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21909F/4 Higher Diploma in Business Administration

Supply Chain and Logistics


Business Administration Discipline Lecture 15
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Lecture 15
Strategic Integrated Logistics Management

1. Introduction

Firm must manage the movement of goods to, through, and from a
manufacturer. It is the integrated logistics management. It seeks the continuous
flow of goods from the raw material source to the final customer and the cost
efficient fulfillment of service needs.

2. The Integrated Logistics Model

It is
“The process of anticipating customer needs and wants; acquiring the capital,
materials, people, technologies, and information necessary to meet those needs
and wants, optimizing the goods –or service – producing a network to fulfill
customer requests; and utilizing the network to fulfill customer request in a
timely way.”

From Bloomberg, Chapter 4, p. 47

3. Integrated Logistics Activities

There are three operations – inbound logistics, conversion/operations, and


outbound logistics which rely on five primary logistics activities:
transportation, facility structure, inventory management, material handling, and
communication/information. Service response logistics has three primary
activities: waiting time, capacity and delivery.

4. The Integrated Logistics Value-Added Concept

It means to enhance the customer’s perception of a product’s value by creating


economic utility. The four economic utilities add value to a product or service
are Form utility, Possession utility, Time utility, and Place utility.

 Form Utility – Manufacturing creates form utility through production


process.
 It makes a product in the shape, size, colour and so on demanded by
consumers.
 Possession Utility – transfer of ownership from one party to another.

Lecture 15 – Strategic Integrated Logistics Management 1


21909F/4 Higher Diploma in Business Administration
Supply Chain and Logistics
Business Administration Discipline Lecture 15
_____________________________________________________________________
 Place Utility – Moving a product from one point to another point where
demand exists. It can expand the boundaries of a market.
 Time Utility – It is having the product/service available when needed. It is
provided through transportation, inventory management, and facility
structure.

5. Integrated Logistics Interfaces within the firm

Integrated logistics should be self-contained. That is integrated logistics


activities should be organized and controlled ‘under one roof.’ Activities
should be consolidated under the control of one person to simplify operations.
Then integrated logistics can serve all parts of the firm and coordinate activities
to control costs.

6. Strategic Integrated Logistics Management (SILM)


It analyze the environment, sets goals, and deploys resources to meet those
goals in that environment. It defines the steps in a process and the methods by
which they may be executed.

7. Key issues in SILM

It usually addresses network design, human resources, organizational


relationships, ties to organizational strategy, and measurement, goals, and
standards.

Any changes in the priority of the addressed issues will certainly affect all
aspects of logistics from supply management to customer service.

Network Design

It addresses the no. and types of facilities a firm will operate, where they be
will located, and how they will operate. Its choices depend on the resources of
the firm eg. Capital, HR, relationships, etc. Decisions also depend on what
customers want, what competitors do, and what governments and regulatory
agencies will allow.

Eg. The low costs of manufacture may create a competitive advantage, but the
higher distribution costs may offset those advantages.

Other decision making tools like simulations, modeling techniques to design


logistics networks, decision support tools, etc.

Lecture 15 – Strategic Integrated Logistics Management 2


21909F/4 Higher Diploma in Business Administration
Supply Chain and Logistics
Business Administration Discipline Lecture 15
_____________________________________________________________________

Human Resources

Hiring, training, and placing people can make or break an organization. The
availability of labour will affect network design and organizational
relationships. IL managers must decide whether to hire people with
experience, or to hire people with little or no experience and train them. But
decision must be strategic.

Organizational Relationships

It include those with 3rd parties, suppliers, customers and regulators.


Management can often choose among suppliers, decide which activities to
source from 3rd parties, and build a variety of links to customers. Management
can decide what sort of relationship to maintain with key regulatory agencies.
Organizations should keep core competencies to themselves.

Ties to organizational strategy

A perfect logistics strategy will fail if it does not fit the organization’s broad
strategy. For example, if a firm’s goals involve lowest possible costs, then
adopting a high-service, high-cost logistics strategy will not work or vice-versa.

Measurement, goals, and standards

People work toward what is measured. Managers must first choose what to
measure, set standards on those measurements, and then establish goals.
Though no organization can measure every aspect of work behaviour,
quantification and measurement can help define desirable behaviour and limit
undesirable behaviour.

For this reason, establishing measures for control is also a step in the SILM
model.

8. Evolution of Strategic Integrated Logistics Management

Planning

SILM is the set of decisions that deploys assets with current and future
operations and decisions in mind. This prepares the organization for future
decisions, allowing them to be made quickly and without disrupting daily
activities. Planning is the first step in SILM.

Lecture 15 – Strategic Integrated Logistics Management 3


21909F/4 Higher Diploma in Business Administration
Supply Chain and Logistics
Business Administration Discipline Lecture 15
_____________________________________________________________________
Effective planning derives the following benefits:

i. Planning helps managers better understand the organization.


ii. Planning allows managers to pick a suitable direction for the
organization.
iii. Planning helps managers think, decide and act more effectively.
iv. Planning helps keep the organization flexible.
v. Planning helps stimulate cooperative, integrated, enthusiastic
approaches to problems.

vi. Planning indicates how to evaluate progress toward specific


objectives.
vii. Planning can lead to socially and economically useful results.

9. Strategy

Strategy is a set of specific actions aimed at fulfilling the objectives and goals
established by the firm. Firms develop strategies for many reasons:

i. Resources are finite and must be carefully managed.


ii. Competitors’ strengths and behavior are uncertain.
iii. Decisions today must be coordinated between distant places and over
varying time intervals.
iv. Commitment of resources is irrevocable and must be carefully
analyzed.

10. Strategic Management Defined

The integrated logistics manager combines the concepts of planning and


strategy to reap the benefits of each idea (both planning and strategy).
Strategic management is the process of identifying the long-term goals, the
broad steps necessary to achieve these goals, and implementing the chosen
strategies.

Strategic Integrated Logistics Management Model

A. Situation Analysis

This step contains 3 components: the mission statement, internal environmental


assessment, and external environmental assessment.

Mission Statement
It justifies the existence of the IL function. It delineates the role of IL in the firm and
ties it to the firm’s mission. The IL mission statement should at least address whom
will be served, how IL will serve them, and what service IL will provide.

Lecture 15 – Strategic Integrated Logistics Management 4


21909F/4 Higher Diploma in Business Administration
Supply Chain and Logistics
Business Administration Discipline Lecture 15
_____________________________________________________________________
Internal environmental assessment

Categories include:

 Management attitude toward IL,


 Purchasing
 Marketing plans
 Manufacturing and operational variables
 Inventory plans and methods
 Warehousing activities
 Order Processing
 Transportation
 Production planning
 Efficiency of the operation
 Budgets

The IL function must incorporate information from other functions in the firm.

External Environment

It evaluates the external variables that the firm cannot control. Eg technological
advances, EDI, new inventory software packages, new packaging methods, political
and legal decisions (trade pacts), regulatory considerations (deregulation, self-
regulation), competition (customer service), and economic conditions (inflation,
recession, unemployment).

B. Setting Objectives and Goals

Objective is a long-range purpose or desire that the firm wishes to accomplish. It is


neither time-dependent nor measurable. Goal is measurable and time-related. IL
mission statement defines and positions the IL operation in the firm. Objectives and
goals tell the IL manager what vision and what measurable standards must be met to
accomplish the mission. Eg Objective, “reduce overall IL costs and maintain existing
service levels”, associated goal could be “reduction of warehouse operating expenses
by 10% during the next fiscal year.

C. Generating and Evaluating Strategic Alternatives

This stage is to choose specific strategies to meet the previous step. They may arise
from creative strategy development sessions, formal or informal brainstorming, or
other sources. Group strategy development results in more solutions and more
distinctive solutions than individual strategizing

D. Strategy Selection

After management evaluates and ranks the strategies, specific strategies must be
selected for implementation. The most critical concerns should be listed in sequence.
The IL manager must choose strategies that will accomplish the stated goals.
Strategies not chosen but retained for later use are called contingency strategies

Lecture 15 – Strategic Integrated Logistics Management 5


21909F/4 Higher Diploma in Business Administration
Supply Chain and Logistics
Business Administration Discipline Lecture 15
_____________________________________________________________________

E. Developing Specific Tactical Plans for Selected Strategies

This step is to implement the selected strategies. A tactical plan specifies the
operations, steps, or processes that a firm must perform to execute the strategy. The
IL manager now writes a step-by-step procedure explaining how to implement the
strategies. This document breaks down tasks into simple steps.

F. Strategy Integration

Before implementing all strategies and tactics, the IL manager should let all involved
in operations related to the strategies knows what to do. It can avoid much confusion
and overcome numerous problems. It is essential that each of the staff a part of the
strategy from the beginning.

G. Strategic Management Process Audit

An audit team must be formed to set control standards, evaluate performance, and
provide feedback. It must at least 1 member who is not IL member. The best choice
would be an outside consultant which helps avoid conflicts of interest and increases
the validity and reliability of the audit procedure.

Measurable standards must be set for their strategies. These can come from
publications, firm’s history and records. Evaluation of the SILM process compares
the performance of IL operations to the performance standard. Strategy needs to be
altered if performance is too far from standard.

If results are not as expected, the IL manager must determine

Why the difference occurred


If the difference is significant
What must change to correct any problems

Feedback is the final phase of the SILM process audit. Audit finding should be
reported to all relevant parties. A written report should discuss each step in the SILM
process and evaluate the firm’s performance on the mission, objectives, goals,
strategies, and tactics.

10. Integrated Logistics Quality

“It is meeting agreed-upon customer requirements and expectations”. There


are 4 phases in the evolution of the quality process:

Phase 1 – Quality Control

Defect-free services provided by the seller. It is management-driven

Lecture 15 – Strategic Integrated Logistics Management 6


21909F/4 Higher Diploma in Business Administration
Supply Chain and Logistics
Business Administration Discipline Lecture 15
_____________________________________________________________________
Phase II: Quality Assurance

The firm attempts to satisfy all customers. It is driven by customer.

Phase III: Total Quality Control

The firm is attempting to gain a significant competitive advantage. It is driven


by management, workers, customers, and suppliers working toward a common
goal.

Phase IV: Customer Value

The firm emphasizes providing the best comparative net value for the customer
based on customization, flexibility, innovation, and responsiveness. It is driven
by management, workers, customers, and suppliers working toward a common
goal of providing added value to the firm and its customers.

The 10 IL Excellence Principles

 Link integrated logistics to the corporate strategy.


 Organize comprehensively.
 Use the power of information.
 Emphasize human resources.
 Form strategic alliances.
 Focus on financial performance.
 Target optimum service levels.
 Manage the details.
 Leverage logistics volumes.
 Measure and react to performance

Why Quality Efforts Fail

The organizations did not change their priorities to truly adopt the quality
concept.

 No goals for improvement


 Nobody is responsible for quality
 No resources are assigned in their business plans
 Many firms focused their quality efforts on fighting imports by
attempting to improve the quality of their competitive products.
 Failed organizations did not initiate benchmarking as a means to
judge the quality of their offerings.
 They did not develop measures to determine where they were in
relation to the “best of the best”.

Lecture 15 – Strategic Integrated Logistics Management 7


21909F/4 Higher Diploma in Business Administration
Supply Chain and Logistics
Business Administration Discipline Lecture 15
_____________________________________________________________________
 Quality efforts were not recognized or rewarded. Little or no training
was provided.
 Lack of management’s support and leadership. CEOs did not get
personally involved, delegating responsibility to others.
 Large organizations with many subsidiaries could not decide whether
to centralize or decentralize quality efforts.

11. Integrated Logistics Benchmarking

It is a continuous process of measuring a firm itself against the toughest


competitors or those companies recognized as industry leaders. It identifies
performance gaps between a firm and the best practice and them assists that
firm in closing the gap. It is really comparing your product, car, stereo,
computer, house and the like against someone else’s and then deciding what
you can do to make it better.

It is used in integrated logistics to analyze customer service offerings.

The benchmarking process is:

Step 1: Plan Benchmarking

Select areas to be benchmarked


Identify benchmark candidates
Identify additional data source

Step 2: Conduct Benchmarking

Measure own operation


Collect benchmark data
Determine Gap
Project future performance levels

Step 3: Gain acceptance of benchmarking results

Step 4: Carry out improvement

Set goals
Plan improvements
Implement

Following these steps can help the IL manager to superior performance and to
reap the following benefits:

Lecture 15 – Strategic Integrated Logistics Management 8


21909F/4 Higher Diploma in Business Administration
Supply Chain and Logistics
Business Administration Discipline Lecture 15
_____________________________________________________________________
 Gain awareness of industry best practices
 Establish realistic objectives and goals
 Guide strategy, structure, and tactical action plans.
 Focus resources on high-impact opportunities.
 Improve service quality.
 Control costs effectively.
 More adequately meet end-user customer requirements.
 Determine true measures of productivity.
 Attain a competitive position.

Selecting the right firm to benchmark against is important. One can benchmark
against direct competitors or the best firm in the industry.

Source: Chapters 4, 17, David J. Bloomberg, Logistics

Lecture 15 – Strategic Integrated Logistics Management 9


21909F/4 Higher Diploma in Business Administration
Supply Chain and Logistics
Business Administration Discipline Lecture 15
_____________________________________________________________________

Week 15 – Strategic Integrated Logistics Management (Tutorial)

1. What is strategic integrated logistics management and what are the steps
involved in working through the strategic integrated logistics management
model?

2. Explain what integrated logistics quality is all about?

3. What is integrated logistics benchmarking?

Lecture 15 – Strategic Integrated Logistics Management 10