Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

1.1.7 The Extended Enterprise — Logistics Networks, Logistics Systems or Logistic Chains

Intended learning outcomes: Describe the reasons for an extended enterprise. Differentiate between a logistics network, a production network, a procurement network, a distribution network, and a service network.

For products of a certain complexity, design and manufacturing are often distributed among several companies or among different organizational units within a company. From the perspective of the individual manufacturer, the reasons for this are, for example:

  • Quality: Some technologies or processes may not be mastered successfully enough (pro­blem of effectiveness, that is, achieving the given or expected quality standard).
  • Costs: Certain technologies or processes cannot be implemented economically (problem of efficiency, that is, the actual output com­pared with the output expected, with regard to the use of means).
  • Delivery: Some processes are not rapid enough, or they are unstable over time.
  • Flexibility: Customer demand may show rapid variation; the company’s own competencies or capacity cannot be adapted quickly enough.

An extended enterprise, i.e. a network of the sublogistics of a number of legally independent companies that participate in design and manufacture, is formed as a result.

A chain or a tree structure leading to a product are simple forms of such a network.

A logistics network is the joining of the logistics of several organizational units, that is, companies or parts of companies, to form comprehensive logistics.
Production network, or production system, and procurement network can be used as synonyms of logistics network.

The end user of a logistics network is the consumer.

Figure shows an example where three organizational units form a logistics network. Here it is a logistics chain.

Fig.        Three organizational units in a logistics chain.

The logistics chain between two stores is crucial. The logistics of the second organi­zatio­nal unit in Figure must not be viewed in isola­tion. The logistics of the first organizational unit and the logistics of the third organizational unit will have a direct influence on the logistics of the second organizational unit, since there is no buffer between the two stores.

From the perspective of the end user, distribution and service networks also belong to value-added, for only with delivery and possibly service is the customer order fulfilled.

A distribution network, or distribution system, is a group of interrelated facilities — manufacturing and one or more levels of warehousing — linking the production, storage, and consumption activities for spare parts and finished goods inventory [APIC16].

A service network is a group of interrelated facilities for performing all services in connection with material or nonmaterial goods.

Continuation in next subsection (1.1.7b).

Course section 1.1: Subsections and their intended learning outcomes