Jonathon L. S. Byrnes, William C. Copacino, and
Peter Metz, “Forge Service into a Weapon with Logistics,” Transportation &
Distribution, Presidential Issue 28 (September 1987): p.46.
step is developing a cost function for a service level as shown below.
D = T + FW + VW + S
D = total
distribution cost of proposed system T = total freight cost
FW = total fixed warehouse costs
VW = total variable warehouse
S = Total
cost of sales lost due to average delivery delay under proposed system.
company should aim at minimizing the distribution cost of reaching a target
level of customer service.
We will now examine the four major
should orders be handled? (order processing)
should stocks be located? (warehousing)
stock should be held? (inventory), and How
should goods be shipped? (transportation).
1. Order Processing
phase in physical distribution is order – shipping – billing cycle. A customer
order initiates several steps
i. Order department prepares multi copy invoices and
dispatches them to various departments.
ii. Order is checked with available stock. Items out of
stock are back ordered
iii. Items are shipped. Shipped items are accompanied by
shipping and billing documents with copies going to various departments.
process is now expedited with the help of computers by warehousing
A storage function is necessary because the
production will be more than customer orders in general. Striking a balance
between customer service standards and distribution costs, marketers has to
i. Decide on a desirable number of stocking locations
depending upon the markets the firm intends to serve
ii. Choose the type of warehouses. Today a variety of
warehouses, with advanced material handling systems and storage facilities are
Inventory management requires
decisions relating to
i. Level of
stock – Determining optimum order quantity
ii. Time of
ordering – Reorder point
stock level to meet emergencies – safety stock
just – in – time production practices and product customization are changing
the inventory planning practices
have to make careful choice of transportation mode and organizations. In
choosing a transportation mode for a particular product, shippers consider such
Logistics and supply chain strategies
Supply chain strategy determines the nature of
procurement of raw materials, transportation of materials to and from the
company, manufacture of the product or operation to provide the service, and
distribution of the product to the customer, along with any follow-up service.
From a value chain perspective, supply chain strategy specifies what
operations, distribution, and service will try to do particularly well.
Additionally, in each company, strategies will also be devised for finance,
accounting, information technology, and human resources. The value chain
emphasizes the close relationship between all the functional strategies within
a company. .
The strategic fit requires that a company achieve
the balance between responsiveness and efficiency in its supply chain that best
meets the needs of the company’s competitive strategy. Table 16-2 makes a
comparison of efficient and responsive supply chains.
SourceMarshall L. Fisher “What is the
Right Supply Chain for your Product?”, Harvard Business Review (March – April
1997), 83-93.To understand how a company can
improve supply chain performance in terms of responsiveness and efficiency, one
has to examine the four drivers of supply chain performance:
facilities(warehouses), inventory, transportation, and information. These
drivers not only determine the supply chains performance in term of
responsiveness and efficiency, they also determine whether strategic fit is achieved across
the supply chain.For each of the individual
drivers, supply chain managers must make a trade-off between efficiency and
responsiveness. The combined impact of these drivers then determines the
responsiveness and efficiency of the entire supply chain. Table 16-3 shows the
logistics-mix for responsiveness and efficiency.
superior value Superior value can be created by
meeting service expectations of customers and reducing the costs of logistics. (i) Meeting service expectations Services expected by customers and the possible logistics design
implications are given in Table 16-4.
Postponement strategy When the key element in a
supplier firm’s proposed value proposition is local customization, a
postponement strategy is appropriate. Here, the supplier delays final changes
to an offering’s form until the last possible moment through the use of
third-party service providers or supplier-owned regional assembly facilities.
For example, if physical modifications to products are necessary, the supplier
firm might partner with local assemblers, fabricators, or value-added
Speculation strategy When low price and product
standardization are the key elements of the value proposition, a speculation
strategy is recommended. In term of physical products, a supplier firm
speculates by manufacturing them in a large lots, storing them in inventory in
a central location in anticipation of orders, and shipping them in bulk
directly to customer firms or to reseller for sale to other customer firms in
small lots. To speculate with technical support service, the supplier might
provide customer firms with self-help manuals or software, operate an
Internet-base technical service site, or direct customer inquires to a
telephone support center. Logistics speculation strategy. When the key element of the value proposition is emergency delivery, managers
turn to logistics speculation whereby a vendor produces standardized products
and either stocks inventory in supplier-owned local distribution centers or
relies on overnight delivery services, to ship them from a centralized