LOGISTICS, THE VALUE CHAIN

& COMPETITIVE STRATEGY

MBA EM
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DEFINITIONS & CONCEPTS

 Supply Chain Management- Planning and controlling all the

business processes- from end customer to raw material
suppliers- that link together partners in a supply chain in order
to serve the needs of the end customer

 Logistics- The part of the supply chain that plans, implements,

and control the efficient and effective flow and storage of
goods, services, and related information from point of origin to
point of consumption in order to meet customer requirements.

© Alan Harrison and Remko van Hoek 2008

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LOGISTICS ACTIVITIES

 Transportation  Production Planning/scheduling

 Warehousing  Procurement
 Industrial packaging  Customer service
 Material Handling  Facility location
 Inventory control  Return goods handling
 Order fulfillment  Parts and service support
 Demand forecasting  Salvage and scrap disposal

© Alan Harrison and Remko van Hoek 2008

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© Alan Harrison and Remko van Hoek 2008

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Figure 1.2 Supply network

Source: After Slack et al., 1997

© Alan Harrison and Remko van Hoek 2008

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Figure 1.4 The network in context

© Alan Harrison and Remko van Hoek 2008

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LOGISTICS KPI

Order Accuracy

On Time Delivery

Inventory Accuracy

Inventory Turnover

Transportation Cost
Warehousing Cost

© Alan Harrison and Remko van Hoek 2008

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© Alan Harrison and Remko van Hoek 2008

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• Basic assumption that customers choose – that they know

best what they want – means that they have become the
centre of the retailer’s universe.

• In the best businesses, their decisions drive everything.

These choices are also judgments. They pick the winners
and losers in retail and in manufacturing.

• These judgements send strong feedback – shocks might be

a better word – forcing change.

CUSTOMER POWER

© Alan Harrison and Remko van Hoek 2008

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 Success and failure of any business will be determined by

the level customer value that it delivers in its chosen
market

Perception of benefits
Customer Value 
Total cost of ownership

DELIVERING CUSTOMER VALUE

© Alan Harrison and Remko van Hoek 2008

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CUSTOMER VALUE

Quality x Service
Customer Value 
Cost x Time
Quality = The functionality, performance, and technical specification of the
offer

Service = The availability, support, and commitment provided to the customer

Cost = Customer’s transaction cost including price and life cycle costs

Time = Delivery lead times

© Alan Harrison and Remko van Hoek 2008

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THE IMPACT OF OUT- OF- STOCK

© Alan Harrison and Remko van Hoek 2008

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CUSTOMER LOYALTY VS
CUSTOMER SATISFATION

© Alan Harrison and Remko van Hoek 2008

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KEY DRIVERS OF CUSTOMER

LOYALTY
© Alan Harrison and Remko van Hoek 2008
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 Companies take leadership positions by narrowing their

competitive focus, not by broadening it.
 Three strategies or generic ‘value disciplines’ :
- Operational excellence: focus on efficiency, reasonable
quality at low price
- Product leadership: focus on innovation, design, time to
market, high margins in a short time frame.
- Customer intimacy: focus on CRM

VALUE DISCIPLINES

© Alan Harrison and Remko van Hoek 2008

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MEASURING SERVICE QUALITY

© Alan Harrison and Remko van Hoek 2008

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MEASURING SERVICE QUALITY

© Alan Harrison and Remko van Hoek 2008

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Key issues: How can we segment our market to make it easier to supply?
How can we use such knowledge to improve logistics strategy?

SETTING PRIORITIES FOR

LOGISTICS STRATEGY
© Alan Harrison and Remko van Hoek 2008
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SETTING PRIORITIES FOR

LOGISTICS STRATEGY
© Alan Harrison and Remko van Hoek 2008
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SETTING PRIORITIES FOR

LOGISTICS STRATEGY

© Alan Harrison and Remko van Hoek 2008

 STRATEGIC
LEAD-TIME MANAGEMENT
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INTRODUCTION

 “Time is money” – Time represent cost and

extended lead time imply a customer service penalty.

 The combination of high costs (holding cost) and

lack of responsiveness (long lead time) provides a
recipe for decline and decay

© Alan Harrison and Remko van Hoek 2008

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 Customers in all markets, industrial or consumer, are increasingly time

sensitive

 There are many pressures leading to the growth of time-sensitive markets

but perhaps the most significant are:
1. Shortening life cycles
2. Customers’ drive for reduced inventories
3. Volatile markets making reliance on forecasts dangerous

TIME BASED
COMPETITION
© Alan Harrison and Remko van Hoek 2008
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CUSTOMERS’
SUPPLIERS’
PERSPECTIVE PERSPECTIVE

Only one lead time: The time it takes to convert

the elapsed time from order
to delivery
an order into cash and,
The total time that working
capital is committed from
when materials are first
produced through to when
the customer’s payment is
received

THE CONCEPT OF LEAD TIME

© Alan Harrison and Remko van Hoek 2008

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LOGISTICS PIPELINE MANAGEMENT

Steps in understanding and improving logistics pipeline:

- Flowcharting supply chain process

- To get managers involved in those processes to debate and agree exactly

which elements of the process can truly be described as value adding

- Perform rough- cut graph to highlight how much time is consumed in

both value added and non value added

© Alan Harrison and Remko van Hoek 2008

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LOGISTICS PIPELINE MANAGEMENT

 An indicator of the efficiency of a supply chain is given by its throughput

efficiency, which can be measured as:
Value - added time
x 100 %
End - to - end pipeline time

© Alan Harrison and Remko van Hoek 2008

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Which activities add costs, and which add values ?

LOGISTICS PIPELINE
MANAGEMENT
© Alan Harrison and Remko van Hoek 2008
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LOGISTICS PIPELINE
MANAGEMENT
Value Added Through Time
© Alan Harrison and Remko van Hoek 2008
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LOGISTICS PIPELINE MANAGEMENT

 The goal of strategic lead-time management: to compress the chain in terms of

time consumption so that cost-added time is reduced

 The sources of these blockages and fractures are such things as extended set-up
and change-over times, bottlenecks, excessive inventory, sequential order
processing and inadequate pipeline visibility

 To achieve improvement in the logistics process requires a focus upon the lead
time as a whole, rather than the individual components of the lead time

© Alan Harrison and Remko van Hoek 2008

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LOGISTICS PIPELINE MANAGEMENT

Cost Added vs Value Added Time © Alan Harrison and Remko van Hoek 2008
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Reducing non- value adding time improves service & reduces cost
© Alan Harrison and Remko van Hoek 2008
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Procurement Manufacturing Delivery

Logistics lead time

Customer’s order cycle

Order fulfillment

Lead-time gap

THE LEAD- TIME GAP

© Alan Harrison and Remko van Hoek 2008
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IMPROVING VISIBILITY OF
DEMAND

Demand Penetration Point & Strategic Inventory

© Alan Harrison and Remko van Hoek 2008