Creating a Strategic Advantage

What are the strategic objectives of the

organization?
SUPPLY CHAIN
- Strategic Analysis of the Competition
MANAGEMENT - Evaluate Channel Structure
The answers to the above question will give an organization a
Chapter1: Competitive road map to set its customer service policy. This policy is
Advantage & 3Cs then translated to the channel structure to best meet the
organization’s goals in the most efficient and effective
Lecture 2 manner for a competitive advantage

Competitive Advantage  Commercial Success

Competitive Advantage & 3Cs
Customer: Commercial Success
Seeking benefit at an acceptable cost
Cost Advantage Value Advantage
Value Value

Cost Advantage helps in productivity advantage and

Company Competitor successful companies have:
Cost differential • PRODUCTIVITY ADVANTAGE: lower cost profile
Asset utilization Asset utilization
• VALUE ADVANTAGE: product offering
• IDEALLY, A COMBINATION OF BOTH
Competitive Advantage  Commercial Success
Productivity Advantage Value Advantage

Comes from experience in efficient production, “CUSTOMERS DON’T BUY PRODUCT,
greater sales volume, economy of scale and
THEY BUY BENEFITS”
declining of all costs with increase in volume.

Strategy based upon differentiated value
Real

Product image & reputation
cost
per
Service: Delivery service, after sales
unit service, technical support, financial
package
Cumulative volume
Customer/company relationship

Factors Affecting Productivity & Value Advantage

Productivity & Value Advantage Matrix
The goal:
Value (3) Superior Customer
Service Leader Advantage Value
Cost & Service Leader
• Mainly value (4)
• Excel in value chain • Customized
Value Advantage

advantage activities and also have services

Commodity Market
• Little or no product
or value advantage
Productivity Advantage
productivity advantage
• Reliability (1) (2)
Cost Leader • Responsiveness
• Mainly Productivity
advantage
Productivity Advantage
• Capacity Utilization
• Asset Utilization
• Inventory Reduction
• Integration with suppliers
Logistics and Marketing Impact of Logistics & Customer Service
on Marketing

Due to increased competition and product
For the consumer the customer service, brand value,
improvements power of brand value is corporate image and availability are important
declining. considerations.

Marketing is improved with strong ties with intermediary

Technological difference between such as large retail outlets creating customer franchises
company product is also declining as well as what the consumer is looking for.

Availability at the point of sales is
The consumer and customer franchises need an
important to retain even an old satisfied effective supply chain to result in market effectiveness.
customer, otherwise the sale will be lost to Consumer Customer Supply Chain Market
competitor Franchise
X
Franchise
X
Efficiency
=
Effectiveness

Customer service is a major ‘value Brand Value Customer Service Flexibility Market Share
advantage’. Corporate Image Partnership Reduced Inventory Customer Retention
Availability Quick Response Low Cost Suppliers Superior ROI

Barriers to Logistics/SC Integration

Barriers to Logistics/SC Integration arise
from inappropriate
 Organization Structure
Barriers to Supply Chain/  Measurement Systems
Logistics Integration  Inventory Ownership
 Information Technology
 Knowledge Transfer Capability
Barriers to Logistics Integration-
Organization Structure

Traditional organization structure prevents
any cross-functional process from being
implemented.

Each functional area concerns itself with
achieving its own functional excellence

Reason: Most managers are rewarded for
achieving functional excellence
Significant modification of how an organization
deals with cross-functional matters is essential
for successful process integration
Barriers to Logistics Integration-
Inventory Ownership

adequate supply has always been a
comfort against demand and operational
uncertainty

Forward commitment of inventory to local
markets can serve to facilitate sales
The cost-benefit relationship and the risks
related to incorrectly located or obsolete
inventory must be considered.
Barriers to Logistics Integration-
Measurement Systems

Traditional measurement systems have also
made cross-functional coordination difficult.

Managers must learn to view their specific
functions as part of a process rather than as
stand-alone activities

And accept increased costs within their
functional area for the sake of lower costs
throughout the process
Measurement system must not penalize
functional managers, otherwise logistical
integration will be more theory than practice.
Barriers to Logistics Integration-
Information Technology

performance measurement, information
system applications tend to be designed
along organization lines

Many databases limited to specific
functions and not easily accessed on a
cross-functional basis
Logistical integration requires sharing of
critical data across functional areas.
Barriers to Logistics Integration-
Knowledge Transfer Capability

knowledge containment tends to foster
the functional orientation by developing a
workforce composed of specialists Lecture 2 Part 2

The failure to transfer knowledge can also
Elements of Logistics/SC
create a barrier to continued integration
when an experienced employee leaves Competency
Failure of many firms to develop procedures
and systems for transferring cross functional
knowledge is a barrier to logistics integration .

Planning & Coordination Flows Logistics/SC Competency

Network Design

Information

Transportation

Inventory

Warehousing, material handling,
and Packaging
First Step: Superior Network Design

Logistics/SC facilities typically include
manufacturing plant, warehouses, cross-dock
operations, outsourced facilities and retail stores

All logistical facilities must be managed as a
part of company’s logistical/SC network.

The design network including information and
transportation, also handles customer orders,
maintains inventory and materials.

Network design needs to be modified to
accommodate changes in demand and supply,
product mix, supplier’s supplies and
manufacturing requirements.
Transportation

Geographically positions the Inventory

Private, contract or common carriage are
possible modes of transportation

Factors need to be considered in
Transportation:
- Cost & Speed of transportation
- Consistency of Transportation
Information

Technology for collecting sophisticated
information is available.

Deficiency in information collection or
processing can cause innumerable
problems.

Forecasting and order management
depend on information

Order management information is required
both for external and internal use.
Inventory

The objective is to achieve customer
service with minimum inventory
commitment for lowest total cost

Excessive inventories compensate
problems in network design but at the cost
of increased logistics cost

The best practice of inventory
management is to achieve maximum
turnover while satisfying customer
requirements.
Warehousing, material handling, and
packaging

Integral part of other logistical areas

Warehousing needed for efficient
distribution, stockpiling etc

Warehouse activities may include sorting,
sequencing, order selection, transportation
Integrated Logistics/SC

It is the competency that links the company with
its customers and suppliers. The entire
operation can be divided into two main
categories:
- Information Flow
Information from and about customers flows in the form of
sales activity, orders and forecasts.

and re-packaging - Inventory Flow

Master cartons, pallets, mechanized and The information flow is used for purchasing and
manufacturing plans. The products and materials procured
automated devices help in material are used to move the value added inventory, flow takes place
handling to ultimately result in transfer of product to the consumer.

Inventory Flow Inventory Management Policy

The logistics/SC operation starts with
Customer Segmentation
initial shipment of materials from a supplier
Product Requirement
and ends with the manufactured or
Transportation Integration
processed product to a customer.
Time Based Requirement

Competitive Performance
Inventory Flow
Inventory Management Policy
Selective Deployment

Physical Manufacturing Procurement

Distribution Support Customer Product Transportation Time-based Competitive
Segmentation Requirement Integration requirements performance

Customer Segmentation
More weightage to highly profitable and customers with
growth potential. Inventory needs to be focused on
highly profitable customers (part of segmented logistics)

Product Requirements
In most cases, there is substantial difference in volume
and profitability across product lines. Selective inventory
policy demands more importance to be given to product
line profitability. An enterprise takes more care of its
highly profitable items.

Transport Integration
Regional warehousing saves transportations which may
offset the cost of holding inventory

Time based requirements
Produce and supply products when required to save on
inventory costs. In cases when the raw materials and
products can be delivered quickly, safety stock can be
reduced for lower inventory costs

Competitive Performance
Inventories need to be analyzed with competitors in
mind. Unnecessarily higher inventories make a company
uncompetitive. Analyze!

Information Flow Planning & Coordination

Information flow integrates the three Flows
operating areas of inventory flow and
Strategic objectives
parallel the actual work performed in the

Capacity constraints
three operating areas of inventory flow.
The main component are:
Logistical requirements
Information Flow

Inventory deployment

Manufacturing requirements

Procurement requirements
Planning & Operational Flows
Coordination Flows

Forecasting
Operational Flows 1. What is logistics/SC management?
2. What are the sources of competitive advantage in
logistics/SC?

Order management 3. What are the implications of supply chain management
in logistics?

Order Processing
4. Explain the concept of value advantage. How value

Distribution Operations advantage can be achieved through customer service
and production activities?

Inventory management 5. How logistics and customer service affect marketing?

Manufacturing requirements 6. Explain various types of flows incorporated in
integrated logistics?

Transportation & shipping 7. What factors impact inventory management policy?

Procurement
Reference: Logistics Management by Satish C. Ailwadi
and R. Singh, Prentice Hall of India, 2005

Reference:

Logistics Management by Satish C.
Ailwadi and R. Singh, Prentice Hall of
India, 2005