Logistics Planning Process

To match the changing environment in the logistics due to the changes in the markets, competitors, suppliers and technology, there is a need for a systematic planning and design methodology to formally include the relevant consideration and effectively evaluate the alternatives.

Read More: The Concept of Logistics Planning

The logistics relational and operating environment is constantly changing. Even for the established industries, a firm’s markets, demands, costs and service requirements change rapidly in response to the customer and competitive behavior. Just as no ideal logistical system is suitable for all enterprises the method for identifying and evaluating alternative logistics strategies can vary extensively. However there is a general process applicable to most logistics design and analysis situations. The logistics planning process can be segmented into three phases: problem definition and planning, data collection and analysis, and recommendations and implementation.The following discussion describes each phase and illustrates the types of issues encountered.

Phase 1: Problem Definition and Planning

Phase 1 of logistics planning process provides the foundation for the entire project. A thorough and well-documented problem definition and plan are essential to all that follows.

1. Feasibility Assessment

The process of evaluating the need and desirability for change is referred to as feasibility assessment and it includes the activities of situational analysis, supporting logic development, and cost benefit estimation. The objective of doing so is to understand the environment, process, and performance characteristics of the current system and to determine future estimation.

a) Situational analysis: The purpose of the situational analysis is to provide senior management with the best possible understanding of the strengths and weaknesses of the existing logistics capabilities for both current and future environment. The situational analysis is the performance of measures and characteristics that describe the current logistics environment through:

  1. Internal review: Internal review is necessary to develop a clear understanding of existing logistics by covering the overall logistics process as well as each logistics function with respect to its stated objectives and its capabilities to meet those objectives. It profiles historical performance, data availability, strategies, operation and tactical policies and practices. All major resources such as workforce, equipment, facilities, relationships and information are examined. The comprehensive review attempts to identify the opportunities that might motivate or justify logistics system redesign or refinement. Assessment must consider the process (physical and information flows through the value – added chain), decisions (logic and criteria currently used for value chain management), and key measures for each major logistics activity. These measurements focus on the key performance indicators and the firm’s ability to measure them.
  2. Market assessment & competitive evaluation: The objective is to document and formalize customer perceptions and desires with regard to the changes in the firm’s logistical capabilities. It’s the review of the trends and service demands required by customers by the use of interviews with the selected customers or through customer surveys. The assessment focuses on the external relationships with the suppliers, customers (wholesalers and retailers) and consumers (final consumer). The assessment not only considers trends in requirements and processes but also the enterprise and the competitor’s capabilities.
  3. Technology Assessment: It focuses on the application and capabilities of the key logistics technologies, including transportation, storage, material handling, packaging, and information processing. The assessment considers the firm’s capabilities in terms of current technologies and the potential for applying new technologies. The objective of the assessment is to identify advancements that can provide effective trade – offs with other logistics resources such as transportation and inventory.

b)   Supporting logic development: The second feasibility assessment task is development of a supporting logic to integrate the findings of the internal review, external assessment and technology study. Supporting logic development builds on this comprehensive review in three ways

  1. First – supporting logic development forces a critical review of the potential opportunities for logistics improvements and a determination of whether additional investigation is justified, using logistics principles such as tapering principle, principle of inventory aggregation. The resulting benefits or costs should be clearly identified.
  2. Second – it critically evaluates current procedures and practices using comprehensive, factual analysis and evaluation that isn’t influenced by opinion and thus help in identifying areas with improvement potential which in turn provides a foundation to determine the need for strategic adjustment. The deliverables of this evaluation process include classification of planning and evaluation issues prioritized into primary and secondary categories across short and long range planning horizons.
  3. Third – the process of developing supporting logic should include clear statements of potential redesign alternatives such as:
    • Definition of current procedures and systems
    • Identification of the most likely system design alternatives based on leading industry and competitive practices
    • Suggestion of innovative approaches based on new theory and technologies

The alternatives along with being practical should also challenge the existing practices. Flow diagrams and /or outline illustrating the basic concepts associated with each alternative are constructed, which frame opportunities for flexible logistics practices, clearly outline value added and information flow requirements and provide a comprehensive overview of the options. A recommended procedure requires the manager responsible for evaluating the logistical strategy to develop a logical strategy to develop a logical statement and justification of potential benefits. Using customer service concept and logistics integration logic and methodology, the manager should commit to paper the most attractive strategy alternatives.

c) Cost benefit estimate: The final feasibility assessment is a preplanning estimate of the potential benefits of performing a logistics analysis and implementing the recommendation. Benefits should be categorized in terms of:

  • Service improvements – It includes results that enhance availability, quality or capability. Improved sciences increase loyalty of existing customers and may also attract business.
  • Cost reduction  – Cost reduction benefits may be observed in two forms:
    1. First, they may occur as a result of a one time reduction in financial or managerial resources required to operate the existing system for e.g. Reduction in capital deployed for inventory and other distribution related assets
    2. Second, cost reductions may be found in the form of out – of – pocket or variable expenses. For e.g. new technologies for material handling and information processing often reduce variable cost by allowing more efficient procedures and operations.
  • Cost prevention – Cost prevention reduces involvement in programs and operations experiencing cost increases.  Any cost prevention justification is based on an estimate of future conditions and therefore is vulnerable to some error for e.g. many material – handling and information technology upgrades are at least partially justified through financial analysis of the implications of future labor availability and wage levels.

In the final analysis, the decision to undertake in – depth planning will depend on how convincing the supporting logic is, how believable estimated benefits are, and whether estimated benefits offer sufficient return on investment to justify organizational and operational change. These potential benefits must be balances against the out 0- of pocket cost required to complete the process.

2. Project Planning:

Logistics system complexity requires that any effort to identify and evaluate strategic or tactical alternatives must be planned thoroughly to provide a sound basis for change. Project planning involves five specific items:

  1. Statement of objectives: The statement of objectives documents the cost and service expectations for the logistics systems revisions. It’s essential that they be stated specifically and in terms of measurable factors. The objective fine market or industry segments, the time frame for revisions, and specific service levels. For e.g., desired delivery of 98 percent of all orders within 48 hours after the order is placed, minimal customer shipments from secondary distribution centers, back – orders held for a maximum of five days, etc. specific definitions of these objectives direct system design efforts to ache9ice explicit performance levels. Total system cost can then be determined.
  2. Statement of constraints: The second project planning consideration concerns design constraints. On the basis of the situational analysis, it’s expected that senior management will place restrictions on the scope of permissible system modifications depending on the specific circumstances of individual firms. But constraints can affect the overall planning process for e.g. one restriction common to distribution system design concerns the network of manufacturing facilities and their product mix assortment which the management often holds constant for logistical system redesign as there are large financial investments in existing production facilities. The purpose of developing a statement of constraints is to have a well-defined starting point and overall perspective for the planning effort. The statement of constraints defines specific organizational elements, buildings, systems, procedures, and/or practices to be retained from the existing logistical system.
  3. Measurement standards: Such standards direct the project by identifying the cost structures and performance penalties and by providing a means to ass’s success. Management must stipulate guidelines for each category as a prerequisite to formulation of a plan. It is important that the standards adequately reflect total system performance rather than a limited, sub optimal focus on logistics functions. Once formulated, such standards must be held constant throughout system development. An important measurement requirement is to quantify a list of assumptions that underlie or provide the logic supporting the standards. Measurement standards should include definitions of how cost components such as transportation are calculated and also relevant customer service measures and method of calculation must also be included.
  4. Analysis procedures: Analysis techniques range from simple manual methods to elaborate computerized decision support tools. For e.g., models incorporating optimization or simulation algorithms for evaluating and comparing alternative logistics warehouse networks. Once the project objectives and constraints are defined, planning must identify alternative solution techniques and select the best approach. Selection an analysis technique must consider the information necessary to evaluate the project issues and options
  5. Project work plan: On the basis of feasibility assessment, objectives, constraints and analysis technique, a project work plan must be determined and the resources and time required for completion identified. The alternatives and opportunities specified during the feasibility assessment provide the basis for determining the scope of the study. In turn the scope determines the completion time. One of the most common errors in strategic planning is to under estimate the time required to complete a specific assignment. Overruns require financial expenditures and reduce project credibility. There are a number of PC – based software packages available to structure projects, guide resource allocation, and measure progress.