Logistics Management LSM 730 Lecture 9 Dr Khurrum

Logistics Management LSM 730 Lecture 9 Dr. Khurrum S. Mughal 1 -1

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

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 1 -3

Six Concepts for Logistics Strategy Formulation • Shipment consolidation – Smaller shipment sizes have disproportionately higher transportation costs than larger ones – Reduced customer services due to increase in delivery time must be balanced cost-benefits of consolidation – Smaller the shipment size, greater is the benefit from consolidation 1 -4

Six Concepts for Logistics Strategy Formulation • Product standardization – Avoid product variety since it adds to inventory – How to meet customers’ desire for variety? • By making interchangeable parts or labeling same product with different labels • Postponement can help in reducing incurred costs 1 -5

Choosing the Right Supply Chain Strategy Efficient supply chain Supplyto-stock Responsive supply chain Supplyto-order Economical production runs n Finished goods inventories n Economical buy quantities n Large shipment sizes n Batch order processing n Excess capacity n Quick changeovers n Short lead times n Flexible processing n Premium transportation n Single order processing n 2 -6

Choosing the Right Supply Chain Strategy Low margin Efficient supply chain Responsive supply chain Functional Products-Predictable demand Staple food products Innovative Products-Unpredictable demand Electronic equipment High margin 2 -7

Classification of Products Predictable/Mature Products Unpredictable/Introductory Products • Jello • Corn Flakes • Lawn fertilizer • Ball point pens • Light bulbs • Auto replacement tires • Some industrial chemicals • Tomato soup • New music recordings • New computer games • Fashion clothes • Art works • Movies • Consulting services • New product offerings of existing product lines 2 -8

Actions for Misclassified Products Product Characteristic Supply Chain Design Type Predictable/ Mature Unpredictable/ Introductory Supply-to-Stock/ Efficient Tomato Soup If product is here Supply-to-Order/ Responsive If product is here Personal Computer Models 2 -9

Measuring Strategy Performance • Cash Flow • Savings • Return on Investment 1 -10