Logistics Concept

January 10, 2006

JAPAN INSTITUTE OF LOGISTICS SYSTEMS

Logistics Concept- Seeking for the Enhancement of Corporate Value What is logistics?
Logistics is the management which synchronizes such providing actions as procurement,
production, sales, and distribution with demands. It aims to enhance corporate
competitiveness and increase corporate value by realizing fulfillment of customers’satisfaction, cutback of unprofitable inventory and minimization of its transfer, andreduction of supply costs.
To achieve those objectives mentioned above, collaboration of companies concerned isessential and development of logistics using supply chains is strongly required.

Environmental Changes Surrounding Corporate Management and Important Logistics Issues
Important logistics issues surrounding corporate management include globalization and reduction ofenvironmental load, assurance of safety and ease of mind, response to a low birthrate and an aging
population. We need to address these issues from a logistics point of view.

Further globalization- Enhancement of international
competitiveness- Securing of transparent andvisible businesses andacceleration of decisionmaking- Promotion of standardization

Securing of compliance- Improvement of safetymeasures- Response to the growth ofconsumers’ awareness of safety
and ease of mind
- Response to international
security

Logistics and Management
Enhancement of corporate
competitiveness- Creation and evaluation oflogistics business management
indicators- Training for a CLO (ChiefLogistics Officer) and
restructure of organization
functions- Establishment of appropriate
service levels such as
Advancement of environmental loadconditions of transactions Solution for changes in human
reduction- Creation of a mechanism for a
resources and working environment
recycling-oriented society- Response to a low birthrate andharmonized with thean aging population
environment- Response to stronger needs for- Promotion of CO2 reduction,
the fostering of experts
energy conservation and others- Fostering of personnel who- Announcement of activities tolink management and practical
reduce environmental load
operations

1. Important Logistics Issues Surrounding Corporate Management
1) Logistics and Management
Such providing actions as procurement, production, sales, and distribution were managed
based on sector-specific evaluation indicators in the past. These optimum activities forindividual sectors resulted in significant managerial losses including stock shortage, andexcessive or bad inventory. Under the circumstances where synchronization of providing
actions with trends for demands was required in order to eliminate such losses, logistics
as management optimizing the entire providing actions developed. In logistics, all theproviding actions function to synchronize with trends for demands.
For management, logistics is required to contribute to gain in profits by cutting down
supply costs, and the reduction of assets by lowering inventory. It is important to assess itusing ROA (return on assets) and/or others as the preliminary index/indexes.
Accumulation of this kind of effort may establish such business models that could
produce new demands from a logistics point of view.
2) Logistics and Globalization
Recently Japanese companies have actively deployed manufacturing bases overseas.
Such globalization of corporate activities has been supported by IT represented by theInternet and logistics. The establishment of systems and structures quickly responding tochanges by visualizing worldwide production and inventory through the utilization of IT
is crucial in realizing efficient global supply chains.
The international distribution connecting each function and player of globally conductedprocurement, production, and sales also plays an extremely important role. There has
been a great expectation for the advancement of 3PL (3rd party logistics) businesses as acounterpart of global SCM (supply chain management). In the globalization of corporate
activities, efficient and seamless logistics is necessary and when it is realized, it would
make a huge contribution to corporate competitiveness.
3) Logistics and Environment
We are responsible for passing a global and local healthy environment as the mostimportant asset in our society over to future generations. To fulfill our commitment, weneed to place maximum priority on the harmony with the environment and to establish
logistics which aims at reducing environmental load such as global warming, air
pollution, waste, noise, and vibration, and creating a recycling-oriented society. It is
important to broaden our perspective to material selection and waste disposal methods,
and to consider reuse and recycling as well.
4) Logistics and Securing of Compliance
Since logistics is a foundation which supports not only economic activities, but also
people’s lives, the viewpoint of providing safety and ease of mind to consumers isessential. Therefore, the important issues include: securing of safety by eliminating
accidents during transportation and by strictly complying with proper product handlingprocedures throughout distribution processes, and pursuing ease of mind such as with thedevelopment of the product traceability system and/or others.
It is necessary to implement a safe and efficient international distribution mechanism inresponse to the enhancement of international security after the 9-11 terrorist attacks.
5) Logistics, and human resources and working environment
Logistics is regarded as the infrastructure supporting economic activities and people’slives and has an important role. Personnel with professional knowledge and a wide rangeof comprehension are required to establish and operate logistics. As for management, a
CLO (Chief Logistics Officer) should be assigned as a member of top management toperform comprehensive planning and control of logistics such as procurement,production, sales, and distribution. Systematic training for personnel engaging in logistics
practical operations is also an important issue. With a continuing tendency of a lowbirthrate and an aging population, it is necessary to improve the working environment
and find a solution to the diversification of working styles, and it is obvious that
education is required to make individual persons involved in logistics feel proud of theirjobs which contribute to a society, and to enhance the quality of work.

2. Issues and Perspective Addressed by the Industry- From the viewpoint of the practical area The advanced logistics systems are vital to establish totally optimized supply chainmanagement. Industry-government-academia collaboration is strongly required, but therole of the industry implementing logistics is significant among them.
The following is the presentation of issues and perspective which the industry is required
to address.
1) Logistics and Management
1. Creation and evaluation of logistics business management indicators
For management, logistics contributes to an increase in cash flow and ROA (return onassets) by reducing inventory assets through appropriate inventory and supply costs andby improving the total asset turnover.
It is necessary to reorganize businesses from a logistics point of view in the relationshipwith each sector such as procurement, production, sales, and distribution as well as
business partners, and to create, manage, and operate evaluation indicators such as KPI(key performance indicator).
2. Training for a CLO (Chief Logistics Officer) and restructure of organization functions
In order to plan and establish optimization of a supply chain as a managerial strategy,training and assignment of a CLO who integrates and manages performances usingbusiness management indicators and KPI are important issues. At the same time, it isessential to reorganize functions to make logistics work well in management organization.
3. Establishment of appropriate service levels such as conditions of transactions
In order to build a win-win relationship between each company comprising supply chains,
it is important to establish appropriate service levels by reviewing conditions oftransactions and others, and to minimize costs and environmental load.
2) Logistics and Globalization
1. Enhancement of international competitiveness
Under recent circumstances where procurement, production, sales, and distribution areglobally conducted, facilitation of import and export operations has an important role forthe enhancement of corporate competitiveness. Therefore, internationally competitive andsmooth import and export operations need to be realized by the joint efforts between thepublic and private sectors.
2. Securing of transparency and visibility
We are required to review traditional Japanese transaction practices and cost sharing
mechanisms such as the multilayered distribution structure, due to the globalization ofcorporate activities. It is necessary to establish the most suitable transaction models
matching international demands.

Also, it is important to accelerate decision-making using necessary information insuitable forms which becomes available when and where it is required via visualizationof information through IT technologies.
3. Promotion of standardization
The standardization of hardware and software has become an increasingly urgent issue
along with the progress of globalization. When we promote the standardization, we needto consider the global standards, for example, by making JIS (Japanese IndustrialStandards) comply with ISO (International Standards Organization).
3) Logistics and Environment
1. Creation of a mechanism for a recycling-oriented society in harmony with theenvironment
In order to create a recycling-oriented society, the source management which has aperspective broadened to material selection and waste disposal methods, as well as the3Rs, i.e. Reduce, Reuse, and Recycle. Logistics in harmony with the environment whichis established by the partnership between cargo owners and distribution companies,
considering the flow from supply chains to reverse supply chains is very important.
2. Promotion of environmental load reduction in distribution activities
It is important to take measures for CO2 reduction and energy conservation in thetransportation field. Modal shift to means of transportation with lower CO2 emission
intensity and joint delivery should be promoted. In addition, lighter and returnablewrapping and packing materials are an important issue to be considered.
3. Announcement of activities to reduce logistics environmental load
In order to utilize energy effectively and to restrict emission of greenhouse gases such as
CO2, it becomes important for companies to know the quantitative environmental load
and to positively disclose information via environmental reports and/or other means.
4) Logistics and Securing of Compliance
1. Improvement of safety measures in logistics
We need to prevent social losses by eliminating accidents caused by overloading,speeding, or excess driving, because distribution involves highly public activities
utilizing transportation infrastructure. Distribution companies have responsibilities tostrive to secure safety, and collaboration between cargo owners and distribution
companies is required to manage transportation and operations based on appropriate
conditions of transactions.
2. Fulfillment of consumers’ safety and ease of mind
When the developed product traceability system throughout the processes of logistics
enables distinction of each cargo and control of distribution history, it can provide ease ofmind to consumers and quickly address unexpected accidents.

At the same time, regarding response to large scale disasters, we need to consider what
private companies can do from a logistics point of view and take the appropriate
measures.
3. Securing international security
Securing the security of international cargo such as the enforcement of the “U.S. Customs
24 Hour Advanced Manifest Filing Rule” on international container cargo after the 9-11
terrorist attacks has become an important issue. It is necessary to establish the security
and safety system for plants, domestic storage and transportation, airports, and ports, andto promote computerization of cargo information.
5) Logistics, and human resources and working environment
1. Response to a low birthrate and an aging population
Implementation of logistics is a managerial issue and the quality of on-site operations is
also critical. Under the circumstances where a lower birthrate makes it more difficult tosecure and foster human resources, on-site laborsaving and automation provides a betterworking environment which can secure and foster qualified personnel.
2. Logistics CDP (Career Development Program) for fostering personnel
Companies need to create career development master plans and occupational skills
requirements, and foster suitable personnel, so that they can train human resources who
have systematic and professional knowledge and a wide range of comprehension from alogistics point of view.
3. Fostering of personnel who link management and practical operations
Managers and supervisors who link management and practical operations have an
important role to swiftly and accurately deliver the management decisions to practicaloperations and secure high-quality services. It is required to foster personnel with highlevel management skills who have both managerial and practical viewpoints. For thisissue, it is important for people to understand and apply knowledge management, and toshare and hand down knowledge, information, personal experiences and know-how.

JAPAN INSTITUTE OF LOGISTICS SYSTEMSJanuary 2006
Japan Institute of Logistics Systems
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