The prompt production chains are strongly integrated in the company along its functions and outside it, towards the providers and customers.The transition from vertical to horizontal imposes an organizational change. To help this process, it is useful that 'the best practice' be set through "benchmarking".We seem to enter an era when the competition rules will differ greatly from those existing in the past. If a company aims at obtaining such an advantage, it is crucial for the organization to revise the manner in which it grants values for the customers and decide whether it is time to reconfigure the chain in order to use the power of the other players in the production chain.logistics, business environment, production chain

Caraiani Gheorghe

English

Research Papers in Economics

73 
THE LOGISTICS OF PRODUCTION MANAGEMENT AND THE 
TRANSFORMATIONS IN THE BUSINESS ENVIRONMENT  
Caraiani Gheorghe 
Universitatea Româno-American￿, georgecaraiani@rdslink.ro 
 
The prompt production chains are strongly integrated in the company along its functions and outside it, towards 
the providers and customers.The transition from vertical to horizontal imposes an organizational change. To help 
this process, it is useful that ‘the best practice’ be set through «benchmarking».We seem to enter an era when the 
competition rules will differ greatly from those existing in the past. If a company aims at obtaining such an 
advantage, it is crucial for the organization to revise the manner in which it grants values for the customers and 
decide whether it is time to reconfigure the chain in order to use the power of the other players in the production 
chain. 
 
Keywords: logistics, business environment, production chain 
1.General issues 
They  suggest  that  a  new  business  model  is  necessary  in  order  to  cope  with  the  radically  changing  business 
environment.  
They describe the appearance of network organizations and explore their implications for the management of the 
production chain. 
They underline seven major transformations in the business environment that need to be taken over to administer 
the chain production in the future. 
They discuss the need to organize the chain production and propose means through which complex networks can 
be better coordinated. 
However,  there  is  a  large  number  of  organizations  where  the  use  of  logistics  may  be  easily  traced  with  a 
significant strategic variable. Companies such as Xerox, Dell, Nokia, Benetton and 3M have massively invested in 
developing logistic systems. Although their market success is due to several factors, it is obvious that logistics, 
too, has played an important role in achieving such results. 
A  study  carried  out  in  North  America  for  the  Logistic  Management  Board  tried  to  identify  the  features  of 
companies that used logistics, the elementary characteristics of these organizations being as follows: 
•  they display an increased interest in customers; 
•  they comprise a wide array of mixed control from the functional viewpoint; 
•  they create alliances with their suppliers; 
•  they have a greatly formalized logistic process; 
•  they lay accent on operational flexibility; 
•  they use performance assessment; 
•  they invest in information technology; 
2. The new organizational model 
It may seem that, in order to be successful in all sectors of activity, we need significant changes within the 
company. There is the need for a change that exceeds the re-sketch of the internal organization scheme and 
involves a cultural change starting at the top. In fact, the fundamental principles that have traditionally lead the 
company  have  to  be  considered,  since  what  is  required  is  a  radical  change  of  the  models  that  hindered  the 
development of industrial organizations for so long.  74 
2.1. The need of new models in the business environment  
Most  of  us  work  in  hierarchical,  vertical  and  functionally  defined  organizations.  The  typical  organizational 
scheme of these companies resembles a pyramid and provides a clear image of subordination and the relationship-
building ability of each employee. In fact, the organizational structure has changed very little since the Romanian 
armies have developed the pyramid model. 
Although it is a clear fact that these models were very helpful in the past, now there are serious problems, since 
they are no longer suitable for the changed conditions of our times. Perhaps the most significant change of all is 
speed. Due to the short life cycle of products, time on the market has a growing importance.  
Similarly, the dramatic growth of ‘just in time’ (JIT) practices in production means have created an environment 
where companies develop systems able to answer more rapidly and in a flexible manner to customers’ requests. 
Indeed, this is valid for all the markets nowadays, as organizations try to reduce their stocks and thus be able to 
answer orders more rapidly. 
The challenge for any business is to become a prompt organization in all respects. It has to meet the changes of 
the market with products and services that provide innovating solutions to the customers’ problems; it has to 
answer volatile requests and must be able to provide a high level of delivery flexibility. 
Maybe one of the most important successes of management lately resides in the fact that it has noticed that 
individual organizations can no longer compete as entities in themselves, but as production chains. We undergo 
now through a stage of network competition, where the prizes will go to those organizations that can structure, 
coordinate and administer themselves better in their relationships with their customers in a network meant to 
provide them a higher market value. 
The emergence of network organizations is a recent phenomenon that has lead to many comments and analyses. 
These virtual organizations are characterized by a confederation of expert skills and abilities made available by the 
network members. It is debatable whether such collaboration arrangements are more effective in satisfying the 
customers than an independent company, which undertakes all the activities. The implications for management of 
such  a  network  are  generally  considerable  and,  particularly  the  challenges  for  logistic  management  are  also 
significant. In order to make the networks more effective in satisfying the end users, it is necessary to have a high 
level of collaboration  within the network, adjacent to recognizing the  need to  make these relations  mutually 
advantageous. The network success is due especially to the exchange of information among partners, so that the 
requests down the production chain are visible for all the members in its upper side. Creating transparency along 
this chain ensures a production and a product delivery that suits the real demand and not a forecast; thus, the parts 
of this chain operate much more effectively.  
The management of the production chain aims at obtaining an effective cost satisfaction after integrating the 
buyer/supplier process. This integration is obtained through a greater transparency of the customers’ requests by 
means of sharing information, assisted by the processes, seemingly insignificant, which link the identification of 
the customers’ need to the ‘on time’ answer.  
In the past, there were many cases in which the organizations were structured and organized so as to optimize 
their  own  operations  with  little  care  for  the  manner  in  which  they  interacted  with  their  customers  or  their 
suppliers. 
The business  model is purely transactional, i.e. the products  were bought and then sold and there  was little 
enthusiasm for the concept of long-term coordination relations. The result mainly consisted of products with high 
costs and low quality for the consumers. 
The new organizational model strongly contrasts the old one. It suggests that on the global markets of these days, 
the path to hold a competitive advantage lies in the administration of a complex network of relations that links the 
suppliers of specific elements of the final supply in an effective chain from the viewpoint of costs and the added 
value.  
The key to success is given by the new competitive coordinates, in which the network of alliances and suppliers 
are linked together in a partnership in order to reach their objectives mutually and advantageously. 
3. Administering the production chain as a network  
The  new  model  we  have  just  described  places  the  company  at  the  core  of  this  interdependent  network  –  a 
confederation of complementary skills and abilities – that competes like a production chain integrated with other 
production chains. 75 
In order to administer a radically modified competition structure you need skills and abilities different from those 
necessary in the traditional model.  
To reach the top market in the world of competitive networks it is necessary to focus on the network management 
and on internal products. From among the many problems and challenges that the organization has to face while 
commuting to the new competitive environment, the following are the most important: 
•  Developing the collective strategy 
•  Strategy of the WIN – WIN type. 
4.The production chain of the future  
It is obvious that the markets and the production chains are in a continuous stage of adjustment and adaptation. 
However,  evidence  shows  that  the  change  rate  has  accelerated  so  much,  that  the  business  models  that  have 
functioned until recently will not be able to operate in the future.  
We moved from a business environment in which the supplier held the power – many times due to the ownership 
on the resources, technologies and brands – toward a situation in which the customer, or even the consumer, is in a 
leading position. Where before was the seller’s market, today there is the buyer’s market. Simultaneously, the 
prevalence of the marketing philosophy moved from the idea of mass markets served by the mass production to 
the idea of unit markets served by mass commerce.  
Even if this fundamental change has been obvious for some time now, it did not reflect in any mass change of the 
production chain. 
The traditional production chain is based on maximizing efficiency, especially by exploiting the balance economy. 
So it is that our factories were created to produce large amounts and maximize their production capacity. This 
business type operated well under the circumstances in which it was created; a relevant example is the production 
of standard products made for mass markets. 
This change in the market environment is accompanied by a number of significant changes for the business 
environment with major implications for the production chain.  
5.Seven significant changes of the business environment  
•  From supplier-oriented to customer-oriented  
•  From push to pull 
•  From inventory to information 
•  From transactions to relations  
•  From « Trunks and Sheds » management to the oriented one, of the « end-to-end » type 
•  From functions to processes 
•  From singular competition to network rivalry  
6.The implications of the logistic system for the managers of tomorrow  
The changes of the type indicated above have important implications on the profile of the type of skills that will 
characterize the logistic and production chain managers.  
This is only an indicator, but what it suggests is that there is a real need for formal education and training in 
various fields such as information systems and change management. The specified skills cannot be obtained only 
though expertise; the basis for the use of such skills must be acquired through appropriate education programs. 
They represent a challenge for the logistics teachers of out times: how to set programs that have the power and 
depth to create managers of the T type. The managers of the T type are so called due to the profile of their skills. 
Even  if  they  have  a  certain  specialty,  they  also  hold  much  knowledge  with  respect  to  the  other  company 
procedures. This comprehensive education is crucial for the managers of the production chain of the future due to 
the need to ‘horizontally’ think and manage. 76 
7. The organization of the production chain  
Together with the appearance of virtual organizations and enlarged enterprises there came the need to find a 
means to administer them. For instance, let us take into account the administration of the Ford group at the time of 
its founder and its current administration. 
Henry Ford held an integrated production system because the entire company was his. Beside the production of 
the components used for the vehicles, the company also held steelworks, gum and mahogany plantations and 
forests. The Ford of our times is completely different. Mot component businesses were externalized to other 
companies, Visteon and the steelworks were closed. In exchange, Ford is the center of the specialized supplier 
network. 
7.1. From 3PL to 4PL 
Another model for the coordination of complex networks was proposed under the form of the idea of 4 PL or Lead 
Logistic Service Provider (the main provider of logistic services). 
3PL  are  companies  that  provide  a  certain  variation  of  logistic  services  for  customers.  They  may  operate  in 
distribution centers, may administer the product delivery along the transportation chain or may take over retail 
services. 
The idea of a 4 PL resulted after consultations with Accenture. The principles at the basis of this idea are that the 
production networks become global and much more complex, and the ability to administer them cannot exist in a 
single company. In this situation, there is the need of another company – it is likely to have a merger through 
another company – that may use its knowledge in order to manage and integrate completely the production chain. 
4PL would mean a coalition of the best service providers who, using their own information systems, would ensure 
an effective solution for the production chain.  
In the particular model of this business an agreement was reached between the customer and the partner. The 
customer  will  send  its  logistic  assets  (distribution  centers)  to  the  partner.  It  is  also  likely  that  the  personnel 
administering and leading these departments will be moved to the new company. The partner’s contribution may 
include its information systems, its abilities of strategic development and of the engineering processes. 
This partnership will identify then those providers of logistic services who will execute various activities in the 
production  chain.  Using  its  information  systems,  the  partner  will  become  now  an  orchestrator  of  the  chain 
production for the  said customer, offering him a complete network administration capacity, according  to the 
services and objectives proposed. 
If the 4PL model is a partnership or another type of association there are 4 key elements: 
•  the system architecture and integration skills; 
•  a control room on the production chain; 
•  the ability to capture and use information and knowledge in the entire network; 
•  access to the best service providers; 
Such a partnership has advantageous results. A recent example in this respect are the companies General Motors 
and Menlo Logistics, which commonly invested $6 billion, General Motors using the majority part in order to set 
up Vector SCM. 
Vector SCM has become in charge with the administration of the entire internal and external logistics of General 
Motors  and  with  the  coordination  of  individual  transports  and  storage.  Placing  all  the  operations  within  an 
information system, Vector Vision has given the opportunity of a higher level of synchronization in the entire GM 
Company from the viewpoint of the supply and demand network. 
Conclusion 
The prompt production chains are strongly integrated in the company along its functions and outside it, towards 
the providers and customers. Many companies cannot be prompt and effective because they have an outdated 
functional  structure.  They  administer  functions  and  not  processes  and  approach  the  market  in  a  fragmented 
manner. It is more difficult for them to conceive external integration since they do not have an internal one. 
The transition from vertical to horizontal imposes an organizational change. To help this process, it is useful that 
‘the  best  practice’  be  set  through  « benchmarking ».  It  is  also  important  to  identify  the  major  adequate 77 
performance indicators in order to set that the entire organization be focused on those elements that will make 
possible a more effective production chain. 
We seem to enter an era when the competition rules will differ greatly from those existing in the past. A new 
competitive  model  is  emerging,  because  the  production  chain  network  will  create  a  source  of  competitive 
advantages by creating an increased value for the customers. 
If a company aims at obtaining such an advantage, it is crucial for the organization to revise the manner in which 
it grants values for the customers and decide whether it is time to reconfigure the chain in order to use the power 
of the other players in the production chain. One thing is certain; the companies which relieve that may continue 
to do business ‘as usual’ will find out that the forecasts for profit on the markets of tomorrow will rapidly face 
decline.    78 
References: 
1.  Caraiani Gheorghe (2007) – “International Expedition Logistics”, Editura “Pro Universitaria”. 
2.  Drew  Stapleton,  Sanghamitra  Pati,  Erik  Beach  and  Poomipak  Julmanichoti  (2004)  – “Activity  – 
based Costing for Logistics and Marketing”, Business Process Management Journal 10, no 5 
3.  Douglas  M.  Lambert  and  Howard  M.  Armitage  (1979)  –  “Distribution  Costs:  The  Challenge”, 
Management Accounting 60, no 11 (May 1979) 
4.  Charles Davis (2004) – “Countering the Costs”, Logistics Europe 12, no 7 (September 2004) 
5.  Martin Christopher and John Gattorna (2005) – “Supply Chain Management Cost and Value – based 
Pricing”, Industrial Marketing Management 34 (2005); 
6.  Gerry Johnson and Kevan Scholes (1999) – “Exploring Corporate Strategy”, the 5
th edition Harlow, 
UK; FT Prentice Hall 1999. 
 
 
 
 

Sanghamitra Pati, Erik Beach and Poomipak Julmanichoti

THE LOGISTICS OF PRODUCTION MANAGEMENT AND THE TRANSFORMATIONS IN THE BUSINESS ENVIRONMENT

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