Training future logistics managers: Logistics strategies within the corporate planning framework

Journal of Business Logistics, 1994 by Rao, Kant, Stenger, Alan J, Wu, Haw-Jan

Bose Corporation, the audio equipment company, has entered into partnerships with transportation carriers, suppliers of plastic and metal parts, and printing vendors in a program it refers to as JIT II.(1) Under this program, big volume improvements are front loaded for the supplier, resulting in the elimination of certain conventional sales and purchasing activities and leading to a more active involvement of the vendors' in-plant representatives with Bose's manufacturing operations. Recently, Xerox slashed inventories and related assets by nearly $1 billion by coordinating the product flow through its channel of supply and distribution.(2) Sears has contracted its LTL and intermodal transportation requirements to third-party logistics firms.(3)

As these examples suggest, logistics strategies are undergoing a transformation to a form more complex, longer lasting, less easily reversible, and having more at stake than ever before. This transformation has also been accompanied by greater visibility for logistics in the corporate executive suite. A recent CLM-Ohio State University report on strategic planning in logistics states that logistics is becoming an integral part of corporate strategic planning and that logistics is benefitting from recent emphasis on customer service and JIT systems.(4)

Given the on-going transformation of logistics strategies and the increased visibility of logistics, how can educators teach this subject to students, the logistics managers of the future? The premise of this paper is that logistics strategies can neither be taught nor understood by students without a framework that relates logistics to corporate strategy. To underscore this point, the authors use simulation courseware that leads students to adopt different logistics strategies for a hypothetical manufacturing firm--all successful as measured by long term financial performance--but each contingent on the chosen corporate strategy.

The objective of this paper is to describe the approach taken by the authors to instruct students in the art and science of logistics strategy. In the first half of the paper, the content of what is taught--the framework of corporate strategy and elements of logistics strategy--described. In the second half of the paper, the simulation courseware that implements this pedagogical approach is discussed in detail and its use through assignments and student presentations is described.

THE STRATEGY FRAMEWORK

Corporate Strategy

The subject material on corporate strategy can be divided into two parts: (1) elements of corporate strategy, and (2) the strategic planning process. Elements refers to areas of the business enterprise for which options are evaluated and decisions are made. For example, the decision to offer a particular set of products is a corporate choice falling into the line-of-business element. Certain other aspects of strategy are also better developed at the corporate level, through the CEO, the board of directors, and the senior executives. These policies set the tone for the enterprise and dictate the choices and evaluation criteria for more detailed decisions at the (lower) functional levels.

In addition to corporate policies which set the groundwork for functional strategies, the planning framework is also important. The planning process's contribution comes from the integration it spawns and the learning process which it engenders within the firm. The planning process can play a very influential role in suggesting the type of strategies that might be fruitful because of the careful attention paid to the business environment during the planning process.

Elements of Corporate Strategy

The corporate strategic decisions fall into clusters that are referred to as elements in this paper. The key elements of corporate strategy consist of answers to the following questions:

* What lines of business should we (the firm) be in or exit? What product groups should we develop?

* What should be the geographical scope of our markets?

* What are our growth strategies and financial objectives?

* What commitments should we make to our stakeholders?

* What are our core competencies and capabilities?

Lines of Business. Decisions by AT&T to enter the computer business, Dow Coming to exit the silicone breast implant line of business, and attempts by television cable and local telephone companies to seek the ability to invade each other's product lines are corporate strategic choices that will affect the companies involved for years if not decades. The input data for such decisions should come from all functional departments within the firm so that the ability to profitably manufacture, market, distribute, and finance the product line can be accurately assessed.

Geographical Scope. Decisions by Fujitsu to enter, abandon, and then reenter the supercomputer business in the U.S., Federal Express to cease serving Europe through its dedicated fleet, and Coors to enter the eastern U.S. market are also corporate decisions that have a heavy impact on logistics both in terms of sourcing capabilities and requirements, and also for distribution.