Logistics Strategy

1
Logistics Strategy

• What is
• The right product?
• The right place?
• The right time?
• Creating and shaping consumer value

2
Trade-offs

• Right Product
• More customer choice means
• More products
• More complexity
• Right Place
• Closer to customer means
• More expensive space
• More inventory
• More expensive delivery
• Right Time
• Faster service means
• More expensive modes

3
Examples

• The Limited
• Milliken
• Karrimor
• Rover
• IBM
• Dell
• HP
• Coca Cola and Cott

4
The Limited

• Targeted profits from low priced sports wear not
  high-margin high-cost goods
• Speed to market
• Scouts transmit images of items to HQ
• HQ CAD adjusts cut, color, etc.
• Pilot orders by EDI to Asian manufacturers
• Consolidated in Hong Kong
• Air freight to HQ
• 2-3 day truck and air to US stores
• 3-5 week turn-around

5
Milliken

• 1980 US textile manufacturers
• 80 market share
• 1986
• 60 market share
• 1987
• 1.9 billion revenue
• 1991
• 600 million revenue

6
Reasons

• Receive orders by US mail
• Order or manufacture yarn
• Weave 8 wks
• Dye and Finish 4-5 wks
• Warehouse
• Apparel manufacturer
• Another 18-20 weeks
• 1.25 YEARS from loom to rack!

7
Response

• The Millitron
• Prints fabric (and carpets) like an ink jet
  printer
• Moved some customers to 0 inventory
• Retailer forwards customer orders daily
• Milliken send UPS direct to customers home

8
Karrimor

• UK Backpack manufacturer threatened by knockoffs
• Delivered full-seasons demand at start of season
• Impressed by Millikens speed to market

9
Response

• Urged retailers to place small initial orders
• Items include tear-off label for re-ordering
• Promised 21-day response
• Opened door for counter-seasonal garments
• Worked with suppliers
• Orders placed for material
• Color specified at last minute

10
Rover

• Stock push system
• Dealers sell vehicles in stock
• 3-4 month forecasts for thousands of variations

11
Stock Swap System

• 1 in three moved from dealer to dealer at least
  once
• Only 25 of customers get what they want
• ...

12
Personal Production

• 80 of orders for 20 of models
• Forecast and stock these in a central locations
  awaiting customer orders
• The remaining 20 made to order
• Priority in assembly
• Delivered direct to dealership
• Components standardized

13
IBM

• Early 1960s
• 70 market share
• Huge customers
• large corporations
• governments
• other large institutions
• Incompatible
• Upgrades required re-coding

14
The Amdahl Attack

• IBM compatibles
• Bigger, faster, cheaper
• 1979 IBM cut prices
• First earnings drop in 28 years

15
The PC

• Components provided by suppliers
• Microprocessor - Intel
• Operating system - Microsoft
• 34 market share
• 60-70 of corporate market

16
Cannibalization and Clones

• Reduced demand for mainframes
• Reduced demand of value added services
• Third party distribution of PCs

17
The Early 80s

• PC is a commodity
• Rapid market growth
• Rapid technological change
• Plethora of options
• Requires on-going support
• Key business tool

18
Dell Computer Corporation

• Sell direct
• Remove the middleman
• Make to order
• Reduce inventory
• Offer value-added services
• system installation and management,
• assist with technology transitions
• customizes products and services
• provide peripherals and software.

19
Hewlett Packard

• European Distribution of Deskjet Printers
• Power cords, Instruction Manuals, etc.
• Products localized at central factory
• Held at regional DCs

20
Postponement

• Move to generic printer
• Localized at regional DCs
• Reduced safety stock from 7 to 5 weeks
• Reduced value of safety stock
• Reduced cost of distribution (density)
• Savings 30 million annually

21
Costs

• Higher inventory of accessories at DCs
• Higher cost of localizing
• Question
• Use a low-cost printer localized for US or
• Localize the generic printer for US?

22
Brand Name

• Marlboro Cigarettes
• Price rises of nearly 10/year in 1980s
• Market share declined by over 4 in early 90s
• Cut Prices
• Marlboro Friday, April 2, 1993
• Top 25 consumer packaged goods companies lose 50
  billion in value

23
An Aside

• No. 2 computer systems company
• Annual revenue 21.7 billion.
• 29,300 employees
• Thats 750,000 in revenue per employee

24
Coca Cola

• Brand name
• Price premium
• Private label alternatives viewed as lower
  quality
• 1989 Cott Corporation of Canada begins
  distributing high quality private label products
  in US and around the world

25
The Contour Bottle

• Coca Cola reintroduces contour bottle
• In US
• private label market share returns to about 10
• In UK
• Few highquality retailers had given private label
  a reputation for quality, but no access to cola
• Sainsburys Classic Cola
• Safeways Select Cola 27 share
• Virgin Cola