Logistics imbalance: Authority vs. systems;

              Authority vs. Systems
A LOGISTICS
IMBALANCE
by HARRISON H. APPLEBY/Partner, Chicago
Today we are in the grip of a tightening energy and
materials crisis. In management terms, the crisis can be
described as one of insufficient resources. The crisis goes
beyond mere temporary shortages. It has a heavier longer-range
impact than waiting for the completion of the
Alaskan pipeline, the opening of Russian natural gas fields,
or implementing the process to recover oil from shale in
our western states and Canada. Many basic resources for
manufacturing or distribution—ranging from water to raw
materials to transportation vehicles—are in short supply.
History teaches that these factors will fluctuate. Over the
short and intermediate term, the energy crisis is apt to crest
and abate according to political circumstances. Further,
technology can be expected to come to a series of inter-mittent
rescues, should the political process permit.
But will it? The technology does exist in this country and
elsewhere to develop alternate sources of energy, which
could conceivably overcome the current shortage of fossil
fuels. However, access to some of these alternate sources is
increasingly subject to political pressures, due to a real or
imagined environmental impact. As a result, our
technological mechanisms are idling while irreplaceable
resources are being depleted.
In these circumstances, logistical management—the
planning for, control of, and shipment of materials, as
diagrammed in Figure 1—will become increasingly impor-tant.
In a world where it will no longer be possible to call a
supplier and have raw materials delivered the next day,
companies will prosper according to their ability to
anticipate the need for raw materials and assure their
delivery.
In the past, logistical activities have been fragmented,
with each phase of an operation resolving its own needs.
But recently businesses have begun restructuring their
operations to include the so-called "unified" approach,
which has recognized the interdependence among
physical distribution, materials management, and logistical
management.
It has been estimated that logistical activities syphon off
between 35 and 45 percent of a company's revenue, and
that this figure is growing at an astonishing rate. Transporta-tion
expenses go up, for example. Labor demands new
raises without providing matching gains in productivity.
Warehousing costs are on the increase. And the cost of
money—interest rates—for all its fluctuation, trends upward.
Obviously, no company can absorb such cost increases
indefinitely. Eventually, higher operating costs must be
passed along to customers in the form of higher prices, or a
7