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 }