Chapter 16:

Chapter 16:

Logistics and Supply Chain Challenges for the Future

Chapter 16Management of Business Logistics, 7th

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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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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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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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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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(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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(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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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

Chapter 16:

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