What is a logistics strategy?

Logistics was once viewed purely as transport network and warehouse management, and it played little or no part in corporate strategy. Organisations now realise that logistics strategy is integral to corporate strategy especially when we consider the ever-pressing need for sustainability to be built into business activities. 

The effect of carbon emissions on climate change means that logistics can be key in lowering a company’s environmental impact. We are also living through a time of dramatic change internationally that is reshaping the socio-economic and political landscapes. All of these factors mean supply chains – and the wider value chain – are under increasing pressure and may need reviewing and re-thinking on a regular basis. Ultimately, a logistics strategy will help refine service levels to the point that an organisation is functioning at its most cost-effective, and hopefully, most energy efficient.

A logistics strategy is a set of principles, attitudes and driving forces that guide the coordination of plans, goals, and policies between the partners across a supply chain.

Logistics strategy looks at four different levels of an organisation:

Strategic

How do strategic supply chain decisions contribute to the wider business strategy?

Structural

What is the ideal number of warehouses and distribution centres to ensure the smooth running of operations? Can products be manufactured closer by?

Functional

Is every single function operating to a level of excellence?

Implementation

How are new policies, procedures and information communicated throughout the system? Is there a change management plan?

Within these four levels, there are at least six components to be examined (some companies may need to add more according to the industry within which they operate):

Transportation

Is the current transportation strategy contributing to service levels?

Outsourcing

Could service levels be improved by partnering with a third party logistics company?

Logistics systems

Is enough of the right data being harvested from the current logistic system or are new ones required?

Competitors

Are competitors offering a better service? Either way, how might customer service help improve the logistics strategy?

Information

Is information being fed back into the logistic systems in real-time and is it accurate or leading to errors?

Strategy review

Is the logistics strategy in line with the overall business strategy’s objectives?

Unpredictability has always been a crucial factor to build into forecasting within business logistics. Each logistics function, for example, inventory control, should ideally have a tolerance for unpredictability. In logistics, sometimes these allowances are referred to as trade-offs. So, within a logistics strategy or an operations strategy there will be allowances for if X or Y happens, then Z must happen. This is part of change management and the past couple of years – with Brexit and the Covid-19 pandemic – have shown how vital this kind of planning is to avoid a cascade of uncontrollable knock-on effects within logistics processes.

What’s the difference between logistics strategy and logistics operations?

Logistics strategy and logistics operations both come under the umbrella of the supply chain management (SCM) process. Logistics strategy uses management principles to ensure the optimisation of workflow. It includes planning, implementing, and maintaining the efficiency of warehousing, goods flow, services, and information.

Logistics operations tend to focus exclusively on the manufacturing process. In a service industry, operations may be referred to as planning, but management of that arm of the business is carried out in a similar fashion. Simply put, logistics strategy is focused on the movement (flow and storage) within the supply chain – of goods, information, products, and services – while logistics operations are focused on manufacturing within the supply chain, materials handling, and inventory management. Logistics strategy and logistics operations work in parallel within the logistics management and operations management of the organisation. All of this should be viewed through the lens of the end user’s requirements for price, quality, and availability and measured by whether they’ve been met effectively. Customer satisfaction is a priority in decision-making as the end user dictates whether retailers continue to have a customer base.

How does logistics strategy help businesses?

Case studies that demonstrate successful logistics strategies often share a theme of streamlining the supply chain operations to gain a competitive advantage. This can happen by, for example, processing and bottling products on a retail site or locating a factory nearer trade customers. It can be executed by collaborating with distribution centres and coordinating delivery vehicles to pick up stock after deliveries have been completed. These examples also require a large initial investment to create differentiation from competitors. The justification of logistics costs of an investment like this are carefully calculated with the profitability of the competitive advantage being taken into consideration. The 1977 article from the Harvard Business Review titled Logistics – Essential to Strategy recognised the role logistics had to play early on and is still relevant today in understanding the fundamentals.

When it comes to logistics, Amazon’s strategy and model is often mentioned because of its ability to coordinate inventory levels, delivery time, and right pricing in a way that meets both customer and business needs. The big question is whether it is environmentally sustainable when the offer of Amazon Prime – to get anything you want whenever you want – asks for continuous freighting of inventory and large amounts of packaging waste for products that may have a short life cycle. In the 2018 fiscal year, the company emitted 44.4 million metric tonnes of carbon dioxide. Amazon’s 2020 carbon footprint reflected the demand the company felt during the global pandemic, leading the company to invest more heavily in renewable energy particularly within its transportation management systems. Carbon reduction became a key component of Amazon’s business strategy, with a goal of net-zero carbon emissions by 2040. This is a challenge that faces many businesses in e-commerce as online shopping has increased due to lockdowns and restrictions on travel. 

Traditionally, cost has been the driving force in supply chain management, so it has rarely been identified as a function which must be in line with corporate strategy. Yet here we see how it’s increasingly important that values from across the business are reflected at ground level, in sourcing and procurement within the supply chain strategy. As part of the logistics strategy, supply chain strategy directly refers to the many partners that provide raw materials and products within the chain. These can be small business partners who work at a local level through to heavyweight global logistic partners and distributors. In supply chain operations, there will also be chains within chains. Supply chain metrics should also include less easily quantified things like employee morale. This can be difficult to measure but looking at things like staff turnover with the help of logistics managers and human resources can give a more accurate picture than asking staff for their opinions.

Interested to learn more about logistics strategy?

There’s so much more to discover about logistics and supply chain management, which can start you on a new career path or help you improve your current employability status. 

Find out more about the exciting challenges in this field with the University of Lincoln’s MSc Management with Supply Chain.