Page 141 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Logistics and Supply Chain Management

Notes the planning horizon. Specific goals include projected annual or quarterly activity levels such as
revenue, shipments, and case volume. Events that must be considered include product
promotions, new product introductions, market rollouts, and acquisitions. Ideally, the marketing
and financial plans should be integrated and consistent as inconsistencies result in poor service,
excess inventory, or failure to meet financial goals.
The combination of marketing and financial objectives provides direction for other enterprise
plans. While the process of establishing strategic objectives is, by nature, unstructured and wide
ranging, it must develop and communicate a plan detailed enough to be operationalised.

Capacity Constraints

Logistics and manufacturing capacity limitations are imposed by internal and external
manufacturing, warehousing, and transportation resource constraints. Based on the activity
levels defined by the strategic objectives, these constraints determine material bottlenecks and
guide resource allocation to meet market demands. For each product, capacity constraints
influence the where, when, and how much for production, storage, and movement. The constraints
consider aggregate limitations such as periodic production, movement, and storage capacities.

Capacity problems can be resolved by resource acquisition or speculation/postponement of
production or delivery. Capacity adjustments can be made by acquisition or alliances such as
contract manufacturing or facility leasing. Speculation reduces bottlenecks by anticipating
production capacity requirements through prior scheduling or contract manufacturing.
Postponement delays production and shipment until specific requirements are known and
capacity can be allocated. It may be necessary to offer customer incentives such as discounts or
allowances to postpone customer delivery. The capacity limitations time phase 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.

Logistics Requirements

Logistics requirements include time phased 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 variation in
volume and has a large impact on capacity. Current inventory status is product available to ship.
Specifically, for each planning period, day, week, or month, 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 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 are then determined as the
period demand less inventory-on-hand plus planned receipts.

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