A company is made up of various service levels for which logistics is an important process. A company’s logistic strategy enables it to identify the service levels at which logistic organization has been successful and cost effective (or budget friendly).
A company can have multiple logistic strategies for its different service levels that it has designed to cater for specific products, customers and countries. According to Murray, multiple logistic strategies are a necessity because supply chains are generally in a continual process of change and evolution (2012). If not factored in well, this behavior of supply chains can result in reduced service levels in a company.
Therefore, the logistic strategy adopted for a given service level in a company enlightens the management on what changes it should institute so as to ensure that there are no inconsistencies present in as far as its supply chain is concerned. The changes necessitated by a given logistic strategy can be either organizational, functional or the both of these (Murray, 2012).
The main factor that determines the choice of a logistic strategy is its effectiveness in terms of performance and cost. A logistic strategy is performance-effective when it enables a company to adapt well to the flexibility of its supply chain. Furthermore, the logistic strategy is cost effective when its creation and implementation results in optimal yields at reduced and necessary expenditure. An effective logistic strategy has to be in line with a company’s strategic objectives (Murray, 2012).
An effective logistic strategy should enlighten a company on key logistical matters such as the number of warehouses required, the products to be produced in the companies different manufacturing plants, the number of distribution centers needed etc (Murray, 2012).
An effective logistical strategy has to review how functional excellence is to be achieved in each of the predetermined functions of a company’s logistical activity (Murray, 2012). An effective strategy should have an implementation plan that guides on how it is to be successfully implemented in the organization (Murray, 2012).
McDonald’s, which is headquartered in the US, is the leading global retailer of food services. Currently, the company’s number of global restaurants stands at 33000, more than 80% of which are franchised and distributed in 118 countries and serve an approximate 64 million people and above.
In designing a logistical strategy for McDonald’s my efforts would begin by identifying the company’s service levels. This would be followed by outlining the functions of the logistical process at each of the company’s service levels. I would then focus, at the least, on six major logistical areas, namely, transportation, outsourcing, logistical systems, competitors, information and strategy review.
In the area of transportation, I would assess the company’s current transportation strategies and determine if they are helping the company’s service levels. If they are I’d live them unchanged. If they were not helping, I would research and formulate new and improved transportation strategies. In the area of outsourcing, I would find out to what extent it is being used in the company’s current logistics plan.
I would also determine how effective third party logistic (3PL) companies are in improving the performance of each of McDonald’s service levels. If the 3PL companies will be effective, the next step will be to determine which 3PL company to hire and how its services are going to be introduced.
In the area of logistical systems, I would determine how effective the current logistical systems at work in the company are in providing sufficient data for implementing logistical strategies. If they were effective, I would live them in place. If they are not I would formulate new ones.
In the area of competitors, I would review what they offer. If the changes will have a positive impact I would recommend they institution. If they will have a negative impact, I would recommend they not be instituted. In the area of information, I would ensure that the integrity of the new logistical strategy is upheld by ensuring that the new logistical system uses real-time data. If it will not in the area of strategy review, I would critically examine if the objectives of the 3PL company are in line with those of McDonald.
A comparison of the functions of a 3PL company and those of a 4PL company reveal that 3PL’s are mainly outsourced whereas 4PL’s ensure a strong supply chain characterized by quality products and on-time deliveries. 3PL companies are becoming an integral part of the modern supply chain. A company hires a 3PL company when it is unable to fulfil all of the functions of its supply chain. The 3PL company fulfils the unfulfilled supply chain functions for the company that has hired it.
With supply chains becoming more complex there is the need for 4PL companies, which ensure that customers receive products on time and the quality of products is maintained. 4PL companies review a company’s supply chain to identify the problems that are causing customer dissatisfaction. Once the problems are identified, the next step is identifying their causes and solutions. The 4PL companies eventually implements the solutions to ensure that the supply chain flows smoothly and according to schedule.
Private warehouses are warehouses that are owned exclusively by the company or organization that is manufacturing the product that is stored in it. An example of a private warehouse is the one in Coca cola’s manufacturing plant in 920 Black Satchel Road, Charlotte, NC 28216 in which the company stores its product. One major benefit of private warehouses is that their give a company more control of the facility as it is the key decision-making authority.
This control becomes very important when the company wants to make the warehouse a part of its logistical system. Another benefit of private warehouses is that they are less costly has the running costs do not have a profit mark up. Private warehouses indirectly contribute to strong public relations between a company and its customers since they portray the company as being more responsive and stable.
Public warehouses are warehouses designed and created to hold products belonging to the public (multiple individuals) and not a single individual. An example of a public warehouse is any of those owned by TPFS, an American company with warehouses in California, Delaware, Detroit, Louisiana, Maryland, and New Jersey.
One advantage of public warehouses is that they have reduced capital costs. Another benefit of public warehouses when compared to private warehouses is that they have a low variable cost, which consequentially reduces pay scales and improves productivity.
Another benefit of public warehouses is that they have a better return on investment (ROI) than privately owned warehouses. Another benefit of public warehouses is the flexibility that they offer, which is important when a company needs to respond to customer and inventory needs.
With a public warehouse, a company can easily change the size of its inventory, location and number of warehouses. Another advantage of public warehouses is that they support an economy of scale approach towards operational costing. Another advantage of public warehouses is that they attract transport solutions that are cheap to the clients.
The level strategy is an aggregate production planning (APP) approach for meeting customer demand in which a company maintains the rate of production at a constant and manages fluctuations in demands using inventory levels. The main advantage of the level strategy is that there is stability in worker level and production.
Its disadvantage is that it results in high costs of labor and inventory. The chase strategy is an aggregate production planning (APP) approach for balancing capacity and demand in which a company fires and hires new workers as is necessary in achieving its control output. It is a strategy that results in a high rate of employee turnover and thus is not advisable for a company that comprises mainly of a skilled workforce.
On the other hand, the chase strategy is effective in times when unemployment is high or when a company is in need of unskilled labour. An advantage of chase approach is that it results in reduced cost of inventory. Another advantage of the chase approach is that the level of employee utilization is always high.
A disadvantage of the chase approach is that it distorts employee morale, which consequentially results in low productivity. Another disadvantage of the chase approach is that a company incurs costs arising from the frequent fluctuations in its workforce.
One way in which capacity can be increased or decreased to meet demand is through regulating inventory with respect to fluctuations in customer demand. The inventory a company keeps can be synchronized with known changes and fluctuations in demand for a product. A shortcoming of this method is that there will be high costs of inventory.
Another way in which capacity can be increased or decreased to meet demand is by down sizing a company’s workforce when necessary. In this method the size of workforce a company maintains is directly proportional to the magnitude of customer demand. A limitation of this method is that it is only effective where unskilled labor is needed and where there is a high rate of unemployment.
Another way in which capacity can be increased or decreased to meet demand is through subcontracting. In subcontracting a company can maintain its workforce at a certain size and when there is need for increased capacity it subcontracts it. The limitation of this method is that it can be quite costly to subcontract the required extra labor. Another way in which capacity can be increased or decreased to meet demand is through overtime and undertime.
Depending on the magnitude of customer demand, a company can make its workers work overtime or undertime. This method can be quite costly to implement when the situation demands that the workers work overtime for which they will be paid for. Another way in which capacity can be increased or decreased to meet demand is through employment of temporary workers. When demand is high, a company can call- to-work its temporary workers and when the demand goes down it can again lay them off temporarily.
The best way of dealing with the negative effects of the chase strategy of aggregate production planning (APP) would be for a company to adopt other alternative APP approaches. These can be the level, subcontracting, overtime/undertime and temporary workers approaches. Another way would be for the company to formulate a good human resource policy that ensures that the workers are well compensated by the time they are fired.
Reference
Murray, M 2012, ‘Creating a logistics strategy’. About.com. Web.