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Chapter 2: Strategy & Planning. Logistics Strategies. Logistics Decisions. 6 Fundamental Concepts: Total Cost & Tradeoffs. Consolidation & Economies of Scale. Differentiation. Mixed Strategy. Postponement. Standardization. Strategies. Corporate Strategy: Market share, Market position.
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Chapter 2: Strategy & Planning • Logistics Strategies. • Logistics Decisions. • 6 Fundamental Concepts: • Total Cost & Tradeoffs. • Consolidation & Economies of Scale. • Differentiation. • Mixed Strategy. • Postponement. • Standardization.
Strategies Corporate Strategy: • Market share, Market position. • Growth, Profit, etc. Logistics Strategy: • Maximize profit, Minimize cost. • Maximize return on investment. • Service/Quality.
Logistics Decisions • Strategic Decisions: • Design of logistics system (Chapters 4, 13, 14). • Top management involved. • Based on imprecise data and forecasts. • Tactical & Operational Decisions: • Use of logistics system (Chapters 6-12). • Top management not involved. • Based on detailed data.
Decision Areas Where?, How many? What size? Allocation? Location Inventory Transportation Strategy/Control system? How much? Where? Which mode? Which carrier? Which route? Shipment size and frequency?
6 Fundamental Concepts • Total Cost & Tradeoffs. • Consolidation & Economies of Scale. • Differentiation. • Mixed Strategy. • Postponement. • Standardization.
1. Total Cost & Tradeoffs • Minimize total costs. • Look for tradeoffs. $ Total cost Cost for one activity Cost for another activity
1. Total Cost & Tradeoffs • Minimize total costs. • Look for tradeoffs. $ Total cost Cost for one activity Cost for another activity Minimum total cost
2. Consolidation & Economies of Scale • Larger amounts cost less per unit to move store, process, order, etc. • Use larger vehicles and larger loads to reduce transportation cost. • Purchase in larger quantities to get lower prices. • But, must consider tradeoffs: • Larger orders and larger loads imply greater inventory costs.
3. Differentiation • Not all products and customers should be treated the same. • Identify most important products & customers. • Treat them better!
4. Mixed Strategy • A mixture of transportation and inventory options is usually best. • Use air, rail and truck transportation as appropriate. • Use public and private warehousing as appropriate.
5. Postponement • Delay finishing and shipping the product until it is ordered. • Prevents unneeded transportation and inventory. • Reduces obsolete inventory. • Examples: Dell computer, paint sales.
6. Standardization • Standard (interchangeable) parts and less product variety reduce costs. • Interchangeable parts and modularity reduce inventory and transportation. • Modularity and postponement can provide product variety.
Eli Whitney • Born 1765. • Graduated Yale University 1792. • Moved to Savannah, GA with Yale alum managing a plantation (tobacco and rice). • Invented cotton gin (1793). • Made cotton profitable.
Eli Whitney & the Cotton Gin • Established New Haven (CT) plant to make cotton gins. • Developed machine tool industry & standardization. • Cotton gin made cotton profitable to grow and encouraged slavery. • Did not benefit Eli Whitney due to poor marketing plan and production difficulties.
Eli Whitney • Converted New Haven plant to make guns for U.S. Army. • Standardized parts and machine tools allowed mass production. • Firm continued making guns for westward expansion, War of 1812, Civil War, etc.
