ARTICLE SUMMARY

TAILORED LOGISTICS: THE NEXT ADVANTAGE.

By Joseph B.Fuller, James O Conor and Richard Rawlinson. SOURCE: Harvard Business Review May-June 1993.

SUBMITTED BY Raghava.G No:9009

Customers need changes and so companies have to tailor logistic systems to serve the customer even better and more profitably. As an inventive way of creating value to the customers, an important discipline of marketing, a critical expansion of production flexibility logistics can become the next governing element of strategy. As companies are in a implicit complex relationship with customers, they should provide goods bundled with services in a distinct way, presuming that customers value convenience, reliability and support. Robust design, precise customer specifications and price are just price of admission and the service differentiation is logistics. For example, Coca cola has been in the process of differentiating its products along the important service dimensions. Coca cola bottlers in Japan are now attempting to segment the customers more precisely along service dimension to the needs of distinct group of customers to save millions of dollars. In many cases service characteristics intersect; overlapping customer desires generating high number of permutations and combinations that segmenting the customers becomes a daunting task. Above all they also want predictable delivery model. The biggest challenge in managing logistics strategically is, developing target segment of customers that can serve profitably by distinct rationalized pipelines. A more comprehensive strategy that includes value created by logistics is at its marketing. The logic which has precipitated a revolution in grocery industry is the minimal variations in demand and pricing make things easier in logistic systems. To meet the short term demands manufacturers must maintain raw material inventory and new handling costs. Once the demand is leveled companies can reap even more gains by to take only the most salient approach splitting pipelines. Flexible manufacturing systems, JIT, quality, preciseness in design and manufacturing all have made standards in production not an advantage in production but a precondition of it. Mangers are thinking in an integrated view of value adding activities, to produce cost effectively for increasingly differentiated customers. Logistics are operated on a faulty assumption that there are natural advantages to functional specialization and economies of scale. IMATEL a multi billion dollar company spends 10% of its total costs on logistics. Logistic managers has come to operate under uniform standards and policies developed to meet the companys most demanding customers. Cost was incurred and value was destroyed in the management of the complex supply chain. Customers who need specialized products are often underserved, while customers for commodity like products are over charged. Low volume goods which generally produced high margins, tended to slow down or even block the path of high volume products though high volume products generated most of the companys profit. The problem of retailing is as just serious for retailers. Upscale stores promising better service have lured away difficult to ship items like exercise equipments. Stores focused on high volume, low margin, easy to ship items have been luring customers away for years. And the circle can become vicious. In extreme cases department stores and manufacturers may feel compelled to narrow down their product line radically. Large companies try to serve the customers by providing low costs and high standards of service.

The goal of logistics strategy is to organize companies to compete across the span of their markets without having to overcharge some customers or under serve others. Management systems that have made companies more flexible and designs more robust can be applied to the improvement of logistic systems. The 1st step is for senior managers to organize teams led by them and including representatives every one in down stream directly affecting actions by upstream. Without general management leadership efforts at improvement are futile. Once the team is formed it proceeds through a number of definitive stages called Logistically distinct business methods like segmenting, differentiating, tailoring and exploiting economies of scale etc. Teams need to engage with customers and find ways of translating their needs into logistics related criteria that can be managed and measured. There is no formula that relieves the teams burden of descending into details of the customer needs. The most original LDM method is to pose 8 elementary questions covering the range of logistical issues that customers have been concerned about. Start with basic strategic information like SKUs about their margin, sales, whether the SKU is simple or complex, about delivery, buying quantity, nature of inventory and its substitutability. The chief driver of logistics cost is inventory cost. Acceptable levels of inventory depend in part on how substitutable a product is in the customers eye. The goal is to determine how willing customers would be to accept a substitute SKU. Sometimes substitutability is a lost opportunity. The next big challenge is to establish service levels for the customer segments. Teams have to explore the possible outcomes before arriving at reasonable target businesses serviced by optimum pipelines. The next step in developing logistics strategy is to disassemble existing pipeline assets and reconfiguring them to support the distinct businesses that have been demarcated. Teams also look at cost of process capabilities, fixed and variable costs etc. they consider how to trade off within differentiated pipelines. Splitting and reconfiguring existing pipelines are the means to an end, not the end in itself. The last task is to create economies of scale, to see what assets can be shared from various pipelines. The mastery of timing within logistic channels can produce new more coordinated uses among logistic channels. JIT approaches to inventory management helped in enhancing logistic pipelines ability to carry physical stock. LDB methods seem common, governed by a familiar strategic goal. LDB methods are not same for every company. Strategy is a continuing openness to change and be changed; the real achievement is creating an organization capable of envisioning and re envisioning the whole.