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Strategic Logistics Planning

Compiled by Rulzion Rattray

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Strategic Logistics Planning

• Understand & assess the macro environment.

• Analyse & understand the internal capabilities.

• Combines these to set objectives in consultation & with the support of major elements of the organisation

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The Resource EnvironmentThe Value Chain Michael Porter (1985)

Margin

Margin

Firm’s Infrastructure

Human Resource Management

Technology Development

Procurement

Inbound

Logistics

Operations Marketing

& Sales

Outbound

LogisticsService

Primary Activities

SecondaryActivities

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OverviewExternal Factors

•Social•Ecological•Political•Technological•Economic

Organisational Strategic Plan

Manufacturing

Physical Distribution

Logistics

Marketing

Functional Strategic Plans

Finance

Adapted from Capacito, W., & Rosenfield, D.B., (1984), “Analytical Tools for Strategic Planning”, 15(3), pp47-61, Council of Logistics Management USA.

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Key Issues in Logistics Planning• Customer Service:

– Demand for improved service, quality a major element in competitive advantage

• Logistics costs:– Physical distribution, up to 30% of sales value

• External pressures– Regulatory change pressures, competitive pressures of

globalisation

• Trade offs:– Response to change requires complex adjustment.

• Organisational conflicts:– Often no clear responsibility for logistics

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Strategic Logistics Planning

Quality of Individual link of logistics system

1. Facility location2. Operations strategy3. Inventory management4. Information systems5. Material handling6. Traffic & transportation7. Planning & control8. Organisation

Business goals & strategies

Customer service requirements

Integrating logistics planning

Design of integrated logisticsmanagement system

Overall performance

Adapted from Capacito, W., & Rosenfield, D.B., (1984), “Analytical Tools for Strategic Planning”, 15(3), pp47-61, Council of Logistics Management USA.

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Pressures Influencing System

Logistics System

Changing costs

Pressure forfinancial performance

Pressure to reduce inventory

Constantly improvingIT availability

Regulatory change

New customer Service requirements

Requirement for innovation and efficiency

Adapted from Capacito, W., & Rosenfield, D.B., (1984), “Analytical Tools for Strategic Planning”, 15(3), pp47-61, Council of Logistics Management USA.

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Customer Service

Sales & Marketing

Production

Finance & Control

High revenue through:

High levels of availability

Rapid introduction of new products

Cost effective production:

High constant capacityutilisation

Longer production runs,Fewer set up costs

Tight budgets for:

Stocks Cost

Log

isti

cs

Higher

Lower

Disruptingfactors in

production

More

Fewer

StocksHigher

Lower

Conflicts of Interest

Adapted from Capacito, W., & Rosenfield, D.B., (1984), “Analytical Tools for Strategic Planning”, 15(3), pp47-61, Council of Logistics Management USA.

Log

isti

cs

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• Decisions support systems– Advantage of quick analysis, & can incorporate

the complex trade offs.

• Logistics cost analysis by:– Channel, Product, type of customer, geographic

area, logistics function, etc.

• Use of simulations:– What if simulations, (I.think)– Optimisation

Analytical Methods

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DecentralisedInventory

CentralisedInventory

Breadth of product line

Narrow Broad

• Service consists of a range of dimensions

• A basis for competitor comparison on two dimensions

Shapiro Grid framework

Logisticscosts

Service costsor Delivery Time, etc

Cost Service Curves

• Elbows create concentration• away from elbow large increases

in delivery time and only moderate decrease in costs

• Straight steep curves variation and niches• more room for differentiators

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References

• Capacito, W., & Rosenfield, D.B., (1984), “Analytical Tools for Strategic Planning”, 15(3), pp47-61, Council of Logistics Management USA.

• Christopher, M., (1995), “Logistics the Strategic Issues”, Chapman Hall, London.

• Aitken, J., “Supply Chain Integration within the Context of a Supplier Association”, Cranfield University PHD Thesis, 1998. Cited in Christopher, M., (1998), “Logistics and Supply Chain Management. Strategies for Reducing Cost and Improving Service”, Financial Times Pitman Publishing, London.

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Managing the Global Pipeline

Compiled by Rulzion Rattray

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The Globalisation of Markets.Levitt, T. (1983).

• Advances in Technology Driving the world to a converging commonality.– Proletarianisation of:

• Communication, transport, travel

• Global corporations which operate with resolute consistency at low relative cost using the entire world as a single market.

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Global

Costs

Localised

Inventory

Material

Production

Transport Source to User

Trade Offs in Global Logistics

• Important to recognise trade offs.

• Key to recognise the service needs of the market

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Globalisation in Supply Chains

• Liberalisation effect of WTO, etc.– No longer have to set up in target country, instead

can concentrate on developing economies of scale.– Emergence of new manufacturing economies has

resulted in increased competition and oversupply.– Companies will have to find new ways of

remaining competitive by lowering costs in other ways.

• Supply chain efficiency will become even more important

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The Myth of Globalisation. Susan Douglas & Yoram Wind.

• Attacks Levitt's view of global standardisation as naive and over simplistic. Homogenisation not a clear & universal trend.

• Contra Evidence of homogenisation:– Food firms adapt to national

characteristics.

– Growth of intra-country segmentation:

– growing demand for differentiated products.

• The myth of economies of scale:– Technical developments

lowering scale requirements.

– cost of production often only small part of total costs.

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• Focussed factories:– Economies of scale, one factory for the world?– May overlook crucial logistics trade offs:

• Transport costs & delivery times.

• Requirement for local packaging

• Centralised Inventories:– Centralising Inventory = less total inventory.

Global Manufacture & Supply

25 to 4 5:2 i.e. 60% reductionSquare root rule

– However may overlook benefit of local to customerChristopher, M., (1998),

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Postponement & Localisation• Localisation:

– Even in relatively homogeneous markets like Europe their can be considerable variety of local taste. This may be better catered for in a local assembly operation.

• Postponement:– Design products using simple common

platforms, using common components. Assembly does not take place until required.

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Customer Service Explosion

• Increasing perception that there is little technical difference between products.

• Service crucial source of differentiation and competitive advantage.– Requirements:

• Closely integrated marketing, manufacturing and supply strategies

• Logistics of service delivery crucial!

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Strategic Lead time Management

• Product and technology life cycles getting shorter.

• Requirements for success:– Ability to innovate.– Ability to bring new products to market.

• Logistical Lead time becomes crucial.– Time from sourcing and procurement though to

recovery of investment by selling

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Organisational Integration

• Recognition of the importance of taking a systems view of business.– Difficulty of achieving integration in functionally fixated

organisations.

• Move towards a requirement for generalists– Integration of all the different aspects of the organisation.

– Philosophy of integration beyond the confines of the organisation.

• Supply Chain Management.– Requires that all the players in the value system work

together.

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Throughput Management

• The process of linking manufacturing and procurement to the needs of the market.

• Requirement for reducing the length of the supply chain pipeline!

• Target:– Lower cost, higher quality, greater variety,

more flexibility, faster response times.

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Globalisation

• Move to commodity markets and component specialisation:– firms shop freely amongst the nations of the world

• Singer Sewing machines: Shells from US, motors from Brazil, drive shafts from Italy, machine assembled in Taiwan

– Increasing need for local customisation• Washing machines: Germans want fast spin & Italians

slow, British front loaders, French top loaders, etc

– Challenge how to achieve benefit of standardisation at the same time?

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References

• Christopher, M., (1998), “Logistics and Supply Chain Management. Strategies for Reducing Cost and Improving Service”, Financial Times Pitman Publishing, London

• Levitt, T. (1983), “The Globalisation of Markets”, Harvard Business Review May/Jun.

• Douglas, S., & Wind, Y., (1987), “The Myth of Globalisation”, Columbia Journal of World Business, Winter.