1. Business Planning, Risk and Sustainability
Chapter 2
Business Planning, Risk and Sustainability
PPTs t/a A Framework for Supply Chains by Oakden and Leonaite © 2011 McGraw-Hill Australia Pty Ltd
2-1

2. Introduction Learning Outcomes
After this lesson, you should be able to:
recognise the necessity for a business plan
identify key elements of the logistics strategy and contribute to its development
follow a framework for evaluating risk in a supply chain
understand the importance of sustainability in supply chain environments
appreciate the role of reverse logistics and how it is distinct from forward logistics
PPTs t/a A Framework for Supply Chains by Oakden and Leonaite
© 2011 McGraw-Hill Australia Pty Ltd
2-2

3. Introduction Learning Outcomes
After this lesson, you should be able to:
conceptualise the connections between multiple supply networks
explain the rationale behind the enterprise’s choice of supply network structure.
PPTs t/a A Framework for Supply Chains by Oakden and Leonaite
© 2011 McGraw-Hill Australia Pty Ltd
2-3

4. Strategic Approach
Few companies have a strategic plan for their supply chains and logistics.
Supply chains are currently viewed with a cost focus.
Supply chains are a cross-organisational concept that is not under the control of any one function.
PPTs t/a A Framework for Supply Chains by Oakden and Leonaite
© 2011 McGraw-Hill Australia Pty Ltd
2-4

5. Strategic Approach Business Plan Purpose of Business Plan:
planning to take advantage of current opportunities
allows management to make informed choices concerning the ‘best’ portfolio of regions or countries and products
provides the guide to building on future or longer term opportunities.
PPTs t/a A Framework for Supply Chains by Oakden and Leonaite
© 2011 McGraw-Hill Australia Pty Ltd
2-5

6. Logistics Strategy Approach
Logistics strategy model developed by Professor Pieter Nagel.
Logistics strategy of the enterprise is informed by current structure of the supply chains that interact with the business.
Structure also defines the framework within which the logistics operations can execute the strategy.
The logistics strategy is driven, in part, by the strongest influence on the strategy; either the brand, the customers or suppliers.
PPTs t/a A Framework for Supply Chains by Oakden and Leonaite
© 2011 McGraw-Hill Australia Pty Ltd
2-6

7. Logistics Strategy Approach
Power and its impact on supply chains
Power – capability of a party in a relationship to make the other member do something they otherwise would not do.
Porter (1979) proposed that five forces shape industry competition.
Aspect of logistics strategy will identify how power is being used in the business relationships through the supply chains.
PPTs t/a A Framework for Supply Chains by Oakden and Leonaite
© 2011 McGraw-Hill Australia Pty Ltd
2-7

8. Logistics Strategy Approach
Power and its impact on supply chains
Examples of how companies may increase their power:
restricting the availability of supply for an item in high demand
incorporating product(s) into a superior service package that is not easily duplicated
gaining influence through contacts in government
providing a continual flow of innovative (‘must have’) products and services that customers have to stock.
PPTs t/a A Framework for Supply Chains by Oakden and Leonaite
© 2011 McGraw-Hill Australia Pty Ltd
2-8

9. Logistics Strategy Approach
Power and its impact on supply chains
obtaining a licence to operate from government
promoting reputation and prestige by the seller or buyer
increasing the size of the organisation and its buying strength
promoting specialised knowledge, e.g. commodity trading
eliminating dependency on a few powerful customers
being a technology leader, e.g. holding patents
developing superior information, optimisation and modelling systems.
PPTs t/a A Framework for Supply Chains by Oakden and Leonaite
© 2011 McGraw-Hill Australia Pty Ltd
2-9

10. Logistics Strategy Approach
Power and its impact on supply chains
An established power base can be weakened by:
implementing superior technologies
disintermediation (removal of intermediaries in the buying and selling process)
e-procurement techniques
creating joint ventures and joint purchasing initiatives.
PPTs t/a A Framework for Supply Chains by Oakden and Leonaite
© 2011 McGraw-Hill Australia Pty Ltd
2-10

11. Logistics Strategy Approach
Supply Chain Risks
Supply chain can be complex and, due to the time, distances and range of assets used, subject to variability.
Importance of contingency plan – ‘Plan B’.
Uncertainty is the totality of all the variables, constraints and complexity that can exist in a supply chain.
Level of uncertainty is high – current supply chain situation may change, but we do not know exactly when and to what extent.
Level of uncertainty is low – the most likely limits of change in a supply chain are known, based on observation and analysis.
PPTs t/a A Framework for Supply Chains by Oakden and Leonaite
© 2011 McGraw-Hill Australia Pty Ltd

12. Logistics Strategy Approach
Supply Chain Risks
Pressures on supply chains can all be called risks, which are amplified by the current acceptance of:
distance from suppliers and customers
focus on speed of operations
disruption of natural and political disasters
elimination of ‘safety margins’ concerning time, inventory and working capital.
PPTs t/a A Framework for Supply Chains by Oakden and Leonaite
© 2011 McGraw-Hill Australia Pty Ltd
2-12

13. Logistics Strategy Approach
Supply Chain Risks
Risk assessment – important initial process in risk management for supply chains, it consists of the
following steps:
Identify potential supply chain risks
Observe the process
Identify and document the criticality of risks
Assess the likelihood of the event occurring
Assess the consequences
Develop a risk management plan
Implement
Evaluate
PPTs t/a A Framework for Supply Chains by Oakden and Leonaite
© 2011 McGraw-Hill Australia Pty Ltd

14. Logistics Strategy Considerations
Assumptions must be made relating to future demand requirements, based on the quality of data.
Additional questions relating to the logistics strategy are:
What is the fit between life cycle stages of products and the design of specific logistical activities?
How can customer service be improved, with reference to the ‘cost to serve’?
PPTs t/a A Framework for Supply Chains by Oakden and Leonaite
© 2011 McGraw-Hill Australia Pty Ltd
2-14

15. Logistics Strategy Considerations
Where should the various parts of the manufacturing process be performed?
From where should materials and components be sourced?
Should the enterprise have ownership or control of the upstream and downstream links?
What global collaborations will assist the efficiency and effectiveness of the supply chains?
PPTs t/a A Framework for Supply Chains by Oakden and Leonaite
© 2011 McGraw-Hill Australia Pty Ltd

16. Logistics Strategy Considerations
Network mapping
Network mapping can be of value in providing a visual structure for a business.
Network mapping requires the capturing of extensive information, such as:
the direction and volume of materials flowing through each supply chain
details of core suppliers and customers and their respective locations
ownership and control of specific links
contractual responsibilities.
PPTs t/a A Framework for Supply Chains by Oakden and Leonaite
© 2011 McGraw-Hill Australia Pty Ltd

17. Logistics Strategy Considerations
Network mapping
The benefits of using network mapping for a supply network:
It shows how value is being driven through the supply chains.
It maintains the big picture of the business.
It assists in maintaining competitiveness.
PPTs t/a A Framework for Supply Chains by Oakden and Leonaite
© 2011 McGraw-Hill Australia Pty Ltd

18. Logistics Strategy Considerations
Logistics Strategy Elements
Logistics strategy can be considered within five elements:
Customer service strategy
Inventory location strategy
Inventory management policy
Cost strategy
Transport and distribution strategy
PPTs t/a A Framework for Supply Chains by Oakden and Leonaite
© 2011 McGraw-Hill Australia Pty Ltd

19. Logistics Strategy Considerations
Logistics Strategy Elements
Outsourcing strategy – degree to which the business will ‘make’ (do something within the business) or ‘buy’ (contract another party to do something).
Off-shoring – the transfer of an organisational function to another country; this decision is likely to be outsourced.
Near-shoring – signifies outsourcing or relocating operations to a lower cost country that is within a few hours’ distance.
In-sourcing – a function that has been outsourced is being brought back within the enterprise.
PPTs t/a A Framework for Supply Chains by Oakden and Leonaite
© 2011 McGraw-Hill Australia Pty Ltd

20. Sustainability and Logistics Strategy
Sustainability and business
Future sustainability of supply chains increasingly important element of the logistics strategy.
Critical element of sustainability is the operation of supply chains.
Both product and service companies can incorporate sustainability objectives within their overall business and supply chain logistics strategy.
Examples: HP and Linfox
PPTs t/a A Framework for Supply Chains by Oakden and Leonaite
© 2011 McGraw-Hill Australia Pty Ltd

21. Sustainability and Logistics Strategy
Reverse Logistics
Process of handling items as they travel back through a supply chain for one of the following reasons:
recall (faulty)
repair (service)
returns (warranty)
recycle (convert)
refurbishment (end of lease or rental period)
remanufacturing (hours of operation or trade-in).
PPTs t/a A Framework for Supply Chains by Oakden and Leonaite © 2011 McGraw-Hill Australia Pty Ltd

22. Sustainability and Logistics Strategy
Developments in freight movement
Dense trade cluster (DTC) – An approach to improving and consolidating freight movements.
Typical designations of DTCs:
freight village
inland port
logistics hub
logistics city.
PPTs t/a A Framework for Supply Chains by Oakden and Leonaite
© 2011 McGraw-Hill Australia Pty Ltd