Aims of the chapter Relating strategy to lower decisions Areas for decisions in implementation Managing change Case study-Passenger interchange.
AIMS OF THE CHAPTERAfter listening us you should be able to:■ SEE how a logistics strategy fits into an organisation’s broader decisions■ OUTLINE the strategic importance of logistics■ DEFINE a logistics strategy and DISCUSS its focus■ DISCUSS alternative logistics strategies■ APPROACH the design of a logistics strategy
STRATEGY IMPLEMENTATIONIs the process that turnsstrategies and plans intoaction in order to achievestrategic objectives and goals
Strategies only become effective whenthey are implemented. This means that thelong term aims are translated into lowerdecision ,and the work is carried out toachieve them.
Strategic are concerned with more detailed tactical and operational decisions. The distinction between strategic ,tactical and operational decision are not really this clear.
When we talk aboutimplementing a logisticstrategy we mean making thelower decision, andtranslating the general aimsof the strategy positiveaction. We actually do whatis necessary to achieve theaims of the strategy.
Difficulties with implementation It can be difficult to translate a logistic strategy into lower decision. This is obviously true when the strategy is poorly designed, and lower managers have to translate vague concepts like ‘‘global leadership’’ into actual operations.
There are two options at this point; First; managers can say that the strategy has been carefully designed, and everyone must work harder or find new, innovative ways of achieving the target. Second; managers can say that the practical difficulties are too great, and that there was a mistake in setting unrealistic target.
Some common problem with implementinglogistic strategy Strategies are badly designed,perhaps with the wrong aims or focus They ignore key factors, or emphasise the wrong feature. People who design the strategies are not responsible for their implementation İt is imposible, or very difficult to implement them properly
How we do solve these problem? An organisational structure that is flexible and allows innovation Developing an organisational culture that supports the strategy Open communication which encourage the free exchange of ideas Effective systems to distribute information and support management decision.
BEST SOLUTIONHaving the right skill in the rightplace at the right time.
AREAS FOR DECISIONS INIMPLEMENTATION- Types of decision- Structure of the supply chain- Location of facilities- Ownership and outsourcing- Enabling practices- Capacity
Types of DecisionImplementation is convenient to describe two types of strategic decision:1- Sets out the principles we work with2- Shows how the organisation will achieve these principles
- These decisions have “Long Term” consequences.- The first decision type is concerned with “aims and designs”- The second decision type is concerned with “practicalities and implementation”
Traditional ViewsBallou says that;When moving to the implementation of a strategy, we need to concentrate on four areas:- Customer Service- Facility Location- Inventory Policy- Trasnsport
Helming and Zonnenberg suggest decisions in five areas:- Supply Chain Configuration- Enabling Practices- Strategic Relationships- Application of Information Technology-Organisation
“ Companies hurl staggering sums of money and human resource at their supply chain infrastructure, only to fail at implementing their supply chain strategy.”
A BROADER VIEW A broader view of implementation says that;we should consider decisions in every function oflogistics from procurement through to finaldelivery.
Structure of The Supply ChainThe supply chain for a product consists of tiers of suppliers feeding materials from original sources into its operations, and then tiers of customers moving materials out to the final customers.
Some factors that affect the structureof supply chain:- Type of customer demand- Economic climate- Availability of logistics services- Culture- Rate of innovation- Competition- Market and financial arrangements
Supply chain length; is the number of tiers or intermediaries, thatmaterials flow through between source anddestination. Example: Exportes might use a series oflogistics centres, transport operators, agents,freight forwarders, brokers and agents to movematerials through different parts of theirjourney.
Supply chain breadth; is the number of parallel routes that materials can flow through. Example: Thornton’s has a narrower chain, and most of their chocolate sells through their own shops; Pigalle rt Fils has a very narrow chain and they only sell their chocolate in two shops in Belgium.
The best choice of length and breadthdepends on;- The amount of control that an organization wants over its logistics- The quality of the service- The cost
Broadening the chain gives high customer service, but it increases costs and reduces the manufacturer’s control.Making the supply chain long and narrow can use intermediaries to reduce costs, but the manufacturer loses some control and the customer service does not improve.
We can illustrate some of the options fora supply chain with a basic product,such as shoes.
Best location for facilities; For example Warehouse;-areas with development grants-factories-customers-transport
Location effect on logisticsperformance ; Fast delivery →→use local warehouses Low cost →→stocks in large,centralised warehouses Import and export →→warehouses near to ports or rail terminals Manufactures goods →→stock of finished products near the factory
Qestions of location? It should be tackled very carefully,as they have a considerable impact over the long term. Once a facility is open it is difficult to close it down or move it.
Location is not an isolateddecision.WHY? It leads to a series of related decisions about the work done in each location, For example; - size of each facility - level of technology used - layout of resources - customers to serve from each location…
Ownership and Outsourcing One organisation does not have to own asupply chain to get the benefits of integration.Suppliers and customers can get mutual benefitsby working together, typically in a strategicalliance.
Supplier–customer partnerships→→ easiest to imagine and they have mosteffect on the supply chain. A similar arrangement can cover a wholerange of services,such as: -electricity supply,banking service and officecleaning
A common form of partnership for logisticshas a specialised company looking after allof an organisation’s transport. This arrangement has the advantages of anefficient and experienced specialist to lookafter the transport, while the organisation canconcentrate on its core operations.
Why stop at transport An organisation can form partnerships with other companies to look after warehousing, purchase of materials, materials handling, and many of the other functions of logistics. When one company uses other companies to run its logistics, it is called third party or contract logistics. The use of third party logistics is a special type of ‘make-or-buy’ decision
A fuller list of potential benefits includes: Lower fixed costs, with customers only paying for services they use Specialist suppliers who have expertise and use the best systems and practices Suppliers can combine work from several customers to get economies of scale Guaranteed high, and agreed, levels of customer service Flexible capacity, dealing effectively with peaks and troughs in demand Lower exposure to risk from, say, varying demand Increased geographical coverage and local knowledge A convenient way of entering new markets
Rowley summarises the benefits by saying ‘The results of successful outsourcing are service improvement, cost reduction and quality enhancement’
There are disadvantages: Reduced control Inability to respond to unusual circumstances More complicated communications Conflicting objectives, Less control over costs…
European contract logistics Huge business in Europe Total cost of logistics was $ 150 billion in 1999 (26%→third party suppliers) 4 years later it’s increase 30% higher Germany (28%)- France(20%)- UK(17%) Because each of the economies has developed differently, and different logistics requirements, the use of third parties varies quite widely. Germany, France and the UK each spend about $10 billion a year on third party logistics(grow at 8%) But growth will be faster in Italy and Spain but low levels of outsourcing.
Enabling Practices Enabling practices are the activities associated with the supply chain that allow it to work efficiently For example; reliable information processing is an enabling practice that allows logistics to function properly
Organisation has designed the structure of its supply chain, and found the best locations for facilities For example; use just-in-time methods to reduce stocks, EDI (Electronic Data Interchange) to link with partners, or procurement via websites
The idea of the enabling practices as supporters of logistics can be important If we look at ; series of organisations in the same business → envolved in similar ways (whisky distillers or detergent manufacturers)
Capacity The capacity of a supply chain is the largest amount of materials that can flow through it in a given time.(lorry→25 tonnes, airline→450 passengers etc.)
Bottleneck → not all parts of a chain have the same capacity, so the overall capacity is set by the part with the smallest individual capacity If wholesaling forms the bottleneck with a capacity of 200 units of a product an hour, this sets the capacity of the whole supply chain – even if other parts have a much higher capacity
The only way of increasing the capacity of the supply chain is to increase the capacity of the bottleneck; adding more resources elsewhere has no effect, it only increases the amount of spare facilities and reduces the utilisation.
The solution: To get a smooth flow of materials through the supply chain, we have to make sure that each part has an appropriate capacity. This means that the overall capacity matches total demand, and the capacity of each part is matched, so that there are no restrictive bottlenecks
Ralston Energy Systems(RES) affiliate of Eveready Battery Company (EBC) manufacturing plants in America, Europe and Asia leading brand range of batteries and torches Until 1998 RES ran two warehouses within the Czech Republic-The first was a bonded warehouse used to store imported materials-second warehouse was a ‘sales warehouse’ run by RES on its main site Two other trucking companies were involved in export and import operations.The sales warehouse was about three times the size of the bonded warehouse
Summary of logistics at RalstonEnergy Systems s.r.o.
This structure had a number of weaknesses: The sales warehouse was leased from a competitor of RES.It was not appropriate to store finished goods in a competitor’s facilities. The sales warehouse had become too small The sales warehouse had poor arrangements for loading and unloading trucks All goods imported into the Czech republic were sent to the bonded warehouse, moved by weekly Local distributors charged high rates for each truck load delivered.
Their solution was to outsource logisticsto a third party. RES effectively closed its sales warehouse, and moved these activities to the new operator.
The new service brought the followingbenefits: Flexible warehousing space Variable warehousing costs Variable distribution costs Increased service quality Associated services from the operator Saving overhead costs of management in the warehouse Extending opening times from 0700 to 1900 Removing the conflict of interest with a competitor- owned warehouse Managing remote stock in Slovenia from the same facilities
MANAGING CHANGE You’ll never get me up on one of those butterfly things!
Without accepting the fact that evrything changes,we can not find perfect compusure.But unfortunately, altough it is true,it is diffucult for us to accept it.Because we cannot accept the truth of transience we suffer.(Shunryu Suzuki)
CHANGE; Everywhere, it is constantly changing. To survive organizations need to decide,not whether to change,but when and how to make it occurs most succesfully. Change management tools are poorly understood and/or hard to implement To manage change, manage yourself first, influence others later
As the strategy evolves, the operations of the whole logistics function must adjust and move forward. New practices affect everyone. Unfortunately, this presents a problem, as most of us do not really like changes.
What We Know About Change Change will not stop- Complex change is it will only go faster typically accepted if No matter how well enough time is planned, it will not be allowed trouble free Rapid change can Each of us is occur if it’s a small accountable to adjustment making change Most people initially acceptable resist rapid, complex change
People Respond to Change…. At different rates At multiple levels: personally, professionally, socially and organizationally By seeing it as opportunity or danger Successfully, by being resilient
Many organisations prefer to stick to their old practices. Unfortunately, this allows more flexible competitors to gain an advantage, and their performance inevitably declines.
Some signs that an organisation is notchanging to meet new circumstancesinclude: low sales and falling market share, as old products are overtaken by competitors old-fashioned attitudes and operations poor communications within the organisation and with trading partners too much inflexible top management with no new appointments
Change Can Be Perceived As Positive or Negative Change is a normal part of business and if we do not respond we will fall behind competitors. To be more positive, we should welcome change as it creates opportunities, improves work conditions, gives better practices and performance, and more interesting, better-paid and more secure jobs. This new attitude does not happen by chance, but it needs careful management
Organisations typically move througha series of stages: 1. Denial – where employees deny that there is a need for change 2. Defence – defending the current way of doing things and criticising new proposals 3. Discarding – beginning to move away from the old ways and towards the new ones 4. Adoption – using the new ways and accepting that they are beneficial 5. Integration – assuming the new ways are normal and using them naturally.
RATE OF CHANGE Rate of change is important .because some organizations change very quickly , such as Intel which works at the frontiers of technology and is continually developing new products. Others change very slowly, and even make a virtue out of stability, such as Morgan sports cars whose basic design originated in the 1930s.
SUMMARYHasan Celal KÖK The logistics strategy sets the overall direction for logistics. Implementing the strategy translates this into a series of lower decisions and actions. Unless the strategy is designed properly, implementation can be difficult or impossible.To avoid these problems, managers should consider implementation during the design of the strategy
Some strategic decisions are concerned with principles, the first of these are considered more in the design of a strategy, second are considered more in the implementation. The supply chain must continually evolve to keep up with changing conditions. An important question concerns the rate of change.Business process re-engineering looks for more radical changes.
CASE STUDYPASSENGER INTERCHANGE Congestion is increase on the roads, especially in major cities. Some of this is due to commerical vehicles, but by far the majority is due to private cars.
Public transport•Theseservices must be attractive for peoplebecause, amount of crowding will decrease, itmore safely than private cars.
Buses are the most flexible from of publictransport so many people use the bus for go toanother city
But there are some difficulties itemswith the time for a journey these are: Joining time Waiting time Journey time Leaving time
In practise, most major cities such as London,Paris have sucessful interchanges, and they arespreading into smaller towns.
As a result there has been an increase in theuse of public transport a reduction in the numberof cars in the town centre and improved airquality.
QUESTIONS OF CASE STUDY What are the benefits of integrated public transport systems? Are the problems of moving people significantly different from the problems of moving goods or services? What are the benefits of public transport over private transport? Should public transport be encouraged and, if so, how?