Logistics/Supply Chain Strategy and Planning

If you dont know where you want to go, any path will do.

Chapter 2
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Corporate Strategy
Strategy is the process whereby guidelines/ plans are formulated
for positioning the firm to meet its objectives.

Strategy formulation begins with defining a corporate

strategy. This involves: a. Assessing needs, strengths, and weaknesses of the 4 major components of the company: - customers - suppliers - competitors - the company itself b. "Visioning" where counter -intuitive, unheard of, and unconventional strategies are considered.

Corporate strategies are converted to more specific & tactical

strategies for the various functional areas of the firm such as Logistics as like other functions.
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Corporate to Functional Strategic Planning

External factors Corporate strategic plan

Economic Regulatory Technological Competitive

Marketing

Manufacturing
Finance Logistics

Functional strategic plans

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Logistics Strategy
Cost reduction Minimizing the variable cost associated with movement & storage Capital reduction Minimizing the level of investment in the logistics system or maximizing return on logistics assets Service improvement Increase revenues depend on the level and differentiation of logistics service provided
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Flow of Logistics Planning

Individual Link of Logistics System Business goals and strategies

Facility location Operations strategy Inventory management Information systems Material handling Traffic and transportation Planning and control methods Organization

Customer service requirements

Integrated logistics planning

Design of integrated logistics management system

Overall performance measures

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Logistics planning
LEVELS OF PLANNING Strategic planning

Plans for longer than one yr time period

Tactical planning For an intermediate time horizon, usually less than one yr Operational planning Short range decision making, decisions frequently made on an hourly or daily basis
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Strategic, Tactical, and Operational Decision Making

Decision area Strategic Transportation Mode selection Tactical Seasonal equipment leasing Operational Dispatching

Inventories Order processing

Location, Control policies Safety stock levels Order filling Order entry, transmittal, and processing system design Development of supplier- Contracting, buyer relations Forward buying Space utilization Processing orders, Filling back orders Expediting

Purchasing

Warehousing Handling equipment selection, Layout design Facility location Number, size, and location of warehouses

Order picking and restocking

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Logistics planning
MAJOR PLANNING AREAS

Customer service levels

Level of customer service provided dramatically affects system design, ie. Low cs levels-centralized inventory, less expensive transport options Facility location strategy

Number, location, size of the primary, intermediate & final stocking and sourcing facilities and relating the current market demand to them
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Logistics planning
MAJOR PLANNING AREAS

Inventory decisions
Allocating inventories (push) or pulling them to the stocking points through replenishments are separate strategies need careful considerations Transport strategy

Selection of mode, shipment size, routing and scheduling influenced by proximity of warehouses and requirement of inventory keeping
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Logistics planning
MAJOR PLANNING problems

Move-store activities (top-down)

-Links- movements of goods -Nodes-storage or hault/stop points

Information flow activities (bottom-up) -Links- transmission of info from one geographic region to another -Nodes- data collection or processing points
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When to plan? For new ventures& for established businesses

- No distribution network currently exists. - There has been no re-evaluation in 5 years. - When costs are changing rapidly, especially transport & - When markets have shifted. - When current distribution economics encourage shifts. -When there has been a major policy shift in logistics such as in price, - customer service, or investment level.

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When to plan? Demand

-Existing demand & its geographic dispersion

-Disproportionate decline/ growth/ shift Customer service -inventory availability, speed of delivery. Order filling speed & accuracy -Distribution cost is sensitive to level of customer service -Competitive advantage is crucial
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When to plan? Product characteristics -characteristics like-weight, volume, value, risk can be altered -Can have substantial change in cost elements Logistics costs -high value/ low value items Pricing policy

-Company pricing policy

- transfer of product title
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Logistics Objective
Maximize return on logistics assets (ROLA) Costs of

ROLARevenueCosts Assets
Investment in logistics assets
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Logistics contribution to sales

logistics operations

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Guidelines for Logistics Strategy Formulation

Total cost concept (trade-off analysis) -Cost conflict among various activities -Examples of logistics cost trade-off

The total cost concept is the trade-off of all costs that are in cost conflict with each other and that can affect the outcome of a particular logistics decision
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A Cost Conflict in Logistics

Cost, in dollars

Total cost

Inventory cost (includes storage and intransit

Cost of transportation service

Rail

Truck Transportation service (greater speed and dependability)

Air

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More Cost Conflicts

Revenue Total costs Total costs Transportation, order processing, and inventory costs Lost sales cost 0 0 Improved customer service 100% 0

Inventory costs Transportation costs Increasing number of stocking points 0

(a) Setting the customer service level

(b) Determining the number of warehouses in a logistics system

Total costs

Total costs

Cost

Inventory carrying costs Lost sales cost 0 0 0 Average inventory level Production costs

Cost

Inventory carryng cost

Product run length and product sequencing altenatives (d) Setting the sequence of production runs for multiple products

(c) Setting safety stock levels

Revenue

Cost

Cost

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Guidelines for Logistics Strategy Formulation

Differentiated distribution
-Not all products should be provided the same level of customer service -Multiple distribution strategies with differentiation might be applicable within product line

Mixed strategy
-A pure strategy has higher costs than a mixed strategy -Single strategy has economic disadvantage when product line varies substantially
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Pure vs. Mixed Strategy

Current strategy

Cost

Suggested strategy

All private

Combined private-public Warehouse alternatives

All public
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Guidelines for Logistics Strategy Formulation

Postponement
The time of shipment and the location of final product processing in the distribution should be delayed until a customer order is received -time postponement -form postponement
Labeling, Packaging, Assembly, Manufacturing
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Guidelines for Logistics Strategy Formulation

Shipment consolidation -Earlier orders might be combined with orders received later -Smaller shipment sizes have disproportionately higher transportation costs than larger ones Product standardization -Proliferation of product variety adds to inventory -can be used in conjunction with postponement

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Choosing the Right Supply Chain Strategy

Functional Products-Predictable demand Staple food products Innovative Products-Unpredictable demand

Low margin

Efficient supply chain Responsive supply chain

High margin
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Electronic equipment
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Classification of Products
Predictable/Mature Products Unpredictable/Introductory Products

Jello Corn Flakes Lawn fertilizer Ball point pens Light bulbs Auto replacement tires Some industrial chemicals Tomato soup

New music recordings New computer games Fashion clothes Art works Movies Consulting services New product offerings of
existing product lines

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Choosing the Right Supply Chain Strategy

Efficient supply chain Economical production runs Finished goods inventories Economical buy quantities Large shipment sizes Batch order processing

Supplyto-stock
Responsive supply chain

Supplyto-order

Excess capacity Quick changeovers Short lead times Flexible processing Premium transportation Single order processing

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Actions for Misclassified Products

Product Characteristic
Supply Chain Design Type Supply-to-Stock/ Efficient Supply-to-Order/ Responsive Predictable/ Mature Tomato Soup If product is here Unpredictable/ Introductory If product is here Personal Computer Models

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