1. Network and Operational Planning
McGraw-Hill/Irwin
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Overview of network and operational planning
Planning methodology
Phase 1: Problem definition and planning
Phase 2: Data collection and analysis
Phase 3: Recommendations and implementation
Supply chain analysis methods and techniques

3. Decisions often require complex and data-intensive analysis
Planning methodologies enable evaluation of options in response to customer behavior
Decisions often require complex and data-intensive analysis
Complexity is due to
Large number of factors impacting total cost
Range of alternative solutions available
Data-intensiveness is due to
Large amount of information required to evaluate each alternative
E.g., range of service alternatives, range of cost assumptions, range of operating technologies

4. Generalized planning methodology showing major phases of work
Problem definition and planning
Data collection and analysis
Recommendations and implementation
Figure 14.1 Research Process

5. Problem definition and planning provides the foundation for the overall analysis
Feasibility assessment
Analyze the current situation
Develop supporting logic
Estimate the cost-benefit to proceed
Project planning
State objectives of proposed changes
State constraints to scope of study
Establish measurement standards
Select analysis techniques
Create a project work plan

6. Feasibility assessment begins with analysis of the current situation
Requires an
Internal operational review
Market assessment
Technology assessment
Tables in text illustrate topics of inquiry for this work
See Tables 14.1, 14.2 and 14.3
Situational analysis should determine existing capabilities and help define improvement potential

7. Develop a supporting logic to integrate the findings from the current state analysis
Identify the value proposition to justify investment in detailed research and analysis
Critical fact-based evaluation of current procedures and practices
What is working well?
What areas can we improve?
Identify potential alternatives
Define current operations
Identify likely design alternatives
Suggest innovative approaches

8. Estimate the project’s potential benefits and risks
Benefits should be estimated for
Service improvements
Cost reductions
Cost prevention
“Low hanging fruit” opportunities
Illustration of sample risks defined for each alternative

9. Project planning involves these specific tasks
State objectives of proposed changes
State constraints to scope of study
Establish measurement standards
Assumptive logic
Select analysis techniques
Create a project work plan

10. Statement of objectives should be stated specifically and in measurable terms
Should define market segment, the time frame for change and specific performance expectations
Example objectives
Provide 100 most profitable customers with perfect order performance on all orders
All other customers receive
99% inventory availability for category A products
95% inventory availability for category B products
Delivery of 98% of all orders within 48 hours of placement

11. Statement of constraints should identify restrictions placed by senior management
Defines the specific organizational elements to be retained in current system
Facility, alliance, resource, system, procedural or channel constraints
Common examples
Hold existing manufacturing facilities and product mix constant
Omit some divisions from a centralized logistics system
“Why study things we don’t plan to do anything about?”

12. Measurement standards direct the analysis by listing assumptions about cost and performance
Standards should adequately reflect a total system performance view
Avoid a suboptimal focus on logistics functions
List assumptions that support standards
How is each cost component to be quantified?

13. Develop a project work plan for the remaining phases of the study
Schedule of tasks
Resource requirements
Personnel
Data collection and analysis
Analysis tools
Meeting schedules
Updates to share progress with executives
Illustration of sample project work plan with meeting schedule

14. Data collection and analysis activities
Assumptions and data collection
Define analysis approach and select techniques
Define and review assumptions
Identify data sources
Collect data
Collect validation data
Analysis
Develop questions for analysis
Validate the baseline analysis
Analyze each alternative
Complete sensitivity analysis

15. Analytical approach uses numerical tools to evaluate each alternative
Spreadsheet and statistical software availability have increased use of these techniques
Examples
Determine the inventory/service trade-offs using safety stock and fill rate formulae
Determine the order cycle time that is required to deliver 95% of customer orders
Determine the transportation dollar benefits for consolidating LTL orders into TL orders

16. Simulation is widely used, particularly when significant uncertainty is involved
Conduct experiments using a physical or numerical model of the real system
Understand overall system behavior over time
Use to evaluate operations under different strategies
Appropriate when
Limited number of variables are evaluated
Need a more realistic representation of the process
Need customer order or SKU level of detail

17. Optimization uses linear programming to evaluate and select best alternative
Appropriate for
Problems where objectives and constraints can be expressed in mathematical terms
Alternatives involving sweeping changes to the logistics systems
Limitations include
Demand on computing resources
Models are smaller in scope than simulations
Example
Determine the best location for distribution facilities subject to meeting supply, demand, and delivery time constraints

18. Define and review assumptions
Business
E.g., relevant market, consumer and product trends, resource availability, and competitive actions
Management
E.g., alternative warehouse locations, transport modes, ownership arrangements, logistics processes, fixed and variable costs
Analysis
Define constraints and limitations to fit the problem to the technique selected

19. Detailed description of assumptions by category
Table 14.4 Assumption Categories Elements

20. Identify data sources to fit the analytical technique
What are the sources for
Sales and customer orders?
Specific customer data that includes a spatial dimension?
Manufacturing and purchasing costs?
Transportation data?
Benchmarking data on competitive capabilities and flow?

21. Analysis involves use of technique and data to evaluate logistics alternatives
First, develop questions about alternatives and the range of acceptable uncertainty
Second, validate the technique and model using validation data
Third, repeat the analysis for each alternative to be evaluated
Finally, the best-performing alternatives can be evaluated for sensitivity to other factors or scenarios

22. Recommendations and implementation
Development of recommendations
Identify best alternative
Estimate costs and benefits
Develop risk appraisal
Develop presentation
Implementation
Define implementation plan
Schedule implementation
Define acceptance criteria
Implementing the plan

23. Sample presentation visual showing best alternative
Recommendations to management are developed through critical review of the analysis results
Identify best alternative
Estimate costs and benefits
Develop risk appraisal
Develop presentation
Sample presentation visual showing best alternative

24. Implementation is necessary to realize any business benefits from the recommendations
Define implementation plan
Events, activities and decisions with dependent relationships
Schedule implementation
Timeline of plan details
E.g., acquire facilities, negotiate agreements, mobilize teams, and conduct training
Define acceptance criteria
How will we measure success?
Implement the recommendation
Establish controls to monitor plan and acceptance criteria

25. Methods and techniques of analysis for supply chain decisions
Design decisions
Design logic
Inventory decisions
Transportation decisions
Freight lane analysis
Inventory analysis

26. Design decisions focus on selecting number and location of plants, warehouses and other nodes
Determine total costs and trade-offs for alternative channel strategies, activity outsourcing or offshoring decisions
Typical questions include
Where should plants and distribution centers be located?
Which market areas should be served by each distribution center?
Which product line should be stocked at each warehouse?
What marketing channels should be used to serve international markets?
Which service providers should be used for long-term contracts?

27. Design logic defines the method used to select from a number of available options
Optimization models consider a range of complex data to evaluate alternatives
Aggregate customer demand
Aggregate supply availability
Product and information flows at each stage
Transportation alternatives and costs
Other variable costs
Major problems with linear programming
Need explicit functional relationships for full range of design options
Only as valid as the design problem definition
Often limited by number of stages in the supply chain and problem size

28. Illustration of scope of typical supply chain analysis
Figure 14.2 Total Cost Analysis Approach

29. Data requirements for supply chain analysis include the following key elements
Markets defined by geographic segments
Products defined by the number of stock keeping units required
Network defines channel members and locations including current and proposed
Customer demand as shipment volume by market geography
Transportation rates for inbound and outbound volume
For each shipment size
For each potential transportation link
Variable and fixed costs
Tax incentives

30. Illustration of how US might be segmented in market areas
Figure 14.3 Supply Chain Network

31. Figure 14.4 Channel Network Example
Illustration of a network definition for channel of industrial and retail customers
Figure 14.4 Channel Network Example

32. Evaluation of alternatives
Baseline analysis is done first to validate cost and establish credibility of the analysis
Other alternatives are modeled and analyzed
Results can be compared to baseline to identify performance improvements
Baseline Model
Alternative Models

33. Illustration of baseline network with two plants and two warehouses
Figure 14.5 Base Supply Chain Network

34. Illustrates an alternative supply chain with 3 plants and 4 warehouses
Figure 14.6 Alternative Supply Chain Network

35. Concerns of supply chain design tools
Treatment of inventory carrying cost
Assumptions of shipment sizes over range of alternatives
Constant or varies with change in number of warehouses
Focus of analyses
Expanding boundaries of supply chain members
Minimize total cost vs. maximize profit
Periodic vs. ongoing

36. Figure 14.7 Analytic Inventory Overview
Illustration of the analytic inventory concept to make inventory decisions
Results of analysis
Figure 14.7 Analytic Inventory Overview

37. Illustration of the simulation approach to inventory analysis
Results of analysis
Figure 14.8 Inventory Simulation Overview

38. Transportation decisions range from strategic to tactical in scope
Strategic routing decisions
Identify long-term fixed transport modes
Monthly or yearly routes
Tactical routing decisions
Allocate resources for the short-term
Daily or weekly routes
Objective is to minimize the combination of vehicles, hours and miles required to deliver product

39. Illustration of typical transportation problem
Figure 14.9 Typical Routing or Delivery Problem

40. Transportation analysis techniques
Heuristic approaches
Use rule-of-thumb techniques to sequentially add and delete stops
Exact approaches
Use linear programming to identify best routes
Interactive approaches
Use simulation, cost calculator or graphics capability to support interactive decision process
Combination approaches
Blend of the three approaches is very effective
Criteria for evaluating approaches
How general is the approach?
E.g., special situations, multiple depots, time windows, vehicle capacities
How accurate is the approach?
Is it a close approximation of performance characteristics?

41. Data requirements for transportation analysis
Network defines all possible routes
Demand data defines periodic customer pickup and delivery requirements
Operating characteristics define
Number of vehicles
Vehicle limitations
Driver constraints
Operating costs

42. Figure 14.10 Example of Triangular Freight Lane
Freight lane analysis seeks to balance volume between origin and destination points
Results of analysis
Develop additional volume between Cincinnati and Chicago
Move product sources to Chicago
Alliance with shipper with no back-haul
Figure Example of Triangular Freight Lane
Table 14.6 Freight Lane Analysis of Monthly Movements

43. Illustration of inventory analysis showing key results for management review
Table 14.7 Typical Inventory Analysis Report