To develop and focus the enterprise strategy o match this changing environment, a systematic planning and design methodology Is required to effectively evaluate alternatives. This chapter describes a generalized methodology that includes an overview of techniques used for logistics planning. Even for established industries, a firm’s markets, demands, costs, and service requirements change rapidly in response to customer and competitor behavior. In response to these changes, firms often face questions such as: (1) How many distribution warehouses should be used and where should they be located? 2) What are inventory/service trade-offs for each warehouse? 3) What types of transportation equipment should be used and how should vehicles be routed? And (4) Is investment In a new materials handling technology Justified? FIGURE 16. 1 The answers to such questions are usually characterized as complex and data- intensive. The complexity is due to the large number of factors influencing logistics large amount of information required to evaluate logistics alternatives. Typical information analyses must include possible service alternatives, cost characteristics, and operating technologies.
These analyses require a structured process and effective analytical tools. Just as no ideal logistical system is suitable for all enterprises, the method for identifying and evaluating alternative logistics strategies can vary extensively. However, there is a general process applicable to most logistics design and analysis situations. Figure 16-1 illustrates the generalized process flow. The process is segmented into three phases: problem definition and planning, data collection and analysis, and recommendation and implementation. Phase 1 of logistics system design and planning provides the foundation for the entire project.
A thorough and well-documented problem definition and plan are essential to all that follows. Logistics design and planning must begin with a comprehensive evaluation of the current logistics situation. The objective is to understand the environment, process, and performance characteristics of the current system and to determine what, if any, modifications might be necessary. The process of evaluating the need for change is referred to as feasibility assessment, and includes the activities of situational analysis, supporting logic development, and cost/benefit estimation.
Situational Analysis Situational analysis is the collection of performance measures and characteristics hat describe the current logistics environment. A typical appraisal requires an internal review, a market assessment, a competitive evaluation, and a technology assessment to determine improvement potential and opportunities. The internal review is necessary to develop a clear understanding of existing logistics processes. It profiles historical performance, data availability, strategies, operations, and tactical policies and practices.
The review usually covers the overall logistics process as well as each logistics function. A complete self-appraisal for an internal review examines all major resources, such s workforce, equipment, facilities, relationships, and information. In particular, the internal review should focus on a comprehensive evaluation of the existing system’s capabilities and deficiencies. Each element of the logistics system should be carefully examined with respect to its stated objectives and its capabilities to meet those objectives.
For example, is the logistics management information system consistently providing and measuring the customer service objectives desired by the marketing department? Likewise, does the material management process adequately support manufacturing requirements? Does the current network of distribution centers capabilities and measures compare across business units and locations? These and many similar questions form the basis of the self-appraisal required for the internal analysis. The comprehensive review attempts to identify the opportunities that might motivate or Justify logistics system redesign or refinement.
Table 16. 2 lists some of the topics frequently covered during an internal review. The suggested format is not the only approach, but it does highlight the fact that the assessment must consider the processes, decisions, and key measures for each major logistics activity. Process considerations focus on physical and information flows through the value chain. Decision considerations focus on the logic and criteria currently used for value chain management. Measurement considerations focus on the key performance indicators and the firm’s ability to measure them.
The specific review content depends on the scope of the analysis. It is unusual that the information desired is readily available. The purpose of the internal review is not detailed data collection but rather a diagnostic look at current logistics processes and procedures as well as a probe to determine data availability. Most significantly, the internal review is directed at the identification of areas where substantial opportunity for improvement exists. The external assessment is a review of the trends and service demands required by customers.
The market assessment objective is to document and formalize customer perceptions and desires with regard to changes in the firm’s logistics capabilities. The assessment might include interviews with select customers or more substantive customer surveys. ‘ TABLE 16. 2 Selected Internal Review Topics Processes Decisions Measurements Customer Service What is the current information order sourcing flow? Customer service? Happens when inventory is is it changing? Current performance What are the key measures of decisions made? What is the order profile and How are they measured? To available to fill an order? How are orders received? How are What how What is the Materials What is the current material flow How are manufacturing and What are the key manufacturing Management through plants and warehouses? Warehouse capacity allocation and warehouse capacity What processes are performed at decisions made? Limitations? Production planning warehouse? Materials management each manufacturing site and ND scheduling decisions made? Measured? What is the current performance level? Transportation What modes are currently How are the mode and carrier used?
The objective of the technology assessment is to identify technology advancements that can provide effective trade-offs with other logistics resources such as transportation or inventory. Table 16. 4 illustrates typical technology assessment topics for a number of logistics functions. Such an assessment should be completed with respect to each component of the logistics system as well as from the perspective of overall integration. TABLE 16. 4 Typical Technology Assessments Current Technology State-of-the-Art- Technology Forecasting What are the current technologies for collecting, How are the best firms developing forecasts? ND developing forecasts? Maintaining, Order Entry What order entry technologies are used currently? How are the best firms performing order entry? What order entry technology are customers requiring? What new technologies are available to improve order entry effectiveness? Order Processing What is the process to allocate available inventory How are the best firms performing order to customer orders? What are the limitations of the current approach? (hardware and footwear) are available to improve order processing effectiveness? Processing?
What new technologies What decision processes are used to determine Requirements are the best firms making production and Planning production and distribution inventory requirements? Inventory planning decisions How are these processes supported with current What new technologies are available to improve and decision aids? Information requirements planning effectiveness! Are the best firms using DE’? And EDI notifications, and payments currently transmitted? What new communications and data exchange technologies are available to improve invoicing ND other forms of customer communication?
Warehouse How are warehouse personnel and scheduling are the best firms using information and Operations materials handling technologies in the How are warehousing operating instructions new information and materials handling supervisors and material handlers? How do warehouse supervisors and material provided to technologies are available to improve warehouse operating effectiveness? Transportation handlers track activities and How are transportation consolidation, routing, are the best firms using information and scheduling decisions made? Packaging, and loading technologies
How is transportation documentation developed and communicated with carriers and customers? With carriers? What new information, packaging, How are transportation costs determined, loading, and communication technologies monitored? Transportation Decision assessed, and are available to improve What packaging and loading technologies are operating effectiveness? How are logistics tactical and strategic planning How are the best companies making Support similar tactical or strategic decisions? What information is used and what analysis are completed ? Available to enhance decision effectiveness?
Supporting Logic Development What information and evaluation technologies are integrate the findings of the internal review, external assessment, and technology study. Supporting logic development often constitutes the most difficult part of the strategic planning process. The purpose of the situational analysis is to provide senior management with the best possible understanding of the strengths and weaknesses of existing logistics capabilities for both current and future environments. Supporting logic development builds on this comprehensive review in three ways.
First, it must determine if there are sufficient logistics improvement opportunities to justify detailed research and analysis. In a sense, supporting logic development forces a critical review of potential opportunities and a determination of whether additional investigation is Justified. Supporting logic development uses the logistics principles (e. G. , tapering principle, principle of inventory aggregation) discussed in previous chapters to determine the feasibility of conducting detailed analysis and the potential benefits.
While completing the remaining tasks in the managerial planning process does not commit a firm to implementation or even guarantee a new logistics yester design, the potential benefits of change should be clearly identified when developing the supporting logic. Second, supporting logic development critically evaluates current procedures and practices with a comprehensive factual analysis to remove perceptual biases. Identification of areas with improvement potential, as well as those where operations are satisfactory, provides a foundation to determine the need for strategic adjustment.
For example, it may be apparent that excess inventory is a serious problem and significant potential exists to reduce cost and improve service. While he appraisal process frequently confirms that many aspects of the existing system are more right than wrong, the conclusion should be based on improvement. If supporting logic affirms the current number and location of distribution centers, subsequent analysis can focus on streamlining inventory levels without serious risk of sub-optimization.
The deliverables of this evaluation process include classification of planning and evaluation issues prioritize into primary and secondary categories across short- and long-range planning horizons. Third, the process of developing supporting logic should include clear statements of attention redesign alternatives. The statement should include: (1) definition of current procedures and systems, (2) identification of the most likely system design alternatives based on leading industry and competitive practices, and (3) suggestion of innovative approaches based on new theory and technologies.
The alternatives should challenge existing practices, but they must also be practical. The less frequently a re- design project is conducted to reevaluate current procedures and designs, the more important it is to identify a range of options for consideration. For example, evaluation of a total logistics management system or distribution network should consider a wider range of options if done every 5 years than if completed At this point in the planning and design process, it is well worth the effort to construct flow diagrams and/or outlines illustrating the basic concepts associated with each alternative.
The illustrations frame opportunities for flexible logistics practices, clearly outline value-added and information flow requirements, and provide a comprehensive overview of the options. Some refined or segmented logistics practices are difficult to illustrate in a single flow diagram. For example, regional variations, product mix variations, and differential shipment policies are difficult to depict, although they do form the basis of design alternatives. When segmental strategies are proposed, it is easier to portray each option independently.
A recommended procedure requires the manager responsible for evaluating the logistical strategy to develop a logical statement and Justification of potential benefits. Using the customer service concept and logistics integration logic and methodology, the manager should document and rationalize the most attractive strategy alternatives. Cost/Benefit Estimate The final feasibility assessment task, the cost/benefit estimate, is an estimate of the potential benefits of performing a logistics analysis and implementing the recommendations.
Benefits should be categorized in terms of service improvements, cost reduction, and cost prevention. The categories are not mutually exclusive given that an ideal logistics strategy might include some degree of all three benefits simultaneously. Service improvement includes results that enhance availability, quality, or capability. Improved service increases loyalty of existing customers and ay also attract new business. Cost reduction benefits may be observed in two forms. First, benefits may occur as a result of a one-time reduction in financial or managerial resources required to operate the logistics system.
For example, logistical redesign may allow the sale of distribution facilities, materials handling devices, or information technology equipment. Reductions in capital deployed for inventory and other distribution- related assets can significantly enhance a firm’s performance if ongoing costs are eliminated and capital is freed up for alternative development. Second, cost deductions may be found in the form of out-of-pocket or variable expenses. For example, new technologies for materials handling and information processing often reduce variable cost by allowing more efficient processing and operations.
Cost prevention reduces involvement in programs and operations experiencing cost increases. For example, many materials handling and information technology upgrades are at least partially Justified through financial analysis of the implications of future labor availability and wage levels. Naturally, any cost-prevention justification is based on an estimate of future conditions and therefore is vulnerable axis of cost prevention because of such uncertainty, these preventative measures are still important to consider.
No rules exist to determine when a planning situation offers adequate cost/benefit potential to Justify an in-depth effort. Ideally, some review should be completed on a continuous basis at regularly specified intervals to assure the viability of current and future logistics operations. In the final analysis, the decision to undertake in-depth planning will depend on how convincing the supporting logic is, how believable estimated benefits are, and whether estimated benefits offer sufficient return on investment to Justify organizational and operational change.
These potential benefits must be balanced against the out-of-pocket cost required to complete the process. Although they are not always a goal of a planning and design project, immediate improvement opportunities are a frequent feasibility assessment result. Enhanced logistics performance achieved through immediate improvements can often increase revenue or decrease cost sufficiently to Justify the remainder of an analysis. As the project team identifies these opportunities, a steering committee should evaluate ACH opportunity to determine the return and implementation requirements.
Project Planning Project planning is the second Phase I activity. Logistics system complexity requires that any effort to identify and evaluate strategic or tactical alternatives must be planned thoroughly to provide a sound basis for change. Project planning involves five specific items: statement of objectives, statement of constraints, measurement standards, analysis procedures, and project work plan. Statement of Objectives The statement of objectives documents the cost and service expectations for the logistics system revisions.