Strategic Logistics Planning

1. Strategic Logistics Planning Compiled by Rulzion Rattray

2. 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

3. The Resource EnvironmentTheValue Chain Michael Porter (1985) Firm’s Infrastructure Human Resource Management Secondary Activities Margin Technology Development Procurement Outbound Logistics Inbound Logistics Marketing & Sales Service Operations Margin Primary Activities

4. Overview External Factors Organisational Strategic Plan • Social • Ecological • Political • Technological • Economic Marketing Manufacturing Physical Distribution Finance Adapted from Capacito, W., & Rosenfield, D.B., (1984), “Analytical Tools for Strategic Planning”, 15(3), pp47-61, Council of Logistics Management USA. Logistics Functional Strategic Plans

5. 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

6. Strategic Logistics Planning Business goals & strategies Quality of Individual link of logistics system Customer service requirements • Facility location • Operations strategy • Inventory management • Information systems • Material handling • Traffic & transportation • Planning & control • Organisation Integrating logistics planning Design of integrated logistics management 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.

7. Pressures Influencing System New customer Service requirements Changing costs Pressure for financial performance Logistics System Regulatory change Constantly improving IT availability Pressure to reduce inventory 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.

8. Conflicts of Interest High revenue through: Sales & Marketing Higher Customer Service  High levels of availability  Rapid introduction of new products Lower Logistics Cost effective production: Production More Disrupting factors in production • High constant capacity utilisation • Longer production runs, Fewer set up costs Fewer Logistics Tight budgets for: Higher Stocks Finance & Control • Stocks • Cost Lower Adapted from Capacito, W., & Rosenfield, D.B., (1984), “Analytical Tools for Strategic Planning”, 15(3), pp47-61, Council of Logistics Management USA.

9. Analytical Methods • 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

10. Shapiro Grid framework Breadth of product line Cost Service Curves Narrow Broad Decentralised Inventory Logistics costs Service costs or Delivery Time, etc Centralised Inventory • 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 • Service consists of a range of dimensions • A basis for competitor comparison on two dimensions

11. 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.

12. Managing the Global Pipeline Compiled by Rulzion Rattray

13. 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.

14. Transport Source to User Costs Inventory Material Production Global Localised Trade Offs in Global Logistics • Important to recognise trade offs. • Key to recognise the service needs of the market

15. 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

16. 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.

17. Global Manufacture & Supply • 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. Square root rule 25 to 4 5:2 i.e. 60% reduction Christopher, M., (1998), • However may overlook benefit of local to customer

18. 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.

19. 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!

20. 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

21. 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.

22. 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.

23. 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?

24. 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.