Logistics Strategy

Content 1. Logistic also plays a role in customer satisfaction 1. 1 Overview 2. What is a logistic strategy? 3. Why implement a logistics strategy? 4. What is involved in developing a logistics strategy? 5. What is involved in developing a logistics strategy? 5. 1 Strategic 5. 2 Structural 5. 3 Functional 5. 4 Implementation 6. Components to examine when developing a logistics strategy 1. Transportation 6. 2 Outsourcing 6. 3 Logistics systems 6. 4 Competitors 6. 5 Information 6. 6 Strategy review 7. Strategic logistics planning . Risk profiles 9. Strategic logistics planning options 10. The strategic logistic plan 11. Developing the strategic logistics plan 12. Logistic Audit 13. Forecasting tools and techniques of strategic planning 13. 1 Benchmarking 13. 2 Environmental scanning 13. 3 scenario planning 13. 4 SWOT analysis 13. 5 The Delphi techniques 13. 6 Brainstorming 13. 7 product life cycle analysis 13. 8 Trend extrapolations 13. 9 Boston Matrix model 14. References Logistics Also Plays a Critical Role in Customer Satisfaction

Many services organizations make the mistake of focusing the vast majority of their customer service and satisfaction activities on external issues, often to the exclusion of key internal issues such as inventory management and logistics. However, these key internal issues can also play an important role in facilitating – or hampering – desired levels of customer service and satisfaction. This is especially true in a services environment that is becoming increasingly global in nature.

In other words, when looking to support its customers, a services organization should focus not only externally, at its direct customer interface and interaction, but also internally, at its global inventory management and logistics activities as well – especially as they might impact a multinational customer base. As a result of the increasing globalization of services, many larger companies are reorganizing their inventory and logistics operations to be more homogeneous.

Some utilize an organization structure where individual lines of business (LOBs) operate separately, but all come together at a senior level. Others may manage their logistics activities more on a geographically decentralized basis, rather than in an LOB-centric mode. In any case, the primarily criterion for determining what type of logistics operation to employ must ultimately be the way in which it can be expected to support customers in a global market.

Economics, of course, should always be a key consideration; however, all the cost savings and economies-of-scale that may be realized through a centralized structure will not mean a thing if the customers do not believe they being supported in the manner they require. Most services providers are acutely aware that if they do not support their customers with the service, parts and attention they require, they can generally find the level of support they require – elsewhere.

Further, in a truly global services environment, it has become increasingly apparent that each geography has a different range of customers, with different levels of service requirements. As a result, many organizations are trying to evolve to the point where they can respond directly to the customers’ needs; be easy to do business with; command the ability to meet their customers’ wants in every geography; and, whether they know it or not, meet their needs as well.

In order to accomplish this, some organizations have chosen to outsource many of their non-core competency activities, such as warehousing, distribution and certain types of equipment repair, to a select group of outsource vendors. For many years, most services organizations have utilized national and international courier services to handle nearly all of their shipping needs. Over the years, many of these couriers have expanded their portfolios to include different options for delivery (e. . , overnight, second day, same day, etc. ), as well as warehousing and general inventory management. Some are now also assisting their clients in inventory planning and forecasting. As a result, many services organizations no longer believe that they need to perform these activities themselves in addition to the various manufacturing, sales and marketing, and customer service activities that they are already performing on a day-to-day basis.

However, as more services organizations realize that the increasing costs of inventory management and logistics are likely to impact both their bottom lines and their ability to support customers – especially if they are presently running either an outdated or otherwise inefficient operation to begin with – they may have some strong reservations with respect to outsourcing some of these key activities.

The greatest fear among most organizations is that outsourcing will almost immediately result in the lessening of customer service performance, either real or perceived, and therefore, loss of control over an historically critical component of their overall customer service and support equation. Those organizations that have already moved toward outsourcing suggest that there are still many ways in which to ensure that the organization retains control over these critical areas.

It is true that some still believe that there are no outsource vendors that are truly global in terms of their inventory management and logistics capabilities – that some are good at warehousing, some are good at distribution, and some are better than others in certain geographies – but none are able to do it all globally. Still, others believe that there are only one or two superior vendors in each geography, and that it is critical to select the right ones to represent your business in each area.

Where one vendor is judged to be unable to “do it all” in a single geography, some organizations may require them to enter into arrangements where they must work with other local vendors to meet the organization’s specific requirements for supporting customers. Another way to get this type of “shared” scenario to work is to align the outsource vendors in each geography on the basis of their unique capabilities, and incorporate their services directly into the contract bidding process when responding to RFIs or RFPs.

Most organizations using this approach believe that by lining up the appropriate partners as part of the bid process, they can both get both a marketing edge over some of their competitors, as well as avoid the risk of quoting a bid and then not being able to deliver it either satisfactorily or profitably. By lining up their vendors prior to responding to the bid, and knowing what their approximate costs and terms are going to be before even getting the sale, they believe they can protect themselves in many ways, and avoid the risk of negatively impacting customer service.

The secret to success, of course, whether the organization goes it alone, or whether it utilizes the services of one or more outsource vendors in any global geography, is to ensure that all of the players involved work on a “partnership” basis. That is, that they work together as “partners” toward the common, necessary and, ultimately, profitable goal of providing customers with their desired levels of services parts and support, ultimately keeping them satisfied.

And the only way firm’s can enhance is to come up with a business logistics strategy. What Is a Logistics Strategy? When a company creates a logistics strategy it is defining the service levels at which its logistics organization is at its most cost effective. Because supply chains are constantly changing and evolving, a company may develop a number of logistics strategies for specific product lines, specific countries or specific customers. Why Implement a Logistics Strategy?

The supply chain constantly changes and that will affect any logistics organization. To adapt to the flexibility of the supply chain, companies should develop and implement a formal logistics strategy. This will allow a company to identify the impact of imminent changes and make organizational or functional changes to ensure service levels are not reduced. What Is Involved in Developing a Logistic Strategy? A company can start to develop a logistics strategy by looking at four distinct levels of their logistics organization.

Strategic: By examining the company’s objectives and strategic supply chain decisions, the logistics strategy should review how the logistics organization contributes to those high-level objectives. Structural: The logistics strategy should examine the structural issues of the logistics organization, such as the optimum number of warehouses and distribution centers or what products should be produced at a specific manufacturing plant. Functional: Any strategy should review how each separate function in the logistics organization is to achieve functional excellence.

Implementation: The key to developing a successful logistics strategy is how it is to be implemented across the organization. The plan for implementation will include development or configuration of an information system, introduction of new policies and procedures and the development of a change management plan. Components to Examine when Developing a Logistics Strategy When examining the four levels of logistics organization, all components of the operation should be examined to ascertain whether any potential cost benefits can be achieved.

There are different component areas for each company but the list should at least include the following: Transportation: Does the current transportation strategies help service levels? Outsourcing: What outsourcing is used in the logistics function? Would a partnership with a third party logistics company improve service levels? Logistics Systems: Do the current logistics systems provide the level of data that is required to successfully implement a logistics strategy or are new systems required? Competitors: Review what the competitors offer.

Can changes to the company’s customer service improve service levels? Information: Is the information that drives the logistics organization real-time and accurate? If the data is inaccurate then the decisions that are made will be in error. Strategy Review: Are the objectives of the logistics organization in line with company objectives and strategies. A successfully implemented logistics strategy is important for companies who are dedicated to keeping service levels at the highest levels possible despite changes that occur in the supply chain.

Strategic Logistics Planning Companies everywhere are under increasing pressure to improve customer service levels, while at the same time holding or, more likely, reducing the costs of their logistics operations. Meeting the twin challenge of customer service improvement and cost reduction now places distribution network design centre stage as a key business priority. Strategic logistics planning modelling is the best way to simulate the options.

Strategic logistics planning helps you choose the best service, least cost options for your business. Supply has the strategic logistics planning expertise and the tools to help you plan and optimize your distribution operations in ways that will significantly:- Improve customer service Reduce distribution costs By using a selection of sophisticated strategic logistics planning software tools we can model every aspect of your distribution network, including:- Product flows Customer locations Inventory profile and throughput

Sales forecasts Risk profiles We use the resulting data picture to develop potential alternative distribution strategies that reflect both current and optimal network designs. This enables us to develop in relatively short time-scales fully costed strategy options to facilitate effective decision-making. Strategic logistics planning options might include, for example:- Maintaining the present network design Consolidation of existing distribution depots Relocation of depot sites Outsourcing warehousing operations

Whatever the output of the strategic logistics planning modelling process, our clients can feel confident that the distribution strategy decisions they make are based on fact and an ability to see the whole picture. The strategic logistic plan The importance of planning Corporate planning is essential to long-term profitable business development change in the business environment increases the risk of business failure or loss of market position for firms whose management has neglected to consider alternative scenarios There are two types of plans:

The operating plan – which covers a period of one or two years The long-range plan – which covers a period of five or more years Evaluate probability of various scenarios and anticipate possible problems and opportunities By planning for change, management can anticipate capital requirements and, when necessary, arrange financing A major advantage of planning is that managers establish benchmarks, and therefore can measure their progress and take corrective action. DEVELOPING THE STRATEGIC LOGISTICS PLAN

A thorough understanding and appreciation of corporate strategies and marketing plans In order to provide sound strategies planning recommendations and move toward a logistics system that balances cost and service effectiveness • A customer service study • To determine what element of service are viewed as most important • How service is measured • What level of performance are expected • How the firm’s performance compares to competition • Identification of the total costs associated with alternative logistics systems • Identify the lowest cost network that meets corporate, marketing and • customer requirements

LOGISTIC AUDIT Management should establish a ‘task force’ to assist in the review process Management should determine what current corporate strategies and objectives could affect, or be affected by, logistics The task force should construct a list of key questions to serve as a basis for both internal and external audit interviews, for identifying weaknesses in the current system, and for recommending improvements.

Major customer segments must identify and conceptualize critical variable and measurements that are accurate, reliable, and efficient An external audit of customer perspectives and requirements should be undertaken to determine the firm’s performance, its competitive practices, and the specific levels of service required An internal audit of current logistics performance should be conducted.

This should involve two distinct process: Personal interviews with representatives from various functions throughout the firm Sampling of firm records and transaction data so that the existing operating system can be statically analyzed and performance accurately described Cost and service trade-off alternatives must be identified and analysed The questions identified must be addressed, and improvements and changes to the current system identified and recommended to management The new system that will be in operation after the recommended changes have taken place should be described and explained

FORECASTING TOOLS AND TECHNIQUES OF STRATEGIC PLANNING Benchmarking Here the logistician’s company or its products are examined and compared with other companies or products Environmental scanning Good managers scan environment for information daily (they keep their ears and eyes wide open, monitoring the global and local business environment) Scenario Planning The optimistic scenario, often called ‘the high road’ The likely scenario, often called ‘the middle road’ The pessimistic scenario, often called ‘the low road’ SWOT analysis

The strengths, weaknesses, opportunities and threats facing the company are all put on the table here. The Delphi techniques It involves the development, evaluation and synthesis of individual viewpoints on a specific topic, often lead by a facilitator who steers the discussion and collates all the various points of view under one heading Brainstorming It means exploring the ideas of all the members of the team Product life-cycle analysis This is an evaluation of where a product life cycle (the four phases are Introduction, Growth, Maturity, and Decline)

Trend extrapolations Extrapolating trends means mentally exploring the likely result if a process continues If adequate data is available, then trend can be plotted on a graph and an extrapolation can be made This method helps in marking predictions and corrections The Boston Matrix model This model identifies each business unit or product so as to determine how it is performing from the profitability point of view Competitor Analysis Potential of new entrants into the market

Possibility of your customer’s buying a substitute product The competition within the industry The bargaining power of your suppliers The bargaining power of your buyers REFERENCE Douglas M. Lambert. James R. Stock. Lisa M. Ellram Fundamentals of Logistics Management. A Mcgraw-Hill International Editions. Kent N. Gourdin. Global logistics management: a competitive advantage for 21st century 2nd Edition 2006 William K. Pollock A Customer Service column in the April 1999 issue of AFSMI’s (The Professional Journal. )