Introduction to Strategic Logistics

&
Supply Chain Management

AMAT EXECUTIVE CONSULTANTS

Based on Materials From

Supply Chain Management, Chopra & Meindl, 2001 [A]

© 2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Fundamentals of Logistics Management, Grant, Lambert, Stock & Ellram, 2006 [B]
© 2006 McGraw-Hill Companies Inc.

Additional material: Auren Ferguson

1
 Topic 4

Logistics Strategy

2
Objectives…
 Look at the concept of strategy and strategic
planning
 To understand how logistics contributes to the
achievement of strategic objectives
 To appreciate the important role of logistics in the
strategic planning process
 To outline how to develop a logistics strategic plan
 To look briefly at some of the trends and issues
emerging for logistics managers

1-3
Strategy…
“The direction and scope of an organization over the
long term which achieves advantage for the
organization…”
 The corporate mission statement is the overriding objective of the
organization which serves to guide strategic, activities and goals
 All functional areas and most employees should know the
organization's mission and associated strategic objectives
 Otherwise, they will not be able to formulate strategies of their
own that will support the achievement of the overall strategy

1-4
Why Strategy is Important to
Logistics?
 If logistics managers do not know the strategy, they will not be able
to make decisions that are in the best interests of the organisation
 E.g. if a strategic objective is to achieve differentiation by offering
fast, accurate and reliable deliveries, logistics managers would
choose trucks over trains
 Trucks would most likely be a more expensive option than rail
 If the strategic objective was to compete on low cost, the cheaper
rail option might be chosen
 This is typical of the trade-offs that logistic managers must make –
in this case, the trade-off is cost versus quality of delivery services
 It is obvious if the logistics manager does not understand the
corporate strategy, they cannot make decisions that are
consistently in the best interests of the overall organisation

1-5
How Logistics can Contribute?
 Intel has identified 6 ways that show how logistics
supports corporate strategy
 Increased planning capability and reduced inventory
as a result of reliable delivery time
 Increased margin and improved customer service
 Reduced inventory levels through shorter cycle times
 Increased marketing advantage from consistent,
shorter order cycles
 Uninterrupted supply of inbound material
 Reduced total cost by incorporating logistics into the
corporate planning process

1-6
How Logistics can Contribute (Cont.)?
 Logistics provides data and analysis related to the
existing logistics network including:
 Current storage and distribution facilities owned and
rented
 Equipment capacity and capabilities at each location
 Current transportation arrangements in the supply
chain
 Current operational costs and future projections
 Proposals for future capital investment in the supply
chain

1-7
Why Plan?
 “ If you don’t know where you’re going, how can
you expect to get there?”
 Planning should ideally be an ongoing exercise
 All plans should take account of the overall
strategy and move things in the direction that
will help achieve that strategy
 Without adequate planning, organisations will
be constantly fire fighting and the resulting
crisis management approach will prevent an
orderly progression in achieving overall
strategic objectives
8
Logistics Strategic Planning
“A unified, comprehensive, and integrated
planning process to achieve competitive
advantage through increased value and
customer service, which results in superior
customer satisfaction (where we want to be), by
anticipating future demand for logistics services
and managing the resources of the entire supply
chain (how to get there). This planning is done
within the context of the overall corporate goals
and plan.”
9
 The Hierarchy of Planning
Type Time Focus Level of detail Level of
frame integration
Strategic 5-10yrs Competition, Few financials, Integrated-
or more resources, more goal corporate &
Stakeholders oriented supply chain

Tactical >1-5yrs Event Somewhat Integrated-

financially functional
oriented
Operational Day-to- Efficiency Heavy financial Functional
day, <1yr orientation

[B] Table 13.1, p386 10

Strategic Logistics and Other Organisational
Functions
 The strategic logistics plan can not be developed
in isolation
 It depends on inputs from a number of key
functional areas
 Chief among them are:
1. Marketing
2. Manufacturing
3. Finance

11
1. Logistics Plan – Marketing Inputs
 |Marketing provides key inputs to the logistics
plan due to its close interrelationship
 Policies in relation to 4Ps of marketing e.g.
product or service offerings, pricing and
promotion can have a profound impact on
logistics
 E.g. planned sales volume per month, product
introduction and retirement, customer service
policies for types of customers and regions

12
Logistics & Marketing

Marketing objective:
Allocate resources to the
marketing mix to
maximise long term
profitability.

Logistics objective:
minimise total costs given
the customer service
objective. Total cost = sum
of all costs i.e.
Transportation cost +
warehousing costs + order
processing and
information costs +
inventory carrying costs
etc.
13
2. Logistics Plan – Manufacturing Inputs
 Locations of current and planned
facilities
 Volumes planned per facility
 Product mix per facility
 Optimum servicing of markets
(where the same product is
manufactured in more than one
facility)
14
3. Logistics Plan – Finance Inputs
 Cost forecasts e.g. inflation / deflation
rates
 Assumptions underlying growth
predictions
 Cost data / analysis to allow logistics
managers to make cost trade-off
decisions
 Budgets including capital budgets
available to finance projects to improve
logistics equipment and infrastructure
15
Planning for Differentiation in Logistics /
SC...
Figure 13.1 Type 1 Manage & Control
Differentiation of Logistics &
SC, p388 Plan Make
Produce Store Distribute

Type 2 Manage & Control

Manage & Control

Plan Produce Make Store Distribute Plan & procure Make

Store Distribute

Type 3 Manage & Control

Distribute
Make
Produce Make
Plan Store
From uniform… …to differentiated
16
Recent Studies have Concluded...
 Organisations needs to take a proactive role in the strategic logistics
planning process in their companies, and differentiate their activities from a
uniform and “predictable” model to more responsive models in order to
handle increasing complexity
 Type 1- lean & efficient op that is dominated by making products
 Type 2 – supplying complex product to specific requirements, with long
lead-time, which require collaborative planning with SC partners
 Type3 – maximizing efficiency to meet customer demands in terms of
volume & mix -. flexibility & late configuration of finished goods

 - Another study sponsored by the former council of logistics Mgmt.

reported that a majority of logistics professionals surveyed indicated their
company’s executives believed that the logistics plan was critical to the
corporation’s strategic plan
- Also, strategic planning in marketing or manufacturing is more common
than the one in logistics
Differentiation of Logistics & SC, [B] p388
17
Environmental Planning
Influences
Legal & political
•Regulatory issues
•Taxation
•Pollution control
•Special interests Technology
Competitive
•No of competitors •Rate of change
•Relative strengths •Availability
•Locations •No of sources
•Degree of integration •Cost
•Partnerships Economic & Social •Interfaces
•Unemployment
•Growth prospects
•Taxes

Figure 13.2, Environmental Influences in Planning, [B] p390

Major Steps in the Corporate
Strategic Planning Process
1. Evaluation of customer and/or industrial customer needs
2. Identification of possible target markets
3. Evaluation of target markets
4. Selection of target markets
5. Formulation of channel objectives and strategy
6. Identification and evaluation of channel structure
alternatives
7. Selection of the channel structure
8. Development of the strategic logistics plan

19
The Strategic Logistics Plan - strategy
decision before Planning
 Logistics audit by logistics audit team
 Review of organisational strategy
 Development of Key issues to investigate
 Identifying Critical Measures & Variables
 Customer service effectiveness
 Logistics efficiency
 Asset utilisation
 Analysis of Competitor Performance - benchmarking
 External & Internal Audit
 Analysis of Audit Results

20
Decision Making & the Strategic Logistics Plan
Logistics decisions tend to be made hierarchically, but in an iterative manner
• Business objectives
• Marketing strategy
Strategic •Customer service requirements
•Customer Service activities
•Demand forecasting
•Distribution communication
•Inventory control
•Material handling
•Order processing
•Parts & service support
Tactical •Plant and warehouse site selection
•Procurement
•Packaging
•Returns handling
•Salvage and scrap disposal
•Traffic and transportation
•Warehousing and storage
•Operating policies
Operational •Operating control rules
•Operating procedures
•Routing and scheduling 2
Outline of the Strategic Logistics Plan
Logistics mission
 Key issues & objectives
 Customer service performance
 Information Systems
 HR management
 Supplier relationships
 Outsourcing

Comparison with previous plan performance

 Internal analysis (current position)
 Organisation
 HR
 Transportation Relations with Internal customers
 Quality
 Service

 External/situational analysis
 Competitor logistics performance
 Trends
 Public, private and contract warehouses
 Public, private and contract carriage

 Five-year vision
 Action Plan to achieve plan
 Implementation issues
 Other critical issues

22
Future challenges & Critical Issues
 SCM & Integrated Channel Management
 Quick response (QR) & efficient consumer response (ECR)
 Total Quality Management (TQM)
 Just-in-time (JIT)
 Information Systems
 Reengineering
 Time-based competition
 Environment issues
 Reverse logistics
 Life cycle analysis
 Legislation

23
 Future challenges & Critical Issues
Supply Chain Management
 SCM is growing and as per definition, is different from
logistics in that it takes a systems or a more holistic
perspective
 SCM should be part of the modern strategic planning
process where key decisions such as to what extent to
manage the supply chain, and what activities should be
performed where, when and by whom are made
 An SCM approach is obviously relevant when one
considers what SCM brings i.e. a focus on the whole
channel(s) through information sharing, efficient
inventory placement and coordinated decision making
across all key business processes
24
 Future challenges & Critical Issues
Quality Management (TQM)
 TQM should be kept at the forefront of strategic decision
making and implementation
 Quality brings trade-offs e.g. versus cost or time to market
 However, is always a key aspect of customer service and levels
of customer service are usually part of a company’s strategic
objectives
 Logistics decisions can have a profound impact on the
perception of quality of service
 Therefore, all logistics decisions should include an impact
analysis on the quality objectives of the organisation
 And remember, the customer determines the level of quality
and only the customer can truly determine the impact of
logistics decisions on their service levels
25
 Future challenges & Critical Issues
Just In Time (JIT)
 The use of JIT has significant impact on logistics activities
 JIT has a philosophy of reduction of waste throughout the entire
production system
 JIT, when part of SCM, will extend this philosophy beyond the
immediate organisation into the wider supply chain
 Organisations that currently use, or are planning to use JIT, should
consider the following when doing strategic logistics planning:
 Which parts of the organisation will implement JIT?
 Which members of the supply chain should be utilised for JIT and how
can they be selected (a prerequisite for JIT is a reduction and
consolidation of carriers, suppliers etc.)
 What information needs to be shared and what ICT platforms can be
used to share it?
 How will the logistics function interface with the manufacturing
function to coordinate shipments and deliveries?

26
 Future challenges & Critical Issues
Information Systems
 Logistics activities are transaction intensive e.g. receiving, stocking,
order filling and shipment to name but a few
 This generates vast amounts of data and it would be impossible to
manage logistics without the support of significant IT systems
 This data can be invaluable especially if the tools and intelligence is
in place to transform it into relevant information e.g. data
warehousing and data mining techniques
 Such data and the information it provides can support logistics
managers in making informed decisions at all levels including the
strategic level
 Examples of information systems and platforms include EDI, POS,
EFP, RFID, ERP, MRP

27
 Future challenges & Critical Issues
Reengineering
 Reengineering focuses on the elimination of old methods and the
creation of new and better approaches
 It is the opposite to the old saying of “if it ain’t broke, don’t fix it”
 Reengineering starts from the perspective that it is broke and it
needs replacing not fixing
 Provides opportunities for major progress instead of the usual
incremental progress based on tinkering with the current way of
doing things
 The following analogy has been used to describe reengineering:
 The optimist sees the glass as half-full
 The pessimist sees the glass as half-empty
 The reengineer sees the glass as twice as large as is needed [B] P. 408

28
 Future challenges & Critical Issues
Time-based Competition
 Refers to ways of compressing time or taking time out of
operations
 E.g. reducing order cycle time or introducing products to
market faster
 The longer the process, the greater the chance of inefficiencies
, the greater the need for inventories, the more monitoring
required and higher the levels of error and obsolescence
 Logistics is well positioned to take time out of operations by
working within the supply chain with carriers, suppliers and
customers
 This can be achieved by sharing information to identify
current inefficiencies and to compress time within key supply
chain processes
 Logistics therefore, can be a source of competitive advantage
in this regard
29