1. Chapter 2: Strategy & Planning Logistics Strategies. Logistics Decisions. 6 Fundamental Concepts: –Total Cost & Tradeoffs. –Consolidation & Economies of Scale. –Differentiation. –Mixed Strategy. –Postponement. –Standardization.

2. Strategies Corporate Strategy: –Market share, Market position. –Growth, Profit, etc. Logistics Strategy: –Maximize profit, Minimize cost. –Maximize return on investment. –Service/Quality.

3. Strategic Decisions: –Design of logistics system (Chapters 4, 13, 14). –Top management involved. –Based on imprecise data and forecasts. Tactical & Operational Decisions: –Use of logistics system (Chapters 6-12). –Top management not involved. –Based on detailed data. Logistics Decisions

4. Location InventoryTransportation Decision Areas Where?, How many? What size? Allocation? Strategy/Control system? How much? Where? Which mode? Which carrier? Which route? Shipment size and frequency?

5. Total Cost & Tradeoffs. Consolidation & Economies of Scale. Differentiation. Mixed Strategy. Postponement. Standardization. 6 Fundamental Concepts

6. 1. Total Cost & Tradeoffs Minimize total costs. Look for tradeoffs. Total cost Cost for one activity Cost for another activity $

7. 1. Total Cost & Tradeoffs Minimize total costs. Look for tradeoffs. Total cost Cost for one activity Cost for another activity Minimum total cost $

8. 2. Consolidation & Economies of Scale Larger amounts cost less per unit to move store, process, order, etc. –Use larger vehicles and larger loads to reduce transportation cost. –Purchase in larger quantities to get lower prices. But, must consider tradeoffs: –Larger orders and larger loads imply greater inventory costs.

9. 3. Differentiation Not all products and customers should be treated the same. –Identify most important products & customers. –Treat them better!

10. 4. Mixed Strategy A mixture of transportation and inventory options is usually best. –Use air, rail and truck transportation as appropriate. –Use public and private warehousing as appropriate.

11. 5. Postponement Delay finishing and shipping the product until it is ordered. –Prevents unneeded transportation and inventory. –Reduces obsolete inventory. –Examples: Dell computer, paint sales.

12. 6. Standardization Standard (interchangeable) parts and less product variety reduce costs. –Interchangeable parts and modularity reduce inventory and transportation. –Modularity and postponement can provide product variety.

13. Eli Whitney Born 1765. Graduated Yale University 1792. Moved to Savannah, GA with Yale alum managing a plantation (tobacco and rice). Invented cotton gin (1793). Made cotton profitable.

14. Eli Whitney & the Cotton Gin Established New Haven (CT) plant to make cotton gins. Developed machine tool industry & standardization. Cotton gin made cotton profitable to grow and encouraged slavery. Did not benefit Eli Whitney due to poor marketing plan and production difficulties.

15. Eli Whitney Converted New Haven plant to make guns for U.S. Army. –Standardized parts and machine tools allowed mass production. Firm continued making guns for westward expansion, War of 1812, Civil War, etc.