Formulation of Production, Logistics, Purchase Strategy

1. Formulationof FunctionalStrategy:Production,Logistics, & Purchase
Prof.PrashantMehta
NationalLawUniversity,Jodhpur

2. Formulation of Functional Strategy
Introduction
Marketing Strategy Formulation
Financial Strategy Formulation
Production Strategy Formulation
Logistics Strategy Formulation
Purchase Strategy Formulation
Research and Development Strategy Formulation
Human Resource Strategy Formulation

3. ProductionSystem
• Production is related to the production system, operational planning,
control, and research & development.
• The operations system structure is concerned with manufacturing / service,
supply / delivery system, and operations system objectives, which are
related to customer service and effective resource utilization, both of which
determine how operation plan and policies are set.
• Production system and strategy formulation is concerned with capacity
location, layout, product, service design, work systems, degree of
automation, extent of vertical integration etc.
• Production strategy implementation is concerned with decisions which are
long term in nature and affects operations capability of the organization.
• Absorption of technology, indigenization, and adaption to customer needs
is key.

4. • MANUFACTURING LOCATION
• Internal Production v. Outsourcing
• Domestic Plants v. International Locations
• SYSTEM LAYOUT
• Product v. Process Layouts
• Job Shops v. Mass Production
• Job shop/small batch production fits well with a differentiation strategy
• Continuous production / dedicated transfer lines helps achieve cost
leadership
• Use of robots and CAD/CAM v. Labor intense manufacturing
• Modular Manufacturing and just-in-time delivery of sub-assemblies
• Continuous improvement systems lower costs and increase quality
OperationsStrategies

5. OperationsPlanning and Control
• Operations planning and control strategies are related with aggregate
production planning, materials supply, inventory, cost, quality management,
and maintenance of plant and equipment. The aim is to have effective
resource utilization and meeting long term objectives of the firm.
• OPC is aimed at translating the objectives in to reality.
• Quality of output is treated as strategic tool. It is not only looked in at
inspection stage but also built into the design itself.

6. Logistics Strategy
• Logistics management involves integration of flow of supplies in, through,
and out of organization to achieve level of service which ensures that the
right material are available at right place, at right cost, in right time, and in
right quantity.
• Safe and Reliable delivery of materials at lowest possible transportation
cost. Effective logistics strategy is key to success.

7. Logistics Strategy
• The questions needs to be addressed are:
• Which source of raw materials and components are available?
• How many manufacturing locations are there and what products are being made
at each location?
• What mode of transportation should be used for various products?
• What is nature of distribution facility, material handling equipment possessed. Is it
ideal?
• Method fro deploying inventory in logistics network?
• Should business organization use own transport vehicles?
• Improvement in logistics can result in saving cost and doing business (profits
for company). Eg: Cost Savings, Reduced inventory, Improved delivery
time, Customer satisfaction, Competitive advantage.

8. Logistics Strategies
Do we have goods that must be transported or delivered?
• Type of materials transported (bulky or compact?)
• Raw materials, supplies, & components, finished goods
• Best mode of transportation
• Air / rail / truck / barge
Do we want dependability, low cost, or high quality service?
• Outsource transportation or do it yourself?
• Contract with others
• Use multiple shippers v. Just one (UPS)?
• Consider batch deliveries v. Just-in-time arrangements?
• Ownership in distribution chain
• Quasi / tapered / full

9. Supply Chain Management
• Changes in business environment have contributed to development of
supply chain networks and technology had made a great impact on all
business activities.
• Improved Organizations systems, infrastructure, reduction in information
communication costs have resulted in effective coordination among supply
chain members.
• Creation of innovative products with shorter product life cycles is key today.
• Traditional systems have been replaced by more efficient systems delivering
customized products made according to need, at low costs, and delivers
value to customer are in vogue.
• Marketing and branding have become essential for success.

10. What is Supply Chain Management
• SCM is linkage between Supplier, Manufacturer, and Customer and involves
process of planning, implementing, and controlling of supply chain operations..
• SCM involves activities like sourcing and procurement of materials, conversion,
and logistics.
• Management of Supply Chains includes closely working with channel partners
like suppliers, intermediaries, other service providers and customers.
• SCM involves movement and storage of raw materials, work I progress
inventory, and finished goods from point of origin to point of consumption.
• Modern organizations are outsourcing SCM activities to organizations that
specialize in this activity thus reducing cost. Just in time concept of inventory has
helped in reduction of cost for all organizations.

11. Is Logistics Mgmt. Same As Supply Chain Mgmt.
• SCM is extension of Logistics Management.
• Logistic activity typically include management of inbound and outbound
goods, transportation, warehousing, handling of materials, fulfillment of
orders, inventory management, and supply / demand planning. Thus
logistics is one part related to planning, implementation, and controlling the
movement and storage of goods, services and related information between
point of origin and point of consumption.
• SCM is a tool of business transformation and involves delivering of right
product at the right time to the right place at the right prices.
• SCM reduces the cost to organizations and enhances customer service.

12. Implementing SCM Systems
• Successful SCM implementation involves integrating key activities in SCM
process.
• It involves collaborative work between buyers and suppliers, joint product
development, common systems and shared information (through electronic
data interchange) among network members and its management in time.
• Implementing and Running SCM involves:
• Product Development
• Procurement
• Manufacturing
• Physical Distribution
• Outsourcing
• Customer Service
• Performance Measurement

13. Implementing SCM Systems
• Product Development
• Customers and Suppliers must work together in product development process.
Partners should work towards shortening Product Life Cycles and product
launched in shorter time helps organization to remain competitive.
• Procurement
• It requires careful resource planning, quality issues, identifying sources,
negotiation, order placement, inbound transportation and storage. Suppliers are
involved in planning and manufacturing process.
• Manufacturing
• Flexible manufacturing processes which are adaptive to accommodate
customization, just in time inventory and minimum lot size is key. Changes in
manufacturing process be made to reduce manufacturing cycle.

14. Implementing SCM Systems
• Performance Measurement
• There is strong relationship between the supplier, customer and organization.
Suppliers capability, and customers relationship can be correlated with a firms
performance.
• Performance is measured in different parameters such as cost, customer service,
productivity, and quality.

15. Which Functions Can We Outsource?
• GLOBAL OUTSOURCING – INCREASES EFFICIENCY & QUALITY
• Averages 9% reduction in costs and 15% increase in capacity and quality
• Up to 70% of Boeing planes are outsourced..built in just 4 months v. 1 year
• AMA SURVEY -- 94% OUTSOURCE AT LEAST ONE ACTIVITY
• 78% General & Administrative activities
• 77% Human Resources
• 66% Transportation & Distribution
• 63% Information Systems
• 56% Manufacturing
• 51% Marketing
• 18% Finance & Accounting
25% were disappointed in their outsourcing results
51% brought the outsourced activity back “in-house”
• MOST LIKELY ACTIVITIES TO OUTSOURCE
• Customer Service
• Bookkeeping/Financial/Clerical
• Sales/Telemarketing
• Software Programming

16. Successful Outsourcing
KEY TO SUCCESS:
Only outsource activities that are not related to the firm’s distinctive competencies
TOTAL VALUE-ADDED to Firm’s
PRODUCTS & SERVICES
LOW HIGH
HIGH - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
TAPERED FULL VERTICAL
INTEGRATION INTEGRATION
ACTIVITY’S Produce Some Produce All
POTENTIAL FOR Internally Internally
COMPETITIVE - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
ADVANTAGE OUTSOURCE OUTSOURCE
COMPLETELY COMPLETELY
LOW Buy on Open Market Use Long-Term Contracts
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

17. Outsourcing Disadvantages
• Customer Complaints & Unexpected Delays
• Locked Into Long-term Contracts That Aren’t Competitive
• The Firm Doesn’t Learn New Skills & Develop Core Competencies
A Survey Of 129 Outsourcing Firms
Half Of The Projects Undertaken Failed To Achieve The Anticipated Savings
Software Produced In India Had 10% More Bugs Than Comparable US Projects
Seven Major Outsourcing Errors
• Outsourcing Activities That Shouldn’t Be Outsourced
• Failed To Keep Core Activities “In-house”
• Selecting The Wrong Vendor
• Picked A Vendor That Wasn’t Trustworthy, Or Who Lacks State-of-the Art Processes
• Writing A Poor Contract
• Balance Of Power Favors The Vendor…locked In Over A Long Period Of Time
• Overlooking Personnel Issues…my Area Of Expertise Was Outsourced!
• Losing Control Over The Outsourced Activity…we’re At Their Mercy!
• Overlooking The Hidden Costs Of Outsourcing…transaction Fees?
• Failing To Plan An Exit Strategy…how Can We Reverse Out Of This Deal?

18. Purchasing Strategies
• Sourcing Components And Supplies
Where Can The Highest Quality Components Be Found?
• Outsourcing (Our Firm Buys Everything)
• Buying On The Open Market (Spot) (Prices Fluctuate)
• Long-term Contracts With Multiple Suppliers (Low Bid)
• Sole Sourcing (Only One Supplier) Improves Quality
• Parallel Sourcing (Two Suppliers) Provides Protection
• Backward Integration (Our Firm Has An Ownership Stake In The
Suppliers We Use)
• Quasi-integration (Minority Ownership Position In A Supplier)
• Tapered (Produce Some Of What We Need, But Not All)
• Full (Produce All Of Our Own Needs)
• Use Of Component Inventories V. Just-in-time Supply Delivery