Transport Logistics

Different levels of integration

Integration of industrial logistics covers a wide spectrum. In a fragmented supply chain with

many stakeholders involved, the integration of industrial logistics can be initiated as a functional

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integration, such as the integration of different divisions within the same company responsible for

sales and distribution activities. Companies at this level of logistics integration are attempting to gain

functional excellence and cost advantages in their global supply chain operations of sourcing,

conversion, distribution, and after sales service. Companies are removing internal barriers instead of

reinforcing them, and are focusing on tactical solutions (e.g. rationalisation of non-value-added

activities, working capital, inventories, customer services, etc). This may evolve into internal

integration where different companies under the same corporate structure combine facilities,

equipment, systems and personnel in more flexible modes of deployment.

The most extensive integration is market channel or external integration. This level requires that

enterprises extend their internal supply chain process both upstream with suppliers of raw materials

and downstream to final consumers. In this way, all companies in the supply chain are integrating their

activities with those of other companies to achieve economies of joint operation. The market channel

now becomes a virtual enterprise with common goals, systems, organisations, facilities and shared

management. Firms at this level are working in project organisation with suppliers and customers, and

investments are made jointly. Companies achieving this level of integration have the potential to

realise superior levels of performance.

While relatively small groups of innovative companies have adopted logistics techniques and

tools, and incorporated advanced ICT, the emphasis for most is on achieving optimal flows between

two consecutive companies in a chain. Many companies are still grappling with the problems of

internal integration, with respect to both physical activities and information systems.

Compared to North America, logistics are underdeveloped in Europe and Asia. In practice, the

development of logistics is partly a consequence of concentration of power (through take-overs and

mergers) and the subsequent exercising of that power on other supply chain members. Alternatively, it

can be seen as an opportunity for smaller companies to collaborate in order to achieve supply chain

economies of scale that may otherwise be denied to them individually.