Logistics

Management
Strategy and
Planning
CHAPTER 2 LOGISTICS STRATEGY AND
PL ANNING, BUSINESS LOGISTICS
MANAGEMENT , BALLOU, R.H.

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Logistics strategy
Three objectives of a logistics strategy
Cost reduction
Capital reduction
Service improvement

The logistics strategy is derived from the corporate

strategy
In coordination with marketing, finance, manufacturing and
HR strategies

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Logistics strategy
Cost reduction
Focuses on minimizing variable costs associated with
movement and storage
Profit maximization is the prime goal
Service levels are maintained constant while assessing
among different warehouse locations, or transportation
modes

Capital reduction
Focuses on minimizing the level of investment in the logistics
system
Maximizing the ROI is the prime motivator
May result in higher variable costs

Service improvement
Can result in higher costs (variable and capital), with greater
potential ROI SUSHMITA NARAYANA NITIE 2015

Logistics planning
Takes place at three levels
Strategic (long term > 1 year); Tactical (medium term < 1
year); Operational (short term ~ hourly or daily basis)
Type of
Strategic
Tactical
Operational
decision
Location

No. of facilities,
size and location

Inventory
positioning

Routing,
expediting and
dispatching

Transportation

Mode selection

Seasonal service
mix

Replenishment
quantities and
timing

Order
processing

Selecting/designin
g the order entry
system

Priority rules for

customer orders

Expediting orders

Customer
service

Setting standards
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Major planning areas

Triangle of Logistics Decision Making in the Wood
Procurement Process

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When to plan
Logistics planning for appraisal can be based along the
following guidelines
Demand
Shifting of demand patterns
Customer service
Broadly includes availability, speed of delivery, orderfilling speed and accuracy
Changes in services levels are generally caused by
competitive forces, policy revisions, etc.

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When to plan
Product characteristics
Impact of characteristics such as product weight,
volume, value and risk
Alterations to these can result in changes to the
logistics costs
Logistics costs
Pricing policy
Changes in pricing policy (fob factory to fob delivery)
Changes in terms of exchange

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Guidelines for Strategy

Formulation
Total Cost Concept
Differentiated Distribution
Mixed Strategy
Postponement
Consolidation
Standardization

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Total Cost Concept

Cost Trade-off:
Cost patterns of various activities of the firm put them in
conflict with one another

Examples:
Transportation cost Vs. Inventory Cost (Mode of
transportation)
Transportation, inventory and order processing costs Vs.
Lost sales
Transportation cost Vs. Inventory Cost (No. of stocking
points)
Inventory Carrying costs Vs. Lost sales cost (Average
inventory level)
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Guidelines for Strategy

formulation
Differentiated Distribution
Not all products should be provided the same level of
customer service
High value items Vs. low value items
Fast moving items Vs. slow moving items

Mixed Strategy
A mixed distribution strategy will have lower costs than a
pure or single strategy
Economies of scale Vs. product mix requirements

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Guidelines for Strategy

formulation
Postponement
The time of shipment and the time of final product processing
in the distribution of a product should be delayed until the
customer order is received
Time and form postponement

Consolidation
Creating large shipments from small ones
The smaller is the shipment size, greater is the benefits of
consolidation

Standardization
Provide variety without dramatically increasing logistics costs
Useful when combined with postponement strategies

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