1. 1-1 Logistics Management LSM 730 Dr. Khurrum S. Mughal Lecture 7

2. 2-2 Logistics/Supply Chain Strategy and Planning “If you don’t know where you want to go, any path will do.”

3. GE - to be number or two in each market that it serves HP – serving the scientific community IBM – to remain an effective competitor 2-3 Corporate Strategy  Strategy is the process whereby plans are formulated for positioning the firm to meet its objectives. - Profit, Market share, social, ROI, Survival  Strategy formulation begins with defining a corporate strategy. This involves: a. Assessing needs, strengths, and weaknesses of the 4 major components: - customers - suppliers - competitors - the company itself b. "Visioning" where counter-intuitive, unheard of, and unconventional strategies are considered. 

4. Corporate Strategy Broad goals need to be converted to definite plans – Based on external and internal environment Xerox – Number 1 in field service Star Kist Foods – Dominant packer in Tuna Business Corporate strategies are then converted into strategies for functional areas 1-4

5. Logistics/SC Strategy Almost same creative process as corporate strategy – Replacement machines by an office machine company – American Hospital Supply – terminals at each customers office 1-5

6. 2-6 Corporate to Functional Strategic Planning Economic Regulatory Technological Competitive External factors Corporate strategic plan Marketing Finance Manufacturing Logistics Functional strategic plans

7. Logistics/SC Strategy The objectives of logistics strategy are: – Cost reduction – Capital Reduction – Service Improvement 1-7 Use ROLA

8. Logistics/SC Strategy The objectives of logistics strategy are: – Cost reduction Reducing Variable Costs Minimize cost of movement and storage Minimize cost at constant service levels Evaluating alternate routes and warehousing locations 1-8

9. Logistics/SC Strategy The objectives of logistics strategy are: – Capital Reduction Minimize level of investment in logistics system Shipping direct to customers Public vs private warehouses Just-in-time inventory Outsourcing logistics Increase in Variable costs but increase in ROI 1-9

10. Logistics/SC Strategy The objectives of logistics strategy are: – Service Improvement Maximize customer service Costs Increase – Parker Hannifin- seals and O-rings Competitors price on same product 8% less Demand for Inventory stocking point with additional value added services 1-10

11. 2-11 Logistics’ Objective Maximize return on logistics assets (ROLA) Logistics’ contribution to sales Investment in logistics assets Costs of logistics operations

12. 2-12 Flow of Logistics Planning Facility location Operations strategy Inventory management Information systems Material handling Traffic and transportation Planning and control methods Organization Individual Link of Logistics System Business goals and strategies Customer service requirements Integrated logistics planning Design of integrated logistics management system Overall performance measures

13. Logistics/SC Strategy To answer the questions: What, When and How Levels of logistical planning: Strategic – Longer than 1 year Tactical – Usually less than a year Operational – Daily or hourly basis – To ensure the efficient and effective product flow through strategically planned logistics channel 1-13

14. Decision areaStrategicTacticalOperational TransportationMode selectionSeasonal equip- ment leasing Dispatching InventoriesLocation, Control policiesSafety stock levelsOrder filling Order processing Order entry, transmittal, and processing system design Processing orders, Filling back orders PurchasingDevelopment of supplier- buyer relations Contracting, Forward buying Expediting WarehousingHandling equipment selection, Layout design Space utilizationOrder picking and restocking Facility location Number, size, and location of warehouses Strategic, Tactical, and Operational Decision Making 2-7

15. Logistics/SC Strategy The 4 problem areas of supply chain planning – Customer Service Levels – Facility Location – Inventory Decisions – Transport Decisions 1-15 Recall the logistics strategy triangle

16. 1-16 Customer service goals The Logistics Decision Making

17. Logistics/SC Strategy 1-17  When to plan? - No distribution network currently exists. - There has been no re-evaluation in 5 years. - When costs are changing rapidly, especially transport & inventory -When markets have shifted – changes in demand -When there is a Change in Product Characteristics. - When there has been a major policy shift in logistics such as in price, customer service, or investment level.