Global Supply Chain
Management
Supply Chain Strategy and Planning
“If you don’t know where you want to go, any
path will do.”
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Corporate Strategy
• Strategy is the process whereby plans are formulated for
positioning the firm to meet its objectives.
• Strategy formulation begins with defining a corporate
strategy. This involves:
[Link] needs, strengths, and weaknesses of the 4
major components:
- customers
- suppliers
- competitors
- the company itself
b."Visioning" where counter -intuitive, unheard of, and
unconventional strategies are considered.
• Corporate strategies are converted to more specific
strategies for the various functional areas of the firm such as
logistics. 2-2
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• The objectives of logistics strategy are:
- Minimize cost
- Minimize investment
- Maximize customer service
Use
Logistics
• Levels of logistical planning: ROLA Strategy
- Strategic
- Tactical
- Operational
• The 4 problem areas of supply chain planning
- Customer service levels
- Facility location Recall the
- Inventory decisions logistics strategy
- Transportation decisions triangle
• When to plan?
- No distribution network currently exists.
- There has been no re-evaluation in 5 years.
- When costs are changing rapidly, especially transport & inventory.
- When markets have shifted.
- When current distribution economics encourage shifts.
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- When there has been a major policy shift in logistics such as in price,
customer service, or investment level.
Corporate to Functional
Strategic Planning
Corporate strategic
External factors
plan
•Economic
•Regulatory
•Technological
•Competitive
Marketing
Manufacturing
Finance
Logistics
Functional strategic plans
2-4
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Flow of Logistics Planning
Individual Link of Business goals and
Logistics System strategies
• Facility location
• Operations strategy
• Inventory management Customer service
• Information systems requirements
• Material handling
• Traffic and transportation
• Planning and control methods Integrated logistics
• Organization planning
Design of integrated
logistics management
system
Overall performance
measures
2-5
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Logistics’ Objective
Maximize return on logistics
assets (ROLA) Costs of
Logistics’ logistics
contribution operations
to sales
ROLA=Revenue−Costs
Assets
Investment in
logistics
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assets
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Strategic, Tactical, and Operational Decision Making
Decision area Strategic Tactical Operational
Transportation Mode selection Seasonal equip- Dispatching
ment leasing
Inventories Location, Control policies Safety stock levels Order filling
Order Order entry, transmittal, Processing
processing and processing system orders, Filling
design back orders
Purchasing Development of supplier- Contracting, Expediting
buyer relations Forward buying
Warehousing Handling equipment Space utilization Order picking
selection, Layout design and restocking
Facility Number, size, and
location location of warehouses
@HIPAL 2-7
Six Concepts for Logistics
Strategy Formulation
• Total cost concept
Tradeoff conflicting costs at optimum
• Differentiated distribution
Not all products should be provided the same level of
customer service
• Mixed strategy
A pure strategy has higher costs than a mixed strategy
• Postponement
Delay formation of the final product as long as possible
• Shipment consolidation
Smaller shipment sizes have disproportionately higher
transportation costs than larger ones
• Product standardization 2-8
Avoid product variety since it adds to inventory
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A Cost Conflict in Logistics
Total cost
Cost, in dollars
Cost of
Inventory cost transportation
(includes service
storage and
intransit
Rail Truck Air
Transportation service
(greater speed and dependability)
2-9
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More Cost Conflicts
Revenue
Total costs Total costs
Revenue
Cost
Cost
Transportation,
order processing,
and inventory Inventory
costs costs
Lost sales cost Transportation costs 0
0 0
0 Improved customer service 100% Increasing number of stocking points
(a) Setting the customer service level (b) Determining the number of warehouses in a logistics
system
Total costs Total costs
Cost
Cost
Inventory Inventory
carrying carryng cost
costs
Lost sales cost Production costs
0 0
0 Average inventory level Product run length and product sequencing
altenatives
(c) Setting safety stock levels (d) Setting the sequence of production runs for
multiple products
@HIPAL 2-10
Pure vs. Mixed Strategy
Current
strategy
Suggested
Cost
strategy
All Combined All
private private-public public
Warehouse alternatives 2-
11
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Choosing the Right Supply Chain Strategy
Functional Innovative
Products-- Products--
Predictable Unpredictable
Low margin
demand demand
Efficient Staple food
supply chain products
Responsive Electronic
supply chain equipment
High margin 2-
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Classification of Products
Predictable/Mature Unpredictable/Introductory
Products Products
•Jello •New music recordings
•Corn Flakes •New computer games
•Lawn fertilizer •Fashion clothes
•Ball point pens •Art works
•Light bulbs •Movies
•Auto replacement tires •Consulting services
•Some industrial chemicals •New product offerings of
•Tomato soup existing product lines
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13
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Choosing the Right Supply Chain Strategy
Efficient Economical production runs
supply chain Finished goods inventories
Economical buy quantities
Supply- Large shipment sizes
to-stock Batch order processing
Responsive Excess capacity
supply chain Quick changeovers
Short lead times
Supply-
Flexible processing
to-order Premium transportation
2-
Single order processing 14
Actions for Misclassified Products
Product Characteristic
Supply Chain Predictable/ Unpredictable/
Design Type Mature Introductory
Supply-to-Stock/ Tomato Soup If product is here
Efficient
Supply-to-Order/ If product is here Personal
Responsive Computer Models
2-
15
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Seven Principles
of Supply Chain Management
Differentiated distribution
•Segment customers based on service needs
•Listen to signals of market demand and plan
accordingly Design to customer needs
•Develop a supply-chain-wide technology
strategy Boundary spanning
info. systems
•Customize the logistics network
•Differentiate product closer to the customer
•Source strategically Postponement
•Adopt channel-spanning performance measures
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Source: Accenture Consulting 16
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