Page 284 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Unit 12: Network Integration

 The formulation of a service policy starts from the identification and analysis of the least Notes
total cost system design. Given a managerially specified inventory availability target,
service capability associated with the least cost design can be identified. This initial service
level is referred to as the threshold service level.
 To evaluate potential modifications to the least cost design, sensitivity analysis is used.
Service levels may be improved by modifying (1) variation in the number of facilities,
(2) change in one or more aspects of the performance cycle, and/or (3) change in safety
stock.
 Beyond least cost design, four potential strategies are maximum service, maximum profit,
maximum competitive advantage, and minimal asset deployment.
 From among this range of strategic options the end objective of logistical system design
is to select a logistics strategy that supports overall business strategy.

12.6 Keywords

Procurement: Procurement is the acquisition of goods, services or works from an external source.
Quantity Principle: This means individual shipments should be as large as the involved carrier
can legally transport in the equipment being used.

Replenishment: Replenishment is “filling again by supplying what has been used up.” It is the
movement of inventory from upstream – or reserve – product storage locations to downstream
– or primary storage, picking and shipment locations.
Safety Stock: Safety stock (also called buffer stock) is a term used by logisticians to describe a
level of extra stock that is maintained to mitigate risk of stockouts (shortfall in raw material or
packaging) due to uncertainties in supply and demand.
Tapering Principle: This means large shipments should be transported distances as long as
possible.
Total Cost: It is the total economic cost of production and is made up of variable costs, which
vary according to the quantity of a good produced and include inputs such as labour and raw
materials, plus fixed costs, which are independent of the quantity of a good produced and
include inputs (capital) that cannot be varied in the short term, such as buildings and machinery.
Transit Inventor: Transit stock is inventory captive in transportation vehicles.
Warehouse: A warehouse is a commercial building for storage of goods. Warehouses are used
by manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc.
12.7 Review Questions

1. Describe in your words the meaning of spatial/temporal integration in logistical system
integration.

2. What justification of logic can be presented to support the placement of a warehouse in a
logistical system?
3. Why do transportation costs decrease as the number of warehouses in a system increases?
Why do inventory costs increase as the number of warehouses in a system increases?
4. Briefly explain the market distribution drivers.
5. In your words, what is the locational impact of inventory? How does it differ for transit
inventories and safety stocks?

LOVELY PROFESSIONAL UNIVERSITY 279