Defining a Logistics Strategy for your organization

For years, logistics was considered a mere support function and  in all strategic planning exercises, it was thought of as a function which did not provide any strategic value to the organization. For our generation of Logisticians, it is difficult to comprehend that this perception existed, since we have always been told that “Its not the companies but their Supply Chains that compete with each other”. Now that organizations have realized that Supply Chain and particularly logistics is a strategic function, they are scrambling to restructure and redefine their logistics strategy so that it can be used a competitive differentiator.

There are various frameworks out there for developing a robust logistics strategy. The framework below was developed by MIT Professor Jeremy F. Shaprio and is based on Service Mark hierarchy . This hierarchy was developed back in 2001 but is still very effective in developing strategies for various functions, including logistics, manufacturing etc.

Logistics Strategy Framework

Strategic Level: As indicated in the illustration above, the top level is the Strategic level and that level is defining the Customer service strategy. Customer service strategy is the driving force behind the design and operations of a company’s logistics supply chain. The key inputs that go into defining a customer service strategy are the company’s products, its markets and its customer service goals, as illustrated below.

Organizations that operate in multiple markets need to develop a more complex Customer service strategy and that may mean having a different logistics strategy for each market. The key to defining the Customer service strategy is to find the right balance between cost, value added services, flexibility and adaptability. However, some companies adopt the strategy of providing superior customer service as the top factor and then plan to balance others (cost, flexibility, adaptability) as secondary factors.

Customer Service Strategy

Structural and Functional Levels: In any Strategic planning exercise, there is an interplay between strategy and functional operations. In our logistics strategy framework, functional layers provides important inputs to finalize the Structural layer (Channel Design and Network Design).

Channel Design: Pertains to activities and functions that need to be carried out to achieve the Customer service goal. It also defines which participant in the Supply Chain will carry them out. One important consideration when making these decisions is expected long term changes in the market and the market share of the organization. In addition to planning the Channel design from scratch, organizations may also bring changes in their Channel design by acquisitions or mergers.

Network Strategy: Key decisions that are made in Network Strategy are locations and missions of facilities and strategies for using these facilities to achieve the Customer service strategy.

Structural

 

The process of designing the Structural element of the strategy is integrated with the Functional elements of the strategy as well.  Structural elements help fill out details regarding structural decisions in your logistics strategy. Warehouse Operations, Transportation Management and Material management decisions are inputs to a detailed Structural strategy.

Implementation: In this final phase, people, business processes and IT come together to support and execute the Logistics Strategy. Implementation is one of the most important and challenging aspects of your Logistics strategy. You may have defined a world class strategy but it can get executed only if you have defined best in class business processes, have talented people to execute and have best in class IT systems to integrate the elements in your strategy.

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