Logistics planning and strategy

8/13/2019 Logistics planning and strategy

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Logistics/Supply ChainStrategy and Planning

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

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Corporate Strategy Strategy is the process whereby plans are formulated for

positioning the firm to meet its objectives.

Strategy formulation begins with defining a corporatestrategy. This involves:

a.Assessing needs, strengths, and weaknesses of the 4major components:- customers- suppliers- competitors- the company itself

b."Visioning" where counter -intuitive, unheard of, andunconventional strategies are considered.

Corporate strategies are converted to more specificstrategies for the various functional areas of the firm such aslogistics.


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LogisticsStrategy

The objectives of logistics str ategy are :- Minimize cost- Minimize investment- Maximize customer service

Levels of logistical planning :- Strategic- Tactical- Operational

The 4 problem areas of supply chain planning- Customer service levels- Facility location- Inventory decisions- Transportation decisions

When to plan?- No distribution network currently exists.- There has been no re-evaluation in 5 years.- When costs are changing rapidly, especially transport & inventory.- 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.

Recall thelogistics strategy

triangle

UseROLA

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Corporate to FunctionalStrategic Planning

EconomicRegulatoryTechnologicalCompetitive

External factorsCorporate strategic

plan

Marketing

Finance

Manufacturing

Logistics

Functional strategic plans


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Flow of Logist ics Planning

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

Individual Link ofLogistics System

Business goals andstrategies

Customer servicerequirements

Integrated logistic splanning

Design of integratedlogistics management

system

Overall performancemeasures

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Logistics Objective

Maximize return on logisticsassets ( ROLA )

AssetsCostsRevenueROLA =

Logisticscontribution

to sales

Investmentin logistics

assets

Costs oflogistics

operations


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Decision area Strategic Tactical Operational

Transportation Mode selection Seasonal equip-ment leasing

Dispatching

Inventories Location, Control policies Safety stock levels Order filling

Order processing

Order entry, transmittal,and processing systemdesign

Processingorders, Fillingback orders

Purchasing Development of supplier-buyer relations

Contracting,Forward buying

Expediting

Warehousing Handling equipment

selection, Layout design

Space utilization Order picking

and restocking

Facilitylocation

Number, size, andlocation of warehouses

Strategic, Tactical, and Operational Decision Making

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Six Concepts for LogisticsStrategy Formulation

Total cost conceptTradeoff conflicting costs at optimum

Differentiated distributionNot all products should be provided the same level ofcustomer service

Mixed strategy A pure strategy has higher costs than a mixed strategy

PostponementDelay formation of the final product as long as possible

Shipment consol idationSmaller shipment sizes have disproportionately highertransportation costs than larger ones

Product standardization Avoid product variety since it adds to inventory


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Cost of transportationservice

Inventory cost(includesstorage andintransit

Total cost

Rail Truck Air

C o s

t , i n d o

l l a r s

Transportation service(greater speed and dependability)

A Cost Conflict in Logistics

More Cost Conflicts

Improved customer service0 100%

(a) Setting the customer service level

C o s

t

Lost sales cost

Transportation,order processing,and inventorycosts

Total costs

Increasing number of stocking points0

(b) Determining the number of warehouses in a logisticssystem

C o s

t

Transportation costs

Total costs

Inventorycosts

0

Revenue

R e v e n u e

0

Average inventory level0

(c) Setting safety stock levels

Lost sales cost

Total costs

Inventorycarryingcosts

C o s

t

0Product run length and product sequencing

altenatives

(d) Setting the sequence of production runs for multiple products

Production costs

Total costs

C o s

t

0

Inventorycarryng cost

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Pure vs. Mixed Strategy

C o s

t

Allprivate

AllpublicCombinedprivate-public

Suggestedstrategy

Currentstrategy

Warehouse alternatives

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Choosing the Right Supply Chain Strategy

Electronicequipment

Responsivesupply chain

Staple foodproducts

Efficientsupply chain

InnovativeProducts--

Unpredictabledemand

FunctionalProducts--Predictable

demandLow margin

High margin


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Classif ication of Products

Unpredictable/IntroductoryProducts

New music recordingsNew computer gamesFashion clothes Art worksMoviesConsulting servicesNew product offerings of

existing product lines

Predictable/MatureProducts

JelloCorn FlakesLawn fertilizer Ball point pensLight bulbs Auto replacement tiresSome industrial chemicals

Tomato soup

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Excess capacityQuick changeoversShort lead timesFlexible processingPremium transportationSingle order processing

Responsivesupply chain

Economical production runsFinished goods inventoriesEconomical buy quantitiesLarge shipment sizesBatch order processing

Efficientsupply chain

Supply-to-stock

Supply-to-order

Choosing the Right Supply Chain Strategy


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Actions for Misclassified Products

PersonalComputer Models

If product is hereSupply-to-Order/Responsive

If product is hereTomato SoupSupply-to-Stock/Efficient

Unpredictable/Introductory

Predictable/Mature

Supply ChainDesign Type

Product Characteristic

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Seven Principlesof Supply Chain Management

Segment customers based on service needsListen to signals of market demand and plan

accordinglyDevelop a supply-chain-wide technology

strategyCustomize the logistics networkDifferentiate product closer to the customer Source strategically Adopt channel-spanning performance measuresSource: Accenture Consulting

Differentiated distribution

Design to customer needs

Postponement

Boundary spanninginfo. systems

Logistics planning and strategy

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