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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  Finished goods inventories  Economical buy quantities  Large shipment sizes  Batch order processing  Excess capacity  Quick changeovers  Short lead times  Flexible processing  Premium transportation  Single order processing  2-6 Choosing the Right Supply Chain Strategy Low margin Efficient supply chain Responsive supply chain Functional Products-Predictable demand Innovative Products-Unpredictable demand Staple food products 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