state supply change management
needs to be integrated within a firm (i.e., internally) and with suppliers and clients (i.e., externally).
Internal integration means operation associated with internal functional areas in the firm, whereas
external integration means that logistics gets planned, executed, and coordinated in collaboration with
the business partners of the firm (Ibid.).
One of the perspectives of logistics integration that influence logistics performance is collaboration.
It involves decision making process between interconnected units of the firm (Stank, Keller, and
Daugherty, 2001). In this context companies make common decisions and are collectively responsible
for results (Barbara Gray, 1991). According to Schrage (1990), collaboration is “an affective,
volitional, mutual shared process where two or more departments work together, have mutual
understanding, have a common vision, share resources, and achieve collective goals”. The benefit
from collaboration on logistical performance occurs “when partners are: 1) willing to work together,
2) understand other viewpoints, 3) share information and resources, and 4) achieve collective goals”
(Stank, Keller, and Daugherty, 2001, p. 32). Consequently, the duplication of resources can be
reduced, customer needs can be met, and the requests of customers can be responded with higher
flexibility (Ibid.). Milwaukee (1997) proves that operational performance can be achieved by
collaboration. Thus, collaboration (both external and internal) leads to the efficient performance of
logistical performance.
Stank, Keller, and Closs (2001) use the aforementioned six competencies developed by Bowersox,
Closs, and Stank (1999) to analyse to extend to which they can benefit to a specific aspect of a firm.
We believe every competency can be categorized into either internal and external aspects of the
business. Due to this, we number the benefits of logistics integration using the aforementioned
competencies.
External Integration
We believe customer integration can be stated as the type of external integration. In their research
Stank, Keller, and Closs (2001) prove that consumer integration can increase delivery speed,
responsiveness, order flexibility, and delivery flexibility. Consumer integration allows to support the
expectation of consumers in the process of delivery (i.e., more integration with clients leads to more
flexible respond to changing needs of clients) (Ibid.)
Stank, Kelle, and Closs (2001) also prove an association between measurement integration and
customer satisfaction. Efficient measures (i.e., “perfect order achievement, inventory dwell time (the
ratio of days inventory sits idle in the supply chain relative to the days it is productively being used),
total days supply chain inventory, and cash-to-cash cycle”) help firms efficiently manage their
logistics offering of clients (Stank, Kelle, and Closs, 2001, p.41).
In spite of the authors cannot prove that individual performance measures are positively associated
with material and service supplier integration, they conclude that integrating processes with material
and service suppliers is important to achieve high performance, as in reality the firms which achieved
logistics integration tend to have strong relationship with their material and service providers, that has
been developed for a long period of time.
Internal Integration
One of the competencies of logistics integration – internal integration – is positively associated cost
performance of logistics, delivery dependability, and fill of order (Ibid.). Henceforth, the authors
emphasize the role of internal competence in the reduction of duplicating and parallel processes. In
addition, if company successfully implements internal integration can achieve higher levels of
delivery schedule, which is beneficial to the key clients.
Integration of technology and planning has a positive association with the support of information
system and notification of advanced shipment (ASN) (Ibid.). Technology and planning integration
boost the flow of accurate information, which in turn impacts on substantial decision making.
Stank, Kelle, and Closs (2001) prove that there is a positive association between research integration
and return on assets (ROA). The logic behind this phenomenon is that the better is asset utilization,
the higher will be the relationship levels, which results to the clear understanding of what objectives
and target need to be achieved by suppliers and clients. Due to this, performance will be less
redundant and wasteful (Ibid.).
Previous literature also suggests number of advantages of integrated logistics. Geary et al., (2006)
state that it can eliminate internal problems like bullwhip effect. This was a problem of Volvo
company in 1990s, when the company had an enormous number of green cars in its stocks and sales
and marketing departments began to promote green colored cars with special deals. Consequently,
sales of green cars increased. However, manufacturing unit was not warned about the promotions.
Having noticed the increased demand for green cars and the production plant started to produce even
more green cars (The Economist, 2020). Schonberger (2007) note that integrated logistics leads to
the adoption of sufficient production systems, which enable inventory reduction and order cycles to
be reliable. Prajogo and Olhager (2012) state the benefits of integrated logistics include cost
minimization (Nooteboom, 1992), production time (Liu et al., 2005), risk reduction (Clemons et al.,
1993), increase in customer service, sales, and distribution (Seidmann and Sundararajan, 1997) and
improvement in customer satisfaction (Kim, 2009) (2012).
In the scope of external integration, Tan et al., (1998) mention suppliers and entities can work as one
enterprise and benefit better performance within the supply chain.
To implement business goals most effectively, we need a well-developed integrated logistics system
that obtains optimal solutions, in particular by minimizing the overall logistics costs of the company.
Therefore, it becomes clear that reducing all types of costs associated with material flow
management, transportation, warehousing, order management, purchasing and inventory, packaging,
and reducing logistics risks allows the company to free up financial resources for additional
investments in warehouse equipment, information and computer systems, advertising, marketing
research, etc.
The case of Walmart
Walmart has become a leader in the retail industry and continues to maintain a dominant position in
the Global Power of Retailing ranking. As the most profitable grocery retailer in the U. S., Walmart’s
total revenue has amounted to $524 billion for the year ended January 31, 2020, according to the
Fortune Global 500. Its key success is characterized by efficient supply chain practices. “Regarding
Walmart's integrated supply chain, new services or product development, supplier relationships, order
fulfillment, customer interaction processes, and its internal and external associations are integrated
into the business” Johnson (2008).
In order to adapt to a new environment and achieve competitive advantages, Walmart's created a
unique system of procurement, sale, and cost reduction. The “Everyday Low Costs” (EDLC) policy,
the pricing philosophy is quite straightforward and maintain a competitive advantage in various
market positions (Chandran, 2003). In fact, not the price, but the ability to maintain it at a low level
has become the main unique offer of the Walmart industry, and this opportunity was provided by
logistics.
Since one of the parts of supply chain management is logistics “Logistics is an essential component
of supply chain management”, it is important to understand that transportation, warehousing,
inventory, and communications are also important in supply chain management. The logistics system
of Walmart has a powerful transportation network with over 3,500 trucks serving distribution centers.
A distinctive feature of Walmart's logistics infrastructure is its cross-docking technique. This concept
is used when transferring goods from the receiving dock to the shipping dock. In other words, it is
transporting goods from factories to Walmart warehouses, and then quickly and directly transfer
goods from the incoming to the outgoing trailer without intermediate storage, which makes it possible
to increase distribution efficiency and reduce inventory, handling costs, and save storage space
(Chandran, 2003). Furthermore, Walmart's logistics technology takes advantage of the satellite
network and REMIX technology to process high-speed goods such as milk, eggs, bread, and also to
deliver goods from distribution centers to stores and replenish supplies every week (Abbaterusso,
2010).
“Walmart maintains close relations with its suppliers, always sets up their activities, provides a great
platform for its brands, and integrates with the industry” Natto (2014). The collaboration between
Walmart and its suppliers plays an important role since it connects sellers with buyers. Moreover, the
risk of increasing the distance between cooperating companies is much higher in the global market,
and in order to do this successfully, companies must have a good understanding of information
exchange, communication, general direction, and trust. To facilitate the exchange of information
between Walmart and its suppliers, the company used information technologies such as barcodes or
RFID (electromagnetic fields to automatically identify and track tags attached to objects) at present.
Walmart decided to eliminate intermediaries and contact suppliers directly to purchase the necessary
items. In combination with the use of barcodes, employees could receive and analyze information at
the store level in real-time. (Prater et al. 2005)
The goods must always be available in the required quantity, but without excessive stocks. This is the
only way to satisfy consumer demands, and not to have surplus stocks that bring additional and very
significant costs, and otherwise, incur large losses from customer dissatisfaction. Inventory helps to
balance supply and demand. Walmart has experience in inventory management, maintains an
efficiency in-stock level, and monitors the needs of its customers. Walmart uses information
technology capabilities that allow to track demand for a product and also provide information to its
suppliers about the sale of their goods at runtime. For example, the CPFR (Collaborative Planning,
Forecasting, and Replenishment) program created in collaboration with P & G helped Walmart to
minimize disruption of demand information by preserving more popular products for customer needs,
which led to an overall reduction in inventory and maintained the lowest cost of stocks. These
technologies have helped improve service levels for suppliers, as well as track and control inventory
levels (Grean, Shaw, 2002).
Overall, Walmart achieved leadership because its management initially viewed the distribution
system, transportation and storage as a competitive advantage. Focusing the supply chain only on
speed and cost-effective as well as ignoring the value of operations can lead to consumers'
dissatisfaction and a worse performance.
Conclusion
The importance of integrated logistics has been proved in the existing literature. The successful
companies were able to integrate logistics to boos their efficiency within the company, as well as
maintain long-lasting relationships with their suppliers and clients. It also allows firms to efficiently
manage their costs, make effective decisions, and to gain competitive advantage in fierce market
competition.
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