Chapter 2 Logistics strategy and planning

1. Chapter 2 Logistics strategy and planning Focused on planning and the decision making that leads to good logistics plans that contribute to the financial goals of the firm.

2. Objectives of the firm Visioning process Definitive plans Functional strategy Corporate strategy

3. Four components of strategy • Customers • Suppliers • Competitors • Company

4. Corporate strategy • The corporate strategy drives the functional strategies since they are contained within the former, as shown in Figure 2-1.

5. Corporate strategy • Box 2.1 example • Xeror : to be No. 1 in field service • Star Kist Food : supply-side strategy, marketing and logistics responded with their plan to control the potential excess inventories. Logistics strategy • Three objectives : • cost reduction warehouse location, transport modes • capital reduction shipping directly, public warehouse • service improvement

6. Logistics strategy • Office machine company :Traditionally, technicians were assigned from a service center to the customer repair site. • Improve  when a machine broke down; a replacement machine would be sent to the customer and the broken machine sent to the service center for repair. • See figure 2-2, flow of logistics planning. • Box 2.2 example

7. Logistics strategy Flow of Logistics Planning

8. 各種物流管理策略 • 基本策略 • 環境因應策略 • 減少物流時間為基礎之策略 • 提高資產生產力之物流策略

9. 物流基本策略 • 最小總成本策略 • 最高顧客服務策略 • 最大利潤策略 • 最大競爭策略

10. 配銷策略 目標 成本 服務 環境變數 顧客變數 特性 服務水準 數量 訂貨型態 通路變數 結構 議價能力 績效 功能 產品變數 物徵 物流變數 運輸 存貨 設備 資訊 環境因應策略1

11. 供給策略 目標 連續性 協調性 成本 環境變數 物料-產品 價格 風險 市場：供給，需求變動 供應商 可靠度 容量 品質 運送 整合性 物流變數 運輸 存貨 訂貨處理 協調 環境因應策略2

12. 環境因應策略3 • 國際物流策略 • 國際分工 • 物流效率生策略 • 關稅優勢&物流效率比較利益 • 政府影響 • 財務因素 • 財務風險 • 貨幣匯率 • 公司環境

13. 減少物流時間之策略 • 及時化系統(Just-in-Time, JIT)與快速回應系統(Quick-Response System, QR) • 條碼之應用 • 先進科技之應用 • EDI, VAN… • 直接送貨月台(Cross-Docking)

14. 提高資產生產力之物流策略 • 直接由工廠送貨 • 第三者物流服務( Third Party Logistics)

15. Logistics planning • 1.Level of planning • Strategic planning :usually more than one year. • Tactical planning :usually less than one year. • Operational planning :is short-range decision making. • See table 2-1, examples of strategic, tactical and operational decision making.

16. Table 2-1, Examples of strategic, tactical and operational decision making.

17. 2. Major planning areas • Four major problem areas: • a.customer service levels • b.facility location • c.inventory decisions • d.transportation decisions • See Figure 2-3, the triangle of logistics decision making. Logistics planning

18. 3. Conceptualizing the logistics planning problem Links: the links of the network represent the movement of goods between various inventory storage points. Nodes:the storage points – retail stores, warehouse, factories or vendors. Logistics system :include product flow and information flow.

19. affect affect Order cycle time inventory levels customer service. 4when to plan a.logistics system not exist. b.to modify the existing system. (1)Demand (2)Customer service : includes inventory availability, speed of delivery, and order-filling speed and accuracy. (3)Product characteristics Ex: product weight, volume (cube), value and risk. (4)logistics costs a.total cost. b.to improve the logistics system. (5)Pricing policy Ex f.o.b factory price vs. delivered price.

20. Guidelines for strategy formulation 1.Total cost concept 2.Differentiated distribution 3.Mixed strategy 4.Postponement 5.Consolidation 6.Standardization

21. Total cost concept • Trade-off analysis : is the recognition that cost patterns of various activities of the firm frequently display characteristics that put them in conflict with one another.

22. (a)setting the customer service level • Transportation service characteristics : Transportation cost vs. Inventory cost. • The best economic choice occurs at the point where the sum of both costs is lowest. (dashed line) • improved customer service level will reduce lost sales cost. • improved service usually means that more must be paid for transportation, order processing and inventories.

23. (b)Determining the number of warehouses in a logistics system. When the number of stocking points is increased (1)transportation costs decline. (2)inventory costs rise.

24. (c) Setting safety stock levels When safety stock is increased: (1)customer service  (2)inventory carrying cost  (3)lost sales cost  (4)transportation costs remain relatively unaffected.

25. (d) Setting the sequence of production runs for multiple products As the production sequence is changed. 1.inventory carrying cost  (mass production) 2.production costs  (setup times  changeover cost )

26. Box 2.4 Application • Marine products manufacturer constructing a warehouse in St. Louis • Consider transportation costs minimize • Consider inventory costs minimize • Constructing warehouse in Chicago. • Final, the partially constructed warehouse and move the inventory to Chicago

27. Differentiated distribution • Not all products should be provided the same level of customer service. • Different customer service requirement, different product characteristics, and different sales levels. • Inventory location. • Transportation rate (vehicle – load volumes) • Sales volume. • Fast-moving items  forward locations in the distribution channel. • Medium – volume items  in fewer regional locations. • Slow – moving items  centralized stocking points such as plants.

28. Differentiated distribution • See Box 2.5 application. • A small specialty chemical company. • All products were produced at a single location. • All large customer orders (top 10% of the company’s volume), will to be shipped direct to customers from the plant. • Other small shipment sizes, were to be shipped out of two strategically located warehouse. • Saved 20% distribution costs. • Others: • Regular customer orders : regular distribution channel might be to fill orders from warehouses. • Back orders : out-of-stock, a backup distribution might be to fill orders from secondary stocking points.

29. Mixed strategy • The concept of a mixed strategy is similar to that of differentiated distribution. • See Box 2-6 application. • Drug retailer: Six warehouses was used to service about 1000 stores. • Strategy: 1.Private warehouses and trucks to provide high levels of service to the stores. 2.Use some public (for rent) warehouse space, could offer lower total costs.

30. Mixed strategy A total cost curve for single and mixed warehousing strategies.

31. Postponement • The time of shipment and the location of final product processing in the distribution of a product should be delayed until a customer order is received. • Ex: Dell computer corporation, practices form postponement by configuring microcomputer system to customer order from available options.

32. Postponement type

33. Postponement is favored when the following characteristics appear to be present: • Technology & process characteristics • Product characteristics • Market characteristics

34. Consolidation • Creating large shipments from small ones. • Ex: customer orders arriving at a warehouse might be combined with orders received at a later time period. Box 2.9 application • A firm had a master warehouse in the Rochester, NY. • The merchandise consisted of many items purchased in small quantities from thousands of vendors • Established consolidation terminals in major vendor regions.

35. Standardization • Standardization in production is created by interchangeable parts, modularizing product, and labeling the same products under different brand names. • Ex: Clothing manufacturers do not attempt to stock exact sizes that many customers require, but alter standard sizes to fit.

36. Concluding comments Goals: 1.cost reduction 2.capital reduction 3.service improvement Four key areas: 1.customer service 2.location 3.inventories 4.transportation

37. 物流管理之策略變數1 • 經濟性變數 • 經濟成長率 • 通貨膨脹 • 企業營運成本 • 資金成本 • 勞工成本 • 生產力 • 國民所得

38. 物流管理之策略變數2 • 人口統計變數 • 人口 • 城市集中性 • 年齡趨勢 • 家計單位 • 勞工數

39. 物流管理之策略變數3 • 相關能源變數 • 管制因素 • 政治環境