Unit 3

3.1 Logistics Network Design for Domestic and Global Operations:

Logistics process design is concerned with ensuring that business methods are aligned
and organized so that they operate across the traditional company functions and become supply
chain-oriented. Thus, they should be streamlined and should not be affected or delayed because
they cross functional boundaries. A typical logistics process is order fulfillment, designed to
ensure that customers’ order requirements are satisfied with the minimum of time and the
maximum of accuracy. The process should be designed as a seamless operation from

Figure 3.1. A framework for logistics network design

Company to another. It may well just be a ‘distribution’ functional plan. It is most likely
that it will be necessary to incorporate elements from other functions (marketing, production,
etc) to represent the fully integrated nature of logistics or the supply chain. The third, and in
many ways most important, issue is whether or not a company has a structured logistics plan at
all. Many still don’t, so a first and major step may be to ensure that such a plan is developed,
based of course on the company’s business and competitive strategic plans. To achieve this, a
logistics planning framework, as outlined in Figure 3.1, can be used. As can be seen from the
figure, there are four key design elements that need to be considered. Traditionally, logistics
planning and design have evolved around the structure of the logistics network, such as depot
numbers and location, but it is now recognized that, as well as these physical logistics elements,
there are other factors that also need to be considered. These are the design of logistics processes,
 logistics information systems and logistics organizational structure. Logistics process
design is concerned with ensuring that business methods are aligned and organized so that they
operate across the traditional company functions and become supply chain-oriented. Thus, they
should be streamlined and should not be affected or delayed because they cross functional
boundaries. A typical logistics process is order fulfillment, designed to ensure that customers’
order requirements are satisfied with the minimum of time and the maximum of accuracy. The
process should be designed as a seamless operation from.

A strategic planning overview to be defined to incorporate a review of the external

environment to the company;

• internal factors;

• the development of a corporate strategy;

• the development of a competitive strategy;

• the development of a logistics strategy.

• A framework for a logistics design strategy is proposed. This incorporated the four key aspects
of logistics design:

1. process design;

2. network design;

3. information system design;

4. organizational structure.

Some of the major factors that need to be considered when planning for logistics were
also considered. These included the product type, the product life cycle, packaging and unit
loads.

3.2 Logistics Network Configuration:

The Configuration involves five steps

1. Map the Supply Chain Ecosystem for the Industry Vertical

2. Formulate the Supply logistics Strategy

3. Select possible locations for the factories, DCs based on Investment climate

4. Identify the Supply Chain Risks

5. List the feasible logistics configurations

 3.21 Map the Supply Chain Ecosystem for the Industry Vertical: This step is crucial and
requires

– Domain knowledge of the vertical & the companies: their products, capabilities & reputation
for quality delivery

– Corporate and Political connections

– Soft skills for negotiation of acquisition of assets, Partner selection, Risk assessment and
Talent recruitment

In emerging markets, disputes over the asset acquisition can turn wicked involving long drawn
negotiations or abandoning the project.

Figure 3.2: Map the Supply Chain Ecosystem for the Industry Vertical

3.22: Formulate the Supply logistics Strategy:

Decide the product you are selling: knowledge of the ecosystem (Traders), just the
product, Solutions. Innovations in product and process and other Ecosystem items to build a
blockbuster industry subject infrastructure

Identify the strategic areas for partnering or outsourcing in the value chain including the
risks of partnering – Make or Buy decisions; Local or Low cost Country Outsourcing, FDI or
Outsourcing.
– originally developed for emerging markets (the ECG device for rural India and the ultrasound
machine for rural China), now are being sold in US, pioneering new uses for such machines.

- Business model innovation (BMI) is a reconfiguration of activities in the existing

business model of a firm that is new to the product/service market in which the firm
competes.
- Business model innovation actually involves importing a business model from one
product/service market into another. For instance:. – McDonald’s brought traditional
assembly line techniques into the fast food business. – Xerox does not only sell copying
machines but installs and maintains copying machines in offices and charges per page
basis. – Power by the Hour: aircraft engines are paid for the number of hours they are in
the flying aircraft
- Use Innovations in Regulations: The governments have deregulated the telecom industry
and made many positive policies. – Allowed private and foreign players to set up shops
though FDI – Created Special Economic Zones to attract equipment and other
manufacturers – Allowed foreign players to participate as manufacturing and service
providers. Companies should use these to advantage
- Disruptions Catalyzed by Cloud The growth of cloud delivery models helped the start
up to follow pay peruse model rather than buying , installing and maintaining servers.
- The new Cloud architecture can address the needs of Orchestrators trying to manage
loosely coupled network partners Other Industries such as health care, Finance, Logistics,
Education get disrupted by Cloud. In health care patient records can be accessed from
cloud. Cyber Security, Breach of Trust are big issues.
- Innovations in Governance Do not own all assets – Orchestrate : New Mantra in
Businesses – Li & Fung, does not own any factories but orchestrates a network of 15,000
suppliers and 29,000 employees in 40 countries, supplying goods to well known
consumer brands .
- Boeing’s 777 jet is assemblage of three million parts from more than 900 suppliers in 17
countries around the world. Boeing produces only the wings and fuselage, and assembles
the aircraft.
- Southwest, JetBlue and Ryan Air retained only the core of branding and the concept of
the airline and put all other operations out to bid: They leased engines & aircraft, and
contracted out baggage handling and maintenance
- 4PLs are integrated logistics providers who aggregate and provide transport, warehousing
and distribution services to several customers by orchestrating 3PLs, Owners of
warehouses and Trucks.

3.23: Select possible locations for the factories, DCs based on Investment:

For the industry vertical, – study the parameters that determine the investment climate of
nations and regions and rank order the regions – Identify the asset specific requirements from the
suppliers
3.231 Clusters: Clusters are geographic concentrations of interconnected companies,
specialized suppliers, service providers, and associated institutions (universities, vocational
training) present in a region. The proximity of companies and institutions in one location fosters
better coordination and trust lowering the transaction costs, minimizing the inventory, importing
costs and delays

3.232 Types of Supplier Asset Specificity:

Physical asset specificity refers to the mobile and physical features of assets such as specific
dies, molds, and tooling for the manufacture of a contracted product. Dedicated asset specificity
represents discrete and/or additional investment in generalized (as opposed to specific)
production capacity in the expectation of making a significant sale of a product to a particular
customer. Human asset specificity arises in a learning-by-doing fashion through long-standing
customer-specific operations. Site asset specificity refers to the successive stages that are
immobile and are located in close proximity to one another so as to economize on inventory and
transportation

3.233 The Global Competitiveness Indicators

Global Competitiveness Indicators based on which countries are evaluated include

– National Policies for Openness in Trade and Markets

– Best Practices for International Trade
– Effective Legal and Enforcement Systems
– Infrastructures for a Global Economy
– Financial Services for Cross-Border Commerce
– Human Capital
 .

Figure 3.3: Global Economic Competitiveness Comparison

Figure 3.4: Investment climate enablers at various levels
 Figure 3.5: Calculation of Total Transaction Cost in a Supply Chain

3.24: Identify the Supply Chain Risks:

All possible social, political & environmental risks that may affect the Supply Chain and
the goods, information and financial flows estimate the risk and identify what it takes for their
resolution.

3.241. The Supply Chain Risks

Outsourcing: the loss of Intellectual Property, quality issues, transport delays, foreign exchange
fluctuations, energy costs escalation, loss of goods due to theft or piracy, etc.

In case of mergers or acquisitions: all the risks associated with their supply chain ecosystem
must also be considered..
Large scale and a high degree of concentration e.g. Giant firms such as DHL, Flextronics etc.and
geographical concentration (e.g. low cost manufacturing in China, IT clusters in India) make the
clusters highly vulnerable for terrorist attacks and natural disasters

3.242 Environmental Supply Chain Risks

Political and Societal risk: Land acquisition or people displacement are involved: Risks
such as change in the government, State- Center relations, Corruption, Social factors need to be
assessed If resource intensive shortages such as infrastructure, oil, power, water, mining etc
should be quantified.

3.243 Cyber Security: Biggest Risk of Connectivity

Computer systems are subjected to electronic attacks originating from sources that are usually
unidentified.

The terrorist and counterfeit networks are also globally connected and indeed they follow the HR
practices of recruitment, training of people and also systematic planning processes for
implementing their objectives

3.25: Identify Feasible Supply Chain Configurations for Implementation

For the product of your company (knowledge, product, solutions, and value chains) identify the
partners (Companies & Countries) for the Goods, Information and Financial flows and also the
risks of partnering

x Use the ecosystem information of partners of your partners while assessing the risks
(Failure of a Govt., Bank or an Earth quake)
x Map the supply chain processes including methods of collaboration and also for ensuring
partner loyalty
x Map your supply chain for each customer order and have mitigation strategies for
operational possible attacks, failures, etc.
x What do we have at the end of the Supply chain formation phase?
x Ecosystem map, various network partners (including manufacturing, logistics & IT) &
their (country & regional) locations
x Risks that the ecosystem faces
x The innovations (product, process, business model) needed to make it big in the industry
x The value chain architecture with outsourced and ownership details.
Figure 3.6: Ways to mitigate Supply Chain IP (Intellectual Property) Risks

Figure 3.7: Enablers and Supply Chain Performance

3.3 Trade Offs associated with different approaches in Logistics Network:

Logistics is the way your company organizes its transportation, warehousing, inventory,
customer service and information processing systems. There are always tradeoffs in business. Do
you keep larger inventories of your products, resulting in increased warehousing costs, more
waste in outmoded or outdated product on the shelf, and higher management costs? Or do you
reduce the inventory to save money but risk insufficient product to fulfill demands? These
tradeoffs are different for different businesses, but all businesses have tradeoffs that must be
considered. Firms often re-organize their logistics in an attempt to improve their transportation,
inventory, and infrastructure. Deciding when, what and how to reorganize is a problem faced by
companies worldwide every day. The down side of tradeoffs is that nothing is guaranteed. Your
decisions to reduce inventory, increase prices, or maintain the status quo can result in potential
benefit and/or harm to your customers and to your business. Considering the pros and cons of
tradeoffs to your clients can sometimes help identify the solution during the process. Effective
Supply Chain Management results in an opportunity to discover the best tradeoffs for your
clients. Processing, planning, implementing and controlling your business ensures efficiency and
cost effectiveness. The process or steps that change your product from its raw materials into the
finished product is your supply chain. Managing that chain of products, and ensuring the
efficiency of the steps to achieving successful delivery, is called Supply Chain Management
(SCM). Here are some potential benefits to your clients that effective and efficient SCM can
provide:
x Reduced Costs: Improving your bottom line can result in bringing the costs down for
you and for your consumer.
x Better delivery: As you research and improve transportation methods, the delivery of
your product to the end user will improve.
x Enhanced Product Conformity/Reliability: Improvements to your product based on
research, design improvement and adherence to standards results in better reliability and
performance.
x Better Service: As you explore methods to better serve your customers, overall public
perception of your product will improve.
x Customer Satisfaction: Your customer will be more impressed with your product, and
therefore more apt to continue to purchase, use and enjoy it.
x Better Technology: When you add technology to the development of your product, you
improve the technology of the end product itself.
x Better Availability: As you increase your methods of delivery, shelf stocking, sales, and
product distribution, your customer benefits because your product is there when he needs
it, where he needs it.
x Cohesive and efficient SCM results in improved products for your customers. That is
the bottom line that all organizations need to remember when considering logistical
tradeoffs.
 Figure 3.8: Trade Offs associated with Logistics Network

3.4 Capacity Expansion Issue:

The broad classes of capacity planning are lead strategy, lag strategy, match strategy, and
adjustment strategy.

x Lead strategy is adding capacity in anticipation of an increase in demand. Lead strategy is

an aggressive strategy with the goal of luring customers away from the company's
competitors by improving the service level and reducing lead time. It is also a strategy aimed
at reducing stock out costs. A large capacity does not necessarily imply
high inventory levels, but it can imply higher cycle stock costs. Excess capacity can also be
rented to other companies.
Advantage of lead strategy: First, it ensures that the organization has adequate capacity to meet
all demand, even during periods of high growth. This is especially important when the
availability of a product or service is crucial, as in the case of emergency care or hot new
product. For many new products, being late to market can mean the difference between success
and failure. Another advantage of a lead capacity strategy is that it can be used to preempt
competitors who might be planning to expand their own capacity. Being the first in an area to
open a large grocery or home improvement store gives a retailer a define edge. Finally many
businesses find that overbuilding in anticipation of increased usage is cheaper and less disruptive
than constantly making small increases in capacity. Of course, a lead capacity strategy can be
very risky, particularly if demand is unpredictable or technology is evolving rapidly.

x Lag strategy refers to adding capacity only after the organization is running at full capacity
or beyond due to increase in demand (North Carolina State University, 2006). This is a more
conservative strategy and opposite of a lead capacity strategy. It decreases the risk of waste,
but it may result in the loss of possible customers either by stockout or low service levels.
Three clear advantages of this strategy are a reduced risk of overbuilding, greater
productivity due to higher utilization levels, and the ability to put off large investments as
long as possible. Organization that follow this strategy often provide mature, cost-sensitive
products or services.
x Match strategy is adding capacity in small amounts in response to changing demand in the
market. This is a more moderate strategy.
x Adjustment strategy is adding or reducing capacity in small or large amounts due to
consumer's demand, or, due to major changes to product or system architecture.

3.5 Information Management for Global Logistics:

Innovative application of information management offers six opportunities for transportation and
logistics companies Globally:
1. Digitizing core back-end processes gains faster access to data. There is still a significant
number of staff assigned to manual data capture and exchange activities such as track and trace,
gathering freight bill information, managing custom forms, or securing proofs of delivery. These
essential activities are resource intensive, error-prone and stall billing, and cash collection.
2. Internet-of-Things (IoT) amplifies containerization. IoT technologies allow carriers to
transmit vital stats, such as temperature, location, and power supply via satellite. By having this
information sent to the cloud and analyzed at a central office, carriers have real-time information
as issues develop that also leads to increased safety for port staff.

3. More transparency across the supply base. More companies are demanding transparency
into the shipping process. Having better visibility into processes can improve shipment times and
minimize supply chain disruption, but in order to do this, standardization and automation is
needed.

4. Manufacturers are demanding transportation and logistics companies help them

mitigate the increased risk of longer and more variable supply chains. Information
management strategies should help address the risks associated with disrupted flight plans, a
tsunami in Thailand that affects the port activity in California, or threats of a terrorist attack in
Brussels that may halt all transportation. Having access to global information and applying it
locally is a critical asset to minimizing crises.

5. The last mile is transforming. The uberization of many services is impacting the industry,
and the last mile is becoming more fragmented. Cloud platforms and crowd-sharing startups are
also collaborating with incumbents to complement their services. These disruptions to the last
mile as we knew it requires speed in accessing accurate information.
6. Analytics to gain insight. Forward-thinking companies will use analytics to better understand
their digital initiatives and customers’ challenges. Transforming that data to anticipate future
needs expands the value to customers.

3.6: Global LIS / LITS Capabilities and Limitations: LIS (Logistics Information Systems)
and LITS (Logistics Information and Telecommunication System), LIS and LITS both may be
taken in same context.

LIS may be defined as “An interacting structure of people, equipment, and procedures
which together make relevant information available to the logistics manager for the purposes of
planing, implementing and control.”

Information flow makes a logistical system dynamic. Quality and timeliness of information are
key factors in logistical operations.

Figure 3.8: Elements of Logistics Information System

3.61: Roles & Applications of LIS / LITS:

ƒ LIS perform three vital roles in business firms.

– Logistics processes and operations,

– Logistics decision making; and

– Strategic competitive advantage

ƒ Major application categories of information systems include:

– Operations Support Systems; and

– Management Support Systems

3.62 LIS Benefits

– Increased product visibility and control

– Improved knowledge of key logistics network component capabilities and

capacity
 – Enhanced economic value

ƒ Cost reductions

ƒ Sales increases

– Creation of competitive advantage

ƒ Direct linkages to customers

Figure 3.9: Overview of Logistics Information System

3.63 Technologies in LIS

x Bar code
x Point-of-Sale ( POS)
x EDI
x RF-RFID