Chapter # 3

LOGISTICS GOALS &

STRATEGIES

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Learning Objectives
 Goals of Logistics

 Tactics for Effective Logistical Strategies

 Logistics Service Providers

3PLs & 4PLs

 Outsourcing Caveats

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Goals of Logistics
In order to meet customer requirements, logistics shares
some goals of supply chain management

Majority of the experts agreed upon below goals of

Logistics

i. Respond rapidly to changes in the market or customer orders

ii. Minimize variances in logistics service
iii. Minimize inventory to reduce costs
iv. Consolidate product movement by grouping shipments
v. Maintain high quality and engage in continuous improvement
vi. Support the entire product life cycle and the reverse logistics
supply chain

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 Tactics for Effective Logistical
Strategies
 Effective logistical strategies depends upon the
following tactics:

a. Coordinating functions to create maximum value for the customer

b. Integrating the supply chain
c. Substituting information for inventory
d. Reducing supply chain partners to an effective minimum number
e. Pooling risks

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 Tactics for Effective Logistical
Strategies
Coordinating Functions
 It is a interlocking & interdependent system, any action
performed in any area will also effect other parts of the system

 It is not necessary that improvement in one area must have

positive consequences in another area

 There is a need to have coordinated decisions among all

logistical areas

 Customer service can be improved but may incur many

additional expense that may let the whole company broke if
functions are not fully coordinated
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 Tactics for Effective Logistical
Strategies
Coordinating Functions
 The overall goal of logistics management is not better
shipping or more efficient location of warehouse but more
value in the supply network as measure by customer
satisfaction, return to shareholders, etc.

 There is no point, for instance, in raising the cost of

shipping – thus, the price to the customer – to make
deliveries faster than the customer demands.

 Faster delivery in case of fast food is

worth a premium price.

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 Tactics for Effective Logistical
Strategies
Integrating the supply chain
 In order to integrate the supply chain there are several
steps required while constructing logistical network

1) Locate in the right countries

2) Develop an effective export-import strategy
3) Select warehouse locations
4) Select transportation modes and carriers
5) Select the right number of partners
6) Develop state-of-the-art information systems

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 Tactics for Effective Logistical
Strategies
Integrating the Supply Chain
1) Locate in the right Geographic location, forward & reverse logistics,
countries Infrastructure, labor, regulation & tax.
2) Develop an effective SKUs & fright volumes, inventory placements,
export-import strategy what to import & what not to, export strategies
3) Select warehouse Optimal number, distance and effectiveness
locations
4) Select transportation Efficient transportation mix, Carrier selection
modes and carriers specifications
5) Select the right number Effective minimum partners, 3PLs & 4PLs,
of partners knowledge & technology consideration
6) Develop state-of-the-art Good infrastructure and technology use for
information systems proper inventories & shipments tracking

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 Tactics for Effective Logistical
Strategies
Substituting information for inventory
 Physical inventory can be replaced by better information:

1) Improve communications
2) Collaborate with suppliers
3) Track inventory precisely
4) Keep inventory in transit
5) Use postponement centers
6) Mix shipments to match customer needs
7) Don’t wait in line at customs

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 Tactics for Effective Logistical
Strategies
Substituting information for inventory
1) Improve communications Regular coordination with suppliers & plans
discussions
2) Collaborate with suppliers JIT can be used, removal of obsolete inventories,
continuous improvement
3) Track inventory precisely Bar codes / RFIDs and GPS

4) Keep inventory in transit Reduce system wide inventory cost, cross-

5) Use postponement centers
6) Mix shipments to match
customer needs
7) Don’t wait in line at
customs
docking
Avoid filling warehouse with wrong mix of finish
goods
Match deliveries, precisely mix SKUs on pallets
as per different customers demand
Ensure clearance while shipments is in air or sea
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 Tactics for Effective Logistical
Strategies
Reducing supply chain partners to an effective number
 Efficiency can be increased by reducing logistical partners
but it requires very critical review before doing so.

 Before doing that, review whole echelon starting from

Factory, all warehouse, wholesalers, retailers and
consumers.
Nodes – Each of these nodes
This is a supply chain with represents an echelon in the
supply chain network
three echelons between
factory and the consumers:
• Two factory warehouses Echelons:
• Nine wholesale • Add to operating expenses
warehouses • Hold inventory
• 350 retails stores • Add to cycle time
• Expect to make a profit

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 Tactics for Effective Logistical
Strategies
Reducing supply chain partners to an effective number
 Maximum numbers of partners in a chain results in more
inventory holding at each level

 Overall logistical operations become more difficult to

manage, as points to communicate increases.

 Reducing these partners to an effective number might help

in reducing cycle time, operating cost and inventory
holding cost

 It is not recommended to remove all nodes expect your

firm only (Henry Ford)
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 Tactics for Effective Logistical
Strategies
Pooling risks
“A method often associated with the management of
inventory risk. Manufacturers & retailers that
experience high variability in demand for their products
can pool together common inventory components
associated with a broad family of products to buffer the
overall burden of having to deploy inventory for each
discrete product”

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 Tactics for Effective Logistical
Strategies
Pooling risks
 Stockouts reduces by consolidation in a centralized
warehouses

 Any unexpected large order will remain small for

consolidate centralized warehouse

 At the same time risk of stockouts might increase if each

node reduces safety stocks and moves towards JIT
orderings

 Total inventory necessary to maintain service level can be

reduced by using tactics of central warehouse instead of
several small warehouses.
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Tactics for Effective Logistical
Strategies

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 Logistics Service Providers
3PLs & 4PLs
3PLs and 4PLs
 3PL and 4PL refers to outsourcing of some or all logistics
operations.
 Trend towards outsourcing warehousing, shipping and
other logistics services have increased since 1980s
 Companies emphasis on focusing on core competencies
and let allow others handle their logistical activities
Early Version of outsourcing
 Involved transactional relationships only
 Trucking, shipping, overnight service, GPO

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 Logistics Service Providers
3PLs & 4PLs
Recent Trends in 3PL & 4PLs
 Focus on long-term contractual relationships
 Providers having integrated services such as transportation
and storage
 4PLs removes all logistical functions from client firm and
put them under integrated management by a general
contractor

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 Logistics Service Providers
3PLs & 4PLs
https://www.youtube.com/watch?v=D8KXzN4R-o0

3PL
A buyer and supplier team with a third party that provides
product delivery services; this third party may provide added
supply chain expertise.
In 3PL arrangement, the 3PL firm takes over some or all
logistics functions & performs them itself.

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 Logistics Service Providers
3PLs & 4PLs
https://www.youtube.com/watch?v=6pNXQEkgbCA

4PL
A logistics specialist takes over the entire logistics
operations & subcontracts some or all specific functions

4PL firms plays a role as a general contractors, they hire

various logistics services & coordinates the efforts of the
subcontractors on the client’s behalf. They usually charge a
fee for their services.

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 Logistics Service Providers
3PLs & 4PLs
Advantages of 3PL
Improved business focus
Allow both firms to focus on their core competencies
More Current logistics technology
Contract logistics providers are generally better able to stay with
current technology
Greater technological flexibility
They are in a better position to adapt to different technologies used
by the firm’s clients.
More efficient warehousing for rapid replenishment
Multiple warehouses helps in responding immediately to customer
demand & reducing holding cost through economies of scale.

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 Logistics Service Providers
3PLs & 4PLs
Advantages of 3PL
Improved service to customers
Can Provides Varity of services to the customers.
More workforce & resource flexibility
Its quicker & simpler to hire or drop any contract specialist than to
fire or lay off workers.

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 Logistics Service Providers
3PLs & 4PLs
Advantages of 4PL
Improved business focus
Contracting entire logistics function frees up the firm to focus on
core competencies
Higher –quality logistics operations (reduced cost or both)
Results in lower-cost & higher-quality due to their competency in
managing logistics.
Can find best sub-contractors & design efficient process
Greater business flexibility
Gives a firm ability to adapt its warehousing, transportation &
packaging needs more rapidly
4PL provider can renegotiate or replace current subcontractor to
have required capacities, skills & other features
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 Logistics Service Providers
3PLs & 4PLs
Risk in 3PL & 4PL
Loss of control
Control over some or all aspects might get lost
Difficult to develop comprehensive logistics strategy
Can be more problematic when contractors are in direct connection
with firm’s customers
3PL firm can also have contact with competitor firm, potential threat
of confidentiality loss
In 4PL Biased contracts could be signed with favorite partners
Potential for inefficiency
If 3PL firm takes over logistics functions which firm was already
doing good, it may actually reduce efficiency in that area and
customer satisfaction reduced!
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 Outsourcing Caveats
Before outsourcing to any 3PL or 4PL, firms should ask
itself the following questions:

What are our current costs?

What customer skills does the contractor possess?

What are the contractor’s special strengths?

Will the contractor hire the most-qualified partners?

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Sources: Supply Chain Logistics Management – Cooper et al
APICS – CSCP 13th Edition
Supply Chain Council
Logistics & Distribution Management – 3rd Edition (CILT)
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