Integration has been one of the dominant themes in the development of logistics management. This development began around 40 years ago with the integration at a local level of transport and warehousing operations into physical distribution systems. Today, many businesses are endeavoring to integrate supply networks that traverse the globe, comprise several tiers of supplier and distributor, and use different transport modes and carriers. The process of integration has transformed the way that companies manage the movement, storage, and handling of their products. Traditionally, these activities were regarded as basic operations subservient to the needs of other functions. Their integration into a logistical system has greatly enhanced their status and given them a new strategic importance.

The process of logistical integration can be divided into four stages:

Stage 1. The first stage m the process is generally considered to have been the "revolution in physi­cal distribution management" which began in the early 1960s in the USA and involved the integration into a single function of activities associated with the outbound distribution of finished goods. Formerly, logistics was a fragmented and often uncoordinated set of activities spread throughout various organizational functions with each individual function having its budget and set of priorities and measurements. Separate distribution departments were created which, for the first time, were able to coordinate the management of transport, warehousing, inventory management, materials handling, and order processing, the integration of these activities within physical distribution management (PDM) had three beneficial effects:

(1)It allowed companies to exploit the close interdependence between them, establishing a distri­bution mix that could meet customer requirements at minimum cost. In designing an integrated distri­bution system, they aimed to achieve an optimal trade - off between the costs of the various activities. Traditional accounting structures had prevented this in the past. The development of a new total cost approach to distribution accounting, which became a prerequisite of PDM, permitted much more detailed analysis of distribution costs. This often revealed, for example, that a large proportion of companies' total output was being distributed in small quantities at a high delivery cost per unit. In pursuing their prime objective of maximizing revenue, sales departments were prepared to supply very small orders, in some cases at a loss. Once these inefficiencies were exposed, companies began to raise minimum order sizes, stopping deliveries to small outlets and effectively rationalizing their delivery network.

(2)It gave distribution a stronger customer focus. PDM was initially motivated by a desire to cut cost, reflecting the traditional view of distribution as simply a drain on companies' resources. During the 1960s it was recognized that the quality of the distribution service could have a significant impact on sales, market share, and long-term customer loyalty. Distribution could therefore affect profitability on both the cost and revenue sides of the balance sheet. The new distribution departments began to develop more explicit customer service strategies based on closer coordination of order processing, warehousing, and delivery operations.