Page 307 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Logistics and Supply Chain Management

Notes 13.2.4 Location Analysis Data Requirements

The primary location analysis data requirements are definitions of markets, products, network,
customer demand, transportation rates, and variable and fixed costs.
Market Definition: Location analysis requires that demand be classified or assigned to a
geographic area. The combination of geographic areas constitutes a logistics service area. Such
an area may be a country or global region. The demand for each customer is assigned to one of
the market areas. The selection of a market definition method is an extremely important element
of the system design procedure.

A number of market definition structures have been developed. The most useful structures for
logistics modelling are (1) county, (2) standard metropolitan statistical area (SMSA), and (3) zip
or postal codes. (Postal codes are the international equivalent of zip codes.) The most common
structure uses zip or postal codes since company records usually include such information. In
addition, extensive government and transportation data is available by zip codes. The major
issues for selecting a market definition approach concern the number of areas required to
provide accurate results. While more market detail increases accuracy, it also increases analysis
efforts. Research indicates that approximately 200 markets offer an effective trade-off between
accuracy and analysis effort.
Product Definition: Although individual product flows can be considered when performing
location analysis, it is usually not necessary to use such detail. Individual items, especially those
with similar distribution characteristics, production sites, and channel arrangements, are grouped
or aggregated to simplify the analysis. Typical supply chain analyses are completed at the
product family level.
Network Definition: The network definition specifies the channel members, institutions, and
possible locations to be included in the analysis. Specific issues concern the combinations of
suppliers, production locations, distribution centres, wholesalers, and retailers that are to be
included. Network definition also includes consideration of new distribution centres or channel
member alternatives. While using a more comprehensive definition reduces the chance of sub
optimizing system performance, total channel location analysis increases analysis complexity.
Supply chain analysts must evaluate the trade-offs between increasing analysis complexity and
improved potential for total supply chain optimization.
Market Demand: Market demand defines shipment volume to each geographic area identified
as a market. Specifically, supply chain analysis is based on the relative product volume shipped
to each market area. While the volume may pertain to the number of units or cases shipped to
each market, most location analyses are based on weight since transportation cost is strongly
influenced by weight moved. Market demand utilized in the analysis may also be based on
historical shipments or anticipated volume if substantial changes are expected. The market
demand must be profiled into different shipment sizes since transportation cost is significantly
influenced by shipment size.

Transportation Rates: Inbound and outbound transportation rates are a major data requirement
for location analyses. Rates must be provided for shipments between existing and potential
distribution channel members and markets. In addition, rates must be developed for each
shipment size and for each transportation link between distribution centres and markets. It is
common for supply chain analysis to require in excess of a million individual rates.

Did u know? Because of the large number, rates are commonly developed using regressions
or are retrieved from diskettes provided by most carriers.

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