What is Production and Logistics Strategy?
Production and logistics strategy refers to a set of decisions and actions that companies take to optimize the flow of goods and services through their supply chain, from raw materials to finished products delivered to customers. This strategy involves coordinating production processes, inventory management, transportation, and distribution activities to ensure timely delivery of high-quality products to customers while minimizing costs.
The production and logistics strategy typically involves making decisions regarding production capacity, production scheduling, inventory levels, transportation modes and routes, and warehousing facilities. These decisions are made based on factors such as customer demand, production costs, lead times, quality requirements, and supply chain risks.
Effective production and logistics strategies require a high degree of collaboration and coordination between different functions within the organization, including operations, supply chain management, sales and marketing, and finance. It also involves close partnerships with suppliers and logistics service providers to ensure timely delivery of raw materials and finished products.
Table of Content
- 1 What is Production and Logistics Strategy?
- 2 Elements of Production and Logistics Strategy
- 3 What is Lean Production?
- 4 What is Agile Supply Chains?
- 5 Agile Supply Chain Framework
- 6 What is Mass Customization?
Production and logistics are two interlinked areas that together ensure the success of any operations strategy. Today, customers expect to get high-quality products/services with rapid response times. This stresses building an efficient production and logistics strategy to fulfill the demands of customers.
An efficient production and logistics strategy helps an organization determine the levels of service at which costs are optimal. An organization develops its production and logistics strategy for its different products or customers or markets. An organization needs to review certain aspects of its production and logistics function while developing its strategies, for example, assembling, warehousing, transportation, etc.
Generally, the production and logistics strategy should support an organization to provide the best level of products/services to its customers. Industries around the world are moving towards increasing interdependence and collaboration as a result of enhanced networking.
Thus, organizations are looking to integrate their production and logistics strategies to not only enhance their operations but also continuously offer the best possible product or service to customers at affordable costs, while maintaining high quality.
Elements of Production and Logistics Strategy
Broadly, the production and logistics strategy comprises the following elements that deliver high value to the organization:
- Leverage: This is the balance that organizations need to maintain between cost reduction and improvement of service levels.
- Communication: It refers to the robustness of a two-way dialogue between the organization and its suppliers.
- Efficiency: This relates to the operational and process efficiencies of the organization.
- Innovation: This refers to the efforts of the organization to innovate its products and services during daily operations.
- Risk management: This relates to the identification of internal and external risks while managing the supply chain, and the steps which the organization takes to mitigate them.
- Continuous improvement: High-performing organizations look at ways and techniques to continually improve their operations. These may impact the organization internally or may affect its external stakeholders.
In this way, the abovementioned elements can help an organization in the execution of an effective production and logistics strategy.
What is Lean Production?
Lean production is defined as a systematic method for waste minimization (Muda) within a manufacturing system. This technique is derived from the Toyota Production System (TPS) and is based on the elimination of waste, which will lead to better quality, reduced production time, and lower costs.
Lean production uses certain tools, such as:
- Single-Minute Exchange of Die (SMED)
- Value Stream Mapping
- Kanban (Pull system)
- Poka-Yoke (Error-proofing)
- Total Productive Maintenance (TPM)
- Control Charts
- Heijunka (Matching unpredictable demand by leveling quantity and type of production output)
- First-time right
- Visual control
- Just-in-Time (JIT)
Lean production aims to provide the right things at the right place at the right time in the right quantity to achieve an efficient workflow while minimizing waste and retaining flexibility. Waste is considered to be of three types – muda, mura, and muri. Muda deals with the variation in output and in-operation wastes.
The various types of muda are:
- Transport of products/items which are not required for immediate processing
- Excess inventory
- Excess production
- Defects which lead to a waste of resources
Mura defines how the work design is executed and work imbalances are avoided. Muri occurs from mura, and it relates to the removal of excess waste from the process.
What is Agile Supply Chains?
Agile supply chains refer to a flexible and responsive approach to managing the flow of goods, services, and information from suppliers to customers. The concept of agility in supply chains originated from the Agile Manifesto, which was a set of values and principles for software development that emphasized flexibility and responsiveness to change.
In an agile supply chain, companies prioritize collaboration, communication, and continuous improvement to quickly respond to changing market conditions, customer needs, and emerging trends. This requires a high degree of visibility and transparency across the entire supply chain, as well as the ability to rapidly adjust production schedules, inventory levels, and logistics processes to meet changing demands.
The concept of agility was given by Goldman et al. (1995), and it means ‘readiness to change’. Today, the agile supply chain strategy has emerged as the most preferred strategy in any organization, dealing with supply chain problems. The strategy efficiently helps in managing inventory by eliminating the situations of excess inventory and potential shortage.
This is done by getting more accurate and up-to-date demand forecasting. The agile supply chain strategy minimizes the reaction time that an organization takes to respond to changes in market demand.
From a business perspective, the key aspect of having greater control of the supply chain is to improve visibility on the movement of materials within the supply chain. This can be done by increasing the transparency of transactions with suppliers and service providers. The increased visibility of data is as important as the visibility of materials.
This increased visibility also aids in rational decision-making. Efficient management of data with suppliers helps to make the supply chain more agile to respond to the demands of customers. Improved visibility of inventory helps the manufacturer to plan capacities better, lower manpower costs and make the cash flow more efficient.
Agile manufacturing involves all aspects of an organization including its people, processes, structures, strategies, and relationships. It refers to the manufacturer’s ability to quickly adjust the level of production and allocation of resources as per the variability in demand.
In other words, the agile supply chain strategy focuses on being more responsive in a volatile marketplace, where strategies are completely demand driven. Today, with the continuous change in consumer buying patterns, the whole supply chain network also needs to be changed. The agile supply chain strategy helps businesses in coping with such changes.
Agile Supply Chain Framework
The agile supply chain framework is based on four major constituents, which are:
In this, information is shared among concerned departments regarding real demand from the market. As the departments collect the information they make collaborative planning regarding how to cater to the demand of that particular market. Every department then responds as per its capability and capacity to fulfill the demand. Such virtual integration results in end-to-end visibility, depicting the possible bottlenecks and other problems that may create hindrances in the supply chain network.
In this, the focus is laid on co-managing the inventory to shape the consumers’ need or want. This results in a synchronous supply chain.
Every individual in the supply chain needs to put their efforts to bring success to the chain. As the task is divided among all individuals according to their core competencies, it helps in reducing the overall burden on one or a few departments.
Today’s supply chain is highly market sensitive. Demand forecasting is performed to predict demand based on daily Point of Sale (PoS). Daily feedback is necessary as markets are highly volatile and to accurately meet future demand, it is necessary to keep track of the day-to-day movement in the market trends.
An agile supply chain solves problems that exist in today’s supply chain management network. It is perceived as a solution to increase the responsiveness of a supply chain in the ever-changing market environment. An agile supply chain strategy not only anticipates fluctuations in a volatile market demand pattern but also facilitates suppliers with a solution to manage their data through self-service functionality.
What is Mass Customization?
Mass customization is a business strategy that seeks to combine the benefits of mass production with the unique features of customization. The concept of mass customization emerged in the 1980s, as advances in technology and manufacturing made it possible to produce a wide variety of customized products at a lower cost and with faster turnaround times.
Mass customization allows customers to personalize products to their individual needs and preferences, while still enjoying the cost advantages and convenience of mass-produced goods. For example, a company might offer a range of options for a product, such as different colors, sizes, materials, and features, and allow customers to choose the specific combination that best meets their needs.
Stanley M. Davis, a noted author, coined the term mass customization in 1987 in his book, ‘Future Perfect’. Mass customization is the ability of the organization to manufacture and design customized products at efficiency associated with mass production.
According to this concept, individually designed products for each customer are produced, using a high degree of agility and integration of processes. The mass customization strategy involves trade-offs between the design of a product, the production process, and the supply chain.
Examples of mass customization include:
- Levi’s offers customized jeans, which are altered as per the customer’s demand
- Dell Computers offers customized computers, which are assembled using components specified by the customer.
- Several construction companies offer customized homes to their customers based on their specifications.
Mass Customization Strategies
Broadly, mass customization strategies are of the following types:
- Pure standardization: The customer does not get involved before taking possession of the product.
- Segmented standardization: The manufacturer designs the product for a cluster of buyers.
- Customized standardization: Products are made-to-order using standard components.
- Tailored customization: Products are customized at the stage of fabrication.
- Pure customization: Products are customized from the starting point. There is, however, a certain element of standardization, as it may be viewed as prototyping for every product.
Mass Customization Approach
There are four approaches to mass customization:
- Collaborative: This approach focuses on conducting a dialogue with customers, which enables them to articulate they are requirements, and accordingly make customized products for them.
- Adaptive: It offers a standard and customized product that is designed in such a way that customers can alter it themselves.
- Cosmetic: In this approach, a standard product is presented in a varied manner to different customers.
- Transparent: It provides customers with unique goods or services without informing them that these goods or services have been customized for them.
The technologies which aid mass customization include Computer-aided Design (CAD), Computer Integrated Manufacturing (CIM), and Flexible Manufacturing Systems (FMS).
The rapidly changing market dynamics require organizations to have re-programmable and re-configurable production mechanisms which can produce goods economically. Research studies over the years have shown that modularity is the critical factor for achieving low-cost mass customization.
Mass customization, from a supply chain perspective, involves collaborative efforts with suppliers, warehousing personnel, manufacturers, distribution center members, and other participants of the supply chain. Efficient supply chain management is an important necessity for the implementation of the mass customization strategy. The goal of mass customization is to deliver a product with great quality in the fastest time frame and at lower costs.