Page 292 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Unit 13: Logistics Design and Operational Planning

Cost reduction benefits may be observed in two forms. First, benefits may occur as a result of a Notes
one-time reduction in financial or managerial resources required to operate the logistics system.

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 reductions may be found in the form of out-of-pocket or variable
expenses.

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 labour availability and wage
levels. Naturally, any cost-prevention justification is based on an estimate of future conditions
and therefore is vulnerable to some error. While logistics system redesign may not be approved
entirely on the basis 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.

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Caution As the project team identifies these opportunities, a steering committee should
evaluate each 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. It is essential that they be stated specifically and in terms of measurable factors. The
objectives define market or industry segments, the time frame for revisions, and specific

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