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Logistics and Supply Chain Management

Notes logistics productivity. Once lane imbalances are identified, management attempts to identify
volume that can be transported in the under utilized direction. This might be accomplished by
switching carriers or modes, shifting volume to or from a private fleet, increasing backhaul of
raw materials, or creating an alliance with another shipper. Conversely, volume in the over
utilized direction might be diverted to other carriers or shippers or sourced from an alternative
location.

13.2.2 Inventory Analysis

The second common logistics ad-hoc analysis focuses on inventory performance and productivity.
Typical inventory analysis considers relative product sales volume and inventory turnover and
is performed on an ABC basis.

Example: By listing the top 10 sales and inventory groupings in decreasing sequence, a
logistics manager can quickly determine product groups that have a major influence on volume
and inventory levels.
As we know, 80 percent of sales are typically accounted for by 20 percent of the items. It is also
typical that 80 percent of the inventory accounts for only 20 percent of the volume. Knowledge
of these characteristics and the items that make up each product group is useful in targeting
inventory management efforts. Items that demonstrate a large inventory commitment relative
to sales can be selected for intensive management efforts to reduce inventory level and improve
performance (e.g., turnover).

13.2.3 Location Decisions

Plant and distribution centre location is a common problem faced by logistics managers. Increased
production economies of scale and reduced transportation cost have focused attention on
warehouses. In recent years, location analysis has been further extended to include logistics
channel design as a result of global sourcing and marketing considerations. Because global
operations increase logistics channel decision complexity, design alternatives, and related
logistics cost, the importance of location analysis has increased substantially. Now described as
supply chain design, location analysis frequently considers material suppliers, manufacturing
sites, distribution centres, and service providers.
As the name implies, location decisions focus on selecting the number and location of warehouses.
Typical management questions include: (1) How many warehouses should the firm use, and
where should they be located? (2) What customers or market areas should be serviced from each
warehouse? (3) Which product lines should be produced or stocked at each plant or warehouse?
(4) What logistics channels should be used to source material and serve international markets?
and (5) What combination of public and private warehouse facilities should be used? More
refined logistics network problems increase issue complexity by requiring combinatorial
analysis integrating the above questions.
Typical location analysis problems can be characterized as very complex and data-intense.
Complexity is created by the number of plant, distribution centre, market, and product alternatives
that can be considered; data intensity is created because the analysis requires detailed demand
and transportation data. Sophisticated modelling and analysis techniques must be employed to
effectively deal with such complexity and data intensity to identify the best alternatives. The
tools used to support location analysis can generally be categorized as mathematical
programming and simulation.

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