The development of an integrated logistics system needs the organization of an efficient cost analysis system that helps to identify beneficial collaboration relationships among the companies present in the supply chain, and to recognize the possible trade-offs existing between the different logistics activities made with the object of minimizing total cost while achieving a desired customer service level. The evaluation of possible cost trade-offs within the logistics system requires the identification, measurement and comparison of several factors.
Below are identified necessary factors:
- Identifying cost drivers or the structural determinants of the company‘s logistics activities and their behavior
- Measuring cost drivers in sufficient detail so as to understand causes and effect activities
- Measuring the interaction of cost drivers (determining whether they reinforce or counteract each other)
- Identifying the specific service levels that matter to customers and measuring their value
- Recognizing the correct trade-offs among the logistics and service criteria
- Evaluating these, both as a whole and incrementally, to contain costs without undermining needed differentiation in the distribution function.
The information obtained from integrated logistics management supports such key logistic decisions as determining needs for warehouse space, identifying warehouse locations, choosing delivery channels, deciding to outsource, etc. Despite the significant impact and costs involved in these decisions, the information needed to make these decisions remains largely inaccessible. Furthermore the planning of an integrated logistics system doesn‘t need only the total cost valuation for a logistics activity, but it is necessary to consider the effects produced on other important business processes such as production and marketing in order to minimize the company‘s total cost.
