Chapter 16:

1. Chapter 16: Logistics and Supply Chain Challenges for the Future

2. Learning Objectives - After reading this chapter, you should be able to do the following: • Understand what is meant by strategy and how it applies to logistics and supply chain management. • Trace the stages in the evolution of strategic planning and its application to logistics and supply chain management. • Have a working knowledge of how logistics and supply chain strategies have benefited individual business firms. Management of Business Logistics, 7th Ed.

3. Learning Objectives • Be able to explain the relevance and importance of logistics and supply chain strategies of the following types: time-based, asset productivity, technology-based, and relationship-based. Management of Business Logistics, 7th Ed.

4. Learning Objectives • Identify and explain a number of macro trends that will impact the future of logistics and supply chain management, such as: shift from vertical to virtual integration, collaboration, knowledge of core competencies, technology and connectivity, managing the people skills, and having a comprehensive supply chain perspective. Management of Business Logistics, 7th Ed.

5. Logistics Profile: Creating a State-of-the Art VW Beetle Production Facility in Mexico • In 1998, at Volkswagen’s Mexican assembly plant in Puebla, Exel implemented the JIT sequencing operation. • Currently, the Mexican plant produces 1,600 vehicles daily, including the Beetle and Jetta. • Parts delivery to a specific place on the line takes place within 40 minutes of an order, with one car built every 40 minutes, 24/7. • Exel provides Volkswagen with expert logistics and supply chain management ported from a similar VW plant in Spain, proving that transfer of technology, human resources, and best practices is possible on a global basis. Management of Business Logistics, 7th Ed.

6. Introduction • Logistics and supply chain management are changing quickly, and are characterized by: • Many innovations and improvements • Movement towards being considered as players in strategic, competitive advantage • Prime candidates for application of tried and proven approaches to strategic planning Management of Business Logistics, 7th Ed.

7. Overview of Strategic Planning for Logistics and Supply Chain Management • Historical Perspective on Strategy: • Has become an appropriately meaningful and integrated activity in most globally competitive firms. • Evolutionary development phases: • In the 50s and 60s, was referred to as investment planning. • In the 70s, began to focus on internal growth opportunities. • In the 80s, a combination of outside investment and internal growth opportunities was used. Management of Business Logistics, 7th Ed.

8. Overview of Strategic Planning for Logistics and Supply Chain Management • In the 80s, a combination of outside investment and internal growth opportunities was used. • In the 90s, refocused on gaining strategic advantage in the marketplace and for defending against competitors. • In the early 2000s, strategic focus clearly moved toward the development of effective, interfirm relationships that would create maximum value for the firm’s products and/or services. Management of Business Logistics, 7th Ed.

9. Overview of Strategic Planning for Logistics and Supply Chain Management • Definitions: • Strategy – a course of action, a scheme, or a principal idea through which an organization hopes to accomplish a specific objective or goal. • Tactics – refers to the operational aspects that are necessary to support strategy. Management of Business Logistics, 7th Ed.

10. Overview of Strategic Planning for Logistics and Supply Chain Management • Examples: • Cross-docking – a term that describes moving goods through a distribution center in less than a day, a tactic used by Wal-Mart among others to both lower prices while increasing customer service. • Rapid inventory turns contribute to the lower costs, and the speed of the flow of inventory results in the increase in customer service. Management of Business Logistics, 7th Ed.

11. Overview of Strategic Planning for Logistics and Supply Chain Management • Examples: • Internet capabilities – employed by Best Buy to let customers order over the Internet and pickup items at a retail store location. • Best Buy is combining its technological competencies with its logistics and supply chain capabilities of customer service and market positioning. Management of Business Logistics, 7th Ed.

12. Figure 16-1 Best Buy: Integrating Retail, Catalog, and Online Sales Management of Business Logistics, 7th Ed.

13. Overview of Strategic Planning for Logistics and Supply Chain Management • Examples: • Inventory availability – Benneton is another retailer that has used good logistics to accomplish increased market share and higher profit levels • By developing a QR system utilizing bar coding of cartons and linking production to retail locations, Benneton achieves low in-store inventory, right stock availability, and high levels of customer service. Management of Business Logistics, 7th Ed.

14. Overview of Strategic Planning for Logistics and Supply Chain Management • Strategy Classification • Porter’s model of basic strategies, namely, cost, differentiation, and focus is the most popular scheme. • Strategies based on low cost essentially stress offering a product or service in a market at a price or cost lower than that of competitors. • Automobiles and electronic products are two examples of this strategy, as are the general operations of retail firms such as Wal-Mart, Target, and McDonalds. Management of Business Logistics, 7th Ed.

15. Figure 16-2 Strategies for Creating Value Management of Business Logistics, 7th Ed.

16. Overview of Strategic Planning for Logistics and Supply Chain Management • Strategy Classification • Strategies based on differentiation attempt to make a product or service look unique, such that consumers are willing to par a premium price. • Perceptions based on better fit, higher quality, long product life, better service, and other similar attributes are typical of strategies based on differentiation. Management of Business Logistics, 7th Ed.

17. Overview of Strategic Planning for Logistics and Supply Chain Management • Strategy Classification • Strategies based on focus attempt to make a product or service fit a niche or small market segment where either cost or differentiation is then employed. • Offering delivery, 24/7 hours, multiple offerings of similar products into differentiated segments and other similar strategies are typical of focus-based models of classification. Management of Business Logistics, 7th Ed.

18. Overview of Strategic Planning for Logistics and Supply Chain Management • Strategy Classification • Porter’s value chain suggests that a company can be disaggregated into five primary activities and four support activities. • Examine Figure 16-3. Management of Business Logistics, 7th Ed.

19. Figure 16-3 The Generic Value Chain Management of Business Logistics, 7th Ed.

20. Time-Based Strategies • Reducing Cycle Time • Logistics activities that shorten the length of the order/replenishment cycle have been the focus of much recent attention. • Reductions in cycle time are based on three factors: processes, information, and decision making. • If logistics is seen as a series of processes, performing those processes faster will reduce cycle time. Management of Business Logistics, 7th Ed.

21. Time-Based Strategies • Utilization of faster, more efficient forms of order transmission---EDI or the Internet---can significantly reduce the time needed to complete the transaction. • Finally, empowering individuals to make decisions can be one of the most important ways to speed cycle time. • Pre-approvals and other delegated decision making models can lead to making mistakes, but the experience of Proctor & Gamble, among others, is that the risk is justified in terms of time saved and improvement in customer responsiveness. Management of Business Logistics, 7th Ed.

22. Time-Based Strategies • Time-Reduction Logistics Initiatives • Push to pull • Cross-docking, JIT, VMI, and CRP are all contemporary approaches that help logistics systems move from push to pull. • Each strategy reduces the order cycle by shortening the total time from vendor to delivery to customers. Management of Business Logistics, 7th Ed.

23. Time-Based Strategies • Time-Reduction Logistics Initiatives • Anticipate customers’ needs • Improved ability to anticipate through collaborative planning, forecasting, and replenishment (CPFR) enables the logistics and supply chain processes to make a more valuable contribution to corporate objectives. • The switch from push to pull is a more demand-responsive system, but requires changes that may be difficult to achieve depending on the corporate culture in place. Management of Business Logistics, 7th Ed.

24. Time-Based Strategies • Time-Reduction Logistics Initiatives • Manufacturing impacts • Pull approach requires a fast manufacturing system. • Risk of low or no inventory depends on fast and frequent replenishment. • Responding to demand • Consistent with time-compression strategies • Produce to order now being tried by furniture and farm implement manufacturers, both traditional “produce for stock” companies. Management of Business Logistics, 7th Ed.

25. Time-Based Strategies • Time-Reduction Logistics Initiatives • Postponement involves not completely finishing a product until an order arrives. • Food processors that can “brights” and do not label until an order is received • Auto manufacturers that pre-wire electronic harnesses to take any option, not knowing what a particular car order will specify. Management of Business Logistics, 7th Ed.

26. Asset Productivity Strategies • Inventory Reduction • Much evidence that companies have been successful in reducing inventories. • Time reduction strategies have contributed. • Facility Utilization • Strategy to keep the goods moving throughout the logistics and supply chain system has contributed to effective use of logistics facilities thus squeezing more productivity from these assets. Management of Business Logistics, 7th Ed.

27. Asset Productivity Strategies • Equipment Utilization Strategies • Some reductions have occurred here as a result of contraction of this equipment and smarter, more sophisticated equipment dispatching software. • Doing more with less is a result of leaner enterprises. Management of Business Logistics, 7th Ed.

28. Asset Productivity Strategies • Third-Party/Contract Logistics Services • Use of 3PLs has resulted in dramatic positive impact on asset productivity. • DuPont, Nabisco, Proctor & Gamble, General Electric and General Motors and others are users of 3PLs, focusing on managing logistics services rather than on the assets themselves. • Examine Figure 16-4 on 4PLs potential impact. Management of Business Logistics, 7th Ed.

29. Figure 16-4Fourth-Party™ Logistics Management of Business Logistics, 7th Ed.

30. Technology-Based Strategies • Disruptive technologies are those will help make firms more competitive, but will change the basis of competition. • Examine Table 16-1 • Implications are that logistics and supply chain areas of the future will differ significantly from those of today. • E-commerce e-procurement and electronic marketplaces will continue to grow in importance. Management of Business Logistics, 7th Ed.

31. Table 16-1Disruptive Information Technologies Management of Business Logistics, 7th Ed.

32. Figure 16-5Shifts in Technology Management of Business Logistics, 7th Ed.

33. Figure 16-6Strategic Sourcing and Procurement Management of Business Logistics, 7th Ed.

34. Relationship-Based Strategies • Collaboration • Parties involved dynamically share and interchange information. • Group benefits more than individual benefits. • All parties modify their business practices. • All parties conduct business in new and visibly different ways. • All parties provide a mechanism and process for collaboration to occur. Management of Business Logistics, 7th Ed.

35. Figure 16-7 Types of Collaboration Management of Business Logistics, 7th Ed.

36. Relationship-Based Strategies • Value Nets • Taking the place of the old supply chain, the value net starts with the customer and is built around three powerful value propositions: • High levels of customization • Super service • Convenient solutions Management of Business Logistics, 7th Ed.

37. Relationship-Based Strategies • Value Nets • Combines strategic thinking with the latest advances in digital supply chain management. • Every customer is unique. • Customers choose products or services they value most. • Capture real choices in real time and transmit them digitally to other net participants. • Examine Figure 16-8. Management of Business Logistics, 7th Ed.

38. Figure 16-8 Gateway’s Value Net Management of Business Logistics, 7th Ed.

39. Synthesis and Future Directions • Shift from Vertical to Virtual Integration • Collaboration • Knowledge of Core Competencies • Expertise • Strategic fit • Ability to trust • Technology and Connectivity • Managing-the-People Skills • Comprehensive Supply Chain Perspective Management of Business Logistics, 7th Ed.

40. In 1997, MMI began transforming itself from a contract manufacturer to a supply chain management services company. Key criteria for the technology selection process included: only best-of-breed technology; off-the-shelf software; industry or de facto standard; externally supported, E-business enabled, and supportive of business modeling and scripting. Planned to be completed in 2002, the results will help close the knowledge gap in its supply chain information systems. On the Line: Modus Media International (MMI) Management of Business Logistics, 7th Ed.

41. Chapter 16: Summary and Review Questions Students should review their knowledge of the chapter by checking out the Summary and Study Questions for Chapter 16.

42. End of Chapter 16 Slides Logistics and Supply Chain Challenges for the Future