Supply Chain Planning and Strategy

MODULE - 1

Introduction
MODULE

Introduction
Module Description

This module provides the introduction of Logistics and Supply management. The
introduction basically covers the topic of customer value chain analysis which
provides the basis for understanding the logistics strategies which need to be
formulated to ensure the effectiveness of logistics operations to support the overall
business of the organisations. This module also describes the various phases and
attributes of customer services in business and also the various role of logistics to
make the readers understand the importance of logistics and supply operations in
carrying out the business effectively.

Unit 1.1

Customer Value Chain

Unit 1.2

Service Phase and Attributes

Unit 1.3

Role of Logistics in Competitive Strategy

Unit Table of Contents
Unit 1.3 Role of Logistics in Competitive Strategy

Topics Page No.

Learning Objectives
Learning Outcome
1.3.1 Competitive logistics in competition
1.3.2 Role of Logistics
1.3.3 Strategic Logistic options
1.3.4 Designing a logistics strategy
1.3.5 Competitive supply chain
1.3.6 Benefits of sustainable supply chain
1.3.7 Supply chain strategic advantage
1.3.8 Conclusion
Activity
Summary
References
Multiple Choice Question
Multiple Choice Question – Answer Key
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Learning Objectives:

• Explain the role of logistics function in strategic management

• Illustrate the various strategic logistic options in the business
• Cite the process of designing a logistics strategy
• Summarise the benefits of sustainable supply chain

Learning Outcome:

• Examine the importance of strategic logistic function to help the organisations in

improving their competitive advantage
• Analyse the different strategic logistics options in the business.
• List various stages involved in the process of designing logistics strategy
• Analyse the benefits of sustainable supply chain practices to improve the
competitive advantage
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In today's dynamic business environment, manufacturing firms as well as retailers and

distributors must match supply with demand not only to gain a competitive advantage
but also to survive in the industry. The products have to be reached to the market
according to the demand in the market at right time in right quantity and quality. This
is possible only with good logistics function developed by the firms. Logistics is defined
as “the overall process of managing how resources are acquired, stored, and transported to their
final destination.” Logistics is one of the challenging and critical functions in business
since it integrates the various functions across the supply chain. It creates a link
between the suppliers and customers to integrate the functional entities across the
firms. With the growing turbulent competition in today’s market environment, the
firms have to use its resources optimally to focus on strategic opportunities. This
includes several internal factors such as:

Fig 1.3.1: Internal Factors Fig 1.3.2: External Factors

The external factors include technology, globalization and competition. Logistics plays a major
role to help leverage several advantages the firm has in the marketplace. Good logistics
strategies are important for companies to improve their efficiency who are dedicated to keep
their service levels at the highest levels despite the changes that occur in supply chain.

Generally the supply chain constantly changes which will further affect the logistics logistics
function. Hence in order to adapt flexibility in the supply chain, firms should develop and
implement the required formal logistics strategies. Effective logistics strategies can provide a
major source of competitive advantage to the firms. Thus competitive advantage is a key output
of the logistics management process in the firms.
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1.3.1 Competitive Logistics in Competition

Logistics management is a function through which the customers’ needs are satisfied
with the effective co-ordination of materials and information flows to the market, along
the firm and its operations from the suppliers. Logistics management plays a significant
role in improving the process of manufacturing and marketing which ultimately
impacts the competitive advantage of the firms.

• Manufacturing function generally gains their competitive advantage by

focussing on operating efficiency which is achieved through:
o Long production runs
o Minimised set-ups and changeovers
o Product standardisation
• Marketing function can achieve its competitive advantage through:
o Product variety
o High service levels
o Frequent product changes
• In the current dynamic business environment, the manufacturing and marketing
functions cannot act independently of each other. Any internal conflict between
them will become counter-productive to the achievement of overall
organisational goals.
• Nowadays marketing and manufacturing function have gained high level of
significance in the operations of firms. There is a strong need to understand and
meet customer requirements in order to make the firms survive.
• At the same time, the firms source for operations strategies to improve cost
competitiveness such as:
o Flexible manufacturing systems (FMS)
o Materials Requirements Planning (MRP) and Just-in-Time (JIT) methods
o Total Quality Management (TQM)
• Nowadays procurement also plays a great role in creating and sustaining
competitive advantage along with above discussed as part of an integrated
logistics process.
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• Organisations also include supply-side problems while developing their strategic

plans in the form of material purchase and supplies cost which is included in the
total cost. There is an opportunity for leveraging the capabilities and
competencies of suppliers by integrating the buyers’ and suppliers’ logistics
processes.
• Hence logistics is an integrative concept that seeks to develop a system-wide
view of the firm. It seeks to create a framework through which the needs of the
market can be translated into a manufacturing strategy and plans, which in turn
is linked into procurement strategies and plans.
• There should be a single strategy in the firms which have to replace the strategies
of marketing, distribution, production and procurement which forms the basis
for the mission of logistics management.

The continuously changing competitive business is also surrounding new complexities

and concerns for management which makes the firms realise the impact on logistics and
supply chain management strategies to improve their overall efficiency. Many strategic
issues that challenge the business organisation today are in the area of logistics and
supply chain management.
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1.3.2 Role of Logistics

• The logistics strategy consists of all the strategic decisions, policies, plans and
culture relating to the management of supply chains.
• The logistics strategy develops a link between the corporate level strategies and
the supply chain operations. The logistics strategy is concerned with the actual
movement of materials needed to support these aims.
• By considering the higher-level strategies, the logistics managers formulate
strategies using their views on levels of performance that are actually achievable
by logistics functions.
• There are many factors apart from logistics to consider while formulating a
business strategy. But logistics function contributes a lot during the formulation
of higher strategies on operations.
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Focus of the Logistics Strategy

In the current trend, the firms can survive only by supplying products that customers
perceive better than those from competitors. Logistics affects the following:
o Lead time
o Availability
o Cost
o Customer support
o Damage
o Customers’ perception of a product

Logistics significantly contributes to the design, quality, perceived value and success of
a product. The most important factors that should be stressed in a logistics strategy are

Fig 1.3.3: Four Ps

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Logistics has a role in the,

o Product - Through its contribution to the overall product package
o Place - Through its delivery of materials
o Price - Through its effect on operating costs

A logistics strategy can be formulated by considering the above features. The customers
are concerned with following elements which depend on different aspects of logistics:

Table 1.3.1: Different Aspects of Logistics

Cost Delivery speed
Quality Location
Service level Sourcing
Reliability Supplier relations
Availability Environmental impact
Flexibility Recycling, etc.
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Elements of Logistics Strategy

Fig 1.3.4: Elements of Logistics Strategy

1. Cost: Organisations expect to minimise their logistics costs which leads to reduced
cost of products and increased profit levels.
2. Customer Service: Logistics function can effectively control the measures of
customer service such as stock levels, delivery times, speed of response, etc. which
improves the long-term competitive advantage.
3. Timing: Customers expect the products to be delivered at the earliest and hence
most logistics strategy aims at fast deliveries.
4. Quality: Customers also demand good quality in all products, hence the logistics
strategy aim at high quality service.
5. Product Flexibility: This is the ability of the firms to customise products according
to individual specifications and hence logistics strategy may be based on specialised
or customised service.
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6. Volume Flexibility: The fluctuation in demand can cause severe problems for
logistics and hence the organisations allow volume flexibility to respond quickly to
changing levels of demand.
7. Technology: Currently logistics functions use a wide range of technologies for:
• Communications
• Tracking loads
• Sorting parcels
• Identifying products
• Recording stock movements
Hence, some organisations formulate strategies to develop and use the latest
technologies.
8. Location: Customers want the products to get delivered in their place and hence the
logistics strategy is to provide a service in the nearest location.
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1.3.3 Strategic Logistic Options

Lean Strategies
Organisation cannot completely avoid the cost of logistics, therefore the best option is to
make it as cheap as possible. The total cost of logistics needs to be minimised, while
ensuring acceptable levels of customer service. This approach is generalised into lean
logistics. The aim of a lean strategy is to do the operations using the minimum
resources such as people, space, stock, equipment, time, etc.

Fig 1.3.5: Aim of Lean Strategies

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Lean operations were initiated in the Toyota Motors and now it is spread across many
areas. The approach is summarised in five main principles:

Fig 1.3.6: Five Main Principles

1. Value – Designing a product that has more value from a customer’s perspective
2. Value Stream – Designing the best process to make the product
3. Value Flow – Managing the flow of materials through the supply chain
4. Pull – Manufacturing products only when there is customer demand
5. Aim of Perfection – Looking for continuous improvements to get closer to the
aim of perfect operations.
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A lean strategy looks for the various ways of eliminating the wastes. A detailed analysis
of current operations is done to remove the operations that:

Fig 1.3.7: Detailed Analysis of Current Operations

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Four Principles are involved in Achieving Minimal Waste

Fig 1.3.8: Lean principles

1. Specify Value: Customer value is identified and added along the different
activities of supply chain network.
2. Map out Value Stream: Identifying the processes in the supply chain network to
eliminate the processes that fails to create value to the product/services. This
mapping process helps to understand how the value is created in the product from
the customer’s perspective.
3. Create a Product Flow: Applying the factors outlined to ensure valuable processes
in a smooth system with minimum interruptions, inventories, and downtime.
4. Establish Customer Pull: Manufacturing is done only according to customer
responses; implying that demand information is made available across the supply
chain.
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Agile strategy
Agile Supply Chain is designed in highly flexible manner in order to quickly adapt to
the changing situations. This methodology is important for organisations that need to
adapt to the unanticipated external economic changes, such as

Fig 1.3.9: External Economic Changes

The aim of an agile strategy is to provide a high customer service by quickly responding
to changing circumstances.
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There are two aspects of Agility

• Speed of reaction - closely check the customer demands and react quickly to
changes
• Ability to tailor logistics according to demands from individual customers.

Organisations that concentrate more on customer satisfaction are said to have a good
customer focus. Organisations with good customer focus will:
• Aim towards complete customer satisfaction
• Ensure customers’ easy access to the organisation
• Find exactly what they need
• Help design logistics to meet the demand
• Help to be flexible and respond quickly to changing customer demands and
needs
• Get a reputation through outstanding quality and value
• Do after-sales checks to make sure the customers satisfaction
• Look outwards to keep in touch with potential customers, competitors, etc.

Organisations with satisfied customers have the benefit of attracting further new
customers. It is the fact that it costs five times as much to attract a new customer than to
retain the existing one.

Fig 1.3.10: Agile Vs Lean Strategy

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Strategic Alliances
An organisation can develop good co-operation with various elements of the supply
chain particularly by having a strategy of forming strategic alliances with suppliers and
customers. The purpose of this strategy is to ensure efficient supply chains, with all
members of the supply chain collaborating and sharing the benefits of long-term
co-operation.

Strategic partnerships are formulated to ensure:

• Better customer service
• Increased flexibility
• Reduced costs
• Avoidance of additional investment in facilities
• Lack of expertise within the organisation

Other areas for collaboration include

• Warehousing
• Import/export services
• Materials storage
• Information processing

The most common area for partnerships is transport, where one third of companies use
contract providers
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Other strategies
There are several other strategies, where organisations emphasise other aspects of
performance in Logistics.

Fig 1.3.11: Strategies used in Performance of Logistics

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1. Time-based Strategies
• Time-based strategies are aimed at guaranteed faster delivery of products.
• One important time-based strategy is time compression. It is similar to lean
strategy but concentrates more on time wasted in the supply chains. Its major
aim is to eliminate the non-value-adding time in the supply chain.

Benefits of Time Strategies

• Lower Costs - By maintaining less stock in the supply chain, less expediting,
etc.
• Improved Cash Flow – Need not wait so long for payment
• Reduced Risk - By reducing changes to orders, obsolete stock, etc.
• Simpler Operations - By eliminating delays and unnecessary stores

2. Environmental Protection Strategies

• Today many organisations develop strategies based around environmental
protection. They design products using natural ingredients and based on
sustainable development.
• In logistics operations, the organisations use eco-friendly vehicles, reusable
containers and employ recycling of materials.
• But most of the organisations assume that green practices raise costs. Still
customers today expect the green practices as the society is moving towards
the concept of sustainability.
• Hence, the organisations today formulate green strategies in the field of
logistics to improve the competitive advantage.
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3. Value-Added Strategies
• The supply chain consists of a series of activities which adds value to the final
product. The organisations formulate strategies to add as much value as
possible based on customer’s perspective.
• Organisations can also add value by adding time and place utility or
performing more work on the product.
• For example, the firms manufacturing air conditioners adds value by:
o Ensuring deliveries at the right place and at the right time preferred by
customers
o By providing additional services such as installing the machines
o Testing
o Giving instructions of usage
o Removing old machines
o Offering service contracts, etc.

4. Diversification or Specialisation Strategies

• These strategies concentrate at the range of services offered by logistics.
• Some firms use diversification strategies, offering the widest range of services
to satisfy maximum number of customers.
• On the other side, some firms have a strategy of providing a specific range of
services. They act as the best provider in their chosen area. They target only
on very limited customer base and provide specific services that cannot be
given anywhere else.

5. Growth Strategies
• Logistics services should aim at economies of scale and hence larger
operations can ensure both low costs and better services. Therefore, one
common strategy in this regard is based on growth.
• Some of the ways of achieving growth are:
o Taking over competitors
o Expanding the geographical area of business
o Diversifying logistics activities
o Moving different types of materials
o Increasing market share
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1.3.4 Designing a Logistics Strategy

The logistics strategies are designed in several stages. They are discussed as follows:

Setting the Environment

The following questions are needed to be answered before setting a logistic strategy:
o How do the organisations make these decisions?
o Why should a firm base its logistics strategy on flexibility rather than cost?
o Why does a firm choose to specialise or diversify?

• The process of designing a logistics strategy starts with examining the corporate
level strategies to see how logistics can contribute to them.
• The results are summarised in the logistics mission. This gives a statement of the
aims for supply chain management.
• Logistics missions are useful in developing the overall direction and priorities.
• It is better to start designing a strategy with a logistics mission. There is certainly
no single best strategy for any particular situation, and also there is no standard
procedure for designing a good strategy.
• According to researches, there is no one ‘right’ way to develop and implement
strategy. The key to successful planning is to get the best fit between the chosen
tools and techniques, the organisation’s current culture capabilities and business
environment and the desired outcome.
• This leads to find the best balance between the organisation’s internal strengths
and the external constraints to matching the organisation’s potential and
customer’s expectations.
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There are three factors that managers consider when designing a logistics strategy:

Fig 1.3.12: Factors Designing a Logistics Strategy

a) Higher Level Strategies:
• They set the organisation’s overall
goals and the context for all logistics
decisions.
• The mission gives the overall aims,
and the corporate and business level
strategies help to achieve these overall
aims.
• However, the logistics strategies must
support the higher-level strategies.
• For example, if the business unit
strategy aims for high customer service, then the logistics strategies should ensure
the logistics function to achieve high level of customer service.

b) The Business Environment

It consists of the various factors that affect logistics function. These include:
• Market expectations, attitudes and demographics
• Market conditions – Size, location, stability, etc.
• Technology – Current availability, future developments, rate of innovation and
depletion
• Economic climate – Gross domestic product, rate of growth, inflation/deflation
rates, etc.
• Legal restraints – Trade restrictions, liabilities and laws
• Competitors – Size, level of threat to new entries, strengths and weakness
• Shareholders – Expectations on return on investments, objectives, values, etc.
• Interest groups – Their objectives, strengths, level of support, etc.
• Social conditions – Customers’ lifestyles, changing demands, trends and fashion
• Political conditions – Stability, level of governmental control, external relations,
etc.
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c) Organisations’ Distinctive Competence

All competing organisations work in the same business environment. Each can succeed
only when they develop distinctive competence apart from competitors. This is actually
defined by the factors that the organisations develop to distinguish itself from others.
They include:

Table 1.3.2: Competence of Organisations Distinctive

Customers Demands, expectations, loyalty and relationships
Employees Skills, knowledge, expertise, loyalty and
commitment
Finances Capital, debt, transaction and cash management
Organisation Structure, hierarchy, relationships and flexibility
Products Nature, quality, reputation and innovations
Facilities Capacity, age, maintenance and reliability
Technology Currently used, future plans and R & D
Processes Structures, technology used and flexibility
Marketing Experience, branding and reputation
Suppliers Service, capacity, flexibility and partnerships
Other assets Knowledge, innovation and patents

The business environment and distinctive competencies will clearly state where an
organisation currently is, and the higher-level strategies show where it wants to be in
the future.
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Logistics Audit
A Logistics audit is an unbiased assessment made by a competent independent party to
assess the supplier and customer relations, planning procedures, document flow,
logistics infrastructure, quality control and correspondence of logistics costs to local
market conditions.
• A logistics audit can provide a clear idea of current operations.
• The purpose is to collect relevant information about existing practices and
performance of logistics.
• It gives a systematic review of current operations, procedures, costs, resources
utilisation, performance, products, and other relevant details.
• There are two main parts to a logistics audit:
o Getting information about the business environment
o Distinctive competence
• Initially an external audit scans the environment in which logistics work. This
review:
Table 1.3.3: External Audit
The nature of customers Services available
Types of demand Trends in the industry
Accepted service levels Economic conditions
Locations Geographical and political constraints
Competitors and their operations Other relevant external information
Benchmarks

• Then an internal audit scans the way things are done within the organisation and
identifies areas for improvement. It reviews:

Table 1.3.4: Internal Audit

the structure of the supply chain methods of materials handling
warehouse locations and size achieved service levels
stock holdings lead times
order processing transport arrangements
productivity damage
order processing Other relevant internal information
Role of Logistics in Competitive Strategy

This approach is similar to a SWOT analysis, which explores an organisation’s:

Fig 1.3.13: SWOT Analysis

1. Strengths
• What an organisation does well?
• Critical features it should build on
2. Weaknesses
• Organisation problems
• Areas of improvement
3. Opportunities
• Openings available the organisation
4. Threats
• Hazards that can affect the organisation

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Role of Logistics in Competitive Strategy

Strengths and weaknesses are concerned with the organisation’s internal operations
and show its distinctive competencies while opportunities and threats are external
factors, concentrating on the business environment.

• In this stage, the aims of logistics are set out in the logistics’ mission. It also
has details of current performance from the audit is available. Now, the firms
know where they want to go, and where they are at the moment. Hence, the
next stage is to identify gaps between these two and plan how to bridge the
gaps.
• While developing the logistics strategy the type of demand is viewed as an
important factor.
• A lean strategy may be the best when demand is stable and an agile strategy
may be the best for organisations offering a wider range of products, where
demand varies and is less predictable.
• It is very helpful for organisations that do not really know demand until
customers place orders, with make-to-order operations or
mass-customisation.
• The factors such as the type of demand can be considered to suggest the best
logistics strategy.

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Role of Logistics in Competitive Strategy

Guidelines for Designing and Implementing Logistic Strategies

Fig 1.3.14: Guidelines for Designing and Implementing Logistic Strategies

1. Analysing Current Circumstances

a) The external audit gives information regarding the business environment
in which logistics work. It identifies the factors and its importance that
lead to success in this environment.
b) The internal audit analyses the firm’s higher-level strategies from a
logistics point of view, giving the overall aim for logistics, its strategic
focus and also includes the logistics mission.

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Role of Logistics in Competitive Strategy

2. Designing Logistic Strategy

c) Design the general features of supply chains that can ensure the desired
delivery services. This generally includes:
i. The design of the network
ii. Location of facilities
iii. Capacity
iv. Technology used, etc.
d) Set specific goals to specify what each logistics activity must achieve. The
internal audit defines how well the current logistics achieve these goals,
and also identifies the areas of improvement.
e) Design the best organisational structure, measures and systems to support
the logistics network.

3. Benchmarking Logistics Operations with Competitors

f) Benchmark logistics, based on the performance of competitor
organisations, define measures to compare actual performance with
expected, optimal and competitors’ performances.

4. Implementation and Evaluation

g) Implement the logistics strategy using the designed structure, budget and
resources in the firms to improve the performance of the function.
h) Then monitor the actual performance, measures the deviations,
continually look for improvements, update the strategies, and provide
feedback to improve the system.

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Role of Logistics in Competitive Strategy

1.3.5 Competitive Supply Chain

Supply chains include the flow of information, products, and money from suppliers
end to the customers. The supply chain management strongly affects an
organisation's competitiveness in areas such as:
• Product cost
• Working capital requirements
• Speed to market
• Service perception

Hence the proper alignment of the supply chain with business strategy is essential to
ensure a high level of business performance. A competitive supply chain is essential
to a firm’s go-to-market strategy and also important in winning the business.

Critical Elements in Competitive Supply Chain

Fig 1.3.15: Critical Elements

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Role of Logistics in Competitive Strategy

1. Excellence
• Excellent supply chain strategies help to face the competition in an
increasingly complex marketplace. Organisation leaders need to pay more
attention towards their infrastructure to achieve supply chain excellence.
• These can support a more effective supply chain management process that
promote more aggressive performance goals across the various areas such as
purchase, operations, distribution, and integration strategies.
• The software applications today help the business leaders to gain keen insight
into the details of suppliers, factories, warehousing, distribution and customer
feedback.
• Integrating the above data and making thorough observations about the flow
and patterns of goods/services is needed for excellent supply chain leadership
development.
• Considering all the functional management as partners and building open
and responsive communication protocols during each phase of the process to
bridge the gap between current and potential profit margins.
• To stay competitive in the dynamic market, the firms need to contribute
towards positive outcomes through:
o Working with supplier alliances
o Building better rapport with managers
o Seeking more strategic sourcing options

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Role of Logistics in Competitive Strategy

2. Strategic Alignment
To have a competitive supply chain, it must be strategically aligned to the corporate
competitive strategy. Four major characteristics of a competitive supply chain are the
basis of the approach:
a) Supports and is an integral part of a company’s competitive strategy.
b) Leverages a supply chain operating model to sustain competitiveness.
c) It executes well using a balanced set of operational performance objectives.
d) Focuses on business practices that reinforce each other to support the
operating model and best achieve operational objectives.

3. Optimised Demand Management

• Demand management is defined as the “management of matching demand and
supply over time.”
• It involves the processes that deal with the short term, medium term and long
term.
• It requires coordinated decision making among supply-side managers
regarding supply chain, procurement, manufacturing, logistics, merchandise
planning, store operations and customer service, and also from the
demand-side managers regarding the marketing, sales and merchandising
organisations.
• In order to optimise profitability, decisions have to be made jointly across
these diverse management functions.
• Demand management requires information regarding the demand and
supply-side costs, cycle times and other relevant factors. These details are
required to decision makers to balance the supply and demand in an optimal
way over time.

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Role of Logistics in Competitive Strategy

1.3.6 Benefits of Sustainable Supply Chain

A sustainable supply chain ensures a long-term commitment to procurement and

supply chain management through sustainable practices.

Practices:
• Environmental, social and economic consequences of design
• Non-renewable material use
• Sustainable manufacture and production methods
• Green logistics
• Service delivery
• Optimum usage of materials
• Operation using latest technologies
• Good maintenance
• Reuse of materials
• Recycling options
• Disposal

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Role of Logistics in Competitive Strategy

Benefits and additional reasons to include eco awareness in the supply chain
includes the following

Fig 1.3.16: Benefits and Additional Reasons in Supply Chain

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Role of Logistics in Competitive Strategy

1. Increase Profitability – Proactively incorporating sustainability concepts in the

supply chain will decrease operations cost and also add value to it.
2. Asset Utilisation – Increasing the level of eco awareness into transportation and
inventory practices of the firms will increase the utilisation of key assets.
3. Risk Mitigation – Encouraging greater understanding of sustainability in the
firm’s supply chain will mitigate the risk involved in environmental, social, and
market.
4. Innovation – Integrating sustainability concepts into the supply chain will act as
a catalyst for supplier innovation.
5. Alignment – Business sustainability policies can be negotiated with the suppliers
and customers will help the alignment across the supply chain.
6. Continuous Improvement – A good understanding of sustainability concepts,
goals and objectives offer a good platform for continuous improvements.
7. Customer Service – Best sustainable practices if practiced in the supply chain
will standardise the operations which will improve customer service.
8. Regulatory Compliance – Green supply chain management practices may help
to ensure regulatory compliance.
9. Product Differentiation – Designing and implementing unique green supply
chain practices will differentiate the company and its products in the
marketplace.
10. Improve Reputation – Improve the reputation of the firms through green
processes such as logistics practices which will promote business sustainability.

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Role of Logistics in Competitive Strategy

1.3.7 Supply Chain Strategic Advantage

Earlier, supply chain and logistics functions were viewed primarily as cost centers to
be controlled. But during the past 20 years it has been used as a tool for a
competitive advantage for the organisations. Today in many firms, the supply chains
are optimised to provide them the competitive advantage.

Cost of Goods Sold (COGS)

• Firms can minimise their expenses by:
o Managing and planning freight
o Lowering inventory
o Lowering cost of goods sold (COGS) reductions
• One of the ways through which optimised supply chain achieves COGS
reductions is by negotiating with the suppliers.
• COGS savings are achieved through competition by issuing:
o RFI (Request for Information)
o RFP (Request for Proposal)
o RFQ (Request for Quotation) to multiple suppliers
• Supplier competition often leads not just to COGS savings, but to supplier
innovation and higher levels of customer service.

Freight Savings
Optimised supply chain negotiates with freight and transport providers for best
rates while doing overnight and expedite. But an optimised supply chain helps to
prevent those overnight and expedite scenarios.

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Role of Logistics in Competitive Strategy

Lead Time Management

The supply chain has many lead times and the firms have to optimise them.
• Time taken for the suppliers to secure the raw materials they need to produce
products.
• Time taken for the supplier to then produce the products.
• Time taken for the products to get to the facility.
• Time taken to receive, inspect and inventory the products once they are
in-house.
• Time taken for delivering the products to the customer at their place.

The organisation can establish the competitive priorities that their supply chain must
have to satisfy both the internal as well as external customers. They can then link the
selected competitive priorities to their supply chain and logistics processes to
improve their strategic advantage.

An organisation’s competitive priorities can be broken down into cost, quality, time,
and flexibility capability.
• Cost strategy: Focuses on delivering a product or service to the customer at
the least cost without sacrificing quality.
• Time Strategy: This strategy can be in terms of speed of delivery, response
time, and product development time.
• Quality Strategy: It aims as consistent, high-quality goods or services which
require a reliable, safe supply chain to deliver according to promises.
• Flexibility Strategy: Focuses on flexibility in aspects such as volume, variety,
and customisation.

The organisation may focus on these strategies to build their strategic advantage
over their supply chains to improve their overall efficiency.

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Role of Logistics in Competitive Strategy

1.3.8 Conclusion

The development and expansion of global competition with the increasing

international growth of companies, with increasing global sourcing of raw materials,
components, technology and labour, further impacts on the importance of logistics
function. Also, the turbulent domestic competitions between the firms and the
saturated markets have made the industries highly competitive and hence they need
to be effective and efficient to build the competitive advantage for the firms. Hence
the companies are required to successfully formulate and implement innovative
strategies to manage their logistics requirements in a better way to increase their
competitive advantage and corporate profitability and also to become market
leaders.

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Role of Logistics in Competitive Strategy

Summary

o Optimised supply chain is defined as “getting your customers what they want
when they want it — and spend as little money as possible getting that done.”

o A Lean strategy is most successful when there are few changes to customers,
products, or logistics, and when price is an important factor for competition.

o The value-added logistics services help the firms by providing their supply
chain a good competitive edge.

o A logistics strategy is the means of identifying the most efficient manner of

distributing goods and maintaining a high level of service.

o A logistics strategy can be defined as a set of guiding principles, attitudes and

driving forces that help coordinate plans, goals and policies between different
partners across any supply chain.

o A logistics alliance is a group or team of trading experts who works together

to help companies competently and successfully manage and deliver their
products.

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Role of Logistics in Competitive Strategy

Case Study

ABC Ltd manufactures various types of industrial chemicals at the outskirts of a city
and its distributors are located at various places across the country. ABC Ltd also
sells chemicals directly to the customers. XYZ Ltd is a major supplier of raw
materials to ABC Ltd. But ABC Ltd is facing some problems with this supplier due
to (i) late deliveries, (ii) delivery of wrong orders, (iii) missing deliveries.

In the earlier days, ABC Ltd has dealt with its supply problems by simply changing
its suppliers. Currently the company is expecting on further additional changes.
XYZ Ltd usually holds a large inventory to meet the demands of its customers. But it
depends on imports for some of the important items of inventory and the lead time
involved is around 3 months.

When ABC Ltd places orders for these important items of inventory, XYZ Ltd is not
in a position to meet the order regularly due to stock outs. Hence, ABC Ltd feels that
due to XYZ Ltd, their production schedule is totally disturbed. Due to the repeated
frictional relationship with ABC Ltd, the management of XYZ Ltd is not confident to
keep customer relationship with ABC Ltd. Though ABC Ltd is one of its major
buyers, still the constant threat by ABC Ltd has compelled XYZ Ltd to be on the
defensive mode. XYZ Ltd feared that if they suddenly stop the business with ABC
Ltd, then this might seriously affect their operations. Now the top management of
XYZ Ltd wants to change its customer base by a strong focus on building a
customer-base founded on long-tern relationship and rely less on business with ABC
Ltd. The present scenario between ABC Ltd and XYZ Ltd is like this:

At the beginning of every month, the customers of ABC Ltd forecast their
requirements for the next month. The customers place their orders using telephone
to ABC Ltd’s marketing department throughout this month. The marketing

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Role of Logistics in Competitive Strategy

department executives communicate the requirements to the logistics department of

ABC Ltd. Further the logistics department of ABC Ltd transmits the orders to the
purchase department. Purchase department, in turn, orders the required stocks from
XYZ Ltd. Sometimes, the customers of ABC Ltd place expedited orders. Such orders
are generally not met by XYZ Ltd since the stock with them has already been
ear-marked for other clients. Hence the customers of ABC Ltd are dissatisfied for
non-delivery of stocks on schedule.

Questions:
1. What are logistic problems faced by ABC Ltd?
2. How can ABC Ltd improve its logistical operations?
3. How can XYZ Ltd improve its supply to ABC Ltd?

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Role of Logistics in Competitive Strategy

Case Study Answer Key

1. Not able to manage their schedule due to the supply problems due to XYZ
Ltd.
2. By having strategies like managing the supplies using multiple supplier
strategies
3. By managing their international logistics operations properly, so that they
can supply the important items on time when required by customers such
as ABC Ltd.

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Role of Logistics in Competitive Strategy

Bibliography

E-References

• Coyle et al., The Management of Business Logistics, Thomson Learning,

7th Edition, 2004.

• Bloomberg David J et al., Logistics, Prentice Hall India, 2005.

External Resources

• [Link]
• [Link]
• [Link]
hUKEwjwyIfLmtTjAhWIfisKHRtRAOwQFjAAegQIARAC&url=http%3A%2F%2
[Link]%2Febooks%2FBusiness_Management%2Flogistics-an_intro
duction_to_supply_chain_management%[Link]%255D%255B2
003%[Link]&usg=AOvVaw3WwXSxY_cKIkzsdegj6yPB

Supply and Logistics Management | Introduction 18