1-1 Logistics Management LSM 730 Dr. Khurrum S. Mughal Lecture 9

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

Six Concepts for Logistics Strategy Formulation Total Cost Concept – Tradeoff conflicting costs at optimum Differentiated distribution – Not all products should be provided the same level of customer service Mixed strategy – A pure strategy has higher costs than a mixed strategy Postponement – Delay formation of the final product as long as possible Shipment consolidation – Smaller shipment sizes have disproportionately higher transportation costs than larger ones Product standardization – Avoid product variety since it adds to inventory 1-3

Six Concepts for Logistics Strategy Formulation Shipment consolidation – Smaller shipment sizes have disproportionately higher transportation costs than larger ones – Reduced customer services due to increase in delivery time must be balanced cost-benefits of consolidation – Smaller the shipment size, greater is the benefit from consolidation 1-4

Six Concepts for Logistics Strategy Formulation Product standardization – Avoid product variety since it adds to inventory – How to meet customers’ desire for variety? By making interchangeable parts or labeling same product with different labels Postponement can help in reducing incurred costs 1-5

2-6 Efficient supply chain n Economical production runs n Finished goods inventories n Economical buy quantities n Large shipment sizes n Batch order processing Responsive supply chain n Excess capacity n Quick changeovers n Short lead times n Flexible processing n Premium transportation n Single order processing Supply- to-stock Supply- to-order Choosing the Right Supply Chain Strategy

2-7 Choosing the Right Supply Chain Strategy Functional Products-- Predictable demand Innovative Products-- Unpredictable demand Efficient supply chain Staple food products Responsive supply chain Electronic equipment Low margin High margin

2-8 Classification of Products Predictable/Mature Products Jello Corn Flakes Lawn fertilizer Ball point pens Light bulbs Auto replacement tires Some industrial chemicals Tomato soup Unpredictable/Introductory Products New music recordings New computer games Fashion clothes Art works Movies Consulting services New product offerings of existing product lines

2-9 Actions for Misclassified Products Supply Chain Design Type Predictable/ Mature Unpredictable/ Introductory Supply-to-Stock/ Efficient Tomato SoupIf product is here Supply-to-Order/ Responsive If product is herePersonal Computer Models Product Characteristic

Measuring Strategy Performance Cash Flow Savings Return on Investment 1-10