Page 279 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Logistics and Supply Chain Management

Notes at least 90 percent of all customers at 95 percent inventory availability within 60 hours of order
receipt. Furthermore, assume that the current logistical system is meeting these objectives at
lowest total cost by utilizing a network of five warehouses. Marketing, however, is not satisfied
and believes that service capability should be increased to the point where 90 percent of all
customers would receive 97 percent inventory availability delivered within 24 hours. Logistical
management needs to estimate the cost of this strategic commitment.

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Caselet Timberland Co.

t Timberland Co. reengineering has unravelled some old assumptions. The
Hampton, New Hampshire, shoemaker had always measured productivity by
Athe size of each delivery, so priority was given to department store orders rather
than those from the small boutiques that were a growing chunk of its business. Two years
ago, Timberland set out to change its routine. Timberland began by scheduling two or
more shipments to each customer a week, instead of one big delivery. Scanners automatically
track inventory and create shipping bills, so it’s as efficient to handle small orders as big
ones. Reengineering is hitting other operations, too. Instead of having one department
take orders and another verify credit, the two were merged. Now, orders are sent to
manufacturing via a network, faster and with fewer errors. Timberland is also taking to
the electronic highway to reach customers. By letting stores transmit orders automatically
to its computers, the company expects to double sales volume for every 25 percent increase
in its sales force. At Timberland, staying a top shoemaker means not sticking to its last –
or the past.
Source: From Gary McWilliams, ‘The Technology Payoff: A Sweeping Reorganization of Work Itself Is
Roosting Productivity,” Business Week, June 14, 1993, p. 59

Maximum Service

A maximum service strategy is rarely implemented. A system designed to provide maximum
service shifts design emphasis from cost to availability and delivery performance. Maximum
service areas can be developed similar to the least cost service areas. The limits of each facility
service area are determined by the capability to provide the required delivery. As with cost-
oriented service areas, time-oriented areas will be irregular because of transport-route
configurations. Total cost variation from a least cost to a maximum service system to service the
same customers will be substantial. Servicing the total U.S. market on an overnight basis could
require from 30 to 40 warehouses and the use of highly dependable transportation. The number
of warehouses could be reduced by the use of premium transportation.

Maximum Profit

Most enterprises aspire to maximize profit in the design of logistical systems. Theoretically, the
service area of each warehouse should be determined by establishing a minimum profit
contribution for customers located at varying distances from the facility. Because warehouses
are normally located near high-volume markets, the greater the distance a customer is located
from the service area centre, generally the higher the cost of logistics. This cost increase occurs
not only because of distance but also because of lower customer density at the periphery of the
warehouse service area.

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