After studying this chapter you will be able to understand: | 1-1 Logistics Management LSM 730 Dr. Khurrum S. Mughal Lecture 8 1 2-2 Logistics/Supply Chain Strategy and Planning “If you don’t know where you want to go, any path will do.” Six Concepts for Logistics Strategy Formulation Total Cost Concept Tradeoff conflicting costs at optimum Differentiated distribution Not all products should be provided 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 transportation costs than larger ones Product standardization Avoid product variety since it adds to inventory 1-3 Six Concepts for Logistics Strategy Formulation Total Cost Concept Tradeoff analysis Tradeoff conflicting costs at optimum Examples: Direct cost of Transport Service vs Indirect cost of inventory levels 1-4 2-5 A Cost Conflict in Logistics Six Concepts for Logistics Strategy Formulation | 1-1 Logistics Management LSM 730 Dr. Khurrum S. Mughal Lecture 8 1 2-2 Logistics/Supply Chain Strategy and Planning “If you don’t know where you want to go, any path will do.” Six Concepts for Logistics Strategy Formulation Total Cost Concept Tradeoff conflicting costs at optimum Differentiated distribution Not all products should be provided 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 transportation costs than larger ones Product standardization Avoid product variety since it adds to inventory 1-3 Six Concepts for Logistics Strategy Formulation Total Cost Concept Tradeoff analysis Tradeoff conflicting costs at optimum Examples: Direct cost of Transport Service vs Indirect cost of inventory levels 1-4 2-5 A Cost Conflict in Logistics Six Concepts for Logistics Strategy Formulation Total Cost Concept Tradeoff analysis Tradeoff conflicting costs at optimum Examples: Higher level of customer service resulting in less lost sales Vs Cost of inventories, transportation and order processing 1-6 2-7 A Cost Conflict in Logistics Six Concepts for Logistics Strategy Formulation Total Cost Concept Tradeoff analysis Tradeoff conflicting costs at optimum Examples: When customers purchase in small quantities and inventory is replenished in large quantities Out Bound inventory transport cost exceeds inbound transport costs Deciding on number of stocking points considering Inventory vs transportations costs Vs Customer service level 1-8 2-9 A Cost Conflict in Logistics Six Concepts for Logistics Strategy Formulation Total Cost Concept Tradeoff analysis Tradeoff conflicting costs at optimum Examples: At higher level of customer satisfaction Cost of lost sales vs Inventory Carrying Costs 1-10 2-11 A Cost Conflict in Logistics Six Concepts for Logistics Strategy Formulation Total
