Logistics and Supply Chain Challenges for the Future

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.

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.

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.

5
Logistics Profile Creating a State-of-the Art VW
Beetle Production Facility in
Mexico

• In 1998, at Volkswagens 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.

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

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.

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 firms products and/or services.

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.

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.

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.

12
Figure 16-1 Best Buy Integrating Retail,
Catalog, and Online Sales
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.

14
Overview of Strategic Planning for Logistics and
Supply Chain Management

• Strategy Classification
• Porters 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.

15
Figure 16-2 Strategies for Creating Value
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.

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.

18
Overview of Strategic Planning for Logistics and
Supply Chain Management

• Strategy Classification
• Porters value chain suggests that a company can
  be disaggregated into five primary activities and
  four support activities.
• Examine Figure 16-3.

19
Figure 16-3 The Generic Value Chain
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.

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.

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.

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.

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.

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.

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.

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.

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.

29
Figure 16-4Fourth-Party Logistics
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.

31
Table 16-1 Disruptive Information Technologies
32
Figure 16-5Shifts in Technology
33
Figure 16-6Strategic Sourcing and Procurement
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.

35
Figure 16-7 Types of Collaboration
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

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.

38
Figure 16-8 Gateways Value Net
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

40
On the Line Modus Media
International (MMI)

• 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.

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