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LOGISTICS/SC STRATEGY AND PLANNING

Index: Introduction Guidelines for logistics strategy Concluding remarks

Introduction
We consider three levels:
Strategic (long-term): location choices and customer service Tactical (less than 1 year): channel planning (inventory) Operational (daily): transportation planning

Decision level Type of decision


Livello decisionale Strategic Strategico Tattico Numero di facilities, Posizionamento scorte Number of facilities, dimensioni, dimensions and localizzazione location servizi Selezione del Mix di servizio/modo stagionali Selezione e disegno Regole di priorit tra Policies del sistema clienti

Tipo di decisione Location Location Transportation Gestione ordini Inventory

Operativo

Tactical

Operational

Routing, scheduling Quantit order timing Level, di rifornimento scorte, momento di replenishment Evasione ordini

Transportation Customer service Definizione del Service/mode livello Magazzini Lay out, selezione delselection spazi Scelte degli sito stagionali Customer service Level definition

Routing, scheduling

Planning a logistics system means to consider 4 areas (fig. 2-3):


customer service levels facility location inventory decisions transportation decisions

In the decision-triangle, areas are interrelated one another and trade-offs must be considered (integrated planning)

In the triangle: Customer service goals:

Location strategies:

low levels of service permit stock centralization and low transportation costs (and viceversa) how to find the best c.s.? they determine the way in which products reach the markets how to find the best location strategy? pushing stock to stocking-points or pull stock in the stocking-point through replenishpment rules? mode/service selection; shipment size, routing; scheduling they depend on location of plants and warehouses and influence stock levels (through shipment sizes for instance)

Stocking strategies:

Transport strategies:

Planning is a design problem: the logistics network is to be built as a configuration of warehouses, selling points, production plants, stocking-points, transportation services, information systems that aim to attain an equiibrium between revenues (which are c.s.-related) and overall costs (network-related) In the network we represent links as the movements of goods between various inventory storage points (that are the nodes retail stores, warehouses, plants, vendors, etc.) There may be several links between any pair of nodes, to represent alternative forms of transportation services, different routes, different products One has to design a network by considering:

where to place arcs and nodes (spatial aspect) which economic attributes (cost, revenues) should be assigned to each node and arc (economic aspect)

Guidelines for logistics strategy


The total cost concept
It is a central element in the planning process: trade-offs must be considered (TOTAL cost and not sectoral one) A bottom line issue in logistics is that of managing cost conflicts while finding the minimum cost solution (fig. 2-5 e 2-6) Cost conflicts (trade-offs analysis) must be tackled both at company level (logistics) and at overall chain level (SC) (multi-actors context) In other words the total cost concept must be extended to consider the whole supply chain

Differentiated distribution (mix strategies)


Basic principle: in order to optimize the logistics contribution margin not all products should be provided the same level of customer service Thus one has to classify products in a limited number of groups (for instance ABC classification: high, average, low sales) and assign a different level of c.s. (eg, stocking level) to each of them Generally, criterion (and trade-offs) of differentiated strategies are: c.s.: high and low (80-20) costs: FTL (direct shipments) vs. groupage (through warehouses) (while keeping in mind c.s.)

An example of improving strategy: - I step: differentiating by shipment size (direct vs. field warehose shipments) - II: differentiating by location (small shipment size are distributed through warehouses)
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items with high turnover: allocated to field warehouses (nearer customers) because they must satisfy high c.s. levels and minimize transportation costs items with medium turnover: allocated to few regional warehouses (centres) items with low turnover: centralized

Postponement

Goal: to assure high variety of products while having low inventories (otherwise: high variety=high stock levels) Examples:

Such a strategy generally permits stocking costs savings There exists different types of postponement:
assembly labeling packaging ..

Dell Computer configures computer only when orders are received, starting from given available options paint stores created a huge variety of colors by mixing relatively few pigments (rather than stocking all colors ready mixed) food companies produce the same product (tuna, Coca-cola, etc.) with different labeling for different international markets by centralizing stock without label (and labbeling products only when receiving an order)

Standardization Proliferation of product variety can increase inventories and decrease shipment sizes Crucial planning problem: how to satisfy markets with the desired (high) variety without increasing logistics costs drammatically? Possible solution: modularization, interchangeable parts, etc. usually associated to postponement Consolidation Goal: to reduce costs while exploiting economies of scale (by grouping small shipment sizes) The smaller the shipment size, the disproportionately greater the benefits of consolidation Strategies: Disadvantage: c.s. worsening
consolidation in time (example: city logistics) consolidation in space (by creating consolidation centres)

Concluding remarks
We gave an overall framework for logistics network planning Typical goals of logistics:
cost reduction customer service improvement

Logistics main areas of interest:


customer service location inventory transportation