Chapter 18: Planning

and Design Methodology

Group 6:
Barrameda Irinco
Ledesma Orozco Garbo
Opea Arguelles
Methodology
Phase I: Problem Definition
and Planning

Methodology

Feasibility Assessment

Project Planning

Methodology
The logistics relational and operating environment
is constantly changing. Even established industries, a
firms markets, demands, costs, and service
requirements change rapidly in response to these
changes, firms often face questions such as:

1.) How many distribution center should be used, and
where should they be located?

2.) What types of transportation equipment should be
used, and how should be vehicles be routed?

3.) Should a new material-handling technology be
applied in our distribution centers?
Those are questions that represent the issues logistics
managers regularly face. Such questions are usually
characterized as COMPLEX and DATA-INTENSIVE.

The COMPLEXITY is due to the large number of
factors influencing logistics total cost and the number of
potential alternatives, the DATA-INTESIVENESS is
due to the large amount of information required to
evaluate logistics alternatives.
Typical information analyses must include possible
service alternatives, cost characteristics and operating
techniques. These analyses require that a structured
process and effective analytical tools be applied to solve
logistics problems.
Phase I: Problem Definition and Planning

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

Feasibility Assessment

Project Planning



A. Feasibility Assessment

Logistics design and planning must begin with a
comprehensive evaluation of the current logistics
situation. The objective is to understand the
environment, process and performance characteristics of
the current system to determine what if any
modifications appear appropriate.

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.

Feasibility Assessment

A.) Situational Analysis is the
collection of performance measures and
characteristics that describe the current
logistics environment.
A typical appraisal requires an internal
review, a market assessment, a competitive
evaluation and a technology assessment to
determine improvement potential.

Internal Review
- is necessary to develop a clear
understanding of existing logistics
processes. It profiles historical performance,
data availability, strategies, operations, and
tactical policies and practice. The review
usually covers the overall logistics process
as well as each logistics function.
A complete self-appraisal for an
internal interview examines all major
resources such as workforce, equipment,
facilities, relationships and information. In
particular, the internal review should focus
on a comprehensive evaluation of existing
systems capabilities and deficiencies. Each
element of the logistics system should be
carefully examined with respect to its stated
objectives and it s capabilities to meet those
objectives.

For example.

Is the logistics management information system
consistently providing and measuring the
customer service objectives desired by the
marketing department?

Likewise, does the material management process
adequately support manufacturing requirements?
The comprehensive review attempts to identify
the opportunities that might motivate or justify
logistics system redesign or refinement.

Process consideration- focus on physical
and information flows through the value-
added chain

Decision consideration- focus on the
logic and criteria currently used for value
chain management

Measurement considerations- focus on
the key performance indicators and the
firms ability to measure them

Processes Decisions Measurements
TRANSPORTATION
(TOPIC)
What modes are
currently used?

What is the weight
profile orders and
shipments, and how are
they different?

What is the flow for
requesting, paying, and
exchanging information
with carriers?

What is the information
flow for shipment
documentation?
How is the mode
and carrier
choice decision
made for each
shipment?

How are carriers
evaluated?
What are the key
transportation
performance measures?

How are they measured?

What is the current
performance level?

What are the relative
economic performance
characteristics of each
mode and carrier?
The purpose of the internal review
is not detailed data collection but rather
a diagnostic look at current logistics
processed and procedures as well as a
probe to determine data availability.
Most significantly, the internal review
is directed at the identification areas
where substantial opportunity for
improvement exists.

External Assessment is a review of the trends
and service demands required by customers.

Market Assessment objective is to document
and formalize customer perceptions and desires
with regard to changes in the firms logistics
capabilities.

Technology Assessment focuses on the
application and capabilities of key logistics
technologies, including transportation, storage,
material-handling, packaging and information
processing.

External Assessment: Consumers
Market Trends Enterprise capabilities Competitive capabilities
How are consumers
purchasing patterns
changing with
respect to purchase
locations, times, and
selection criteria?

How are the
consumer trends
with respect to
logistics activities
such as purchase
quantities,
packaging, home
delivery, and
product quality?
How are we able to
respond to changes
in consumer
purchasing
patterns and
selection criteria?
How our competitors
responding to
changes in consumer
purchasing patterns
and selection
criteria?
Technical Assessment : Order Processing
Current Technology State-of-the-art technology
What is the process to
allocate available
inventory to customer
orders?

What are the limitations
of the current approach?
How are the best firms
performing order
processing?

What new technologies
(hardware and
software) are available
to improve order
processing
effectiveness?
The assessment considers the firms
capabilities in terms of current technologies and
the potential for applying new technologies. The
objective of the technology assessment is to
identify advancements that can provide effective
trade-offs with other logistics resources such as
transportation or inventory. Such an assessment
should be completed with respect to teach
component of the logistics system as well as from
the perspective of overall integration.

Feasibility Assessment
B.) Supporting Logic Development
The second feasibility assessment task is
development of a supporting logic to integrate the
findings of internal review, external assessment
and technology study,
Supporting logic development often
constitutes the most difficult part of the strategic
process. The purpose of situational analysis is
to provide senior management with the best
possible understanding of the strengths and
weaknesses of existing logistics capabilities for
both current and future environments.
Supporting logic development builds on this
comprehensive review in 3 ways:

1.It must determine if there are sufficient
logistics improvement opportunities to
justify detailed research and analysis. In a sense,
supporting logic development forces a critical
review of potential opportunities and a
determination of whether additional investigation
is required.


2. Supporting logic development critically
evaluates current procedures and
practices using comprehensive, factual
analysis and evaluation that is not
influenced by opinion. Identification of
areas with improvement potential, as well as
those whose operations are satisfactory,
provides a foundation to determine the need
for strategic adjustment.

3.The process of developing supporting
logic should include clear statements of
potential redesign alternative. The
statements should include a.) definition of
current procedures and systems, b.)
identification of the most likely system
design alternatives based on leading
industry and competitive practices, c.)
suggestion of innovative approaches based
on new theory and technologies.


Feasibility Assessment

C.)Cost-Benefit Estimate

The final feasibility assessment is a preplanning
estimate of the potential benefits of performing a
logistics analysis and implementing the
recommendations. Benefits should be
categorized in terms of service improvements,
cost reduction, and cost prevention. The
categories are not mutually exclusive given then
an ideal logistics strategy might recognize some
degree of all three benefits simultaneously.

Service Improvement includes results that
enhance availability, quality, or capability.
Improved service increases loyalty of existing
customers and may also attract new business.

Cost Reduction may be observed in 2 forms.
1
st
, they may occur as a result of a one time
reduction in financial or managerial resource
required to operate existing system. 2
nd
, may be
found in the form of out-of-pocket- or variable
expenses

Cost Prevention - involvement in programs and
operations experiencing cost increases.


Project Planning

The second phase 1 activity
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. Involves 5
specific items: Statement of Objectives,
Statement of Constraints, Measurement
Standards, Analysis Procedures, and Project
Workplace.

1.)Statement of Objectives
The statement of objectives documents
the cost and service expectations for the
logistics system revisions. It is essential that
they be stated specifically and in terms of
measurable factors. The objectives define
marker or industry segments, the time
frame for revisions, and specific
performance requirements.

2.)Statement of Constraints
The second project planning
consideration concerns design constraints.
On the basis of the situational analysis, it is
expected that senior management will place
restrictions on the scope of permissible
system modification. The nature of such
restrictions will depend on the specific
circumstances of individual firms.

3.)Measurement Standards.
The feasibility assessment often
highlights the need for development of
managerial performance standards. Such as
standards direct the project by identifying
cost structures and performance penalties
and by providing a means to assess success.
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, inventory, and order
processing are calculated, including detailed
financial account references. The standards
also include specification of relevant
customer service measures and methods for
calculation.

4.) Analysis Procedure
Once the critical issues and alternatives are
defined, the appropriate analysis technique
should be determined. Analysis techniques range
from simple manual methods to elaborate
computerized decision support tools. Selection of
an analysis technique must consider the
information necessary to evaluate the project
issues and options. Specifically, critical
performance measures and logistics system scope
must be identified and evaluated. Technique
selection must also consider the availability and
format of required data.

5.) Project Workplan
On the basis of feasibility assessment,
objectives, constraints, and analysis
technique, a project workplan 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.


Project management is responsible for
the achievement of expected results
within time and budget constraints.
One of the most common errors in
strategic planning is to underestimate
the time required to complete a specific
assignment. Overruns require greater
financial expenditures and reduce
project credibility.