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Logistics Strategy

Logistics Strategy. What is The “right” product? The “right” place? The “right” time? Creating and shaping consumer value. Trade-offs. Right Product More customer choice means More products More complexity Right Place Closer to customer means More expensive space More inventory

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Logistics Strategy

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  1. Logistics Strategy • What is • The “right” product? • The “right” place? • The “right” time? • Creating and shaping consumer value

  2. Trade-offs • Right Product • More customer choice means • More products • More complexity • Right Place • Closer to customer means • More expensive space • More inventory • More expensive delivery • Right Time • Faster service means • More expensive modes

  3. Examples • The Limited • Milliken • Karrimor • Rover • IBM • Dell • HP • Coca Cola and Cott

  4. The Limited • Targeted profits from low priced sports wear not high-margin high-cost goods • Speed to market • Scouts transmit images of items to HQ • HQ CAD adjusts cut, color, etc. • Pilot orders by EDI to Asian manufacturers • Consolidated in Hong Kong • Air freight to HQ • 2-3 day truck and air to US stores • 3-5 week turn-around

  5. Milliken • 1980 US textile manufacturers • 80% market share • 1986 • 60% market share • 1987 • $1.9 billion revenue • 1991 • $600 million revenue

  6. Reasons • Receive orders by US mail • Order or manufacture yarn • Weave 8 wks • Dye and Finish 4-5 wks • Warehouse • Apparel manufacturer • Another 18-20 weeks • 1.25 YEARS from loom to rack!

  7. Response • The Millitron • Prints fabric (and carpets) like an ink jet printer • Moved some customers to 0 inventory • Retailer forwards customer orders daily • Milliken send UPS direct to customer’s home

  8. Karrimor • UK Backpack manufacturer threatened by knockoffs • Delivered full-seasons demand at start of season • Impressed by Milliken’s speed to market

  9. Response • Urged retailers to place small initial orders • Items include tear-off label for re-ordering • Promised 21-day response • Opened door for counter-seasonal garments • Worked with suppliers • Orders placed for material • Color specified at last minute

  10. Rover • Stock push system • Dealers sell vehicles in stock • 3-4 month forecasts for thousands of variations

  11. Stock Swap System • 1 in three moved from dealer to dealer at least once • Only 25% of customers get what they want • ...

  12. Personal Production • 80% of orders for 20% of models • Forecast and stock these in a central locations awaiting customer orders • The remaining 20% made to order • Priority in assembly • Delivered direct to dealership • Components standardized

  13. IBM • Early 1960’s • 70% market share • Huge customers • large corporations • governments • other large institutions • Incompatible • Upgrades required re-coding

  14. The Amdahl Attack • IBM compatibles • Bigger, faster, cheaper • 1979 IBM cut prices • First earnings drop in 28 years

  15. The PC • Components provided by suppliers • Microprocessor - Intel • Operating system - Microsoft • 34% market share • 60-70% of corporate market

  16. Cannibalization and Clones • Reduced demand for mainframes • Reduced demand of value added services • Third party distribution of PCs

  17. The Early 80’s • PC is a commodity • Rapid market growth • Rapid technological change • Plethora of options • Requires on-going support • Key business tool

  18. Dell Computer Corporation • Sell direct • Remove the middleman • Make to order • Reduce inventory • Offer value-added services • system installation and management, • assist with technology transitions • customizes products and services • provide peripherals and software.

  19. Hewlett Packard • European Distribution of Deskjet Printers • Power cords, Instruction Manuals, etc. • Products “localized” at central factory • Held at regional DCs

  20. Postponement • Move to generic printer • Localized at regional DCs • Reduced safety stock from 7 to 5 weeks • Reduced value of safety stock • Reduced cost of distribution (density) • Savings $30 million annually

  21. Costs • Higher inventory of accessories at DCs • Higher cost of localizing • Question: • Use a low-cost printer localized for US or • Localize the generic printer for US?

  22. Brand Name • Marlboro Cigarettes • Price rises of nearly 10%/year in 1980s • Market share: declined by over 4% in early 90’s • Cut Prices • Marlboro Friday, April 2, 1993 • Top 25 consumer packaged goods companies lose $50 billion in value

  23. An Aside • No. 2 computer systems company • Annual revenue $21.7 billion. • 29,300 employees • That’s $750,000 in revenue per employee

  24. Coca Cola • Brand name • Price premium • Private label alternatives viewed as lower quality • 1989 Cott Corporation of Canada begins distributing high quality private label products in US and around the world

  25. The Contour Bottle • Coca Cola reintroduces contour bottle • In US • private label market share returns to about 10 • In UK • Few highquality retailers had given private label a reputation for quality, but no access to cola • Sainsbury’s Classic Cola • Safeway’s Select Cola 27% share • Virgin Cola }

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