1. Supply Chain Logistics Management
Chapter 16: Design Process and Techniques

2. LOGISTICAL REDESIGN PROCESS
Phase I
Phase II
Phase III
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
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3. LOGISTICAL REDESIGN PROCESS Phase I: Problem Definition and Planning
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

4. 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.

5. Feasibility Assessment
Cost-Benefit estimate
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.

6. Project Planning Statement of Objectives
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.

7. Project Planning Statement of Constraints
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.

8. 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.

9. Improving Profitability and Competitiveness in the Supply Chain
Strategic Network Design
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.

10. Typical Tactical/Operational Issues
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.

11. 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.

12. LOGISTICAL REDESIGN PROCESS Phase II: Data Collection and Analysis
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
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13. Assumptions and Data Collection
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.

14. Logistics Analysis Methodologies
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.

15. 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.

16. 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.

17. 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.

18. 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.

19. 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.

20. Optimization ? Simulator Solver Business Optimization
LP/MILP/GA etc. search
based solve.
Conditions of certainty
with some probability
Execution of a calculation
Ideal (single) answer to
the formulated problem.
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.
A solver searches for the exact inputs for the adjustable variables and sets them in the formulated model to calculate the best result after numerous iterations.
Optimization, in solver terms is the process of trying to find the best solution to a problem that may have many possible outcomes.
If the world were simple and the future were predictable, all data in an optimization model would be constant (making the model deterministic) , and you could use techniques such as linear and non-linear programming to find optimal solutions.
A simulator responds to the changing inputs and outputs of an interdependent dynamic process, and reports the process’ performance under those varying conditions.
Optimization, in dynamic simulation terms is the process of predicting the targeted solution’s performance under conditions of variability and uncertainty after a number of replications.
Often, Optimization is assumed to be synonymous with solver technology.
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.

21. 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.

22. Range of Planning Requirements
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.

23. Network Optimization
Determine the appropriate network of the supply chain by addressing strategic questions such as the following:
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.

24. Total Cost Analysis Approach
Expense Components
Handling +
Inbound Transport
DC Handling
Inventory
Customer Transport
____________
Total Cost
Dealers
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

25. Location Problem Types
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.

26. 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.

27. 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.

28. Analysis Complete Sensitivity Analysis
Determine responsiveness to changes
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.

29. Develop Recommendations
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.

30. LOGISTICAL REDESIGN PROCESS Phase III: Recommendations and Implementation
Supply Chain Logistics Management, First Edition , Bowersox, Closs, and Cooper
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

31. Recommendations 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.

32. Implementation 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.