Strategic Logistics Planning

The importance of logistics and the supply chain was realized by firms in the last decade because of the globalization of business activities, increasing competitive pressure and uncertainties in dynamic markets. This forced business firms to re-engineer or redefine their business process so as to bring efficiency and effectiveness into the operations. Hence, there has been a continuous improvement in logistics and supply chain operations for achieving the key goals of cost reduc­tion, flexibility, technology adaptability and superior customer service (through value additions) to gain a sustainable competitive advantage in the dynamic markets. The process of logistics strat­egy formation and its implementation varies with the firm’s business process, the product it deals in and the industry in which it operates. For example, a firm manufacturing plant machinery will be concerned with inbound, in-process and outbound logistics, which requires strong IT support for the integration of a large number of activities in the subsystems. The manufacturing firm may go in for an alliance with the 3PL supplier to obtain the benefits of scale economics. The trading firm (retail chains) with a wider product portfolio may, on the other hand, employ cross-docking as a strategy for increased inventory turnover resulting in reduced inventory cost and enhanced speed in customer service.

The strategic logistics planning process starts with analysis of the external and internal envi­ronment, which will decide its limitations, resource requirements and barriers to extend superior service to the customers. The regulatory framework in the country or internal resource constraints may not allow the firm to avail of certain opportunities, or may create barriers to extend the desired level of service to customers. The environmental analysis will help in identifying the company’s strengths, weaknesses, opportunities and the threats in serving the customer. This, in turn, will help in formulating the supporting strategies and organizing the appropriate resources (logistics mix) to achieve the logistics goals.

To implement a strategy, the firm needs the structure for its implementation. The structural elements include designing a logistics network and evolving network strategy. The network design is primarily concerned with planning of warehouses at strategic locations, transportation facilities and the information flow system across the supply chain. The network strategy may decide on the warehouse type (private, public or contract), transportation modes, routes and carrier selection, and technology selection and its adoption for information flow. The structural design also needs to develop a proper interface between the firm’s channel structure (physical distribution) and the logistical network. As the channels provide the place and time utility of the product to the customer, the proper interface between the two is a must. For better customer service, the logistics programs are designed to suit the needs of the channel members. For example, the wholesaler will prefer to have large consignments with fewer deliveries to economize on freight cost, while the retailer’s preference will be for smaller consignments with frequent deliveries to save on inventory cost. The channel design is concerned with customer service and it is extended through the back-end (logis­tical) activities. The proximity of the warehouse to the marketplace, continuous replenishment of inventory and reliable and consistent delivery performance are critical factors for decision on the logistical structural elements.

The success of strategy implementation depends on the efficiency of the functional elements in the movement of information and inventory across the supply chain. The channel length and breadth depend on the type of product, market size and the market share to be gained. The com­plexity of the logistical network and its connectivity will decide whether the firm has enough resources to do a logistical operation on its own or whether it is to be outsourced, so as to extend the desired customer service and also to have a wider distribution coverage at least cost (Figure 17.2).

In the overall network design, the critical role of the subsystems cannot be ignored. For example, the warehouse layout planning exercise will be incomplete without proper consideration of material-handling equipment and the storage system. An improper layout may create barriers to free and speedy movement of inventory across the supply chain and will reduce the throughput from the warehouse. Hence, the storage layout, equipment selection and storage plan should go hand in hand.

The selection of transportation route, mode and carrier operator is important for offering and maintaining a reliable and consistent service level. Transportation management is the key func­tional area in customer service and accounts for a major portion of the logistics costs.

The other functional area to influence strategic logistical planning is the materials or procure­ment management. It is a critical linkage in the supply chain wherein co-partnership with vendors, material requirement planning and scheduled procurement help keep the supply chain lean and cost-effective.

Warehousing, transportation and inventory management require close coordination for smooth flow of material movement across the supply chain and is linked to the structural deci­sion of the strategic logistics. The functional aspect of the structure elements plays a greater role in the success of the logistics chain to provide the desired level of service. Technologies like automatic identification, warehouse simulation, automated material handling, storage, and information and communication help in enhancing efficiency, effectiveness and productivity of the overall system. Consequently, it leads to competitiveness in delivering superior service to the customer at the least cost.

The last but not the least important aspect of strategic logistics is the implementation of strat­egy, the success of which is dependent on the efficiency of the people, equipment and the interfaces involved at the operating level. The major tasks at the operating level are order registration, order processing, order picking, replenishment and dispatching. These are done through proper policies and procedures at the operating level, use of the latest technology and through structuring, train­ing and initiating the change process at the organizational level.

In conclusion, the strategic logistics process will enhance the responsiveness of the organization to the customer through the deployment of both physical and information resources.

Source: Sople V.V (2013), Logistics Management, Pearson Education India; Third edition.