ballou02 logistics supply chain strategy and planning

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2-1

Logistics/Supply Chain

Strategy and Planning

Chapter 2

“If you don’t know where you want to go, any

path will do.”

CR (2004) Prentice Hall, Inc.



2-2

Corporate Strategy


Strategy is the process whereby guidelines/ plans are formulatedfor -positioning the firm to meet its objectives.

Strategy formulation begins with defining a corporatestrategy. This involves:

a. Assessing needs, strengths, and weaknesses of the 4

major components of the company:- 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 & tacticalstrategies for the various functional areas of the firm such asLogistics as like other functions.



2-3

Corporate to Functional

Strategic Planning


•Economic

•Regulatory

•Technological

•Competitive

External factors Corporate strategic

plan

Marketing

Finance

Manufacturing

Logistics

Functio nal strategic plans



2-4

Logistics Strategy


Cost reduction

Minimizing the variable cost associated with

movement & storage

Capital reduction

Minimizing the level of investment in the logistics

system or maximizing return on logistics assets

Service improvement

Increase revenues depend on the level and

differentiation of logistics service provided



2-5

Flow of Logistics Planning


• Facility location

• Operations strategy

• Inventory management

• Information systems

• Material handling• Traffic and transportation

• Planning and control methods

• Organization

Indiv idual Link of

Logist ics System

Business goals and

strategies

Customer service

requirements

Integrated logistics

planning

Design of integrated

logistics management

system

Overall performance

measures



2-6

Logistics planning


LEVELS OF PLANNING

Strategic planning

Plans for longer than one yr time period

Tactical planning

For an intermediate time horizon, usually less than

one yr

Operational planning

Short range decision making, decisions frequently

made on an hourly or daily basis



2-7

Decisio n area Strategic Tactical Operat ional

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

Processing

orders, Fillingback orders

Purchasing Development of supplier-

buyer relations

Contracting,

Forward buying

Expediting

Warehousing Handling equipment

selection, Layout design

Space utilization Order picking

and restocking

Facility

location

Number, size, and

location of warehouses

Strategic, Tactical, and Operational Decision Making

CR (2004) Prentice Hall, Inc. 2-7



2-8

Logistics planning


MAJOR PLANNING AREAS

• Customer service levels

Level of customer service provided dramatically

affects system design, ie. Low cs levels-centralized

inventory, less expensive transport options

• Facility location strategy

Number, location, size of the primary, intermediate &final stocking and sourcing facilities and relating the

current market demand to them



2-9

Logistics planning


MAJOR PLANNING AREAS…

• Inventory decisions

Allocating inventories (push) or pulling them to the

stocking points through replenishments are

separate strategies need careful considerations

• Transport strategy

Selection of mode, shipment size, routing andscheduling influenced by proximity of warehouses

and requirement of inventory keeping



2-10

Logistics planning


MAJOR PLANNING problems…

Move-store activities (top-down)

-Links- movements of goods

-Nodes-storage or hault/stop points

Information flow activities (bottom-up)

-Links- transmission of info from one geographicregion to another

-Nodes- data collection or processing points



2-11

When to plan?

For new ventures& fo r establ ished businesses

- No distribution network currently exists.

- There has been no re-evaluation in 5 years.

- When costs are changing rapidly, especially transport &

- 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.



2-12

When to p lan?


•Demand

-Existing demand & its geographic dispersion

-Disproportionate decline/ growth/ shift

•Customer service

-inventory availability, speed of delivery. Order filling

speed & accuracy

-Distribution cost is sensitive to level of customer

service

-Competitive advantage is crucial



2-13

When to p lan?


•Product characteristics

-characteristics like-weight, volume, value, risk can

be altered

-Can have substantial change in cost elements

•Logistics costs

-high value/ low value items

•Pricing policy

-Company pricing policy

- transfer of product title



2-14

Logistics’ Objective

Maximize return on logistics

assets (ROLA )

AssetsCostsRevenue

ROLA

Logistics’contribution

to sales

Investment in

logistics

assets

Costs of

logisticsoperations




2-15

Guidelines for

Logistics Strategy Formulation

Total cost concept (trade-off analysis)

-Cost conflict among various activities

-Examples of logistics cost trade-off

The total cost concept is the trade-off of all

costs that are in cost conflict with each

other and that can affect the outcome of a particular logistics decision




2-16

Cost of

transportation

serviceInventory cost

(includes

storage and

intransit

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 inventory

costs

Total costs

Increasing number of stocking points0

(b) Determining the number of warehouses in a logistics

system

C o s t

Transportation costs

Total costs

Inventory

costs

0

Revenue

R e v e n u e

0

Average inventory level0

(c) Setting safety stock levels

Lost sales cost

Total costs

Inventory

carrying

costs

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

Inventory

carryng cost

CR (2004) Prentice Hall, Inc. 2-10



2-18

Guidelines for


Differentiated distribution-Not all products should be provided the same

level of customer service

-Multiple distribution strategies with differentiationmight be applicable within product line

Mixed strategy

-A pure strategy has higher costs than a mixedstrategy

-Single strategy has economic disadvantage when

product line varies substantially




2-19

Pure vs. Mixed Strategy

C o s t

All

private

All

public

Combined

private-public

Suggested

strategy

Current

strategy

Warehouse alternatives




2-20

Guidelines for


Postponement

The time of shipment and the location of finalproduct processing in the distribution should be

delayed until a customer order is received

-time postponement

-form postponement Labeling, Packaging, Assembly, Manufacturing




2-21

Guidelines for


Shipment consolidation

-Earlier orders might be combined with orders

received later

-Smaller shipment sizes have disproportionatelyhigher transportation costs than larger ones

Product standardization

-Proliferation of product variety adds to inventory-can be used in conjunction with postponement




2-22

Choosing the Right Supply Chain Strategy

FunctionalProducts--

Predictable

demand

InnovativeProducts--

Unpredictable

demand

Efficient

supply chain

Staple food

products

Responsivesupply chain

Electronicequipment

Low margin

High margin




2-23

Classification of Products

Predictable/Mature Products

•Jello

•Corn Flakes

•Lawn fertilizer

•Ball point pens

•Light bulbs

• Auto replacement tires

•Some industrial chemicals•Tomato soup

Unpredictable/Introductory Products

•New music recordings

•New computer games

•Fashion clothes

• Art works

•Movies

•Consulting services

•New product offerings of existing product lines




2-24

Efficient

supply chain

Economical production runs

Finished goods inventories

Economical buy quantities

Large shipment sizes

Batch order processing

Responsive

supply chain

Excess capacity

Quick changeovers

Short lead times Flexible processing

Premium transportation

Single order processing

Supply-

to-stock

Supply-

to-order

Choosing the Right Supply Chain Strategy



2-25

Actions for Misclassified Products

Supply Chain

Design Type

Predictable/

Mature

Unpredictable/

Introductory

Supply-to-Stock/

Efficient

Tomato Soup If product is here

Supply-to-Order/

Responsive

If product is here Personal

Computer Models

Product Characteristic


ballou02 logistics supply chain strategy and planning

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