Supply Chain Logistics Management
Chapter 16: Design Process and
Techniques
LOGISTICAL REDESIGN PROCESS
Feasibility
Assessment
Phase I
Project
Planning
Assumptions and
Data Collection
Phase II
Analysis
Development of
Recommendations
Phase III
Implementations
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
LOGISTICAL REDESIGN PROCESS
Phase I: Problem Definition and Planning
Feasibility
Assessment
Project
Planning
 Situational Analysis
 Supporting Logic Development
 Cost-Benefit Estimate
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

Statement of Objectives
Statement of Constraints
Measurement Standards
Analysis Technique
 Project Workplan
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Feasibility Assessment
• Situation Analysis
– Internal assessment
– External assessment
– Technology assessment
• Supporting logic development
– Opportunity assessment
– Factual assessment of current procedures and practices
– Identify potential alternatives
• Definition of current operations
• Identify likely alternatives
• Creative alternatives
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Feasibility Assessment
• Cost-Benefit estimate
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Service
Cost reduction
Cost prevention
Competitive
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Project Planning
Statement of Objectives
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Inventory availability
Desired delivery within x hours
Minimize shipments from alternative sources
Fill orders without backorders
Maximum hold time for backorders
Provide high volume customers with minimum
performance standards
• Offer distribution within mileage radius
• Minimize transportation cost
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Project Planning
Statement of Constraints
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Facility constraints
Alliance constraints
Resource constraints
System constraints
Channel constraints
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Project Planning
Analysis Techniques
• Ad-Hoc techniques
– Profitability
– Inventory
– Lane
• Network analysis
– Graphical
– Optimization
– Heuristic or simulation
• Simulation
• Transportation
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Improving Profitability and
Competitiveness in the Supply Chain
• Strategic Network Design
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Pick the optimal number, location, and size of warehouses
Optimize the trade-offs between number of facilities and service levels
Optimize the trade-offs between transportation and warehousing costs
Determine optimal sourcing strategy
Determine best distribution channels
• Tactical Planning
– Develop an optimal supply chain plan for the next 3-12 months
• Optimize the trade-offs between production, inventory and warehousing
• Identify potential supply chain bottlenecks early to avoid disruptions and costs
– Share supply chain plan with geographically dispersed managers
• Share supply chain production plan with each of the plant mangers
• Provide warehouse managers with shipping and storage requirements
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Typical Tactical/Operational Issues
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Inventory/customer service trade-offs
Production/distribution coordination
Inventory/forecasting management
Transportation consolidation
Routing and scheduling
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Project Plan
Project Workplan
• Schedule
• Resource requirements
– Personnel
– Data collection and analysis
– Analysis tools
• Meeting schedules
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
LOGISTICAL REDESIGN PROCESS
Phase II: Data Collection and Analysis

 Define Analysis Approach and
 Obtain Technique
 Define and Review Assumptions
 Identify Data Sources
 Collect Data
 Collect Validation Data
Assumptions
and
Data Collection

Analysis
 Define Analysis Questions
 Complete and Validate Baseline
 Analysis
 Complete Alternative Analysis
 Complete Sensitivity Analysis
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Assumptions and Data Collection
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Define analysis approach and obtain technique
Define and review assumptions
Identify data sources
Collect data
Collect validation data
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Logistics Analysis Methodologies
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Analytical
Optimization
Heuristics
Simulation
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Analytical Methodology
• Using standard numerical/statistical methods, such as
those available through spreadsheets or statistical
software to evaluate each logistical alternative
• Examples
– Determine the inventory/service trade-offs using safety stock and fill
rate formulae
– Determine the order cycle time that currently would be required to
deliver 95% of customer orders
– Determine the transportation dollar benefits for consolidating LTL
orders into TL orders
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Optimization
• Determine the best answer to problems where objective
functions and constraints can be expressed in
mathematical terms
• Appropriate for applications involving sweeping changes
to the logistics systems
• Limitations include computing time/capacity and utility
of generalized mathematical expressions
• Example
– Determine the best location for distribution facilities subject to meeting
supply, demand, and delivery time constraints
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Heuristics
• Using “rules of thumb” to direct the analytical process
toward the best solution
• Appropriate for both large scale optimization and
simulation models
• Advantages include speed and understanding compared
to optimization techniques
• Limitation is that “optimal” solution may not be found
• Example
– Locate distribution centers only where demand exceeds a given
threashold
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Benefits of Heuristics
• Exploit the experience of management and
analysts
– Warehouses should be located near centers of greatest
demand
– TL shipments should be made to consumers directly from
manufacturing locations
– Only warehouse those items with a substantial differential
between inbound and outbound transportation costs
– The next warehouse to add to a distribution system is the
one that shows the greatest cost savings
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Simulation
• Conducting experiments using a precise representation of
a real system to understand its behavior or to evaluate
strategies for its operation (“What if” analysis)
• Appropriate when:
– Studying impact of change to a limited number of variables
– A more exact representation of the process is needed
– Customer order/stock keeping unit level of detail is needed
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Optimization ?
Business Optimization
Solver
• LP/MILP/GA etc. search
based solve.
• Conditions of certainty
with some probability
• Execution of a calculation
• Ideal (single) answer to
the formulated problem.
Simulator
• Mathematical/Heuristics
execution based run.
• Process flow and logic
• Conditions of uncertainty,
randomness and variability
• Execution of a process
• Realistic (95%) answer to
the modeled problem.
Each technique is particularly strong at solving different types of
problems, and therefore should not be seen as competing
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Assumptions and Data Collection
Define Analysis Approach and
Technique
• Heuristic (Spatial)
• Optimization (Spatial, Temporal)
• Simulation (Temporal)
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Range of Planning Requirements
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Network optimization
Supply chain dynamics
Demand planning
Supply planning
Transportation planning
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Network Optimization
• Determine the appropriate network of the supply
chain by addressing strategic questions such as the
following:
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Where should plants and DCs be located?
Which plants or DCs should be shut down?
Which market areas should be served by each DC?
Which DCs should stock each product?
Which vendors should be used for long-term contracts?
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Total Cost Analysis Approach
Expense
Components
Handling
+
Inbound Transport
+
DC Handling
+
Inventory
+
Dealers
Customer Transport
____________
Total Cost
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Location Problem Types
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Plant vs. distribution center location
Static vs. dynamic time horizon
Stochastic vs. deterministic data
Single vs. multiple products
Continuous vs. discrete approaches
Spatial vs. temporal dimensions
Profit vs. cost optimization
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Operating Policies
• Products “bundled” for sourcing. All LTL and UPS
shipments are sourced from a common DC based on
the lowest inbound + outbound transportation cost.
Premium shipments have a different source.
• Supplier locations held constant.
• Market assignments for all DCs are based on
minimizing combined inbound and outbound
transportation.
• Location impact of inventory is projected using the
“square root of N” rule with a 20% annual inventory
carrying cost
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Dynamics
• Exploring the relationship and operating
dynamics between supply chain operations
and partners. Specific questions include:
– What are the relevant trade-offs between service
objectives, uncertainty, and inventory level?
– How does forecast, demand, and lead time uncertainty
impact supply chain inventory and performance?
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Analysis
Complete Sensitivity Analysis
• Determine responsiveness to changes
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Demand
Transport cost
Competitive/environmental issues
Costs
• Test sensitivity
• Assess probability and identify best options
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Develop Recommendations
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Identify best alternative
Perform cost-benefit evaluation
Develop risk appraisal
Develop presentation
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
LOGISTICAL REDESIGN PROCESS
Phase III: Recommendations and Implementation
Development
of
Recommendations
 Identify Best Alternative
 Evaluate Cost-Benefit Data
 Develop Risk Appraisal
 Develop Presentation
Implementations
 Define Implementation Plan
 Schedule Implementation
 Define Acceptance Criteria
 Implement
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Recommendations
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Identify best alternatives
Cost/best evaluation
Risk appraisal
Develop report and presentation
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Implementation
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Define implementation plan
Schedule implementation
Define acceptance criteria
Implement
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.