Uncontrollable environment is one major condition which is unpredictable and uncertain. Regardless of what it might be, an uncontrollable environment will negatively affect any organization effort, no matter which function it is and perhaps the objectivities and strategies of the business.
Today, business is a global market. In one way or another, we are all closely connected. The logistics systems have had the result of shrinking the world, allowing competitive trade. Hence, if an uncontrollable environment element rises, international logistic activities will be affected.
The uncontrollable environment consist of six elements namely economic, competition, technology, geography, social and culture, and political and legal.
Economic can be a major risk factor, it has a certain impact on the international trade patterns, products goods and service flows, and freight transport flows. In recent years, economic developments have led to the creation of complex company networks and systems of goods flow. The complexity of international logistics system in many divisions has grown as a result of increasing product variation and differentiation.
The relationship between the economic growth and demand for product-transporting services is the result of a range of effects. These effects clearly show the increasing importance of the economic sector on goods distribution.
For instance, oil prices increase resulting in high fuel costs. Demand begins to weaken. Stock prices started dropping, depression fears arise and recession occurs. These turbulence and uncertainty throughout the global economic, cause consumers to slow down cutting back on what they buy. This as a result, ripples back throughout the global economic and impacts the manufacturers, retailers and wholesalers who are contracting what they make, purchase and carry in inventory.
The effect of slowing down will then affect the logistics service providers, 3PLs, forwarders, ocean carriers, truckers and warehouses or storage operators. Who are facing higher costs, particularly fuel, and sinking revenues. As the carrier and forwarders try to take hold of the declining volumes, tax and duty begin to soften. New ship orders are cancelled. However, reducing rate does not generate business as the volume is not there. The lack of freight does not fix overcapacity. Ocean carriers take more capacity than usual, which result in an impact in lack of ships and space.
Inflation is also as critical to an organization and the logistic. The particular impact depends on the type of business, inventory valuation methods, age of business and assets, composition of expenditures and capital structure. Inflation is part and parcel of a growing economy. The Logistics segment in particular can respond to the growing inflation by taking on a range of cost saving measures and streamlining operations. Route-management, focusing on upcoming projects and order aggregation are some of the methods that Logistics companies can adopt to lower the Logistics costs.
Competitive pressure has been ever-increasing from many sources in the business world. Companies are force by the environment regardless of its position or prime market base to think about the rest of the world in their competitive strategy. Organisations cannot isolate themselves from the competitive situation in other countries. They have to be alert and consider adopting integrated worldwide strategies. Most organisations are likely to look for less expensive manufacturing, distribution centres, materials and components, depots, and logistics.
For instance, a company can choose to develop a product in United States, manufacture it in China and sells it in Europe. Organisations have to learn to change their methods of managing their operations and logistic activities. This enables them to maintain and gain competitive product pricing. Greater competition among different organisations on global scale has increase the pace of innovation and subsequently causes a downward pressure on prices.
Carriers have also changed their transportation requirements due to competition as manifest by fast, reliable and frequent services, Just-in-time manufacturing, warehousing and distribution, door-to-door intermodal services, cargo tracing services and other advanced information related services. This as a result increases competition among the logistics providers. For example, freight forwarders such as DHL, Federal Express and UPS global competition for just-in-time courier services.
The current trend of online shopping through the internet has also caused a certain influence in the business competition. Selling of service or products over electronic system has become more and more common. Consumers do not need to travel or be at the store physically and will be able to make their required or desire purchases such as clothes, electronics, shoes, grocery, air-tickets, accommodation, etc from any part of the world. These Organisations often need to engage different logistics actives to support these form of transactions. The advance in communication and transportation technology gives the global customers immediate access to the latest available products and technologies. Thus, Organisations hoping to capture global demand have to introduce their new products simultaneously to all major markets, with product and process conformance quality, delivery reliability and speed, customization and responsiveness to customers.
As e-commerce becomes more essential, implementation of internet applications to logistics has also gradually increases.
Technological development has a great influence on logistics and organisations all around the world. For example, information systems or similar technologies are used in every activity around us.
The type of technology the business chose to use determines on the quality and category of goods and services to be produced, and the quality and kind of plant and equipment to be used. Organisations and logistics are affected by the technology environment according to the investment in technology, influence of technology on markets and the consistent application of technology.
For Instance, Radio frequency identification (RFID) technology has proved to have a strong impression in the modern business. It can significantly improve the ability of the organization to obtain a huge range of data about the location and properties of any unit that can be wirelessly scan and physically label at a particular technical restriction. If the whole range of supply chain is taken into consideration on using RFID technology. It benefits the organisation with its cheaper cost and it’s operationally efficient. RFID technology can be use to a great extend in retail supply chain management and warehousing management, logistic, tracking of goods and trucks, shipping, container tracking, cargo tracking, security system etc.
As a result of the Logistics and transportation technology developments, intermodal transport competitiveness has substantially. New handling and vehicle technology developments have bring about reducing the operating costs of different types of freight transport and also the ability to change the way of the traffic flows. For example, the established long-distance truck services within Europe are facing competition with the introduction of fast ferries on the short sea routes which they are following.
Therefore an organisation has to put in a lot of effort to monitor and examine the best form of logistic and engaging itself with the most suitable technology for its utmost benefit.
There is a number of physical and environmental forces influencing and affecting international organisation and logistics, issue such as the geographical size, climatic challenge, natural resources, time zone and distance to travel. A place with mountains acts as barriers to the transportation, communication and restraint habitable land space.
However, geographical boundaries have started to lose their importance. Organisations now view their worldwide network facilities as a single entity. Worldwide sourcing is implemented, production sites are established on each continent and logistics are developed with international mind set. Today, organisations improve the efficiency of their businesses across widely dispersed geographic locations by using advance telecommunication and information technology.
Organisations also restructure their logistics system by concentrating production and inventory capacity in fewer locations. By geographically separating stockholding and break-bulk operations, organisations are able to obtain greater inventory savings and at the same time minimise additional transportation cost.
Geographical integration has turn out to be achievable with excellence worldwide transport. Express delivery services provided by courier companies such as DHL, UPS, Federal Express and TNT, uses their planes, hubs, collection systems, tracking and final delivery, enables organisations to dispatch articles long distances, in the shortest time possible, and at a much lower cost compared to the cost of carrying inventory.
Large logistic MNCs also choose to set up at countries with good geographical location. For instance, most of the largest logistic MNCs chose to set up in Singapore due to its unique geographical location which has now grown the country to a major trade centre.
Social and culture
The social environment of a nation decides on the value system of the society. Characteristic of sociology factors such as costs structure, customs, cultural heritage, practices and traditions for survival and development, view toward scientific methods, respect for seniority etc. have far-reaching impact on the business and logistics management. These factors determine the work culture and mobility of labour, work groups etc.
With the growing competitive global environment, organisations, freight forwarders, carriers etc has learn to gain knowledge of adapting their business approach to the culture and traditions of the specific foreign markets. If they are unable or unwilling to do so, it will become a serious obstacle to gain achievement.
Material culture can also have a particular effect on distribution and logistics strategies. For example, even though highways and rail transport are the major method of transporting goods within the United States, rivers and canals are used extensively in certain European countries. If the organisation is planning to develop a manufacturing operation in a foreign market, aspect such as the supply of raw materials, power, transportation and financing need to be carefully examine.
Culture problems such as lack of communication, business ethics, business practices, behaviour, etiquette and expectations are also issues to be face. The ways in which people relate to one another, form groups and organise their activities, teach acceptable behaviour and govern themselves consists of the social and educational a society. The organisation has to accommodate well with these foreign social-culture environment so as to allow its logistics decisions and strategies to proceed smoothly.
Misunderstandings in communication and in international trade transactions arise because in most instances the both parties come from different cultures and express themselves with different languages. In most instances business practices, tax systems, rules and regulations, accounting methods, currency controls and customs systems all differ from every country. The organisation must have full understanding of the culture differences they may encounter.
Political and Legal
The policies and attitudes towards companies depend on how the government the national interest, considering its own resources and political philosophy. The government is able to control and restrict a company’s activities by giving support and encourage or by banning and discourage or restricting its activities.
Political instability is essential. Organisations must be constantly aware of the policies of foreign governments. It enables them to change their logistics tactics accordingly and take the necessary steps to prevent loss of business and investment.
Legal environment includes flexibility and adaptability of law and other legal rules governing the business. It probably includes the exact rulings and decision of the courts. This as a result might affect the business including logistics to a great extent. For example, the exporters and importers must know their legal rights to make claim against the carriers. It is because in the aspects of international logistics, contract of carriage is drawn up between the shipper and carrier. It depends on the incoterm of the particular transaction was affected.
Global laws and policy change regularly. It may be applied differently and vary from different country. Hence it is important for the organisation to prepare a contract in conjunction with a legal firm, ensuring that its interests are taken care of. For instance, when trading with Muslim governed countries. Organisations should first approach legal organisations within these countries to ensure that their best interests are protected, as their legal system operates differently from South Africa.