Strategic Logistics Planning
Compiled by Rulzion Rattray
1
Strategic Logistics Planning
• Understand & assess the macro
environment.
• Analyse & understand the internal
capabilities.
• Combines these to set objectives in
consultation & with the support of major
elements of the organisation
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The Resource Environment
The Value Chain Michael Porter (1985)
Firm’s Infrastructure
Human Resource Management
Secondary
Activities
Technology Development
Procurement
Inbound
Logistics
Outbound
Operations
Logistics
Marketing Service
& Sales
Primary Activities
3
Overview
External Factors
Organisational
Strategic Plan
•Social
•Ecological
•Political
•Technological
•Economic
Manufacturing
Physical Distribution
Adapted from Capacito, W., &
Rosenfield, D.B., (1984),
“Analytical Tools for
Strategic Planning”, 15(3),
pp47-61, Council of Logistics
Management USA.
Marketing
Finance
Logistics
Functional Strategic Plans
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Key Issues in Logistics Planning
• Customer Service:
– Demand for improved service, quality a major element
in competitive advantage
• Logistics costs:
– Physical distribution, up to 30% of sales value
• External pressures
– Regulatory change pressures, competitive pressures of
globalisation
• Trade offs:
– Response to change requires complex adjustment.
• Organisational conflicts:
– Often no clear responsibility for logistics
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Strategic Logistics Planning
Business goals & strategies
Quality of Individual
link of logistics system
1.
2.
3.
4.
5.
6.
7.
8.
Facility location
Operations strategy
Inventory management
Information systems
Material handling
Traffic & transportation
Planning & control
Organisation
Customer service requirements
Integrating logistics planning
Design of integrated logistics
management system
Overall performance
Adapted from Capacito, W., & Rosenfield,
D.B., (1984), “Analytical Tools for
Strategic Planning”, 15(3), pp47-61,
Council of Logistics Management USA.
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Pressures Influencing System
New customer
Service requirements
Regulatory
change
Changing costs
Logistics
System
Constantly improving
IT availability
Requirement for
Adapted from Capacito, W., & Rosenfield,
D.B., (1984), “Analytical Tools for
Strategic Planning”, 15(3), pp47-61,
innovation and efficiency
Council of Logistics Management USA.
Pressure for
financial
performance
Pressure to
reduce inventory
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Conflicts of Interest
High revenue through:
Sales &
Marketing  High levels of
availability
 Rapid introduction
of new products
Production
Higher
Lower
Customer
Service
Cost effective production:
 High constant capacity
utilisation
 Longer production runs,
Fewer set up costs
Tight budgets for:
Finance
& Control  Stocks
 Cost
More
Fewer
Disrupting
factors in
production
Higher
Lower
Stocks
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Adapted from Capacito, W., & Rosenfield, D.B., (1984), “Analytical Tools for Strategic Planning”, 15(3), pp47-61, Council of Logistics Management USA.
Analytical Methods
• Decisions support systems
– Advantage of quick analysis, & can incorporate
the complex trade offs.
• Logistics cost analysis by:
– Channel, Product, type of customer, geographic
area, logistics function, etc.
• Use of simulations:
– What if simulations, (I.think)
– Optimisation
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Shapiro Grid framework
Breadth of product line
Cost Service Curves
Narrow
Broad
Decentralised
Inventory
Logistics
costs
Service costs
or Delivery Time, etc
Centralised
Inventory
• Elbows create concentration
• away from elbow large increases
in delivery time and only
moderate decrease in costs
• Straight steep curves
variation and niches
• more room for differentiators
• Service consists of a range
of dimensions
• A basis for competitor
comparison on two
dimensions
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References
• Capacito, W., & Rosenfield, D.B., (1984), “Analytical Tools for
Strategic Planning”, 15(3), pp47-61, Council of Logistics
Management USA.
• Christopher, M., (1995), “Logistics the Strategic Issues”, Chapman
Hall, London.
• Aitken, J., “Supply Chain Integration within the Context of a Supplier
Association”, Cranfield University PHD Thesis, 1998. Cited in
Christopher, M., (1998), “Logistics and Supply Chain Management.
Strategies for Reducing Cost and Improving Service”, Financial Times
Pitman Publishing, London.
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Managing the Global Pipeline
Compiled by Rulzion Rattray
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The Globalisation of Markets.
Levitt, T. (1983).
• Advances in Technology Driving the
world to a converging commonality.
– Proletarianisation of:
• Communication, transport, travel
• Global corporations which operate with
resolute consistency at low relative cost
using the entire world as a single
market.
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Trade Offs in Global Logistics
Transport
Source to User
Costs
Inventory
Material
Production
Localised
Global
• Important to recognise trade offs.
• Key to recognise the service needs of
the market
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Globalisation in Supply Chains
• Liberalisation effect of WTO, etc.
– No longer have to set up in target country, instead
can concentrate on developing economies of scale.
– Emergence of new manufacturing economies has
resulted in increased competition and oversupply.
– Companies will have to find new ways of
remaining competitive by lowering costs in other
ways.
• Supply chain efficiency will become even
more important
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The Myth of Globalisation.
Susan Douglas & Yoram Wind.
• Attacks Levitt's view of global standardisation as naive
and over simplistic. Homogenisation not a clear &
universal trend.
• Contra Evidence of
homogenisation:
– Food firms adapt to national
characteristics.
– Growth of intra-country
segmentation:
– growing demand for
differentiated products.
• The myth of economies
of scale:
– Technical developments
lowering scale
requirements.
– cost of production often
only small part of total
costs.
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Global Manufacture & Supply
• Focussed factories:
– Economies of scale, one factory for the world?
– May overlook crucial logistics trade offs:
• Transport costs & delivery times.
• Requirement for local packaging
• Centralised Inventories:
– Centralising Inventory = less total inventory.
Square root rule
25
to
4
5:2 i.e. 60% reduction
Christopher, M., (1998),
– However may overlook benefit of local to
customer
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Postponement & Localisation
• Localisation:
– Even in relatively homogeneous markets like
Europe their can be considerable variety of
local taste. This may be better catered for in a
local assembly operation.
• Postponement:
– Design products using simple common
platforms, using common components.
Assembly does not take place until required.
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Customer Service Explosion
• Increasing perception that there is little
technical difference between products.
• Service crucial source of differentiation and
competitive advantage.
– Requirements:
• Closely integrated marketing, manufacturing and
supply strategies
• Logistics of service delivery crucial!
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Strategic Lead time Management
• Product and technology life cycles getting
shorter.
• Requirements for success:
– Ability to innovate.
– Ability to bring new products to market.
• Logistical Lead time becomes crucial.
– Time from sourcing and procurement though to
recovery of investment by selling
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Organisational Integration
• Recognition of the importance of taking a systems
view of business.
– Difficulty of achieving integration in functionally fixated
organisations.
• Move towards a requirement for generalists
– Integration of all the different aspects of the organisation.
– Philosophy of integration beyond the confines of the
organisation.
• Supply Chain Management.
– Requires that all the players in the value system work
together.
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Throughput Management
• The process of linking manufacturing and
procurement to the needs of the market.
• Requirement for reducing the length of the
supply chain pipeline!
• Target:
– Lower cost, higher quality, greater variety,
more flexibility, faster response times.
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Globalisation
• Move to commodity markets and component
specialisation:
– firms shop freely amongst the nations of the world
• Singer Sewing machines: Shells from US, motors from
Brazil, drive shafts from Italy, machine assembled in
Taiwan
– Increasing need for local customisation
• Washing machines: Germans want fast spin & Italians
slow, British front loaders, French top loaders, etc
– Challenge how to achieve benefit of standardisation
at the same time?
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References
• Christopher, M., (1998), “Logistics and Supply
Chain Management. Strategies for Reducing Cost
and Improving Service”, Financial Times Pitman
Publishing, London
• Levitt, T. (1983), “The Globalisation of Markets”,
Harvard Business Review May/Jun.
• Douglas, S., & Wind, Y., (1987), “The Myth of
Globalisation”, Columbia Journal of World
Business, Winter.
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