Page 299 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Logistics and Supply Chain Management

Notes It is important to recognize that care must be taken to define the analysis questions so that a
wide range of possible options can be evaluated without requiring time-consuming analysis of
options that have little likelihood of implementation.

Completing and Validating Baseline Analysis
The second task completes the baseline analysis of the current logistics environment using the
appropriate method or tool. Results are compared with the validation data collected previously
to determine the degree of fit between historical and analytical findings. The comparison should
focus on identifying significant differences and determining sources of possible error. Potential
errors may result from incorrect or inaccurate input data, inappropriate or inaccurate analysis
procedures, or unrepresentative validation data. As discrepancies are encountered, errors should
be identified and corrected. In some cases the error cannot be corrected but can be explained and
rationalized. Once discrepancies have been removed or explained to ±2 percent, the application
can be accepted as valid and the analysis can continue.

Completing Analyses of Alternatives

Once the approach has been validated, the next step is to complete an evaluation of supply chain
alternatives. The analysis must be accomplished to determine the relevant performance
characteristics of each alternative design or strategy. The options should consider possible
changes in management policies and practices involving factors such as the number of distribution
centres, inventory target levels, or the transportation shipment size profile.

Completing Sensitivity Analysis

Once this analysis is completed, the best performing alternatives can be targeted for further
sensitivity evaluation. Here uncontrollable factors such as demand, factor costs, and competitive
actions are varied to assess each alternative’s ability to operate under a variety of conditions.

Example: Suppose that the alternative analysis indicates that five distribution centres
provide the ideal cost/service trade-off for the firm’s market area assuming the base demand
level.

Sensitivity analysis investigates the appropriateness of this ideal solution for different demand
or cost levels. In other words, would five distribution centres still be the correct decision if
demand increased or decreased by 10 percent? Sensitivity analysis in conjunction with an
assessment of potential scenario probabilities is then used in a decision tree to select the best
alternative.
13.1.3 Phase III: Recommendations and Implementation

Phase III operationalises planning and design efforts by making specific management
recommendations and developing implementation plans.

Develop Recommendations

Alternative and sensitivity analysis results are reviewed to determine recommendations for
proposal to management. This review process includes four tasks: (1) identifying the best
alternative, (2) evaluating costs and benefits, (3) developing a risk appraisal, and (4) developing
a presentation.

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