Logistics must also be efficient

The optimal relationship between quality and costs

Companies always strive to optimize their work while reducing their costs. A system is considered to be efficient when the ratio between performance and costs is optimal. As a result, planning of logistics activities is never restricted solely to the cost or performance objective. Rather, the task is to combine both objectives perfectly.

Input and output perfectly balanced

Logistics thinking never focuses solely on costs. It must also consider performance. Logistics costs can be justified only if they result from related logistics services.
In the design of efficient logistics systems, both the logistics costs (input) and the logistics performance (output) must be considered as objectives. In this process, neither sole consideration of the aim of minimizing costs nor exclusive attention to the goal of maximizing service is desirable. Rather, a perfect balance between the two objectives is the ultimate goal.

High service level or low costs?

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The chart shows that the improvement of a very high service level causes a disproportionately large rise in costs. In the case of revenues, service optimization entails a subproportionately low increase in revenues. It is clear from this that the largest earnings contribution from the delivery service is by no means at the maximum service level. At the economic level, efficiency orientation corresponds to the well-known profitability objective, which is measured by the ratio of earnings to capital. In this case, the input is the capital that is tied up in the logistics systems, and the output is the earnings contribution that is made by the logistics systems [1].

Close link between efficiency orientation and individualization

Today, customers increasingly have individual requirements and wishes that a standard product or service can no longer fulfill. Logistics must react to this change with customized solutions that can be flexibly adapted and applied.
However, the growing demand for these customer-specific solutions represents a challenge for efficiency orientation in logistics. If a company strives to fulfill customer requirements as individually and flexibly as possible, it becomes considerably more difficult to achieve coordination and capacity utilization. This can drive up logistics costs.
For this reason, hybrid strategies that simultaneously focus on cost leadership and a differentiation strategy are emerging. One example is the mass-customization Mass customization concept that is based on the postponement of version differentiation, and the use of economies of scale and synergy parameters in the production of standardized modules. This results in both a large customer benefit through differentiation and cost leadership [2].

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