Page 293 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Logistics and Supply Chain Management

Notes performance requirements. These requirements typically define specific service levels that
management is seeking to achieve. For example, the following suggest a combination of
measurable objectives that might be used to guide a logistics analysis:
 Inventory availability:
 99% for category A products,

 95% for category B products,
 90% for category C products;
 Desired delivery of 98% of all orders within 48 hours of order placement;
 Minimize customer shipments from secondary distribution centres;
 Fill mixed commodity orders without back order on a minimum of 85 percent of all
orders;
 Hold back orders for a maximum of 5 days; and
 Provide the 50 most profitable customers with perfect order performance on 98 percent of
all orders.
Specific definition of these objectives directs system design efforts to achieve explicit customer
service performance levels. Total system cost to meet the service objectives can then be determined
using the appropriate analytical method. To the extent that logistics total cost does not fall
within management expectations, alternative customer service performance levels can be
evaluated using sensitivity analysis to determine the impact on overall logistics cost.
Alternatively, performance objectives can establish maximum total cost constraints, and then a
system that achieves maximum customer service level within an acceptable logistics budget
may be designed.

Notes Such cost-oriented objectives are practical since recommendations are guaranteed
to function within acceptable budget ranges but lack sensitivity to service-oriented system
design.

Statement of Constraints

The second project planning consideration concerns design constraints. On the basis of the
situational analysis, it is expected that senior management will place restrictions on the scope of
permissible system modifications. The nature of such restrictions will depend upon the specific
circumstances of individual firms. However, two typical examples are provided to illustrate
how constraints can affect the overall planning process.
One restriction common to distribution system design concerns the network of manufacturing
facilities and their product-mix assortment. To simplify the study, management often holds
existing manufacturing facilities and product mix constant for logistical system redesign. Such
constraints may be justified on the basis of large financial investments in existing production
facilities and the ability of the organization to absorb change.
A second example of constraints concerns marketing channels and physical distribution activities
of separate divisions. In firms with a traditional pattern of decentralized profit responsibility,
management may elect to include some divisions while omitting others from redesign
consideration. Thus, some divisions are managerially identified as candidates for change while
others are not.

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