Concept of Strategic Logistics Planning

Strategic logistics planning is defined as a unified, comprehensive, and integrated planning process to achieve competitive advantage through increased value and customer service, which results in superior customer satisfaction, by anticipating future demand for logistics services and managing the resources of the entire supply chain.

Strategic logistics planning carried out within the framework of the overall corporate goals and plan. It therefore requires an in-depth understanding as to how the different elements and logistics activities relate in terms of trade-offs and the total cost to the organisation. Logistics can therefore best formulate its own strategy only by understanding the overall corporate strategy.

Formulating the Strategic Logistics Plan

The development of the strategic logistics plan is dependent on the marketing, manufacturing, finance/accounting and logistics functional areas. Marketing provides information about product or service offerings, pricing and promotion for each channel. This includes planned sales volume per month, type of customer, and regional areas; product introductions and deletions; and customer service policies for various types of customer and geographical area. Manufacturing provides information such as locations of current and planned production facilities, and planned volume and product mix for each site. When the same product is produced at multiple locations, logistics can determine how to serve each market most efficiently. Finance/accounting provides cost forecasts related to inflation rates and growth assumptions that need to be built into the planning process to project future costs, and as well the data for performing cost trade-off analysis. It is also responsible for capital budgeting, which determines the availability of capital to finance expenditures to improve logistics equipment and infrastructure.

Logistics itself provides data and analysis related to the existing logistics network to the other functions, including current storage and distribution facilities owned and rented, both at manufacturing locations and in the field; equipment and capabilities at each location; and current transportation arrangements between various channel members. Logistics must identify the costs associated with these activities and the various channels used and proposed.

Management needs to put the logistics plan into operation through the channel members it chooses. Channel members should be judged and selected according to predetermined criteria designed to meet logistics objectives, such as reliability, consistency, geographical coverage, variety of service offerings, use of information technology and cost.

Components of Strategic Logistics Plan

The strategic logistics plan should consist of the following:

  1. A management overview that describes the logistics strategy in general terms and its relationship to the other major business functions.
  2. A statement of the logistics objectives and how it relates to cost and service for both product and customer.
  3. A description of the individual customer service, inventory, warehousing, order processing and transportation strategies necessary to support the overall plan.
  4. An outline of the major logistics programs or operational plans described in sufficient detail to document plans, related costs, timing, and their business impact.
  5. A forecast of the necessary workforce and capital requirements.
  6. A logistics financial statement detailing operating costs, capital requirements, and cash flows.
  7. A description of the business impact of the logistics strategy, in terms of corporate profits, customer service performance, and the impact on other business functions.

Developing the Strategic Logistics Plan

The development of a strategic logistics plan requires the following:

  1. A thorough grasp and support of corporate strategy and supporting marketing plans in order to optimize cost-service trade-offs.
  2. A thorough understanding of how customers view the importance of various customer service elements and the performance of the firm compared with its competitors.
  3. Knowledge of the cost and profitability of channel objectives.

When the overall corporate strategies and marketing plans have been determined, the logistics planner must evaluate basic alternatives and recommend the system configuration that satisfies customer requirement at lowest total cost. This implies, the process must begin with identifying and documenting customer service goals and strategies. The collection of such information is achieved through logistics audit.

The Logistics Planning Process

The logistics plan starts with a definition of customer service goals and strategies. This will determine inventory goals and deployment strategies, warehouse strategies and programs, transportation strategies and programs and order processing strategies and programs. The factors that must be evaluated to determine the most efficient and effective logistics strategy include: customer service requirements, variability of demand, number and location of warehouses, material handling methods, the frequency of replenishment, shipment size, modes used, order cycle times and total costs.

The logistics planning process in terms of 11 major steps as follows:

  1. Initiate and plan the process.
  2. Evaluate the current logistics activities.
  3. Identify product manufacturing requirement.
  4. Determine the impact of business growth.
  5. Develop a profile of competitive logistics networks.
  6. Develop customer service requirement.
  7. Rationalise the logistics network.
  8. Review and recommend improvement.
  9. Formulate performance measurement and service levels.
  10. Review and recommend steps to improve organizational responsibilities.
  11. Document the plan and prepare an implementation plan.