PLANNING
There are many reasons to plan. When planning, management should consider the overall mission of the organization and develop specific action plans and activities to move the organization in the desired direction. In today’s rapidly changing business environment, it is essential for managers to anticipate changes and prepare their organizations to best incorporate, respond to, and take advantage of such change. Without taking a proactive approach, managers will be constantly reacting in a crisis mode, and they will not be able to move forward in achieving their firm’s mission.
THE HIERARCHY OF PLANNING
Planning within the organization exist at many levels, as well as in many functional areas. At a minimum, most organization formally update their plans on a yearly basis. However, planning is ideally an ongoing process. In addition, it is important to tie all of the functional plans together to ensure that they must support the overall corporate plan and objectives. It is important to have plans for different time frames, and that this time phased plans fit together to support the long-range plan.
STRATEGIC PLAN
Organizations use a variety of terms to explain the various planning levels. At the highest level, which extends the furthest in time, is the strategic plan. The further into the future a plan extends, the less detail it will need. This is true because it is extremely difficult to anticipate the changes that may occur in the environment and the organization that will affect the organization’s mission and its strategy.
COMPONENTS OF A STRATEGIC PLAN
The strategic plan considers an organization’s objectives, overall service requirement, and how the management intends to achieve the corporate vision. The plan are very general and usually include projected revenues and expenses, sales and profits from existing business lines compared with new lines of business.
TACTICAL PLAN
At an intermediate level, generally one to five years into the future, an organization may have a medium-range plan, often called a tactical plan. Tactical plan are often more specific than strategic plans in terms of product lines, and may be broken down into detailed quarterly revenues and expenses. Tactical plans usually include a capital expenditure plan that indicates how much the organization will invest each year in new plant, equipment and other capital expenditure items. Issues like building warehouses, purchasing transportation or materials handling equipment, and other major expenditure to support the logistics infrastructure should be addressed as part of the capital expenditure plan.
OPERATING PLAN
The most detailed level of plan is called the operating plan or the annual plan. It breaks out revenue, expenses and associated cash flows and activity by month for a one-year period. The detailed operating plan is prepared to guide the activities for the following year. Actual performance is monitored and compared to planned performance in order to anticipate problems and respond accordingly, and to communicate result.
Production scheduling and materials purchases may be based on the operating plan. A firm can use this plan to anticipate its logistics needs from warehouses space to shipping. This allows logistics to anticipate its labor needs and to negotiate contracts with the third party providers.
LOGISTICS STRATEGIC PLANNING
Logistics strategic planning is a complex process that requires an understanding of how the different elements and activities of logistics interact in terms of trade-offs and the total cost to the organization. Only by understanding the corporate strategy can logistics best formulate its own strategy.
For example
A study sponsored by the council of logistics management reported that only 55% of the professionals surveyed that their company’s executives believed that the logistics plan was critical to the corporation’s strategic plan, while 16% were neutral and 29% disagreed.
THE ORGANIZATIONAL PLANNING PROCESS
The logistics plan is dependent upon and takes direction from corporate strategic planning, which requires that consideration be given to the following environments:
1. Legal and political environment.
2. Technological environment.
3. Economic and social environment.
4. Overall competitive environment.
ONGOING CHANNEL EVALUATION AND IMPROVEMENT
Measures of performance:
Keeping performance on track requires regular monitoring and reporting of actual performance result. It is important to report expected levels of performance as a basis for comparison. Some of the relevant measures of performance of both the logistics function and external channel members were described. These includes, but are not limited to, on-time delivery, and response speed for emergencies, delivery time variability, and response to customer inquiries.
CUSTOMER SERVICE LEVELS
The key cost trade-off associated with varying levels of customer service is the cost of lost sales.
They also include the costs of return goods handling, which has a major impact on a customer’s perception of the organization’s service as well as the ultimate level of customer satisfaction.
The cost of lost sales includes not only the lost contribution of the current sale, but also potential future sales from the customer and from other customers due to word- of-mouth negative publicity from former customers. A recent estimate indicated that every disgruntled customer tells an average of nine others about his or her dissatisfaction with the product or service. It is no wonder that it is extremely difficult to measure the true cost of customer service!
• COST OF A LOST SALE
The cost of lost sales includes not only the lost contribution of the current sale, but also potential future sales from the customer and from other customers due to word – of – mouth negative publicity from former customers. A recent estimate indicated that every disgruntled customer tells an average of nine others about his or her dissatisfaction with the product or service. It is no wonder that it is extremely difficult to measure the true cost of customer service!
Thus, the best approach is to determine desired levels of customer service based on customer needs, and how those needs are affected by expenditures on other areas of the marketing mix. The idea is to minimize the total cost, given the customer service objectives. Because each of the other five major logistics cost elements work together to support customer service, good data are needed regarding expenditures in each category.
• TRANSPORTATION COSTS
The activity of transport ting goods drives transportation costs. Expenditures that support transportation can be viewed in many different ways, depending on the unit of analysis.
The various Costs which affect the transportation cost are volume of shipment, weight of shipment, distance, and point of origin and destination. Costs and service also vary considerably with the mode of transportation chosen.
• WAREHOUSING COSTS
Warehousing costs are created by warehousing and storage activities and by plant and warehouse site selection process. Included are all of the costs that vary due to a change in the number or location of warehouses.
• ORDER PROCESSING/ INFORMATION SYSTEMS COSTS
This category includes costs related to activities such as order processing, distribution communications, and forecasting demand.
There are many reasons to plan. When planning, management should consider the overall mission of the organization and develop specific action plans and activities to move the organization in the desired direction. In today’s rapidly changing business environment, it is essential for managers to anticipate changes and prepare their organizations to best incorporate, respond to, and take advantage of such change. Without taking a proactive approach, managers will be constantly reacting in a crisis mode, and they will not be able to move forward in achieving their firm’s mission.
THE HIERARCHY OF PLANNING
Planning within the organization exist at many levels, as well as in many functional areas. At a minimum, most organization formally update their plans on a yearly basis. However, planning is ideally an ongoing process. In addition, it is important to tie all of the functional plans together to ensure that they must support the overall corporate plan and objectives. It is important to have plans for different time frames, and that this time phased plans fit together to support the long-range plan.
STRATEGIC PLAN
Organizations use a variety of terms to explain the various planning levels. At the highest level, which extends the furthest in time, is the strategic plan. The further into the future a plan extends, the less detail it will need. This is true because it is extremely difficult to anticipate the changes that may occur in the environment and the organization that will affect the organization’s mission and its strategy.
COMPONENTS OF A STRATEGIC PLAN
The strategic plan considers an organization’s objectives, overall service requirement, and how the management intends to achieve the corporate vision. The plan are very general and usually include projected revenues and expenses, sales and profits from existing business lines compared with new lines of business.
TACTICAL PLAN
At an intermediate level, generally one to five years into the future, an organization may have a medium-range plan, often called a tactical plan. Tactical plan are often more specific than strategic plans in terms of product lines, and may be broken down into detailed quarterly revenues and expenses. Tactical plans usually include a capital expenditure plan that indicates how much the organization will invest each year in new plant, equipment and other capital expenditure items. Issues like building warehouses, purchasing transportation or materials handling equipment, and other major expenditure to support the logistics infrastructure should be addressed as part of the capital expenditure plan.
OPERATING PLAN
The most detailed level of plan is called the operating plan or the annual plan. It breaks out revenue, expenses and associated cash flows and activity by month for a one-year period. The detailed operating plan is prepared to guide the activities for the following year. Actual performance is monitored and compared to planned performance in order to anticipate problems and respond accordingly, and to communicate result.
Production scheduling and materials purchases may be based on the operating plan. A firm can use this plan to anticipate its logistics needs from warehouses space to shipping. This allows logistics to anticipate its labor needs and to negotiate contracts with the third party providers.
LOGISTICS STRATEGIC PLANNING
Logistics strategic planning is a complex process that requires an understanding of how the different elements and activities of logistics interact in terms of trade-offs and the total cost to the organization. Only by understanding the corporate strategy can logistics best formulate its own strategy.
For example
A study sponsored by the council of logistics management reported that only 55% of the professionals surveyed that their company’s executives believed that the logistics plan was critical to the corporation’s strategic plan, while 16% were neutral and 29% disagreed.
THE ORGANIZATIONAL PLANNING PROCESS
The logistics plan is dependent upon and takes direction from corporate strategic planning, which requires that consideration be given to the following environments:
1. Legal and political environment.
2. Technological environment.
3. Economic and social environment.
4. Overall competitive environment.
ONGOING CHANNEL EVALUATION AND IMPROVEMENT
Measures of performance:
Keeping performance on track requires regular monitoring and reporting of actual performance result. It is important to report expected levels of performance as a basis for comparison. Some of the relevant measures of performance of both the logistics function and external channel members were described. These includes, but are not limited to, on-time delivery, and response speed for emergencies, delivery time variability, and response to customer inquiries.
CUSTOMER SERVICE LEVELS
The key cost trade-off associated with varying levels of customer service is the cost of lost sales.
They also include the costs of return goods handling, which has a major impact on a customer’s perception of the organization’s service as well as the ultimate level of customer satisfaction.
The cost of lost sales includes not only the lost contribution of the current sale, but also potential future sales from the customer and from other customers due to word- of-mouth negative publicity from former customers. A recent estimate indicated that every disgruntled customer tells an average of nine others about his or her dissatisfaction with the product or service. It is no wonder that it is extremely difficult to measure the true cost of customer service!
• COST OF A LOST SALE
The cost of lost sales includes not only the lost contribution of the current sale, but also potential future sales from the customer and from other customers due to word – of – mouth negative publicity from former customers. A recent estimate indicated that every disgruntled customer tells an average of nine others about his or her dissatisfaction with the product or service. It is no wonder that it is extremely difficult to measure the true cost of customer service!
Thus, the best approach is to determine desired levels of customer service based on customer needs, and how those needs are affected by expenditures on other areas of the marketing mix. The idea is to minimize the total cost, given the customer service objectives. Because each of the other five major logistics cost elements work together to support customer service, good data are needed regarding expenditures in each category.
• TRANSPORTATION COSTS
The activity of transport ting goods drives transportation costs. Expenditures that support transportation can be viewed in many different ways, depending on the unit of analysis.
The various Costs which affect the transportation cost are volume of shipment, weight of shipment, distance, and point of origin and destination. Costs and service also vary considerably with the mode of transportation chosen.
• WAREHOUSING COSTS
Warehousing costs are created by warehousing and storage activities and by plant and warehouse site selection process. Included are all of the costs that vary due to a change in the number or location of warehouses.
• ORDER PROCESSING/ INFORMATION SYSTEMS COSTS
This category includes costs related to activities such as order processing, distribution communications, and forecasting demand.