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Logistics and Competitive strategy

Martin Christopher

What is logistics
Logistics is the process of strategically managing the
procurement, movement and storage of materials,
parts and finished inventory (and the related
information flows) through the organization and its
marketing channels in such a way that current and
future profitability are maximized through the cost-
effective fulfillment of orders.
What is logistics
Logistics involves getting, in the right way, the
right product, in the right quantity and right
quality, in the right place at the right time, for
the right customer at the right cost.
Logistics and competitive advantage
Firms can achieve competitive advantage through:
1. Differentiation, in the eyes of the customer, from
its competition and
2. operating at a lower cost and hence at greater
profit.
Competitive advantage and the
3Cs




Needs seeking benefits
At acceptable prices
Assets and
Utilisation
Assets and
Utilisation
CUSTOMER
COMPANY COMPETITOR
VALUE VALUE
Cost differentials

Logistics and competitive advantage

• A position of enduring superiority over
competitors in terms of customer preference may
be achieved through logistics.
• Successful companies either have productivity
advantage or they have a ‘value’ advantage or a
combination of the two.
Productivity advantage
• There is substantial evidence to suggest that
big is beautiful when it comes to cost
advantage. This is partly due:
1. to economies of scale
2. to the impact of the "Experience Curve".

Productivity advantage

• Logistics management can provide a multitude
of ways to increase efficiency and productivity
and hence contribute significantly to reduced
unit costs.
Value advantage
• Customers don’t buy products, they buy benefits,
these benefits may be intangible (image or
reputation)

In other words:
• Products are purchased for the promise of what
they will “deliver”.
Value advantage
Adding value through differentiation is a powerful
means of achieving a defensible advantage in the
market.
But How it could be achieved?
1. Value segments approach
2. Services augmented offers
Logistics and competitive advantage
Productivity
Advantage
Lower Cost
profile
Value
Advantage
Differential
‘plus’
Productivity and Value advantage
• Successful companies will often seek both
productivity and a value advantage. Available
options are:
Productivity and Value advantage
Marketing logistics’ strategic goal would be
Gaining competitive advantage through
logistics
• Competitive advantage cannot be understood by
looking at a firm as a whole. It stems from the
many discrete activities a firm performs.

• In this regard; we can use the value chain analysis
to disaggregates a firm in to its strategically
relevant activities
Gaining competitive advantage through
logistics
Margin
Gaining competitive advantage through
logistics

• Competitive advantage grows out of the way in
which firms organize and perform these discrete
activities within the value chain. (More cheaply
or better than its competitors)
Gaining competitive advantage through
logistics

Productivity advantage:
Capacity utilization, inventory reduction, closer
integration with suppliers.

Value advantage:
Superior customer services

Gaining competitive advantage through
logistics
The mission of logistics management
• It is to plan and co-ordinate all activities
necessary to achieve the desired levels of
delivered service and quality at lowest possible
cost.

• Logistics must therefore be seen as the link
between the market place and the operating
activity of the business.


• The fig illustrates total system concept
The mission of logistics management

• The previous fig suggests that the needs of
customers are satisfied through:
The co-ordination of the materials and
information flows that extend from the market
place, through the firm and its operations and
beyond that to supplier.
The supply chain and competitive
advantage
• The supply chain is the network of organizations
that are involved( through upstream and
downstream linkages) in the different processes
and activities that produce value (goods or/and
services).
• Recall the value system in Ch 5
Supplier VC Firm VC Channel VC
Buyer VC
The supply chain and competitive
advantage
• Supply chain management in this regard
should be after integrating outside
boundaries of the firm to include both
suppliers and consumers
The supply chain and competitive
advantage

• The main challenge would be:
Integrating and coordinating the flow of materials
from suppliers (often off shore) and managing the
distribution of final products through multiple
intermediaries.
The supply chain and competitive
advantage
• The difference between logistics and supply
chain management p157
• Achieving an integrating supply chain p158-
159 fig 11.9
• Scope of supply chain management fig 11.8
p158
Very important
Fundamentals of supply chain
management
1. Views the supply chain as a single entity
2. It calls for strategic decision making because of
its impact on overall costs and market share
3. provides a different perspective on inventories
which are used as a balancing mechanism of last
not first resort.
4. Requires high level of integration
The changing logistics environment
• The customer service explosion (Services excellence,
appropriate delivery systems, committed employees)

• Time compression (logistics lead time)
ORDER CASH

• Globalization of industry (offshore)

• Organizational integration (Material, production, and
marketing managers)
The challenge of logistics management
• To achieve the goal of competitive advantage
through both cost reduction and service
enhancement.

• Organizations need to accelerate the movement
through the supply chain and to have more flexible
Logistics systems and this could be achieved
through:
The challenge of logistics management
- Cutting short the pipeline (Unneeded
inventory)
- Improve the pipeline visibility (Organizational
barriers removals, better coordination)
- Managing logistics as a system
We covered so far
• Definition of logistics
• Logistics and competitive advantage (Productivity
and Value advantage)
• Competitive advantage and value chain
management
• The mission of logistics management
• The supply chain and competitive advantage
• The changing logistics environment
• The challenge of logistics management
Activities
1. Identify the fundamentals of supply chain
management, and how they do function.
2. Explain the characteristics of the most
challenging factors, in the area of logistics.
3. How can we use logistics to add value and obtain
competitive advantage