Logistics strategy helps significantly in supply chain management and allows operations to be planned and outlined on a multi- year time span. It includes systems and processes planning, implementation and monitoring and operational control. With Logistics strategy is aimed at the best possible profitability and cost-effectiveness. At the same time unnecessary phases and functions are removed to save time and money. Logistics strategy goals are reducing costs, reducing tied up capital and improving service
Cost reduction strategy focuses usually on minimization of storage and transport costs. Reduction of tied up capital aims at that money is tied up as less as possible in the logistics system. In addition, the aim is to improve the rate of return on investment. That is why, for example, products are transported directly to customers to reduce storage, use of the common stocks instead of own stocks or use a third party that is logistics services provider. In these cases, the variable costs may increase, but the return on investment grow instead.
Service improvement strategy based on the principle that profits depend on the level of logistics services. Service-oriented strategy is focused to offer the customer a sufficiently high level of service, to achieve a significant competitive advantage. When using such a strategy costs increase fast because logistics customer service level is increased. However, increased profits compensate or even exceed increased costs. In order to implement value added services, company should, however, ensure that customers are willing to pay for it too.
Logistics strategy should be closely integrated into company’s all the functions. This is to ensure its implementation. Decisions made on the strategy level must be followed in all logistics operations. In many companies the problem is that decisions made in the practical daily work are not aligned with the strategy.
Logistics strategy may not always be in written form. There are a lot of successful companies that have no written strategy, but it is built into company’s operations. However, a written strategy aligns activities, promotes compliance with common working methods and facilitates, for example, orientation of new employees.
The most important strategic decisions in supply chain management are, for example, storage and factory location selection, outsourcing, warehousing policy and selection of distribution channels.
In general, the base for logistics strategic decisions is the proximity to raw materials or markets. Also, supply chains’ and networks’ memberships, roles and control methods are very important issues to decide. Networks must be noticed, for example, when searching for subcontractors and cooperation partners or building a distribution system.
Logistics strategy should process at least the following:
- current state of logistics (procurement, storage, transport and distribution, reverse logistics, supply chain management
- success factors, goals and targets (customers, products, service level, outsourcing)
- management and organizing (relationships with suppliers and network partners)
- implementation of the strategy in practice (resources and procedures)
Distribution channel structure is one of the main supply chain planning decisions in terms of manufacturing company. When using innovative strategy distribution channel should be flexible and number of distribution stages and storage of products must be minimized. In order to implement the best service strategy is to ensure good product availability and service speed and flexibility. In the lowest prices strategy company ‘s should have cost-effective logistics. Distribution channel is often centralized, storage amounts are small and customer orders must be large.