It is a fallacy to assume that the best logistics strategy is to get the product from the supplier to the customer the fastest and always be in stock for all organizations. If this were true, most organizations would not be profitable today. The truth is, creating a logistics strategy is a balancing act which takes many variables into account. Here is a list of what needs to be answered before creating a logistics strategy.

What are the strategic objectives of the organization?
A business would never review the tax consequences of making an investment and then choose the best investment based on the tax treatment. It would evaluate its investment options and then select the right one for its business. Then it would look to its Accountant to find the best way to report it.

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Similarly, the logistics strategy supports the business strategy. For example, if a furniture retailer is competing in the low-cost furniture segment of the market, it has to ask itself what do its customers want in terms of customer service; is it in-stock availability, quick delivery time or a generous return policy?

Strategic Analysis of the Competition
It is beneficial to look at what level of customer service your competitors are offering. This may be accomplished by conducting a customer service audit. The audit will show what level of customer service performance customers expect as well as what is currently being offered. A gap analysis will then show the difference between expected performance and actual performance and highlight changes that must be made. I have experienced purchasing an appliance from a large department store where the sales order transaction was entered into 3 separate systems: the payment system (cash register); the warehouse management system to allocate stock from the warehouse; and the transportation delivery system to schedule my delivery. It took longer to process my purchase than it did to decide what to buy!

Evaluate Channel Structure
Once the gaps are identified and the customer service level is defined, the next step is to look at the channel structure. The logistics channel structure displays how many levels there are between the supplier and the customer. It also identifies how many distribution points there are in the network and if a logistics network re-design is necessary to meet customer service goals. For example, if the furniture retailer wanted next-day delivery to its customers, it may want to consider having regional warehouses in close proximity to its major market areas.

The answers to the above questions will give an organization a road map to set its customer service policy. This policy is then translated to the channel structure to best meet the organization’s goals in the most efficient and effective manner.

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