Ballou 02

Logistics/Supply Chain Strategy and Planning
If you dont know where you want to go, any path will do.
Chapter 2
CR (2004) Prentice Hall, Inc.
2-1
Corporate Strategy
Strategy is the process whereby 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: - 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

strategies for the various functional areas of the firm such as logistics.
2-2
The objectives of logistics strategy are:

- Minimize cost - Minimize investment - Maximize customer service
Levels of logistical planning:

- Strategic - Tactical - Operational
Use ROLA
Logistics Strategy
The 4 problem areas of supply chain planning

- Customer service levels - Facility location - Inventory decisions - Transportation decisions
Recall the logistics strategy triangle
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, 2-3 customer service, or investment level.
Corporate to Functional Strategic Planning

External factors Corporate strategic plan
Economic Regulatory Technological Competitive

Marketing
Manufacturing
Finance Logistics
Functional strategic plans
2-4
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
2-5
Logistics Objective
Maximize return on logistics assets (ROLA) Costs of
ROLARevenueCosts Assets
Investment in logistics assets
Logistics contribution to sales
logistics operations
2-6
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
2-7
Six Concepts for Logistics Strategy Formulation

Total cost concept

Tradeoff conflicting costs at optimum
Differentiated distribution
Not all products should be provided the same level of customer service
Mixed strategy
A pure strategy has higher costs than a mixed strategy
Postponement
Delay formation of the final product as long as possible
Shipment consolidation
Smaller shipment sizes have disproportionately higher transportation costs than larger ones
Product standardization
Avoid product variety since it adds to inventory
2-8
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
2-9
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
2-10
Pure vs. Mixed Strategy

Current strategy
Cost
Suggested strategy
All private
Combined private-public Warehouse alternatives
All public
2-11
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
Electronic equipment
2-12
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
2-13
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
2-14
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
2-15
Seven Principles of Supply Chain Management

Differentiated distribution
Segment customers based on service needs Listen to signals of market demand and plan
accordingly Design to customer needs Develop a supply-chain-wide technology Boundary spanning strategy info. systems Customize the logistics network Differentiate product closer to the customer Postponement Source strategically Adopt channel-spanning performance measures
Source: Accenture Consulting
2-16

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Logistics/Supply Chain Strategy and Planning

Strategy formulation begins with defining a corporate

Corporate strategies are converted to more specific

The objectives of logistics strategy are:

Levels of logistical planning:

The 4 problem areas of supply chain planning

Recall the logistics strategy triangle

Corporate to Functional Strategic Planning

Economic Regulatory Technological Competitive

Functional strategic plans

CR (2004) Prentice Hall, Inc.

Flow of Logistics Planning

Customer service requirements

Integrated logistics planning

Design of integrated logistics management system

Overall performance measures

CR (2004) Prentice Hall, Inc.

Logistics contribution to sales

Strategic, Tactical, and Operational Decision Making

Inventories Order processing

Order picking and restocking

CR (2004) Prentice Hall, Inc.

Six Concepts for Logistics Strategy Formulation

Total cost concept

CR (2004) Prentice Hall, Inc.

A Cost Conflict in Logistics

Inventory cost (includes storage and intransit

Cost of transportation service

Truck Transportation service (greater speed and dependability)

CR (2004) Prentice Hall, Inc.

More Cost Conflicts

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

Inventory carryng cost

(c) Setting safety stock levels

CR (2004) Prentice Hall, Inc.

Pure vs. Mixed Strategy

Combined private-public Warehouse alternatives

CR (2004) Prentice Hall, Inc.

Choosing the Right Supply Chain Strategy

Efficient supply chain Responsive supply chain

CR (2004) Prentice Hall, Inc.

Choosing the Right Supply Chain Strategy

Actions for Misclassified Products

CR (2004) Prentice Hall, Inc.

Seven Principles of Supply Chain Management

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