• the detailed coordination of assets, business processed, and information to satisfy customer (or soldier) demand
• the forgotten second half of marketing: satisfying demand
The word logistics originally traces back to Greek origins. In Greek, λογῐστῐκός, or logistikós, relates to having skill in numerical calculations. Yet in the 19th century, French military officer and writer Antoine-Henri Jomini used the word logistique “to designate those who are in charge of the functionings of an army.”
In the 20th century, we saw both meanings come together full hog. First came the Industrial Revolution, which dramatically improved the capabilities of modern armies. Faster-firing weapons quickly outpaced the ability of troops to carry their supplies with them for an entire campaign, and we saw a shift to maintaining supplies in a rear area and transporting them to the front. The logistics of supplying troops became crucial in deciding the overall outcome of wars. Protecting one’s own supply lines and attacking those of an enemy became a fundamental military strategy.
Then from the logistics of WWII grew the field of operations research, as a way to apply mathematical models, statistical analysis, and mathematical optimization to a given set of resources. In war, and what was to become clear in business, logistics is about mathematically balancing a maximum objective (profit, performance or yield) and a minimum objective (loss, risk or cost), and improving this balance over time.
The business logistics wakeup call happened in 1962, when noted management expert Peter Drucker published an article in Fortune magazine titled “The Economy’s Dark Continent.” His thesis was that the hermetic, promotion-obsessed people who managed and directed the U.S. economy were, for all practical purposes, blind, by dint of their ignorance of and obliviousness to the logistic dimension of their jobs. Drucker noted that “almost 50 cents of each dollar the American consumer spends for goods goes for activities that occur after [my italics] the goods are made.” Distribution—or logistics, as it was then construed to mean—was half of the ball game. Nevertheless, the writer declared, in a much-quoted passage, “We know little more about distribution today than Napoleon’s contemporaries knew about the interior of Africa. We know it is there, and we know that it is big; and that is about all.”
The logistics function was spread out among such in-house departments as engineering, traffic, shipping, warehousing, and accounting. No one was in charge of the various functions and activities that came under its amorphous head. Management’s visibility of these processes—of this dark continent—was limited. Hence the CEO’s field of vision and ability to maximize profits was limited, and he couldn’t be a very good CEO, could he? Such was the essence of Drucker’s indictment.
A related problem, according to Drucker, was the difficulty of evaluating the cost of logistics.The varying nature and definition of the logistics function group, from company to company, combined with the lack of accurate or easy-to-use computational measuring tools made it difficult to find out how much these functions cost their respective companies, further blurring them. However, for Drucker, the basic reason for American business’ logistic obtuseness continued to be, essentially, a matter of attitude, that is, the perception, both within the factory walls and from without, that anything associated with logistics was unskilled or donkey work. Thus, Drucker charged, “because, to a technically minded man, most distribution work is donkey work, he tends to put a donkey in charge, more often than not a man of proven incompetence.”
To Drucker, the most blatant illustration of American business’ logistics obtuseness could be seen when one opened the door to the mercantile twilight zone known as the shipping department. “Even in the best-managed plant things change dramatically as soon as one goes through the door labeled ‘Finishing Room’ or ‘Shipping Department’ [where] there is suddenly a mob of people. Everybody seems to rush and no one seems to know why and where.” In short, all was pandemonium.
The only way to assert control of this messy, neglected process, Drucker insisted, was for businessmen to look at their business in a new holistic way—by seeing logistics, as an integral part of the manufacturing process, rather than a boring auxiliary of it, as was so often the case. “At a time when American business faces great competitive pressures from abroad—especially from a unified Europe whose industries can hold their own in technology, manufacturing knowledge, equipment and salesmanship,” he continued, sounding an almost eerily prescient note, “raising the effectiveness and cutting the costs of the American distributive system may be a more important and more urgent job than most managers yet realize.”
And so, by building upon the basic vision of modern American marketing, a vision based on seeing logistics as the reverse side of marketing—as well as a set of interrelated activities unto itself comprising transportation, warehousing, traffic, finished goods, inventory controls, packaging and materials handling—Drucker helped set the stage for and helped usher in the brave new world of what came to be called integrated logistics management, and the intellectual basis of what we today consider modern logistics.
In 1991, the Council of Logistics Management commissioned a study to determine the potential of applying logistics principles to service organizations, and as it turned out the principles of logistics were even more important in service organizations than in production firms. In a service organization, there may not be warehousing or inventory, but the fundamental coordination of assets, business processes, and information, to achieve maximum and minimum goals, remains the same.
Then the Gulf War and the Internet happened, accelerating an Information Revolution in logistics. The field of logistics has since become a free-for-all: WebVan, Kiva Robots, Shipwire, Fulfillment By Amazon, Instacart, Shopify Fulfillment, the UPS drone airline, and on the services side, Salesforce is the king of tools that help a business holistically satisfy the demands of its customers. Defining logistics as just warehousing and transportation of physical goods suddenly sounds quaint and naive.
In 2002, I published Delivering the Goods, and posed a question: can we view the entire world as one large warehouse? As it stands, there is a science to laying out and optimizing the operations inside the four walls of a warehouse. There are fixed costs, tradeoffs between cheap human labor and expensive, hard-to-upgrade automation, and information that can be used more and more intelligently. Given a range of inputs, it’s possible to rapidly AB test different iterations inside the warehouse, and incrementally improve the outputs indefinitely. Our three measures of success are faster, cheaper and better. If we throw out the competing notions of warehouse versus truck, can we more rapidly AB test different ways to satisfy demand?
In 1995, the U.S. Armed Forces asked a similar question: can a cargo plane also serve as a warehouse? And when it lands, can containers be offloaded that themselves operate as mini-warehouses, that can in turn be broken down into micro-warehouses at the pallet level and transported to the front? And then can we roll it all back up to the cargo plane-level at a later date? This was part of Gen. John Shalikashvili’s Joint Vision 2010. In this hierarchical scenario, where does the warehouse end and transportation begin? Fast forward to Travis Kalanick’s UberX, which is being copied by Amazon Flex to upend last mile delivery, and which Travis learned from to create CloudKitchens, which is using underutilized real estate in cities to enable restaurants to set up kitchens for the purpose of catering exclusively to customers ordering in. It’s as though Travis is being coached by Alexander the Great, running updated calculations of the load one man can carry, and then building forward supply depots to cross Asia—Travis’ key market for CloudKitchens is India.
What logistics technologies are next in line to upend the way we satisfy demand? Autonomous vehicles, artificial intelligence, 3D printing, mobile distribution centers, unmanned kiosks, smart lockers, cloud-based workflow automation, augmented reality, telepresence, and more.
To sum it up, the first half of marketing is creating demand. Logistics is the forgotten second half of marketing: satisfying demand. Whether you sell a product or service, your Chief Logistics Officer is the person responsible for delivering the goods.