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Chapter 16:
Logistics and Supply Chain Challenges for the Future
Chapter 16Management of Business Logistics, 7th
Ed. 2
Logistics Profile: Creating a State-of-the Art VW Beetle Production Facility in Mexico
In 1998, at Volkswagen’s Mexican assembly plant in Puebla, Exel implemented the JIT sequencing operation.
Currently, the Mexican plant produces 1,600 vehicles daily, including the Beetle and Jetta.
Parts delivery to a specific place on the line takes place within 40 minutes of an order, with one car built every 40 minutes, 24/7.
Exel provides Volkswagen with expert logistics and supply chain management ported from a similar VW plant in Spain, proving that transfer of technology, human resources, and best practices is possible on a global basis.
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Introduction
Logistics and supply chain management are changing quickly, and are characterized by:
1. Many innovations and improvements2. Movement towards being considered
as players in strategic, competitive advantage
3. Prime candidates for application of tried and proven approaches to strategic planning
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Overview of Strategic Planning for Logistics and Supply Chain Management
Historical Perspective on Strategy: Has become an appropriately meaningful
and integrated activity in most globally competitive firms.
Evolutionary development phases: In the 50s and 60s, was referred to as
investment planning. In the 70s, began to focus on internal
growth opportunities. In the 80s, a combination of outside
investment and internal growth opportunities was used.
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Overview of Strategic Planning for Logistics and Supply Chain Management
In the 80s, a combination of outside investment and internal growth opportunities was used.
In the 90s, refocused on gaining strategic advantage in the marketplace and for defending against competitors.
In the early 2000s, strategic focus clearly moved toward the development of effective, interfirm relationships that would create maximum value for the firm’s products and/or services.
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Overview of Strategic Planning for Logistics and Supply Chain Management
Definitions: Strategy – a course of action, a
scheme, or a principal idea through which an organization hopes to accomplish a specific objective or goal. (long term)
Tactics – refers to the operational aspects that are necessary to support strategy. (Middle term)
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Overview of Strategic Planning for Logistics and Supply Chain Management
Strategy Classification Porter’s model of basic strategies, namely,
(1)cost, (2) differentiation, and (3)focus is the most popular scheme.
(1) low cost essentially stress offering a product or service in a market at a price or cost lower than that of competitors.
Automobiles and electronic products are two examples of this strategy, as are the general operations of retail firms such as Wal-Mart, Target, and McDonalds.
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Figure 16-2 Strategies for Creating Value
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Overview of Strategic Planning for Logistics and Supply Chain Management
(2) differentiation attempt to make a product or service look unique, such that consumers are willing to par a premium price.
Perceptions based on better fit, higher quality, long product life, better service, and other similar attributes are typical of strategies based on differentiation.
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Overview of Strategic Planning for Logistics and Supply Chain Management
(3) focus attempt to make a product or service fit a niche or small market segment where either cost or differentiation is then employed.
Ex 24/7 Speed delivery between Taiwan and HK
Stage 1: delivery at a spot Stage 2: door to door delivery
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Overview of Strategic Planning for Logistics and Supply Chain Management
Strategy Classification Porter’s value chain suggests that a
company can be disaggregated into five primary activities and four support activities.
Examine Figure 16-3.
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Figure 16-3 The Generic Value Chain
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Logistics and supply chain strategies
1. Time-based2. Asset productivity3. Technology-based4. Relationship-based
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1. Time-Based Strategies
Here we refer to trade off Capitals spent on:
Transportation Inventory, and Warehousing cost
Question needed to address is that how do we reduce our operations time and inventories such as to:
1. max our ROI and ROA2. max our cash flow
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Two general aspect to reduce time in SCM
(a) Reducing Cycle Time – reduce operations time
(b) Time-Reduction Logistics Initiatives – flow of the products
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(a) Reducing Cycle Time
Logistics activities that shorten the length of the order/replenishment cycle by reducing:
cycle time are based on three factors:
1. processes, 2. information, and 3. decision making.
How to achieved them?
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2 Ways to achieving them:(1) Use of technology for processing and
Information Eg. Use EDI or the Internet for fast order
processing(2) Level of approval for decision making
empowering individuals to make decisions can be one of the most important ways to speed cycle time.
1. Pre-approvals and other delegated decision making models can lead to making mistakes, but the experience of Proctor & Gamble, among others, is that the risk is justified in terms of time saved and improvement in customer responsiveness.
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(b) Time-Reduction Logistics Initiatives
Here, we emphasize on flow of products Methods adopted include JIT, VMI (vendor-managed
inventory, and CRP (continuous replenishment)
Each strategy reduces the order cycle by shortening the total time from vendor to delivery to customers.
Push to pull method in SCM Push, reactive and wait for customer
orders Pull, proactive, inventory replenishment
fo anticipate future demand so that .. each warehouse placing orders with the central distribution center
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How to achieve them? 4 ways:
1) Anticipate customers’ needs Improved ability to anticipate through
collaborative planning, forecasting, and replenishment (CPFR) enables the logistics and supply chain processes to make a more valuable contribution to corporate objectives.
The switch from push to pull is a more demand-responsive system, but requires changes that may be difficult to achieve depending on the corporate culture in place.
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2) Manufacturing impacts Pull approach requires a fast manufacturing
system when an order is received! Risk of low or no inventory depends on fast
and frequent replenishment.3) Responding to demand
Produced only needed so to reduce storage spaces
Need to special care of “peak” demand session!
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4. Postponement involves not completely finishing a
product until an order arrives. Food processors that can “brights”
and do not label until an order is received
Auto manufacturers that pre-wire electronic harnesses to take any option, not knowing what a particular car order will specify.
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2. Asset Productivity Strategies
Our focus here is to emphasize on ROA
How do earn the same level of revenues with a reduced investment in assets?
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4 ways to improve our asset productivities
1. Inventory reduction2. Facility utilization3. Equipment utilization4. 3PL/Contract logistic services
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1) Inventory Reduction Much evidence that companies have been
successful in reducing inventories. Time reduction strategies, JIT, QR, VMI, and ECR
2) Facility Utilization Strategy to keep the goods moving throughout
the logistics and supply chain system has contributed to effective use of logistics facilities thus squeezing more productivity from these assets.
Eg. Direct shipment of goods to eliminate storage facility together
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3) Equipment Utilization Strategies To improve material-handling systems
used in warehouse/transportation to reduce operations time
Ex: use of a smarter, more sophisticated equipment dispatching software.
Doing more with less is a result of leaner enterprises.
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4) Third-Party/Contract Logistics Services Use of 3PLs has resulted in dramatic
positive impact on asset productivity. DuPont, Nabisco, Proctor & Gamble,
General Electric and General Motors and others are users of 3PLs, focusing on managing logistics services rather than on the assets themselves.
Examine Figure 16-4 on 4PLs potential impact.
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Figure 16-4Fourth-Party™ Logistics
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3. Technology-Based Strategies
Disruptive technologies are those will help make firms more competitive, but will change the basis of competition. Examine Table 16-1 Implications are that logistics and supply
chain areas of the future will differ significantly from those of today.
E-commerce e-procurement and electronic marketplaces will continue to grow in importance.
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Table 16-1 Disruptive Information Technologies
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Figure 16-5Shifts in Technology
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Figure 16-6Strategic Sourcing and Procurement
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4. Relationship-Based Strategies
Building relations between trading partners. Collaboration
Parties involved dynamically share and interchange information.
Group benefits more than individual benefits.
All parties modify their business practices. All parties conduct business in new and
visibly different ways. All parties provide a mechanism and
process for collaboration to occur. (see next - Fig 16-7)
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Figure 16-7 4 Types of Collaboration
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Synthesis and Future Directions
Shift from Vertical to Virtual Integration (ERP) Collaboration (CPER) Knowledge of Core Competencies
Expertise Strategic fit Ability to trust
Technology and Connectivity Managing-the-People Skills Comprehensive Supply Chain Perspective
Chapter 16: Summary and Review Questions
Students should review their knowledge of the chapter by checking out the Summary and
Study Questions for Chapter 16.
End of Chapter 16 Slides
Logistics and Supply Chain Challenges for the Future