1. Logistics Management
LSM 730
Lecture 8
Dr. Khurrum S. Mughal

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

3. 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

4. Six Concepts for Logistics Strategy Formulation
Total Cost Concept
Tradeoff analysis
Tradeoff conflicting costs at optimum
Examples:
Direct cost of Transport Service vs Indirect cost of inventory levels

5. A Cost Conflict in Logistics

6. Six Concepts for Logistics Strategy Formulation
Total Cost Concept
Tradeoff analysis
Tradeoff conflicting costs at optimum
Examples:
Higher level of customer service resulting in less lost sales Vs
Cost of inventories, transportation and order processing

7. A Cost Conflict in Logistics

8. Six Concepts for Logistics Strategy Formulation
Total Cost Concept
Tradeoff analysis
Tradeoff conflicting costs at optimum
Examples:
When customers purchase in small quantities and inventory is replenished in large quantities
Out Bound inventory transport cost exceeds inbound transport costs
Deciding on number of stocking points considering
Inventory vs transportations costs Vs
Customer service level

9. A Cost Conflict in Logistics

10. Six Concepts for Logistics Strategy Formulation
Total Cost Concept
Tradeoff analysis
Tradeoff conflicting costs at optimum
Examples:
At higher level of customer satisfaction
Cost of lost sales vs Inventory Carrying Costs

11. A Cost Conflict in Logistics

12. Six Concepts for Logistics Strategy Formulation
Total Cost Concept
Tradeoff analysis
Tradeoff conflicting costs at optimum
Examples:
In case of Multi-product scheduling
Increase in Inventory costs with change in production sequence

13. A Cost Conflict in Logistics

14. Six Concepts for Logistics Strategy Formulation
Total Cost Concept
Tradeoff conflicting costs at optimum
Application
Manufacturer of Marine Products
Warehouse in St. Louis Vs Chicago to minimize transport cost
Different results when inventory costs were considered

15. Six Concepts for Logistics Strategy Formulation
Differentiated distribution
Not all products should be provided the same level of customer service
Products to be delivered directly to customers Vs delivered from warehouses
Customer ordering in high volumes might be served directly
Fast Moving Items in field warehouses, medium in fewer regional locations, slow moving items in centralized locations
Application: Chemical company manufacturing metal coating products for preventing corrosion
Truck loads and top 10 percent of total volume shipped directly
Remainder from two warehouses and plant
Saved 20% of total distribution costs

16. Six Concepts for Logistics Strategy Formulation
Mixed strategy
A pure strategy has higher costs than a mixed strategy
Administrative ease in pure strategy along with economies of scale
When products differ in cube, weight, order size, sales volume, and customer service level
Application
Retailer of prescription drugs with six ware houses
New facility to support Pittsburgh Warehouse costing $7 Million

17. Pure vs. Mixed Strategy

18. Six Concepts for Logistics Strategy Formulation
Postponement
Delay formation of the final product as long as possible
Avoid shipping of goods in anticipation of when demand will occur (time postponement)
Avoid creating the form of the product in anticipation of that form (form postponement)

19. Six Concepts for Logistics Strategy Formulation
Postponement
Application
JCPenny by filling orders on demand from relatively few warehouses
Dell computers practices Form postponement
Sherwin-Williams has variety of paint colors but practices form postponement