Page 127 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Logistics and Supply Chain Management

Notes introduce the time dimension into the enterprise’s strategic objectives by considering
facility, financial, and human resource limitations. These constraints have a major influence
on logistics, manufacturing, and procurement schedules.
Capacity constraints link the enterprise’s aggregate operating plan to weekly or daily
logistics requirements. These constraints are a major influence on monthly or weekly
production for each manufacturing location. Capacity flexibility depends on the nature of
the product and lead-time. For the long term, there is usually substantial flexibility, since
a full range of postponement, speculation, and acquisition strategies may be used.
However, in the short term, such as within the current week, there is limited flexibility,
since resources are generally committed. Capacity constraint integration with the
remaining enterprise requirement systems varies across organizations. The best enterprises
typically demonstrate a high level of integration across all planning/coordination
components.

3. Logistics Requirements: Logistics requirements coordinate the facility, equipment, labour,
and inventory resources necessary to accomplish the logistics mission.

Example: The logistics requirement component schedules shipments of finished product
from manufacturing plants to distribution centres and retailers.

The shipment quantity is calculated as the difference between customer requirements and
inventory level. Logistics requirements are often implemented using distribution
requirements planning (DRP) as an inventory management and process control tool.
Future requirements are based on forecasts, customer orders, and promotions. Forecasts
are based on sales and marketing input in conjunction with historical activity levels.
Customer orders include current orders, future committed orders, and contracts.
Promotional activity is particularly important when planning logistics requirements,
since it often represents a large percentage of total volume and has a large impact on
capacity.
Current inventory status is product available to ship. Specifically, for each planning period
(e.g., weekly or monthly), the sum of forecast plus future customer orders plus promotional
volume represents period demand. It is not easy to determine the percentage of the forecasted
volume that is accounted for by the known customer orders, so some judgment must be
made. Typically, period demand is actually a combination of the three, since current
forecasts may incorporate some future orders and promotional volume. When determining
period demand, it is important that the overlap between forecast, future customer orders,
and promotions be considered. Period logistics requirements then equal period demand
less inventory-on-hand less planned receipts. Using this form, each period would ideally
end with zero inventories available so that planned receipts would exactly equal period
demand. While perfect coordination of demand and supply is ideal from an inventory
management perspective, it may not be the best strategy for the firm.

Logistics requirements must be integrated with both capacity constraints (up-stream) and
manufacturing requirements (downstream) to obtain optimal system performance. Poorly
integrated logistics and manufacturing components typically result in finished goods
inventory at the end of the production line that is not visible when logistics requirements
are determined.
4. Manufacturing Requirements: Manufacturing requirements schedule production resources
and attempt to resolve day-to-day capacity bottlenecks within the materials management
system. Primary bottlenecks result from raw material shortages or daily capacity
limitations. Manufacturing requirements determine the master production schedule (MPS)

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