Network Integration

Network Integration
Enterprise Facility Network
Warehouse Requirement
Total Cost Integration
Formulating Logistical Strategy
Enterprise Facility Network
Spectrum of Location Decisions
Local Presence - an obsolete paradigm
Warehouse Requirement
Procurement Drivers
Manufacturing Drivers
Customer Accommodation Drivers
Rapid Replenishment
Market based ATO

Warehouse Justification
Total Cost Integration
Transport Economies
Cost Based warehouse Justification
Network Transportation Cost Minimization
Inventory Economies
Service Based Warehouse Justification
Network inventory Cost Minimization
Total Cost Networks
Tradeoff relationships
Assumptions and limitations
· 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 ser vice 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.
- When there has been a major policy shift in logistics such as in price,
customer service, or investment level.
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 Corporate to Functional
Strategic Planning
Corporate strategic
External factors
plan
•Economic
•Regulatory
•Technological
•Competitive

Marketing

Manufacturing
Finance

Logistics

Functional strategic plans

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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

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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
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
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 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 formati on of the final product as long as possible
·Shipment consolidation
Smaller shipment sizes have disproportionately higher
transportation costs than larger ones
·Product standardization
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)

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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
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 Pure vs. Mixed Strategy
Current
strategy

Suggested
Cost

strategy

All Combined All

private private-public public
Warehouse alternatives
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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
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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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Choosing the Right Supply Chain Strategy
Efficient  Economical production runs
supply chain  Finished goods inventories
 Economical buy quantities
 Large shipment sizes
Supply-  Batch order processing
to-stock
Responsive  Excess capacity
supply chain  Quick changeovers
 Short lead times
Supply-  Flexible processing

to-order  Premium transportation

 Single order processing

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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

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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
•Develop a supply-chain-wide technology strategy
•Customize the logistics network Design to customer needs
•Differentiate product closer to the customer
•Source strategically Boundary spanning
•Adopt channel-spanning performance measures info. systems

Postponement

Source: Accenture Consulting

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