Chapter 16:
Logistics and Supply Chain
Challenges for the Future
Learning Objectives -
After reading this
chapter, you should be able to do the following:
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Understand what is meant by strategy and
how it applies to logistics and supply chain
management.
Trace the stages in the evolution of strategic
planning and its application to logistics and
supply chain management.
Have a working knowledge of how logistics
and supply chain strategies have benefited
individual business firms.
Chapter 16
Management of Business Logistics, 7th Ed.
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Learning Objectives
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Be able to explain the relevance and
importance of logistics and supply chain
strategies of the following types: time-based,
asset productivity, technology-based, and
relationship-based.
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Management of Business Logistics, 7th Ed.
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Learning Objectives
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Identify and explain a number of macro
trends that will impact the future of logistics
and supply chain management, such as: shift
from vertical to virtual integration,
collaboration, knowledge of core
competencies, technology and connectivity,
managing the people skills, and having a
comprehensive supply chain perspective.
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Logistics Profile: Creating a State-of-the
Art VW Beetle Production
Facility in Mexico
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In 1998, at Volkswagen’s Mexican assembly plant in
Puebla, Exel implemented the JIT sequencing
operation.
Currently, the Mexican plant produces 1,600 vehicles
daily, including the Beetle and Jetta.
Parts delivery to a specific place on the line takes
place within 40 minutes of an order, with one car built
every 40 minutes, 24/7.
Exel provides Volkswagen with expert logistics and
supply chain management ported from a similar VW
plant in Spain, proving that transfer of technology,
human resources, and best practices is possible on a
global basis.
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Introduction
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Logistics and supply chain management are
changing quickly, and are characterized by:
 Many innovations and improvements
 Movement towards being considered as
players in strategic, competitive advantage
 Prime candidates for application of tried
and proven approaches to strategic
planning
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Management of Business Logistics, 7th Ed.
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Overview of Strategic Planning for
Logistics and Supply Chain Management
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Historical Perspective on Strategy:
 Has become an appropriately meaningful and
integrated activity in most globally competitive
firms.
 Evolutionary development phases:
 In the 50s and 60s, was referred to as
investment planning.
 In the 70s, began to focus on internal growth
opportunities.
 In the 80s, a combination of outside
investment and internal growth opportunities
was used.
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Overview of Strategic Planning for
Logistics and Supply Chain Management
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Chapter 16
In the 80s, a combination of outside
investment and internal growth opportunities
was used.
In the 90s, refocused on gaining strategic
advantage in the marketplace and for
defending against competitors.
In the early 2000s, strategic focus clearly
moved toward the development of effective,
interfirm relationships that would create
maximum value for the firm’s products and/or
services.
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Overview of Strategic Planning for
Logistics and Supply Chain Management
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Definitions:
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Strategy – a course of action, a scheme,
or a principal idea through which an
organization hopes to accomplish a specific
objective or goal.
Tactics – refers to the operational aspects
that are necessary to support strategy.
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Overview of Strategic Planning for
Logistics and Supply Chain Management
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Examples:
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Cross-docking – a term that describes
moving goods through a distribution center
in less than a day, a tactic used by WalMart among others to both lower prices
while increasing customer service.
Rapid inventory turns contribute to the
lower costs, and the speed of the flow of
inventory results in the increase in
customer service.
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Overview of Strategic Planning for
Logistics and Supply Chain Management
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Examples:
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Internet capabilities – employed by Best
Buy to let customers order over the
Internet and pickup items at a retail store
location.
Best Buy is combining its technological
competencies with its logistics and supply
chain capabilities of customer service and
market positioning.
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Management of Business Logistics, 7th Ed.
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Figure 16-1 Best Buy: Integrating
Retail, Catalog, and Online Sales
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Overview of Strategic Planning for
Logistics and Supply Chain Management
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Examples:
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Inventory availability – Benneton is
another retailer that has used good
logistics to accomplish increased market
share and higher profit levels
By developing a QR system utilizing bar
coding of cartons and linking production to
retail locations, Benneton achieves low instore inventory, right stock availability, and
high levels of customer service.
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Overview of Strategic Planning for
Logistics and Supply Chain Management
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Strategy Classification
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Porter’s model of basic strategies, namely, cost,
differentiation, and focus is the most popular
scheme.
Strategies based on low cost essentially stress
offering a product or service in a market at a price
or cost lower than that of competitors.
Automobiles and electronic products are two
examples of this strategy, as are the general
operations of retail firms such as Wal-Mart, Target,
and McDonalds.
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Figure 16-2
Strategies for Creating Value
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Overview of Strategic Planning for
Logistics and Supply Chain Management
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Strategy Classification
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Strategies based on differentiation
attempt to make a product or service look
unique, such that consumers are willing to
par a premium price.
Perceptions based on better fit, higher
quality, long product life, better service,
and other similar attributes are typical of
strategies based on differentiation.
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Overview of Strategic Planning for
Logistics and Supply Chain Management
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Strategy Classification
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Strategies based on focus attempt to make a
product or service fit a niche or small market
segment where either cost or differentiation is
then employed.
Offering delivery, 24/7 hours, multiple offerings of
similar products into differentiated segments and
other similar strategies are typical of focusbased models of classification.
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Overview of Strategic Planning for
Logistics and Supply Chain Management
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Strategy Classification
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Porter’s value chain suggests that a
company can be disaggregated into five
primary activities and four support
activities.
Examine Figure 16-3.
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Figure 16-3
The Generic Value Chain
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Time-Based Strategies
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Reducing Cycle Time
 Logistics activities that shorten the length of the
order/replenishment cycle have been the focus of
much recent attention.
 Reductions in cycle time are based on three
factors: processes, information, and decision
making.
 If logistics is seen as a series of processes,
performing those processes faster will reduce
cycle time.
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Time-Based Strategies
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Utilization of faster, more efficient forms of
order transmission---EDI or the Internet--can significantly reduce the time needed to
complete the transaction.
Finally, empowering individuals to make
decisions can be one of the most important
ways to speed cycle time.
Pre-approvals and other delegated decision
making models can lead to making mistakes,
but the experience of Proctor & Gamble,
among others, is that the risk is justified in
terms of time saved and improvement in
customer responsiveness.
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Time-Based Strategies
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Time-Reduction Logistics Initiatives
 Push to pull
 Cross-docking, JIT, VMI, and CRP are
all contemporary approaches that help
logistics systems move from push to
pull.
 Each strategy reduces the order cycle
by shortening the total time from
vendor to delivery to customers.
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Time-Based Strategies
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Time-Reduction Logistics Initiatives
 Anticipate customers’ needs
 Improved ability to anticipate through
collaborative planning, forecasting, and
replenishment (CPFR) enables the logistics and
supply chain processes to make a more
valuable contribution to corporate objectives.
 The switch from push to pull is a more
demand-responsive system, but requires
changes that may be difficult to achieve
depending on the corporate culture in place.
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Time-Based Strategies
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Time-Reduction Logistics Initiatives
 Manufacturing impacts
 Pull approach requires a fast manufacturing
system.
 Risk of low or no inventory depends on fast
and frequent replenishment.
 Responding to demand
 Consistent with time-compression strategies
 Produce to order now being tried by furniture
and farm implement manufacturers, both
traditional “produce for stock” companies.
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Time-Based Strategies
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Time-Reduction Logistics Initiatives
 Postponement involves not completely
finishing a product until an order arrives.
 Food processors that can “brights” and
do not label until an order is received
 Auto manufacturers that pre-wire
electronic harnesses to take any option,
not knowing what a particular car order
will specify.
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Asset Productivity Strategies
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Inventory Reduction
 Much evidence that companies have been
successful in reducing inventories.
 Time reduction strategies have contributed.
Facility Utilization
 Strategy to keep the goods moving throughout
the logistics and supply chain system has
contributed to effective use of logistics
facilities thus squeezing more productivity
from these assets.
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Asset Productivity Strategies
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Equipment Utilization Strategies
 Some reductions have occurred here as
a result of contraction of this equipment
and smarter, more sophisticated
equipment dispatching software.
 Doing more with less is a result of leaner
enterprises.
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Asset Productivity Strategies
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Third-Party/Contract Logistics Services
 Use of 3PLs has resulted in dramatic positive
impact on asset productivity.
 DuPont, Nabisco, Proctor & Gamble, General
Electric and General Motors and others are users
of 3PLs, focusing on managing logistics services
rather than on the assets themselves.
Examine Figure 16-4 on 4PLs potential impact.
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Figure 16-4
Fourth-Party™ Logistics
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Technology-Based Strategies
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Disruptive technologies are those will help make
firms more competitive, but will change the basis of
competition.
 Examine Table 16-1
 Implications are that logistics and supply chain
areas of the future will differ significantly from
those of today.
E-commerce e-procurement and electronic
marketplaces will continue to grow in importance.
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Table 16-1
Disruptive Information Technologies
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Figure 16-5
Shifts in Technology
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Figure 16-6
Strategic Sourcing and Procurement
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Relationship-Based Strategies
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Collaboration
 Parties involved dynamically share and
interchange information.
 Group benefits more than individual benefits.
 All parties modify their business practices.
 All parties conduct business in new and visibly
different ways.
 All parties provide a mechanism and process
for collaboration to occur.
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Figure 16-7
Types of Collaboration
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Relationship-Based Strategies
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Value Nets
 Taking the place of the old supply chain,
the value net starts with the customer and
is built around three powerful value
propositions:
 High levels of customization
 Super service
 Convenient solutions
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Relationship-Based Strategies
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Value Nets
 Combines strategic thinking with the latest
advances in digital supply chain management.
 Every customer is unique.
 Customers choose products or services they value
most.
 Capture real choices in real time and transmit
them digitally to other net participants.
 Examine Figure 16-8.
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Figure 16-8
Gateway’s Value Net
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Management of Business Logistics, 7th Ed.
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Synthesis and Future Directions
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Shift from Vertical to Virtual Integration
Collaboration
Knowledge of Core Competencies
 Expertise
 Strategic fit
 Ability to trust
Technology and Connectivity
Managing-the-People Skills
Comprehensive Supply Chain Perspective
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On the Line: Modus
Media International (MMI)
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In 1997, MMI began transforming itself from a
contract manufacturer to a supply chain
management services company.
Key criteria for the technology selection process
included: only best-of-breed technology; off-theshelf software; industry or de facto standard;
externally supported, E-business enabled, and
supportive of business modeling and scripting.
Planned to be completed in 2002, the results will
help close the knowledge gap in its supply chain
information systems.
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Management of Business Logistics, 7th Ed.
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Chapter 16:
Summary and Review Questions
Students should review their knowledge of the
chapter by checking out the Summary and Study
Questions for Chapter 16.
End of Chapter 16 Slides
Logistics and Supply Chain
Challenges for the Future