Logistics and Supply Chain Management Operations

Introduction

Logistics tends to occupy the demand side of any business (i.e. after the goods or services have been produced). With the prominence placed upon speed of response and advantages that accrue in keeping pace with demand could be dissipated by delays in the logistics systems for finished goods. Many retailers are reported to be placing a much greater emphasis upon strategic logistics systems. There are a number of possible operations strategy types, and that some firms may adopt more than one, our next consideration must be the composition of such strategies.

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The operations strategy cannot be designed in a vacuum. It requires the input of customer needs and requirements as well as resource and capability considerations. The subsequent strategic vision will have to be aligned to the wider business strategy in making decisions about the target market, product groups and core enterprise and operational competencies. We must also remember that these decisions are strategic, however, and often will involve radical step changes.

To create a distinctive or core competence Skinner (1996) suggests that ‘tinkering with the current system’ and just adding new technologies is not enough. In a complex and dynamic commercial environment, new techniques must be replaced by ‘a whole new product realization system that is different and better than any competitors’ (Skinner, 1996). An operations strategy for manufacture of goods is directly concerned with the transformation of raw materials and components into goods. Often these physical transformations will take place as part of a function (operations or manufacturing) and the operations strategy is this case is at a functional level.

The specific building blocks we are about to discuss will be common across a number of commercial sectors dealing with this type of product. However, there will be others essential to another type of industry and peculiar to that setting. Ergo, the list is not exhaustive. Apart from these building blocks of an operations strategy, there are other influences upon the final shape of the strategy.

Core competencies

Market leaderships can be achieved in one of three ways: through product leadership, customer intimacy, or through operational excellence. Following tasks should be considered:

  • Provide a linkage mechanism for key organizational partners in a supply or wider mutual network;
  • Incorporate the activities of all major line functions of the firm;
  • Extend into staff activities, so that individuals can clearly visualize how their activities contribute to wider aims;
  • Specify the performance required to achieve strategic aims;
  • Promote a culture of continual improvement and development of both activities and strategic aims.

Capabilities and processes

To achieve the required target the processes and capabilities should be:

  • process-based (derived from transformation activities).
  • system or coordination-based (across the entire operation system).
  • organization-based (across the entire organization).
  • network-based (covering the whole supply network).

Resources of the firm depend upon the industry and the firm, but can be thought of at two levels: individual resources of the firm (capital equipment, skills, brands and so on); and the way they work together to create competitive advantage. Given the individuality of a resource-based strategy, for our purposes we will have to think of resources as being: (a) tangible (physical, technologies and financial, etc.); (b) intangible (communication and information systems, reputation, culture, brands, and so on); and (c) human (specialized skills and knowledge, communication and interaction, motivation and so on).

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In addition to being a resource used in the general sense (equipment, etc.), technology will have an increasingly important role to play as it also includes core technological know-how in product and process innovation across the whole organization and its supply network). Key activities that are vital in order to support a particular strategy or positioning. The continuation of certain core tactical activities will be vital to sustain a particular operations strategy or business positioning.

These various components may be similar across a number of operational situations. At this level we have only a collection of components, however their strategic nature, and inherent competitive advantage, comes from the unique way in which they are customized.

This rather rational view of strategy aims to keep the firm, its customers and its competitors in clear focus, while at the same time incorporating the need for resources, including supply partners, that are continually undergoing change. All of these elements form part of the strategy and each are subject to certain current and future performance objectives.

The elements are not in any particular order of importance. The emphasis upon particular components is something that is unique to the organization in order to provide its sustainable competitive advantage. Competition in many sectors is now quite rightly regarded as being between supply pipeline configurations. This involves regular collaboration over long-term direction of the particular partnership. The planning involved will naturally cover operational issues, but can also accommodate business issues concerning joint investment and even shared ownership in an organic partnership whereby each partner has a stake in the success of the other.

At a more practical level, retailers, customers and suppliers all combine in the concurrent processes of product development and modification and merchandise planning. Such cooperation allows the rapid development of samples or prototypes for in-store testing prior to sales season as well as a sharing of more detailed plans for the timing of product launches and new lines, etc.

Bar coding enables the unique identification and tracking of all components and finished goods/services throughout a supply network. Many firms claim their operations strategies are only feasible with the use of bar codes, electronic data interchange and point of sale data sharing, thus firmly linking all activity in the supply system to the pull of real time, customer demand.

Consequently, many companies are reducing batch sizes of products in recognition that customers seek more individualized offerings and mass customization. Large stockpiles of homogeneous goods are becoming increasingly rare and an expensive method of operation.

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This encompasses more than just information regarding inventory holding. New product/ service development, promotions and other marketing initiatives, new developments in operational processes, goods availability, pricing strategies, costing, logistics programmes, etc. undertaken in an open book culture between enterprises where there is a high level of trust and openness.

A vital technological component enabling linkages between firms in a mutual operational network. EDI extends beyond the initial interconnection between retailer and supplier to an entire network. EDI is used as the medium to support electronic trading to facilitate global sourcing and acts as a low cost communication option.

In conjunction with bar coding, it is necessary to be able to appreciate the flows of products and services at an individual level. If we are increasingly moving towards micro-marketing and segmentation at individual level, we need to understand how individual offerings perform.

Despite the increasing individuality of product and service combinations, there will still also be room for more homogeneous offerings such as milk, socks, tins of beans and green Wellington boots (although the reader may well start to notice that even the purveyors of these items are seeking differentiation). These stable merchandise items (‘basics’ or value goods with little volatility and seasonality) can be replenished by a vendor or supplier to the exact rate of sale. Demand information can drive operational schedules and replenishment is direct from production output rather than stock holding.

In many operational networks, information systems will often be shared and open to the members. Details of inventory (both raw material, work-in-process and finished goods as well as service provision) residing at all supply points (customer serving, retailer, manufacturer, assembly, etc.) will be open to access by any partner in the network.

For more tangible goods, intelligent production and modular or cellular manufacturing offers a far higher degree of response, speed and agility. Despite initial cost outlay, and time to fully implement, many supplier manufacturers are increasing the use of this form of production organization.

For more volatile, short season or fashionable goods and services, many situations require fast re-estimation of sales and reorder during the season based upon real time demand. In this way, even fast-selling merchandise is restocked to match demand preferences. This reduces the likelihood of stockouts and unplanned markdowns of unwanted product.

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Just as each SKU has a unique identification code, so does the container or batch of goods. These show the contents and destination and enable logistical tracking of merchandise deliveries so as to enhance speed of response and consumption-ready delivery.

Point of sale data collection is vital, but it is of little use if retained in one organization. Essential for a flexible and responsive supply, without this data, large parts of a supply network will only be able to meet demand using forward inventory builds and forecasting rather than operating in-line with real time demand patterns. Unfortunately, the sharing of raw PoS data with other parts of the supply system still proves problematical in many cases.

Consumer data ‘mining’ is now big business. Research indicates that many firms operating in mutual networks are prepared to share their demographic data and information about consumers for all to benefit in the targeting of micro-markets (micro segmentation and customization of segments) and overall category management.

Despite the rhetoric and hype, the Internet is an enabling technology – a powerful set of tools that provides a new way of conducting business: nothing more and nothing less (Porter, 2001).

Retailers are increasingly wary of placing orders for merchandise far in advance of a sale season (when demand is unknown). Research suggests that should such activities be required, they be delayed to as close to the sale season as possible and be supported by a detailed analysis of the likely trends.

In similar fashion to the above, many organizations have begun to question the practice of very early, pre-season delivery of merchandise (for those goods with distinct sales seasons). In the past, it has been common to deliver a high proportion of goods, if not all, prior to the start of the season. This entails a huge number of risks. Small pre-season shipments (sufficient for display and small inventory) followed by fast, flexible and responsive supplies during the season when demand preferences are known, is now the target for many.

Fast new and modified products, developed using virtual teams from a number of networked organizations and virtual technology. It is now recognized that the new and modified products and services are required faster than ever. However, quality levels and customization issues are also vitally important. To satisfy all these, demands development processes are now undertaken in parallel using the input from a number of disparate, virtual groups in the supply network. Such groups remain responsible for the product and service combination for its whole lifetime, and also disband and reform with much flexibility.

The postponement of many supply system activities (usually the final form) until demand can be better identified is increasingly being used by organizations. Strategic postponement as an operations strategy has many benefits. However, it is complex and needs careful planning. Its main components include a precise understanding of demand preferences and how they take shape, that is communicated along various supply streams; good coordination between all the participants in the supply of goods; the flexibility in all operations to alter activities in-line with this changing demand profile and an extremely well-trained and skilled workforce.

Tracking all of the components, finished goods, and service offerings by individual SKU throughout the whole supply network. Modern operations rely heavily upon the ability to be able to track all these elements throughout their life cycle and throughout the entire supply system. This requires trust, openness and coordination from all stages of the system, as well as the ability to manage the various interfaces in the network for speed of response and to prevent stock/inventory duplication.

The objectives of strategic positioning should be complementary, (because they are interconnected) ranked and measurable in a meaningful sense (for example, quality measurement at a hospital is very different from that of KFC). However, there will inevitably be trade-offs, as improvements in some areas may well be at the expense of others, for example, a decrease in delivery speed might improve reliability but will also affect consumer service and stock-holding (this reinforces the need for quantification). Finally, these objectives are dynamic and will change constantly. It is therefore important that the operations strategy can be reviewed to effect continual improvement in a rapidly changing environment.

Conclusion

Finally, we reach the situation whereby the organization has developed an operations strategy composition matrix that is customized by individual consumer group and/or product and service combination. From this, we can also develop the operational management activities necessary to support that particular strategic focus.

As we have seen from the filtration diagram, the essential architecture of an operations strategy will vary, to some degree, from industry to industry and even firm to firm. For retail operation there is an undoubted emphasis upon communication due to the complexity and volatility of the products being offered.

Technology alone was not sufficient, Of equal importance is the establishment of proper information system procedures to ensure that the data used was accurate, relevant and timely (the technology was only a facilitator). This involved careful data and information system analysis as well as a considerable amount of skills training for staff. These were the difficult areas for competitors to replicate and the subsequent scanning, product procurement and inventory control systems provided substantial competitive advantage through a unique and customized operations strategy.

Most large multiple retailers will tend to construct operations strategies that differentiate them from the competition. These can include, for example, sophisticated information communication systems to manage the flow of products from manufacturing suppliers via distribution centres and warehouses to stores.

The necessary shorter term, tactical activities that support fast and effective procurement of goods, transportation, warehousing, logistics, etc., to ensure accurate replenishment of goods to real time demand levels. In other words, the ability to co-ordinate supply system activity to be driven, or more accurately pulled, to the pace of customer demands.

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