Content area
Full Text
Keywords International business, Distribution management, Order systems
Abstract Logisticians must make strategic level decisions in order to manage uncertainty, customer service and cost. This research explores the relationships between three strategic level decisions and selected product, operational and demand variables. The three strategic decisions are: make to order vs make to stock; push vs pull inventory deployment; and inventory centralization vs decentralization. The data used to study the relationships were collected in an international environment and analyzed with correlation analysis and logistic regression. Results suggest that the three strategic decisions are each explained by specific product, operational and demand variables.
Introduction
Logistics managers are involved in three strategic level decisions:
(1) Make to order vs make to stock.
(2) Push vs pull inventory deployment logic.
(3) Inventory centralization vs decentralization.
These decisions are equally required in domestic and international contexts. Managers must make strategic choices to cope with the issues of uncertainty, customer service and cost management. For instance, Dell Computer elects to make to order and pull demand by only manufacturing and distributing computers in response to a customer order. This strategic approach allows the company to maintain a minimal investment in inventory. In contrast, Hewlett-Packard, a direct competitor of Dell, elects to manufacture products to stock on the basis of a sales forecast.
Strategic decisions are a function of product, operational and demand related variables such as delivery time, obsolescence, coefficient of variation of sales and inventory turnover. For example, if customers require a short delivery time, logistics managers are more likely to decentralize inventory in order to stock product nearby the customer's facility.
The relationships between product, operational and demand related variables and the three strategic decisions have been previously studied in the literature. For instance, Leeuw et al. (1999) look at products markets and processes as determinants of distribution control techniques such as centralization of inventory and reorder planning. Similarly, Pagh and Cooper (1998) show how product, market and operational characteristics are determinants of supply chain postponement/speculation strategies.
Accordingly, the purpose of this exploratory research is to help managers understand further the impact of product, operational and demand related variables on each of the three strategic decisions described above. More specifically, this research extends previous work by adding an international...