Chapter 16:
Logistics and Supply Chain
Challenges for the Future
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
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Overview of Strategic Planning for
Logistics and Supply Chain Management
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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.
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Overview of Strategic Planning for
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Chapter 16
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.
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Overview of Strategic Planning for
Logistics and Supply Chain Management
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Definitions:
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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.
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Overview of Strategic Planning for
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Examples:
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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.
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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Examples:
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Inventory availability – Benneton is another
retailer that has used good logistics to accomplish
increased market share and higher profit levels
By developing a Quick Response (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.
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Strategy Classification
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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.
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Figure 16-2
Strategies for Creating Value
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Overview of Strategic Planning for
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Strategy Classification
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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.
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Strategy Classification
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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 focusbased models of classification.
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Overview of Strategic Planning for
Logistics and Supply Chain Management
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Strategy Classification
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Porter’s value chain suggests that a
company can be disaggregated into five
primary activities and four support
activities.
Examine Figure 16-3.
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Figure 16-3
The Generic Value Chain
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Time-Based Strategies
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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.
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Time-Based Strategies
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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.
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Time-Based Strategies
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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 (JIT: Just In Time; VMI: Vendor Managed
Inventory, CRP: Continuous Replenishment Planning)
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Each strategy reduces the order cycle
by shortening the total time from
vendor to delivery to customers.
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Time-Based Strategies
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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.
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Time-Based Strategies
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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.
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Time-Based Strategies
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Time-Reduction Logistics Initiatives
 Postponement involves not completely
finishing a product until an order arrives.
 Food processors that can “brights”
(unlabeled canned goods) 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.
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Asset Productivity Strategies
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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.
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Asset Productivity Strategies
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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.
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Asset Productivity Strategies
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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.
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Figure 16-4
Fourth-Party™ Logistics
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Technology-Based Strategies
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Disruptive technologies are those will help
make firms more competitive, but will change
the basis of competition.
 Implications: 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 (Refer: Chapter 4)
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Relationship-Based Strategies
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Collaboration
 Supplier-Customer Dyad
 Parties involved dynamically share and interchange
information.
 Gap Analysis (Pisharodi & Langley, JBL 1990)
 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.
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Figure 16-7
Types of Collaboration
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Relationship-Based Strategies
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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
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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.
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Figure 16-8
Gateway’s Value Net
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Synthesis and Future Directions
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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
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