1. Logistics and Competitive strategy
Chapter Eleven
By Martin Christopher

2. Dimensions of Logistics: Introduction
Logistics has come a long way since the 1960s.
The big challenge is to manage the whole logistics system in such a way that order fulfillment meets or exceeds customer expectations.
Focus of this chapter is upon the individual firm’s logistics system but also recognizing that no logistics system operates in a vacuum.
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Strategic Logistics Management

3. Strategic Logistics Management
What is Logistics?
Popular logistics terms:
Logistics Management
Business Logistics Management
Integrated Logistics Management
Materials Management
Physical Distribution Management
Marketing Logistics
Industrial Logistics
Distribution
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4. Definition of Logistics:
Council of Logistics Management (CLM, 1985)
Logistics is the process of planning, implementing and controlling the efficient, effective flow and storage of raw materials, in-process inventory, finished goods and related information from point of origin to point of consumption for the purpose of conforming to customer requirements.
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5. Logistics - Definition
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 organisation and its marketing channels in such a way that current and future profitability are maximised through the
cost-effective fulfilment of orders.
Martin Christopher
Logistics and Supply Chain Management
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6. Supply Chain Management
The management of upstream and downstream relationships with suppliers and customers in order to deliver superior customer value at least cost to the supply chain as a whole.
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7. What is Logistics?: 21st Century View of Logistics (4 subdivisions)
1. Business Logistics – supply chain process that plans, implements, and controls the efficient, effective flow of goods, services, and related information from the point of origin to the point of use or consumption in order to meet customer requirements.
2. Military Logistics – design and integration of all aspects of support for the operational capacity of the military forces, and their equipment to ensure readiness, reliability, and efficiency.
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8. What is Logistics?: 21st Century View of Logistics
3. Event Logistics – network of activities, facilities, and personnel required to organize, schedule, and deploy the resources for an event to take place and to efficiently withdraw after the event.
4. Service Logistics – acquisition, scheduling, and management of the facilities/assets, personnel, and materials to support and sustain a service operation or business.
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9. 3 major dimensions of Logistics
The macro environment of Logistics: Economy Perspective
The micro environment of Logistics: Firm dimension
The logistics components and its internal relationship
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10. 1. Logistics in the Economy: A Macro Perspective
As indicated in Figure 2-2, logistics costs as a percentage of GDP have declined from 16 percent in 1980, to under 10 percent in 1999.
Early to mid-1970s saw the figure closer to 20 percent.
This reflects a serious improvement in the efficiency of logistics systems.
Figure 2-3 shows a further breakdown of logistics costs for 1999.
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11. Figure 2-2: Logistics Costs as a Percentage of GDP
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12. Figure 2-3: Total Logistics Costs --- 1999
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13. Country Logistic cost as a percentage of GDP
Logistic cost as a percentage of GDP across the world is shown in the following table
Country Logistic cost as a percentage of GDP
Korea (GDP 1.12 tn $)
China (GDP 7.32 tn $)
Japan (GDP 5.86 tn $)
India (GDP 1.82 tn $)
France (GDP 2.74 tn $)
UK (GDP 2.45 tn $)
USA (GDP 15 tn$)

14. 1. Logistics in the Economy: A Macro Perspective
The two largest cost categories in logistics systems are transportation and inventory.
While we will look at this later, motor carriers’ share of total freight expenditures is $450 billion versus $99 billion for all other carriers.
The most frequent trade-off in logistics is between transportation and inventory cost.
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15. 1. Logistics in the Economy: A Macro Perspective
As indicated in Figure 2-4, the Federal Reserve measure of inventory to sales ratios from 1991 to 1999 clearly indicate that companies are getting better at managing inventory.
Companies have been supporting larger amounts of sales with decreasing amounts of inventory.
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16. Figure 2-4: Inventory Sales Ratio
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17. 1. Logistics in the Economy: A Macro Perspective
Contributing to this decline
Improvement in transportation cost
Better inventory management
Turnover has had a very positive impact upon the return on investment for companies
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18. The role of Logistics in Macro economic
(i) Value added role
(ii) Economic impact
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19. Strategic Logistics Management
(i) Add values to product/services: 4 principal VAs of economic utility
Form utility- (what) - production
Place utility- (where) - logistic
Time utility- (when) - logistic
Possession utility- (why) - marketing
Also referred to as the seven Rs --- Right product, Right quantity, Right condition, Right place, Right time, Right customer, and Right cost.
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20. Figure 2-5 Fundamental Utility Creation in the Economy
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21. 2. Logistics in the Firm: The Micro Dimension
a. Logistics Interfaces with Operations/Manufacturing
b. Logistics Interfaces with Marketing
c. Logistics Interfaces with Other Areas
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22. a. Logistics Interfaces with Operations Manufacturing
Examples:
1. Length of production runs
Balance economies of long production runs against increased costs of high inventories.
2. Seasonal demand
Acceptance of seasonal inventory to balance lead production times.
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23. a. Logistics Interfaces with Operations Manufacturing
3. Supply-side interfaces
Stocking adequate supplies to ensure uninterrupted production now a logistics function.
4. Protective packaging
Principal purpose is to protect the product from damage.
5. Foreign & third party alternatives
Some logistics functions are being outsourced.
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24. b. Logistics Interfaces with Marketing
The Marketing Mix – Four Ps
(i) Price
(ii) Product
(iii) Promotion
(iv) Place
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25. Logistics in the Firm: (i) Price
Carrier pricing
Generally, since the larger the shipment, the cheaper the transportation rate, shipment sizes should be tailored to the carrier’s vehicle capacity where possible.
Matching schedules
Quantity discounts should be tied to carrier quantity discounts.
Volume relationships
Volumes sold will affect inventory requirements.
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26. Logistics in the Firm: (ii) Product
Consumer packaging
Generally, since the size, shape, weight and other physical characteristics of the product impact on its storage, transportation and handling, the logistics managers should be included in any decisions regarding these product traits.
A minor correction in any of the above could conceivably cost (or save) millions of dollars in logistical costs.
Logistics costs are not necessarily paramount, but they need to be considered in the decision making process.
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27. Logistics in the Firm: (iii) Promotion
Push versus pull
The most important factor is that the logistics division is aware of any changes in demand patterns so that it can plan for any consequences.
Pull strategies tend to be more erratic.
Push strategies tend to more predictable.
Channel competition
The more popular a product, the easier it is to persuade channel members to promote your product.
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28. Logistics in the Firm: (iv) Place
Wholesalers
Generally, since wholesalers are combining purchases for multiple retailers, the shipment sizes tend to be larger and the number of transactions that have to be processed are fewer, with the result that logistics costs are smaller.
Retailers
With the exception of very large retailers who act more like wholesalers, smaller sales are the norm. These generally cost more for transportation and order processing.
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29. c. Logistics Interfaces with Other Areas
Manufacturing and marketing are probably the two most important internal, functional interfaces with logistics.
Other important interfaces now include finance and accounting.
Logistics can have a major impact on return on assets and return on investment.
Logistics costs reported by cost systems measure supply chain trade-offs and performance.
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30. Strategic Logistics Management
Session 1 – Summing Up
End of Session 1
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31. Sources of Competitive Advantage
Porter's 5 Forces - Elements of Industry Structure (source: Porter, 1985, p.6)
Sources of Competitive Advantage
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32. Sources of Competitive Advantage
new technologies
iPhone, Cloud Computing
new or shifting buyer needs
Apartments vis-à-vis Bungalows
the emergence of a new industry segment
Organic Vegetables, Green Industry
shifting input costs or availability
Non-availability of Wood
changes in government regulations
Banning of Sun Control Films in Cars
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33. Logistics Value Proposition
Service Benefits
Availability
Operational Performance
Speed, Consistency, Malfunction and Recovery Time
Service Reliability
Quality Aspect – by standards and monitoring
Manpower, Software, Training, Continuous Improvement,
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34. Logistics Value Proposition
Cost Minimization
Least Total Cost Concept
Airfreight, Air Travel,
Logistics Value Generation
Commitment
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35. What is logistics
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.

36. Logistics and competitive advantage
Firms can achieve competitive advantage through:
Differentiation, in the eyes of the customer, from its competition
And
By operating at a lower cost and hence at greater profit.

37. Competitive advantage and the 3Cs
CUSTOMER
Needs seeking benefits
At acceptable prices
VALUE
VALUE
Assets and
Utilisation
Assets and
Utilisation
Cost differentials
COMPANY
COMPETITOR

38. Logistics and competitive advantage
A position of enduring superiority over competitors in terms of customer preference may be achieved through logistics.
Successful companies either have productivity advantage or they have a ‘value’ advantage or a combination of the two.

39. Logistics and competitive advantage
Productivity
Lower cost profile
Differential plus
Value

40. Productivity advantage
There is substantial evidence to suggest that big is beautiful when it comes to cost advantage. This is partly due:
to economies of scale
to the impact of the "Experience Curve".

41. Productivity advantage
In this regard Logistics management can provide a multitude of ways to increase efficiency and productivity and hence contribute significantly to reduced unit costs.

42. Value advantage
Customers don’t buy products, they buy benefits, these benefits may be intangible (image or reputation)
In other words
Products are purchased for the promise of what they will “deliver”.

43. Value advantage
Adding value through differentiation is a powerful means of achieving a defensible advantage in the market.
But How it could be achieved?
Value segments approach
Services augmented offers

44. Productivity and Value advantage
Successful companies will often seek both productivity and a value advantage. Available options are:

45. Productivity and Value advantage
Marketing logistics’ strategic goal would be

46. 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 this regard; we can use the value chain analysis to disaggregates a firm in to its strategically relevant activities

47. Gaining competitive advantage through logistics
Margin

48. Gaining competitive advantage through logistics
Competitive advantage grows out of the way in which firms organize and perform these discrete activities within the value chain. (More cheaply or better than its competitors)

49. Gaining competitive advantage through logistics
Productivity advantage:
Capacity utilization, inventory reduction, closer integration with suppliers.
Value advantage:
Superior customer services

50. Gaining competitive advantage through logistics

51. The mission of logistics management
It is to plan and co-ordinate all activities necessary to achieve the 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.

52. The fig illustrates total system concept

53. The mission of logistics management
The previous fig suggests that 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.

54. The supply chain and competitive advantage
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 (goods or/and services).
Recall the value system in Ch 5
Buyer VC
Supplier VC
Firm VC
Channel VC

55. The supply chain and competitive advantage
Supply chain management in this regard should be after integrating outside boundaries of the firm to include both suppliers and consumers

56. The supply chain and competitive advantage
The main challenge would be:
Integrating and coordinating the flow of materials from suppliers (often off shore) and managing the distribution of final products through multiple intermediaries.

57. The supply chain and competitive advantage
The difference between logistics and supply chain management p157
Achieving an integrating supply chain p fig 11.9
Scope of supply chain management fig 11.8 p158
Very important

58. Fundamentals of supply chain management
Views the supply chain as a single entity
It calls for strategic decision making because of its impact on overall costs and market share
provides a different perspective on inventories which are used as a balancing mechanism of last not first resort.
Requires high level of integration

59. The changing logistics environment
The customer service explosion (Services excellence, appropriate delivery systems, committed employees)
Time compression (logistics lead time)
ORDER CASH
Globalization of industry (offshore)
Organizational integration (Material, production, and marketing managers)

60. The challenge of logistics management
To achieve the goal of competitive advantage through both cost reduction and service enhancement.
Organizations need to accelerate the movement through the supply chain and to have more flexible Logistics systems and this could be achieved through:

61. The challenge of logistics management
- Cutting short the pipeline (Unneeded inventory)
- Improve the pipeline visibility (Organizational barriers removals, better coordination)
- Managing logistics as a system

62. We covered so far Definition of logistics
Logistics and competitive advantage (Productivity and Value advantage)
Competitive advantage and value chain management
The mission of logistics management
The supply chain and competitive advantage
The changing logistics environment
The challenge of logistics management

63. Activities
Identify the fundamentals of supply chain management, and how they do function.
Explain the characteristics of the most challenging factors, in the area of logistics.
How can we use logistics to add value and obtain competitive advantage

64. End of chapter Eleven

65. Reverse Logistics
Chapter Twelve
By Richard A.Lancioni

66. Introduction
Why organizations might need to organize the flow of materials back from customers?
A requirement to reclaim material for recycling (Waste management)
Recall the defective product.

67. Introduction The trend will continue for the following reasons:
Fast-changing technology necessitating frequent changes in product design.
New laws being enacted worldwide, requiring the recall of defective products and the recycling of solid waste.

68. The concept of backward distribution
What is backward distribution?
What are its major obstacles?
The lack of an orderly reverse distribution system
Absence of needed information
The high cost of collection and transportation.

69. Urgency, scope and effectiveness of the recall process
Urgency Classes of recalls could be:
Imminently hazardous(100% recall)
Dangerous nature, possible of causing illness and possible be life-threatening
Conscious or unconscious violation of regulations (Mislabeled or misbranded) or Quality failures

70. Urgency, scope and effectiveness of the recall process
Scope and Effectiveness of recalls depends on:
The nature of the product and the level of penetration in the distribution system.
Number of units manufactured and length of the product life.
The ability to locate and notify consumers.

71. Locating the product
Where we can find the product in the distribution system?
Manufacturer’s or Primary distributor's warehouse
Middlemen (wholesalers -Retailers)
Hand of consumers
Level of complications and cost

72. Mechanism for locating products
There are different ways of locating the products:
Durable products (invoices, bills or warranty cards)
Nondurable products ( Record keeping- Recall advertisement)

73. Retrieval of products Process of retrieving could be through:
The company’s field salesforce.
The retailer or other middlemen.
Outside collection specialists.

74. Retrieval of products Effective retrievals require:
Motivated customer (Incentives, education, legislations)
Good relationships with participants in the distribution process (needed information and guidelines)

75. Read Pages
Reverse distribution as a part of logistics strategy
Facility network
Communications and order processing
Transportation and traffic management
Logistics costing

76. A reverse distribution model P171-172
Transportation
Warehousing
Inventory control
Material handling
Order processing
See fig 12.2

77. We covered so far The need for it?
The concept of backward distribution
Urgency, scope and effectiveness of the recall process
Mechanism for locating products
Retrieval of products
A reverse distribution model

78. Activities
Discuss the major elements which are involved in a product recall
Explain why the concept of Reverse Logistics is important for the firms in the future
Solve activity 15 in your study guide p52

79. End of Chapter Twelve

80. Thank You