1. Logistics and Competitive Strategy
Chapter 11

2. Logistics:
Throughout the history of mankind, wars have been won and lost through logistics strengths and capabilities – or the lack of them.
In the Second World War logistics also played a major role. The Allied Force's invasion of Europe was a highly skilled exercise in logistics, as was the defeat of Rommel in the desert.
There are many ways of defining logistics but the underlying concept might be defined as: Logistics is the process of strategically managing the procurement, movement and storage of materials, parts and finished inventory (and the related information flows) through the organization and its marketing channels in such a way that current and future profitability are maximized through the cost-effective fulfillment of orders.

3. Competitive advantage:
Effective Logistics management can provide a major source of competitive advantage. In other words a position of superiority over competitors in terms of customer preference may be achieved through logistics.
The bases for success in the market place are numerous, but a simple model is based around the triangular linkage of the company, its Customers and its Competitors the three Cs .

4. Competitive advantage:
The source of competitive advantage is found by:
First: The ability of the organization to differentiate itself, in the eyes of the customer, from its competition.
Second : By operating at a lower cost and hence at greater profit.
So, successful companies either have a “productivity” advantage or they have a "value" advantage or a combination of two. The productivity advantage gives a lower cost profile and the value advantage gives the product or offering a differential "plus" over competitive offerings . E.g.: Nissan versus BMW

5. Productivity advantage:
In many industries there will be typically one competitor who will be the low cost producer and more often then not that competitor will have the greatest sales volume in the sector. This is partly due to economies of scale which enable fixed costs to be spread over a greater volume but more particularly to the impact of the "Experience Curve".
The experience curve is more like the learning curve, it describes the relationship between real unit costs and cumulative volume.
It must also be recognized that logistics management can provide a multitude of ways to increase efficiency and productivity and hence contribute significantly to reduced unit costs.

6. Value advantage:
It has long been an axiom in marketing that "Customers don't buy products, they buy benefits". Put another way the product is purchased not for itself but for the promise of what it will deliver? These benefits may be intangible, i.e. they relate not to specific product features but rather to such things as image or reputation.
Alternatively the delivered offering must be differentiated or it will be thought of as a commodity and they will go to the cheapest supplier
So we have to add value in the product or in the service in order to have an advantage in the market.
In practice what we find is that the successful companies will often seek to achieve a position based upon both productivity advantage and value advantage.
A useful way of examining the available options is to present them as a simple matrix (see figure 11.3) p.150

7. Logistics and competitive advantage:

8. Gaining Competitive advantage through Logistics:
Competitive advantage cannot be understood by looking at a firm as a whole. It stems from the many discrete activities a firm performs in designing, producing, marketing, delivering, and supporting its product.
Each of these activities can contribute to a firm's relative cost position and create a basis for differentiation; porter’s value chain disaggregates a firm in to its strategically relevant activities in order to understand the behavior of costs and the existing and potential sources of differentiation.
Logistics management has the ability to assist in both value advantage and a productivity advantage

9. Gaining Competitive advantage through Logistics:

10. The mission of logistics management:
This mission is to plan and co-ordinate all those activities necessary to achieve desired levels of delivered service and quality at lowest possible cost. Logistics must therefore be seen as the link between the market place and the operating activity of the business. The scope of logistics spans the organization, from the management of raw materials through to the delivery of the final product:

11. The mission of logistics management:
Logistics management, from this total systems viewpoint, is the means whereby the needs of customers are satisfied through the co-ordination of the materials and information flows that extend from the market place, through the firm and its operations and beyond that to supplier to achieve this company wide integration clearly requires a quite different orientation than that typically encountered in the conventional organization.
The supply chain is the network of organizations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate consumer.
Thus for example a shirt manufacture is a part of a supply chain that extends upstream through the weavers of fabrics to the manufacturers of fibers, and downstream through distributors and retailers to the final consumer.

12. Supply chain management:
The supply chain is the network of organizations that are involved through upstream and downstream linkages ,in different processes and activities to produce value in the form of products and services to the ultimate consumer.
Supply chain management is not the same as, vertical integration; vertical integration normally implies ownership of upstream suppliers and downstream customers.
Increasingly, organizations are now focusing on their "core business" everything else is "out-sourced"- in other words is procured outside the firm, for example, companies that perhaps once made their own components now only assemble manufacturers. But here the challenge is keeping control, integration and co-ordination
The relation between a company and its suppliers should be win –win

13. Supply chain management:
The real competition is not company against company but supply chain against supply chain. It must be recognized that the concept of supply chain management whilst relatively new, is in fact no more than an extension of the logic of logistics
Fundamentals of supply chain management:
Supply chain management differs significantly from classic materials and manufacturing control in four respects:
First, it views the supply chain as a single entity rather than relegating fragmented responsibility, for various segments in the supply chain to functional areas such as purchasing manufacturing, distribution, and sales.
Supply chain management calls for and in the end depends upon strategic decision making". It is a shared objective of practically every function on the chain and is of particular strategic significance because of its impact on overall costs and market share.

14. Supply chain management:
Third, supply chain management provides a different perspective on inventories which are used as a balancing mechanism of last and not first resort
Fourth, supply chain management requires a new approach to systems: integration, not simply interface, is the key
Logistics and materials managers will continue to play important roles, but only top management can be expected to have the perspective to recognize the significance of supply chain management, and only top management can provide the impetus for adopting this new approach.

15. The changing Logistic Environment
Indeed, of the many strategic issues that confront the business organization today, perhaps the most challenging are in the area of logistics.
The customer service explosion: as more and more markets are becoming commodity markets companies are differentiating themselves by services such as customer service, on time delivery, after sales support. This cannot be achieved without closely integrated logistics strategy.
Time compression: product life cycles are shorter than ever and customers switch to other products if theirs is not readily available. We have to take care of the logistics lead time (how long it takes to convert an order to cash)
Globalization of industry: materials and components are sourced world-wide, manufactured off-shore and sold in many different countries perhaps with local customization. The challenge to a global company therefore is how to achieve the cost advantage of standardization whilst still catering for the local demand for variety.

16. The changing Logistic Environment
Organizational Integration :The classical business organization is based upon strict functional division and hierarchies. In these conventional organizations, materials managers manage materials. Whilst production managers manage production and marketing managers manage marketing.
Yet, these functions are components of a system that needs some overall plan or guidance to fit together. We don’t need managers anymore we need integrators, generalists rather than specialists.

17. The Challenge of logistics Management :
One of the most significant business trends of the late 20th century has been the emergence of logistics as integrative concept spanning the entire supply chain form raw material through to the point of consumption.
Thus under a logistics management regime the goal is to link the market place, the distribution network, the manufacturing process and the procurement activity, in such a way that customers are serviced at higher levels and yet at lower cost. In other words, to achieve the goal of competitive advantage through both cost reduction and service enhancement.
Therefore we have three main issues:
Cutting short the pipeline: Cutting the length of the pipeline from suppliers through to customers, particularly with regard to transit times and intermediate stock holding. The use of JIT ,and treating suppliers like partners.

18. Improve pipeline visibility:
We should not only see our section of the pipeline we should see the whole pipeline, we should try to smooth the effects of bottlenecks
Manage logistics as a system: Logistics management demands that all those activities which link the supply market to the demand market be viewed as an interconnected system. The management of that added value, it is argued, is best accomplished by focusing upon the materials flow rather than upon traditional notions of functional or departmental efficiency.