Logistics Strategy
What is The “right” product? The “right” place? The “right” time?
Creating and shaping consumer value
Trade-offsRight Product
More customer choice meansMore productsMore complexity
Right Place Closer to customer means
More expensive space More inventoryMore expensive delivery
Right Time Faster service means
More expensive modes
Examples
The LimitedMillikenKarrimorRoverIBMDellHPCoca Cola and Cott
The LimitedTargeted profits from low priced sports wear
not high-margin high-cost goodsSpeed to market
Scouts transmit images of items to HQ HQ CAD adjusts cut, color, etc. Pilot orders by EDI to Asian manufacturers Consolidated in Hong Kong Air freight to HQ 2-3 day truck and air to US stores
3-5 week turn-around
Milliken
1980 US textile manufacturers 80% market share
1986 60% market share
1987 $1.9 billion revenue
1991 $600 million revenue
Reasons
Receive orders by US mailOrder or manufacture yarnWeave 8 wksDye and Finish 4-5 wksWarehouse Apparel manufacturer
Another 18-20 weeks 1.25 YEARS from loom to rack!
Response
The Millitron Prints fabric (and carpets) like an ink jet
printerMoved some customers to 0
inventory Retailer forwards customer orders daily Milliken send UPS direct to customer’s
home
Karrimor
UK Backpack manufacturer threatened by knockoffs
Delivered full-seasons demand at start of season
Impressed by Milliken’s speed to market
Response
Urged retailers to place small initial ordersItems include tear-off label for re-orderingPromised 21-day responseOpened door for counter-seasonal
garmentsWorked with suppliers
Orders placed for material Color specified at last minute
RoverStock push
systemDealers sell
vehicles in stock
3-4 month forecasts for thousands of variations
Stock Swap System
1 in three moved from dealer to dealer at least once
Only 25% of customers get what they want
...
Personal Production
80% of orders for 20% of modelsForecast and stock these in a central
locations awaiting customer ordersThe remaining 20% made to order
Priority in assembly Delivered direct to dealership Components standardized
IBM
Early 1960’s 70% market share Huge customers
large corporationsgovernmentsother large institutions
Incompatible Upgrades required re-coding
The Amdahl Attack
IBM compatiblesBigger, faster, cheaper1979 IBM cut prices First earnings drop in 28 years
The PC
Components provided by suppliers Microprocessor - Intel Operating system - Microsoft
34% market share60-70% of corporate market
Cannibalization and Clones
Reduced demand for mainframes Reduced demand of value added
servicesThird party distribution of PCs
The Early 80’s
PC is a commodityRapid market growthRapid technological change Plethora of optionsRequires on-going supportKey business tool
Dell Computer Corporation Sell direct
Remove the middleman
Make to order Reduce inventory
Offer value-added services system installation and management,
assist with technology transitions
customizes products and services
provide peripherals and software.
Hewlett Packard
European Distribution of Deskjet Printers
Power cords, Instruction Manuals, etc.
Products “localized” at central factory
Held at regional DCs
Postponement
Move to generic printerLocalized at regional DCsReduced safety stock from 7 to 5
weeksReduced value of safety stockReduced cost of distribution (density)Savings $30 million annually
Costs
Higher inventory of accessories at DCs
Higher cost of localizingQuestion:
Use a low-cost printer localized for US or Localize the generic printer for US?
Brand Name
Marlboro Cigarettes Price rises of nearly 10%/year in 1980s Market share: declined by over 4% in
early 90’s Cut Prices Marlboro Friday, April 2, 1993
Top 25 consumer packaged goods companies lose $50 billion in value
An Aside
No. 2 computer systems companyAnnual revenue $21.7 billion. 29,300 employeesThat’s $750,000 in revenue per employee
Coca Cola
Brand namePrice premiumPrivate label alternatives
viewed as lower quality1989 Cott Corporation of
Canada begins distributing high quality private label products in US and around the world
The Contour Bottle
Coca Cola reintroduces contour bottle In US
private label market share returns to about 10In UK
Few highquality retailers had given private label a reputation for quality, but no access to cola
Sainsbury’s Classic Cola Safeway’s Select Cola 27% share Virgin Cola }