Logistics/Supply Chain
Strategy and Planning
“If you don’t know where you want to go, any
path will do.”
Chapter 2
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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 corporate
strategy. This involves:
[Link] 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.
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Corporate to Functional
Strategic Planning
Corporate strategic
External factors
plan
•Economic
•Regulatory
•Technological
•Competitive
Marketing
Manufacturing
Finance
Logistics
Functional strategic plans
CR (2004) Prentice Hall, Inc. 2-4
Competitive strategy
What is supply chain Strategy? Supply Chain strategy
Strategy Chain Strategy
Given a competitive strategy, what should a company’s supply chain do particularly
well?
* bKash (Fintech)
- First-mover advantage in mobile financial services; mass market penetration
through agent-based model
- Nationwide agent and retailer network; integrated platform with telecom operators
and banks; secure and scalable digital infrastructure; API connectivity for
ecosystem expansion.
* Walton
- Quality Home appliances at relatively low cost
- Efficient production method by using standardized parts/components (Production,
Sourcing)
* Shwapno (ACI Logistics)
- Urban convenience, mid-range pricing, local product availability
- Centralized sourcing hubs, cold chain for perishables, partnerships with farmers
for direct procurement, integrated retail distribution centers.
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• The objectives of logistics strategy are:
- Minimize cost
- Minimize investment
- Maximize customer service Use
Logistics
• Levels of logistical planning: ROLA Strategy
- Strategic
- Tactical
- Operational
• The 4 problem areas of supply chain planning
- Customer service levels
Recall the
- Facility location
- Inventory decisions logistics strategy
- Transportation decisions 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,
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customer service, or investment level.
Logistics’ Objective
Maximize return on logistics
assets (ROLA) Costs of
Logistics’ logistics
contribution operations
to sales
ROLA =Revenue−Costs
Assets
Investment in
logistics
assets
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Flow of Logistics Planning
Individual Link of Business goals and
Logistics System strategies
• Facility location
• Operations strategy
• Inventory management Customer service
• Information systems requirements
• Material handling
• Traffic and transportation
• Planning and control methods Integrated logistics
• Organization planning
Design of integrated
logistics management
system
Overall performance
measures
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DRIVERS OF SUPPLY CHAIN PERFORMANCE
▪ Facilities
▪ places where inventory is stored, assembled, or fabricated
▪ production sites and storage sites
▪ Metrics: Capacity, Utilization, processing, cycle time of productions,
product variety
▪ Inventory
▪ raw materials, WIP, finished goods within a supply chain
▪ inventory policies
▪ Metrics: Cycle and safety inventory, Batch and lot size, Fill Rate
▪ Transportation
▪ moving inventory from point to point in a supply chain
▪ combinations of transportation modes and routes
▪ Metrics: Inbound and outbound transportation costs, Freight
consolidation
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DRIVERS OF SUPPLY CHAIN PERFORMANCE
▪ Information
▪ data and analysis regarding inventory, transportation, facilities
throughout the supply chain
▪ potentially the biggest driver of supply chain performance
▪ Enabling technology: MRP, MRPII, ERP
▪ Sourcing
▪ functions a firm performs and functions that are outsourced
▪ Metrics: Supply quality, Supply lead time, percentage of on-time
deliveries
▪ Pricing
▪ Price associated with goods and services provided by a firm to the
supply chain
▪ Metrics: Profit margin, incremental fixed and variable cost per unit,
Range of periodic sales.
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A case: A restaurant sourcing and purchasing
Sourcing considerations:
• Sources of supplies varies (e.g, items, location,
perishability, organizational requiremnets).
• Factors that impact prices (e.g, seasonality, weather, cost of
trasportation, comodity prices)
Before purchasing any food items, ask the following
questions:
Rule of thumb
• When is the item to be used? Buy only as much as it is
• Which supplier has the best price and the best quality?
• When will the item be delivered? anticipated will be needed until the
next delivery.
Type of purchasing: New Buy
Rebuy Documentations of list of suppliers,
Modified Rebuy contacts, transaction, delivery dates,
schedules and order sheets are
important.
A case: Examples of sourcing/ purchasing
documents
Grade chart Purchase amount calculation
Purchase order chart
Portion control chart
A FRAMEWORK FOR STRUCTURING DRIVERS
Competitive Strategy
Supply Chain
Strategy
Efficiency Responsiveness
Supply chain structure
Logistical Drivers
Facilities Inventory Transportation
Information Sourcing Pricing
Cross Functional Drivers
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UNDERSTANDING THE SUPPLY CHAIN: COST-RESPONSIVENESS
EFFICIENT FRONTIER
Responsiveness
High
Low
Cost
High Low 2-21
ACHIEVING STRATEGIC FIT SHOWN ON THE UNCERTAINTY/RESPONSIVENESS MAP
Responsive
supply chain
Responsiveness
spectrum
Efficient
supply chain
Certain Implied Uncertain
demand uncertainty demand
spectrum 2-22
COMPARISON OF EFFICIENT AND RESPONSIVE
SUPPLY CHAINS
Efficient Responsive
Primary goal Lowest cost Quick response
Product design strategy Min product cost Modularity to allow
postponement
Pricing strategy Lower margins Higher margins
Mfg strategy High utilization Capacity flexibility
Inventory strategy Minimize inventory Buffer inventory
Lead time strategy Reduce but not at expense Aggressively reduce even if
of greater cost costs are significant
Supplier selection strategy Cost and low quality Speed, flexibility, quality
Transportation strategy Greater reliance on low cost Greater reliance on
modes responsive (fast) modes
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Strategic, Tactical, and Operational Decision Making
Decision area Strategic Tactical Operational
Transportation Mode selection Seasonal equip- Dispatching
ment leasing
Inventories Location, Control policies Safety stock levels Order filling
Order Order entry, transmittal, Processing
processing and processing system orders, Filling
design back orders
Purchasing Development of supplier- Contracting, Expediting
buyer relations Forward buying
Warehousing Handling equipment Space utilization Order picking
selection, Layout design and restocking
Facility Number, size, and
location location of warehouses
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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-
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A Cost Conflict in Logistics
Total cost
Cost, in dollars
Cost of
Inventory cost transportation
(includes service
storage and
intransit
Rail Truck Air
Transportation service
(greater speed and dependability)
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More Cost Conflicts
Revenue
Total costs Total costs
Revenue
Cost
Cost
Transportation,
order processing,
and inventory Inventory
costs costs
Lost sales cost Transportation costs 0
0 0
0 Improved customer service 100% Increasing number of stocking points
(a) Setting the customer service level (b) Determining the number of warehouses in a logistics
system
Total costs Total costs
Cost
Cost
Inventory Inventory
carrying carryng cost
costs
Lost sales cost Production costs
0 0
0 Average inventory level Product run length and product sequencing
altenatives
(c) Setting safety stock levels (d) Setting the sequence of production runs for
multiple products
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Pure vs. Mixed Strategy
Current
strategy
Suggested
Cost
strategy
All Combined All
private private-public public
Warehouse alternatives
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Standarization
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Choosing the Right Supply Chain Strategy
Functional Innovative
Products-- Products--
Predictable Unpredictable
Low margin
demand demand
Efficient Staple food
supply chain products
Responsive Electronic
supply chain equipment
High margin
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Actions for Misclassified Products
Product Characteristic
Supply Chain Predictable/ Unpredictable/
Design Type Mature Introductory
Supply-to-Stock/ Tomato Soup If product is here
Efficient
Supply-to-Order/ If product is here Personal
Responsive Computer Models
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Activity 2.1
Describe why you think the sales of the following products are predictable or
unpredictable? Suggest the applicability of the supply chain strategy (‘supply to order’
and/or ‘supply to stock’), which matches the level of demand predictability.
• Corn Flakes
• Lawn fertilizer
• New music recordings
• New computer games
• Ball point pens
• Light bulbs
• Fashion clothes
• Art works
• Movies
• Auto replacement tires
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Choosing the Right Supply Chain Strategy
Efficient Economical production runs
supply chain Finished goods inventories
Economical buy quantities
Supply- Large shipment sizes
to-stock Batch order processing
Responsive Excess capacity
supply chain Quick changeovers
Short lead times
Supply-
Flexible processing
to-order Premium transportation
Single order processing 2-
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Activity 2.2
Watch the following you tube links and find out the types of their
production process.
[Link]
[Link]
[Link]
[Link]
[Link]
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[Link]
[Link]
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