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Introduction to Logistics & Supply Chain Management

Topic 9: Strategic Challenges for Supply Chains

Container ship Olga Maersk (2010), Available: flickr, http://www.flickr.com/photos/l2f1/4755758395/ [accessed 26 September 2010]. Photo by L2F1.

Required Reading
Supply Chain Profile & Introduction for Chapter 16 Principles of Supply Chain Management Supply Chain Strategies Differentiation Strategies Financial Strategies Technology-based Strategies Relationship-based Strategies Pgs 650 - 651 Pgs 651 - 653 Pgs 658 Pgs 658 - 661 Pgs 661 663 Pgs 663 - 665 Pgs 665 - 668

Agenda
Supply Chain Principles Overview of Strategic Planning for Logistics and SCM Strategy Classification Time-based Strategy Financial-based Strategy Technology-based Strategy Relationship-based Strategy

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Supply Chain Principles

Principle 1: segment customers based on logistics and supply chain needs Principle 2: customize the logistics network to be more responsive to the needs of individual customer segments Principle 3: listen to signals of demand and plan accordingly Principle 4: differentiate products closer to the customer (fewer stockouts, improve market proliferation, less waste of inventory) Principle 5: source strategically to achieve a higher level of cost savings and added value in a supply chain Principle 6: develop a supply chain wide technology strategy (improved responsiveness, flexibility, integration) Principle 7: adopt channel-spanning performance measures
Anderson L. D., Britt F. F., & Favre J D 2007, The Seven Principles of Supply Chain Management, Supply Chain Management Review, April 2007, pp 41-46.

Overview of Strategic Planning for Logistics and SCM

Logistics and SCM changing quickly Characterized by: Many innovations and improvements The strategic role of todays companies in giving supply chains a competitive advantage Application of tried and proven (best-in-class) approaches to strategic planning

Overview of Strategic Planning for Logistics and SCM

Strategic Planning for Logistics and Supply Chain Management Has become a meaningful and integrated activity in most globaldriven competitive firms Evolutionary development phases 1950s-60s: 1950s 60s: referred to as investment planning 1970s: focus on internal growth opportunities 1980s: combination of outside investment and internal growth opportunities was used 1990s: refocused on gaining strategic advantage in the marketplace and for defending against competitors Early 2000s: strategic focus moved toward developing effective, inter-firm relationships to create maximum value for a firms products and/or services

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Overview of Strategic Planning for Logistics and SCM

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 the operational aspects that are necessary to support a strategy

Overview of Strategic Planning for Logistics and SCM

Example: Wal-Mart Cross-docking 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 (high inventory turnover) contribute to the lower costs speed of the flow of inventory results in the increase in customer service

Overview of Strategic Planning for Logistics and SCM

Example: Best Buy 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

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Overview of Strategic Planning for Logistics and SCM

Example: Best Buy Integrating retail, catalog, and online sales

Overview of Strategic Planning for Logistics and SCM

Example: Benneton 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

Strategy Classification
Porters model of basic strategies strategies for creating value low cost differentiation focus

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Strategy Classification
Strategies based on low cost aimed at offering a product or service in a market at a price or cost lower than that of competitors typical examples automobiles and electronic products general operations of retail firms such as Wal-Mart, Target, and McDonalds

Strategy Classification
Strategies based on differentiation aimed at making a product or service look unique, such that consumers are willing to pay premium price typical approach involves giving perceptions of attributes such as better fit higher quality long product life better service more choices

Strategy Classification
Strategies based on focus aimed at making a product or service fit a niche or small market segment where either cost or differentiation is then employed typical approaches include free delivery 24/7 hours discounted label products multiple offerings of similar products into differentiated segments

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Strategy Classification
Porters Generic Value Chain Porter defined value as the amount buyers are willing to pay for what a firm provides (Feller A et al. 2006) suggests that a company can be disaggregated into nine generic value-added activities (5 primary and 4 support activities)

Feller A, Shunk D, & Callarman T 2006, Value Chains Versus Supply Chains, BPTrends, March 2006, accessed on 27 June 2010: http://www.ceibs.edu/knowledge/papers/images/20060317/2847.pdf.

Time-based Strategies
Effective strategy based on tradeoffs between transportation, inventory, and warehousing costs Improved speed and lessened variability of transit times Reduction of order-to-cash cycle (the number of days between the initial cash outflow when the company pays its suppliers to the time it receives cash from customers)

Time-based Strategies
Reducing Cycle Time Shorten the order/replenishment cycle Utilizing faster and more efficient order transmission, e.g. EDI or the Internet Empowering individuals to make decisions Pre-approvals and other delegated decision making models

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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 the supplier receiving an order to delivering this to the customer

Time-based Strategies
Time-Reduction Logistics Initiatives Anticipate customers needs Improved ability to anticipate customers needs through Collaborative Planning, Forecasting, and Replenishment (CPFR) Switch from push to pull as more companies evolve to more demand-responsive systems

Time-based Strategies
Time-Reduction Logistics Initiatives Manufacturing impacts Pull approach requires a fast manufacturing system Responding to demand Consistent with time-compression strategies Make to order (MTO)

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Time-based Strategies
Time-Reduction Logistics Initiatives Postponement involves not completely finishing a product until an order arrives

Financial-based Strategies
Inventory Reduction Much evidence that companies have been successful in reducing inventories and achieving operational efficiency Time reduction strategies have contributed

Financial-based Strategies
Facility Utilization Strategies to keep the goods moving throughout the logistics and supply chain system have contributed to the effective use of logistics facilities thus squeezing more productivity from these assets t

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Financial-based Strategies
Equipment Utilization 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

Financial-based Strategies
Third-Party/Contract Logistics Services Outsourcing of 3PLs has resulted in dramatic positive impact on asset productivity while reducing asset investment Potential impact of 4PLs

Technology-based Strategies
Figure 6-2 Six Drivers of Supply Chain Excellence

Great emphasis on information technology to help supply chains pursuit these six drivers and in the process become more competitive, innovative, and adaptive

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Technology-based Strategies
Disruptive technologies

Technology-based Strategies
Disruptive technologies As supply chains become more global, complex, and demand driven, companies need to be at all times in the cutting edge of information technology Implications for supply chains to get ready with the right technology in the future to effectively manage logistics and supply chain management needs

Technology-based Strategies
e-commerce/e-procurement buy-side systems, sell-side systems, electronic marketplaces, online trading communities barcode scanning and point-of-sales systems EDI ERP RFID, GPS WMS, TMS Adaptive Supply Chain Networks Pervasive Automation Business Intelligence (decision support systems, intelligent support systems, expert systems, etc.)

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Technology-based Strategies
Strategic Sourcing and Procurement

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

Relationship-based Strategies
Types of collaboration

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Relationship-based Strategies

Relationship-based Strategies

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

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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

Relationship-based Strategies
Example Gateways Value Net

Summary
What did you learn in this topic? Summarize.

Challenge Questions for Topic 9: (1) (2)

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