Logistics Strategy

Logistics process planning starts with the supplier and takes into consideration the entire logistical chain, all the way up to handover of the final product to the customer. Both the complete material flow and the flow of information are planned logistically. This includes upstream logistics functions such as distribution center management, WOW (warehouse on wheels), container yards, trailer yards, consignment stores, transshipment points, hubs, and consolidation centers as well as all stages of the material flow — from warehouse planning, picking, and sequencing to intra-company transportation, production supply, packaging, and shipping.

Of course, logistics process planning also allows you to benefit from a systematic approach — following the line-back principle and to use tried-and-true tools for fast and efficient processing. Here is a summary of the most important steps

• Exact task description and project definition
• Needs analysis
• Definition of the supply chain and standard forms of delivery
• Supplier selection based on functional, logistical, and financial considerations
• Provision planning for part families in line with production requirements
• Definition of internal transportation and transport frequency
• Definition of the warehouse and picking concept
• Definition of the information flow and IT requirements
• Space and resource planning, including an economic feasibility study
• Process descriptions for each standard delivery process

The result of all these steps should be an individual concept that offers the desired level of granularity — general or detailed planning, in other words. With this in mind, the following aspects are of particular importance as regards content

• Defined standard forms of delivery for part families
• Descriptions of processes and information flows
• Definition of technology for three areas: warehouse, transportation, and the provision of information
• Economic feasibility and utility study
• Implementation

When a company creates a logistics strategy it is defining the service levels at which its logistics organization is at its most cost effective. Because supply chains are constantly changing and evolving, a company may develop a number of logistics strategies for specific product lines, specific countries, or specific customers.

Remember, the ultimate goal of any logistics strategy is to deliver what your customers want, when they want it – and getting that done by spending as little money as possible. That means working with your logistics partners throughout your supply chain.

What is strategy?

A strategy can be described as an action plan that provides a direction that has to be adopted by the organization in order to achieve its objectives.

Strategy is related with deciding the long-term goals of the organization and also the adoption of a course of action and allocating the resources that are required to achieve these goals. Therefore a strategy is a broad plan that can be used to take the company to the position where it wants to be in future from the place where it is at present.

Features of strategy

There are certain basic features of strategies.

• A strategy comprises the general course of action that has to be followed by the organization in order to achieve its objectives.
• Strategy involves the choices that decide the direction and the nature of the activities that have to be performed by the organization in order to achieve these goals.
• Strategy also has to consider the tactics that are going to be used by the competitors. In this way, a strategy should not only be capable of achieving the objectives of the organization but at the same time, it should also be capable of countering the steps that are being taken by the competitors.
• A strategy should provide the right combination of internal and external factors. For this purpose, the sense and weaknesses of the organization and also the influence of external factors should be considered when making a strategy that can be adopted by the organization.
• A strategy can never be static. Therefore, a strategy may have to be changed or modified in view of the particular needs of the changing times.
• In some cases, searches may also involve contradictory action. Due to reason that a strategy depends on several different factors, a manager may have to take action immediately or may result in such action for a later date, depending on the situation.
• A good strategy is always forward-looking. This means that the strategy should always be future oriented. However the past actions can be used by a strategy for guiding the decisions that have to be made in future.
• Strategies are made by the top-level management of the company. On the other hand, the managers at the low level are expected to implement the strategies that have been decided by the top management of the organization.

The strategic management consists of different phases, which are sequential in nature.

Strategy Management

There are four essential phases of strategic management process. In different companies these phases may have different, nomenclatures and the phases may have different sequences, however, the basic content remains same. The four phases can be listed as below.

• Defining the vision, business mission, purpose, and broad objectives.
• Formulation of strategies.
• Implementation of strategies.
• Evaluation of strategies.

These phases are linked to each other in a sequence. It may not be possible to draw a clear line of difference between each phase, and the change over from one phase to another is gradual. The next phase in the sequence may gradually evolve and merge into the following phase. An important linkage between the phases is established through a feedback mechanism or corrective action. The feedback mechanism results in a course of action for revising, reformulating, and redefining the past phase. The process is highly dynamic and compartmentalization of the process is difficult. The changeover is not clear and boundaries of phases often overlap.

Principles of strategies

Principles of strategic positioning, related to logistics strategy, are as

• A unique value proposition: determining what makes the product/service different from its competitors.
• A tailored supply chain: governed by consistent order winning and qualifying criteria.
• Identify the trade-offs: by choosing not just the priorities but also what not to do. A responsive supply chain is not compatible with an efficient supply chain
• Align logistics processes: so that processes are mutually reinforcing.
• Continuity: logistics processes are continually and consistently improved over time.

Consider products with different logistics priorities, such as

• Cost: a high volume product for which demand is relatively stable throughout the year. While subject to occasional enhancements, these are usually small scale: the life cycle is comparatively long. Demand forecasts are usually pretty accurate.
• Time: a high variety product, which is designed for a given season and which is completely redesigned for the next season. Often, it is impossible to predict which color or style will sell best. The product life cycle is short, and demand is much more difficult to forecast.

Logistics Strategy

Logistics is not confined to tactical decisions about transportation and warehousing. Longer-term decisions are needed to put in place the capabilities that ensure that logistics plays a full role in supporting a company’s products in the market place.

As such capabilities increasingly involve partners in a supply chain, the implications of this ‘full role’ extend far beyond the boundaries of the company itself. Logistics strategy is the set of guiding principles, driving forces and ingrained attitudes that help to coordinate goals, plans and policies between partners across a given supply chain.

Example – If the links in a supply chain are directed at different competitive priorities, then the chain will not be able to serve the end-customer as well as a chain in which the links are directed at the same priorities. This is the idea of ‘focus’, which is based on the view that you cannot be good at everything. Where links in a supply chain are directed at a common and consistent set of goals that are based on the priorities most valued by the end-customer, that supply chain will compete better in the market place than one in which the links have different, conflicting priorities.

All too often, for example, a focus on cost cutting by the management of the day is at odds with the more fundamental priorities of reliability and speed. While profitability may be improved this financial year, long term damage may well have been caused to the supply chain’s ability to compete.

It is difficult to handle high volume, low cost products in the same distribution channel as low volume, high variety products. Logistics processes for classic shirts (styles that last a long time and do not date) are sourced separately from fashion blouses.

Classic shirts are sourced from low cost economies where price is key and delivery times are less important because the product life cycle is long.

Fashion blouses (styles that are in season and may date quickly) are sources closer to the home market because response time is key, and cost is less important.

Need for Logistics Strategy

The supply chain constantly changes and that will affect any logistics organization. To adapt to the flexibility of the supply chain, companies should develop and implement a formal logistics strategy. This will allow a company to identify the impact of imminent changes and make organizational or functional changes to ensure service levels are not reduced.

A successfully implemented logistics strategy is important for companies who are dedicated to keeping service levels at the highest levels possible despite changes that occur in the supply chain.

The goal of any formal logistics or supply chain strategy is to make sure you and your company are delivering to your customers what they want. And delivering to them when they want it. And accomplish all of that by spending as little money as possible.

By following these guidelines, you can ensure that your logistics are aligned with your customers’ needs, your inventory targets, and your company’s cost reduction goals.

Remember, your company may need to review its logistics strategy from time to time, as supply chains and supply chain priorities change. If your supplier base had been primarily located in the United States and Mexico – and now, because of a change in your supply chain, your suppliers are now primarily located in Asia – you’ll need to review your existing logistics strategy.

The same transportation and freight forwarding providers you were using may not be the right strategic partners for that kind of supply chain realignment.

Define your service level goals and map your current logistics landscape. Are you meeting your service level goals? If not, it’s time to take a close look at your logistics strategy.

How to develop a Logistic Strategy?

A company can start to develop a logistics strategy by looking at four distinct levels of their logistics organization.

• Strategic: By examining the company’s objectives and strategic supply chain decisions, the logistics strategy should review how the logistics organization contributes to those high-level objectives.
• Structural: The logistics strategy should examine the structural issues of the logistics organization, such as the optimum number of warehouses and distribution centers, or what products should be produced at a specific manufacturing plant.
• Functional: Any strategy should review how each separate function in the logistics organization is to achieve functional excellence.
• Implementation: The key to developing a successful logistics strategy is how it is to be implemented across the organization. The plan for implementation will include development or configuration of an information system, introduction of new policies, and procedures and the development of a change management plan.

Essential Considerations in a Logistics Strategy

When examining the four levels of logistics organization, all components of the operation should be examined to ascertain whether any potential cost benefits can be achieved. There are different component areas for each company but the list should at least include the following:

• Transportation: Does the current transportation strategies help service levels?
• Outsourcing: What outsourcing is used in the logistics function? Would a partnership with a third party logistics company improve service levels?
• Logistics Systems: Do the current logistics systems provide the level of data that is required to successfully implement a logistics strategy or are new systems required?
• Competitors: Review what the competitors offer. Can changes to the company’s customer service improve service levels?
• Information: Is the information that drives the logistics organization real-time and accurate? If the data is inaccurate then the decisions that are made will be in error.
• Strategy Review: Are the objectives of the logistics organization in line with company objectives and strategies.