Strategic Formulation of Logistics and Supply Chain Strategy

2. Chapter 3 Logistics and supply chain strategy planning

3. Introduction Strategy and strategic management Organisational strategy The strategy formulation process Developing a logistics and supply chain strategy Implementing a logistics and supply chain strategy Concluding remarks Contents

4. Learning outcomes • Understand what strategy means and how it applies to an organisation • Understand the importance and nature of strategic management • Understand the cascading levels of strategies in an organisation • Understand how a logistics and supply chain strategy is derived from a business strategy • Describe the major elements and processes involved in developing a logistics and supply chain strategy

5. Learning outcomes (continued) Identify logistics and supply chain strategic focus areas Know what the content of a supply chain strategy document should comprise and how to summarise it in a strategy map Understand the importance of proper strategy implementation Know how to use a scorecard and action plans to drive implementation

6. Introduction • Competitive environment • Pressure for organisational change • Business strategy and supply chain strategy • Planning for effective supply chains • Implementing and executing supply chain strategy

7. Strategy and strategic management ‘Strategy is a long-term plan of action designed to achieve a particular objective or goal. Strategies are used to make future challenges easier to deal with.’ Business strategy is concerned with: • Where is the business trying to get to in the long term? (direction) • What products or services will be offered? • Which markets should a business compete in? (markets; scope) • What kinds of activities are involved in these markets?

8. Strategy and strategic management (continued) How can the business outperform the competition? (advantage) What resources are required? (skills; assets; finance; relationships; technical competence; facilities) What are the external environmental factors? (environment) What are the values and expectations of all parties involved in the business? (stakeholders)

9. Strategy and strategic management(continued) Key aspects and issues covered: • Vision • Purpose • Values • Objectives • Goals • Strategic actions • Programmes and initiatives

10. Strategy and strategic management(continued)

11. Organisational strategy Strategies exist at several levels: Corporate strategy • overall purpose and scope of the organisation • guide strategic decision-making • corporate directives Business unit strategy • how a business competes successfully in the market • decisions about products; markets; customers Operational strategy • each part of the business and its operations • very narrow in focus • operational issues: resources, processes, people etc.

12. Strategy formulation process A process at the very heart of strategic planning: • Strategy formulation • Implementation • Evaluation [insert figure 3.2] Strategy formulation process

13. Strategy formulation process(continued) Strategy map and balanced scorecard provide common understanding of the strategy

14. Strategy formulation process(continued) A business’s strategy should cover the following: • Assessment of the business's current situation (i.e. ‘as is’) • Vision of the business in a couple of years’ time (i.e. ‘to be’ ) • Mission/purpose statement • Statement of corporate values and beliefs • Determining key objectives and goals • Identifying key strategies and major focus areas • Defining strategic action plans

15. Developing a supply chain strategy Typical steps to follow in linking supply chain and business strategies: • Understanding the business context and strategy • Defining the role the supply chain needs to play • Identifying and prioritising improvement opportunities • Defining supply chain objectives and goals • Developing detailed plans to achieve these goals • Conducting regular supply chain performance reviews • Executing plans to achieve results • Monitoring progress and making necessary adjustments

16. Supply chain strategy development and implementation

17. Understanding organisational context Marketing strategy – basis for business competition: • What products or services should the firm sell? • What customer segments should the firm serve? • In what geographical markets should the firm operate? Business’s competitive requirements: • Innovation; reduced time to market; responsiveness; service excellence; cost leadership; high quality; flexibility; reliability

18. Identifying supply chains

19. Deriving supply chain drivers Deriving from the imperatives for business competitiveness, supply chain drivers are the key building blocks for developing a supply chain strategy. Major supply chain drivers relate to: • flexibility; • responsiveness; • reliability; • availability; • lowest delivery cost; and • asset optimisation.

20. Deriving supply chain drivers(continued) Supply and demand uncertainties influence the supply chain drivers.

21. Supply chain vision and purpose Vision statement: a clear picture of where the supply chain should be in the next five to ten years. Written in the present tense, it creates the motivation to change from the current state to this new state. Example: ‘A globally competitive, profitable business that delivers consumer satisfaction through efficient and effective supply chains.’

22. Supply chain vision and purpose(continued) The purpose statement describes the role that the supply chain should fulfil within the business. Relates to a mission; has the primary purpose of focusing the supply chain stakeholders on their various roles in support of the supply chain intent. Example: ‘To create competitive advantage through purchasing, manufacturing and distributing products and services that provide superior value to our customers.’

23. SWOT analysis A simple tool for understanding the current position and making best use of the opportunities available.

24. Strategic objectives • Supply chain strategy requires translating competitive imperatives into achievable objectives. • Relates to strategic aspirations, gaps identified and improvement opportunities. • From SWOT Analysis - strengths to be turned into enduring capabilities to sustain the supply chain. Any weaknesses must be eliminated/reduced. • Plans to achieve these objectives must be articulated with appropriate measures (KPIs). • Objectives must be SMART (Specific, Measurable, Achievable, Realistic and Time-bound).

25. Major generic strategic focus areas • Network integration • Operational efficiency and effectiveness • Reverse logistics • Inventory optimisation • Risk management • Relationship management • Procurement management • Organisation and people capability • Supply chain planning • Information management

26. Major strategic focus area Example: network integration Objective: to ensure supply chain networks are optimised and provide the required capability (e.g. adequate infrastructure and capacity) to service a business’s segmented markets. Typical strategies and actions: • Develop and evaluate alternative supply chain networks. • Carry out cost-benefit trade-offs of the alternatives available.

27. Major strategic focus area (continued) Example: network integration Assess proactively business growth for the organisation and the logistics infrastructure requirements. Leverage supply chain network synergies. Typical KPIs: return on supply chain fixed assets; supply chain flexibility; supply chain management costs.

28. Strategy map of focus areas • Used for clarification and alignment of parties involved. • Portrays a balanced view of the supply chain focus areas across four perspectives of a balanced scorecard.

29. Implementing a supply chain strategy Less than 10 per cent of effectively formulated strategies are implemented successfully. Many reasons why strategic plans fail: • Failure to define objectives correctly • Lack of focus • Overestimation of resource competence

30. Implementing a supply chain strategy (continued) Failure to co-ordinate Failure to obtain employee commitment Underestimation of time requirements Failure to follow the plan Failure to manage change Poor communications

31. Balanced scorecard and action plans; initiatives and strategic actions • Implementation drives the achievement of the specific objectives. • Used for communication and progress tracking

32. Change management

33. Concluding remarks • Importance of developing and implementing a comprehensive logistics and supply chain strategy that is linked and aligned with overall business strategy. • Process to follow for the development of a logistics and supply chain strategy. • Strategic focus areas help to focus, clarify priorities and make strategy more manageable. • The success of a logistics and supply chain strategy is only as good as the organisation’s ability to implement and execute it. • Balanced scorecards; action plans; well-managed initiatives; performance tracking; and sound change management are required.