1 When to Plan? Demand (volume, dispersion, predictability) Customer service requirements (customer expectations and competition) Product characteristics (density, value, risk) Logistics costs (based on above three factors) Pricing policy (does the customer price include delivery charge?)

2 Typical Guidelines for Logistics Strategy Formulation Total Cost concept Differentiated distribution Mixed Strategy Postponement Consolidation Standardization

3 Typical Guidelines for Logistics Strategy Formulation Total Cost and Trade-off Concepts

4 © Transportation Service(faster and reliable delivery) Cost Transportation Costi Total Cost Strorage cost Truck Transportation Mode Selection RailAir

5 İncreasing number of waqrehouse Cost inverntory Cos Total cost Transportation cost Specification of the Number of Warehouse Customer Service related sales

6 Average Stock Level Cost Inventory Carrying Cost Total cost Lost Sale Cost Specification of the Average Stock Level

7 Production run length and sequence Cost Inventory carrying cost Ttotal cost Production costi Production run length and sequence

8 İimproved customer service level(%) Cost Transportation, order processing and storage cost Total cost Loss sales cost Customer Service Level Specification

9 Typical Guidelines for Logistics Strategies(Contd…) Differentiated Distribution Not all products should be produced at the same level of customer service Mixed strategy The concept is similar to that of differentiated distribution: a mixed strategy will have lower costs than a pure, or single strategy

10 Typical Guidelines for Logistics Strategies(Contd…) Postponement Delay product differentiation until as late as possible in the production process HP printers that serve different countries used to be produced as separate products, but now the same product uses an external power pack that is packed in the box depending on the destination Benetton delays dying of fabrics until after the sweater is produced and demand is realized. Postponement usually involves products with a highly modular architecture (e.g. computers).

11 Typical Guidelines for Logistics Strategies (contd…) Consolidation – If many different products are produced at different plants, the volume of demand in a particular market for a given product might not justify sending small shipments of that product to the market. However, if the market demands several other products made by the manufacturer, consolidating them into one warehouse will make it more economical to send frequent consolidated shipments of full truckloads to the market. Mass Customization – Already referred to in postponement, a modular product architecture helps enable mass customization, which is the ability to mass produce goods that can quickly and easily be customized to individual specifications (automobile, computer examples). JIT/VMI - Just-in-time and vendor managed inventory strategies to smooth flow of goods and increase response time of suppliers.