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LOGISTICS MANAGEMENT

Chapter 11: Integrated Logistics

Strategies

Reference

 Prescribed textbook:
Coyle, J. J., Langley, C. J. & Bardi, E. J. 2003, The Management of Business Logistics: A Supply Chain
Perspective, 7th edn, Thomson Learning, Canada.
 Reference textbook:

Bloomberg, D.J., Murray, A. and Hanna, J.B. 1998, The Management of Integrated Logistics: A Pacific Rim
Perspective, 2nd edn, Sprint Print, Prentice-Hall.
Bowersox, D.J. Closs, D.J. and Cooper, M.B. 2002, Supply Chain Logistics Management, McGraw-Hill/Irwin,
New York.
Christopher, M. 1998, Logistics & Supply Chain Management, 2nd edn, Pearson Education. Essex.
Cooper, J. 1994, Logistics & Distribution Planning, Kogan Page, London.
Coyle, J.J., Bardi, E.J. and Langley, C.J. 2003, The Management of Business Logistics, West Publishing
Company, New York.
Greasley, A. 2006, Operations Management, John Wiley & Sons Ltd, Chichester, England.
Johnson, J.C. 1999, Contemporary Logistics, Prentice Hall, Upper Saddle River, N.J.
Stock, J.R. and Lambert D.M. 2001, Strategic Logistics Management, 4th Edn, Irwin/McGraw-Hill, Boston.
Rushton, A., Croucher, P. and Baker, P. 2006, The Handbook of Logistics and distribution Management, 3rd
edn, Kogan Page, UK.
Lambert, D. M., Stock, J. R. and Ellram, L. M. 1998, Fundamentals of Logistics Management, McGraw Hill,
USA.
 List of additional readings:
Ghezzi, A; Mangiaracina, R; Perego, A, 2012, 'Shaping the E-Commerce Logistics Strategy: A
Decision Framework', International Journal of Engineering Business Management, Vol. 4, pp. 1-13.

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Content
Topics

11.1 Key definitions of strategy

11.2 Some concepts for logistics strategy formulation
11.3 Corporate versus functional strategy
11.4 Objectives of logistics strategy
11.5 Strategy classification:
- Time-based strategy
- Asset productivity strategy
- Technology-based strategy
- Relationship-based strategy
11.6 Logistics planning

Some
SomeFood
Foodfor
forThought
Thought

I am sitting in a quiet room looking out toward the ocean on a

warm afternoon. I am listening to the desperate sounds of the life
and death struggle going on a few metres away. There is a fly
burning out the last of its energies in a futile attempt to fly
through the glass of the window. The sounds tell the story of the
fly’s only strategy: try harder. Of course it is not working. The
effort offers no hope for survival. Nevertheless, the fly had staked
its life on reaching its goal through pure effort and determination.
Across the opposite side of the room the door is open – it is just
seconds of flying time – and the goal would be achieved (freedom
from the self imposed trap). It would be so very easy.
Trying harder is not necessarily the solution to achieving more.
Sometimes it is part of the problem and kills the chance of
success.

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Key Key
11.1 Definitions of Strategy
Definition of Strategy

• Strategy is what a company does, or doesn’t do, to

fulfil its vision in a competitive marketplace
(Finkelstein 2005)

• “Without a strategy the organization is like a ship

without a rudder.”

• Art & science of formulating, implementing, and

evaluating, cross-functional decisions that enable an
organization to achieve its objectives (David 2005)

Key
KeyDefinitions
Definition of
of Strategy (C)
Strategy (C)

• Strategy
– a course of action, a scheme, or a principal idea
through which an organization hopes to accomplish a
specific objective or goal
– process of formulating plans to position the firm to
meet its objectives
– using one’s resources and using them with maximum
effectiveness to meet the business objectives
• Tactics
– refers to the operational aspects that are necessary to
support strategy

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11.2 Some
Some Conceptsfor
Concepts forLogistics
LogisticsStrategy
StrategyFormulation
Formulation

• Total cost concept

– Tradeoff conflicting costs at optimum
• Differentiated distribution
– Not all products should be provided with 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 costs
• Product standardization
– Avoid product variety since it adds to inventory

SomeConcepts
Some Conceptsfor
forLogistics
Logistics Strategy
Strategy Formulation:
Formulation:
CostConflict
Cost Conflict

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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SomeConcepts
Some Conceptsfor
forLogistics
Logistics Strategy
Strategy Formulation:
Formulation:
DifferentiatedDistribution
Differentiated Distribution Strategy
Strategy

• Not all products should be given the same level of

customer service

• Product classification:
– High, medium and low sales volumes
– Direct shipment vs. through warehouse
– Different inventory policies

• ABC Analysis, Pareto Rule (80-20 Rule)

SomeConcepts
Some Conceptsfor
forLogistics
Logistics Strategy
Strategy Formulation:
Formulation:
Pureversus
Pure VersusMixed
Mixed Strategy
Strategy

Current
strategy

Suggested
Cost

strategy

All Com bined All

private private-public public
W arehouse alternatives

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SomeConcepts
Some Conceptsfor
forLogistics
Logistics Strategy
Strategy Formulation:
Formulation:
Strategy Formulation
Strategy Formulation

• Strategy formulation begins with defining a

corporate strategy, then functional strategy

• It involves:
– Assessing needs, strengths and weaknesses of 4 key
components
• Customers, suppliers, competitors and the firm itself
– “Visioning”
– SWOT, PESTLE analyses

11.3 Corporate
Corporate Strategies
Strategies andand Functional
Functional Strategies
Strategies

• Most organisations are structured along functional

lines

• Each ‘functional’ unit (or department) develops its

own strategies
– Must be compatible with the broad corporate
‘strategies’ so that the outcome is consistent with the
corporate objectives

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CorporatetotoFunctional
Corporate Functional Strategic
Strategic Planning
Planning

Corporate
External factors
strategic plan
including
•Political
•Economic
•Social/Regulatory
•Technological
•Legal Marketing
•Environment

Manufacturing
Finance

Logistics

Functional strategic plans

CorporatetotoFunctional
Corporate Functional Strategic
Strategic Planning
Planning(C)
(C)

• At the highest level, senior management is

responsible for the strategic or long range
planning, e.g. 1-5 years

• Middle managers are responsible for the tactical

or medium-range planning, e.g. 1 year

• Finally, operation managers control the

operational or short range planning with decisions
frequently made on a daily, weekly or monthly
basis

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11.4
TheThe Objectives
Objectives of Logistics
of Logistics Strategies
Strategies

• Three main objectives are:

– Minimise cost

– Minimise investment

– Maximise customer service

• How to evaluate?
– One indicator is ROLA

TheObjectives
The Objectivesof
ofLogistics
Logistics Strategies
Strategies (C)
(C)

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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11.5 Strategy classification

- Time-based strategy
- Asset productivity strategy
- Technology-based strategy
- Relationship-based strategy

Time-based Strategies (C)

Cost Added over Time

Production, storage and transportation costs and the time cost of money

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Time-based Strategies
Time-based Strategies

• Reducing Cycle Time

– Logistics activities to shorten the length of the
order/replenishment cycle
– Reductions in cycle time are based on three factors:
processes, information, and decision making
• If logistics is seen as a series of processes, performing those
processes faster will reduce cycle time

Time-based Strategies
Time-based Strategies (C)

• Utilization of faster, more efficient forms of order

transmission---EDI or the Internet---can significantly
reduce the time needed to complete the transaction

• Finally, empowering individuals to make decisions can

be one of the most important ways to speed cycle time

• Pre-approvals and other delegated decision making

models can lead to making mistakes, but the risk is
justified in terms of time saved and improvement in
customer responsiveness

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Time-based Strategies
Time-based Strategies (C)

• Time-Reduction Logistics Initiatives

– Push to pull
• Cross-docking, JIT, VMI, etc. are contemporary approaches
that help logistics systems move from push to pull
• Each strategy reduces the order cycle by shortening the total
time from vendor to delivery to customers

– Postponement involves not completely finishing a

product until an order arrives, e.g.
• Producing T-shirts in mass production without dying until
orders are received
• Final packing at the destination rather than at the source, etc.

AssetProductivity
Asset Productivity Strategies
Strategies

• Inventory Reduction (Inventory Turns)

– Time reduction strategies have contributed to this

• Facility Utilization
– Strategies, i.e. direct shipments, consolidation, etc. to
keep the goods moving throughout the logistics and
supply chain system has contributed to effective use of
logistics facilities thus squeezing more productivity
from these assets

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AssetProductivity
Asset Productivity Strategies
Strategies (C)
(C)

• Equipment Utilization Strategies

– Some reductions have occurred as a result of
contraction of equipment and smarter, more
sophisticated equipment dispatching software
• Third-Party/Contract Logistics Services
– Use of 3PLs has resulted in dramatic positive impact
on asset productivity
– DuPont, Nabisco, Proctor & Gamble, General Electric
and General Motors and others are users of 3PLs,
focusing on managing logistics services rather than on
the assets themselves

Technology-based Strategies
Technology-based Strategies

• The race for last-mile delivery:

 the most cost-intensive part of the supply chain; the
final delivery of goods from distribution centre to
retail store or consumer’s front door
 the explosion in omni-channel retail has increased
demand for last-mile resources, most with technology
 More & new delivery options: crowd-sourced
logistics solutions, Uber-style last-mile freight
services, Click-and-collect services
 Delivery technology

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Technology-based Strategies
Technology-based Strategies (C)

• Disruptive technologies are those will help make

firms more competitive
– Implications are that logistics and supply chain areas of
the future will differ significantly from those of today
• Automated vehicles, drone, E-commerce, e-
procurement and electronic marketplaces will
continue to grow in importance

Relationship-based Strategies
Relationship-based Strategies

• Collaboration
– Parties involved dynamically share and interchange
information
– Group benefits more than individual benefits
– All parties modify their business practices
– All parties conduct business in new and visibly
different ways
– All parties provide a mechanism and process for
collaboration to occur

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Relationship-based Strategies
Relationship-based Strategies (C)
(C)

11.6 Logistics
Logistics Planning
Planning

• Based on business goals and customer service

requirement
• Strategic level, for example, logistics network
design
– Mode selection
– Development of supplier/buyer relationships
– Warehouse size, location, etc.
• Tactical level, for example
– Seasonal equipment leasing
– Contracts
– Space utilisation in warehouse, etc.

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Flowof
Flow ofLogistics
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 Integrated logistics
• Planning and control methods planning

Design of integrated
logistics management
system

Overall performance
measures

LogisticsPlanning:
Logistics Planning: Key
Key Decision
Decision Areas
Areas

• Customer service levels

– low levels of service allow centralised inventories at
few locations and the use of less expensive forms of
transportation
– High service levels generally require just the opposite

• Facility locations
– Centralisation
– De-centralisation

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LogisticsPlanning:
Logistics Planning: Key
Key Decision Areas
Areas (C)
(C)

• Inventory decisions
– Push
– Pull
– Postponement, etc.

• Transportation decisions
– choice of vehicle, utilisation of vehicle capacity,
routing of delivery, etc.

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