Lecture Logistics management: Lecture 7 - Dr. Khurrum S. Mughal

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Logistics Management LSM 730 Lecture 7 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 Corporate Strategy · Strategy is the process whereby plans are formulated for positioning the firm to meet its objectives. - Profit, Market share, social, ROI, Survival · Strategy formulation begins with defining a corporate strategy. This involves: a. Assessing needs, strengths, and weaknesses of the 4 major components: - customers - suppliers - competitors - the company itself b. "Visioning" where counter -intuitive, unheard of, and unconventional strategies are considered. • GE - to be number or two in each market that it serves • HP – serving the scientific community • IBM – to remain an effective competitor 2-3 Corporate Strategy • Broad goals need to be converted to definite plans – Based on external and internal environment • Xerox – Number 1 in field service • Star Kist Foods – Dominant packer in Tuna Business • Corporate strategies are then converted into strategies for functional areas 1-4 Logistics/SC Strategy • Almost same creative process as corporate strategy – Replacement machines by an office machine company – American Hospital Supply – terminals at each customers office 1-5 Corporate to Functional Strategic Planning External factors • • • • Corporate strategic plan Economic Regulatory Technological Competitive Marketing Manufacturing Finance Logistics Functional strategic plans 2-6 Logistics/SC Strategy • The objectives of logistics strategy are: – Cost reduction – Capital Reduction Use ROLA – Service Improvement 1-7 Logistics/SC Strategy • The objectives of logistics strategy are: – Cost reduction • • • • Reducing Variable Costs Minimize cost of movement and storage Minimize cost at constant service levels Evaluating alternate routes and warehousing locations 1-8 Logistics/SC Strategy • The objectives of logistics strategy are: – Capital Reduction • • • • • • Minimize level of investment in logistics system Shipping direct to customers Public vs private warehouses Just-in-time inventory Outsourcing logistics Increase in Variable costs but increase in ROI 1-9 Logistics/SC Strategy • The objectives of logistics strategy are: – Service Improvement • Maximize customer service • Costs Increase – Parker Hannifin- seals and O-rings • Competitors price on same product 8% less • Demand for Inventory stocking point with additional value added services 1-10 Logistics’ Objective Maximize return on logistics assets (ROLA) Costs of Logistics’ contribution to sales logistics operations ROLA Revenue Costs Assets Investment in logistics assets 2-11 Flow of Logistics Planning Individual Link of Logistics System • • • • • • • • Facility location Operations strategy Inventory management Information systems Material handling Traffic and transportation Planning and control methods Organization Business goals and strategies Customer service requirements Integrated logistics planning Design of integrated logistics management system Overall performance measures 2-12 Logistics/SC Strategy • To answer the questions: What, When and How • Levels of logistical planning: • Strategic – Longer than 1 year • Tactical – Usually less than a year • Operational – Daily or hourly basis – To ensure the efficient and effective product flow through strategically planned logistics channel 1-13 Strategic, Tactical, and Operational Decision Making Decision area Strategic Tactical Operational Transportation Mode selection Seasonal equipment leasing Dispatching Inventories Location, Control policies Safety stock levels Order filling Order processing Order entry, transmittal, and processing system design Processing orders, Filling back orders Purchasing Development of supplier- Contracting, buyer relations Forward buying Expediting Warehousing Handling equipment selection, Layout design Order picking and restocking Facility location Number, size, and location of warehouses Space utilization 2-7 Logistics/SC Strategy • The 4 problem areas of supply chain planning – Customer Service Levels – Facility Location – Inventory Decisions – Transport Decisions Recall the logistics strategy triangle 1-15 The Logistics Decision Making Inventory Strategy  Inventory Levels  Deployment of Inventories  Control Methods  Push Vs. Pull Methods Transport Strategy  Mode of Transport  Carrier routing/scheduling  Shipment Size consolidation Customer service goals Location Strategy     Number size & location of facilities Assignment of stocking points to sourcing points Assignment of demand to stocking points Private/Public Warehousing 1-16 Logistics/SC Strategy · When to plan? - No distribution network currently exists. - There has been no re-evaluation in 5 years. - When costs are changing rapidly, especially transport & inventory - When markets have shifted – changes in demand - When there is a Change in Product Characteristics. - When there has been a major policy shift in logistics such as in price, customer service, or investment level. 1-17
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