Logistics activities are searching constantly
for ways to improve process capabilities, shorten throughput
times, improve quality, and cut costs. Many manufacturing and
quality engineering books describe the specifics of defining
process capabilities or optimally designing logistics systems.
In many cases, the need for improvements may be obvious. In
fact, to many private or public sector organizations, these
improvements may be necessities. Unfortunately, most private
sector businesses and Government activities do not have the
luxury of starting from square one. Therefore, most activities
require interventions that are synchronized with ongoing operations.
So, where is one to start, and what methodology should be used?
This article describes an eight-step methodology that can be
used to guide decisionmakers through an activity design or
redesign to improve operations, increase capacity, or shorten
system time requirements. (See chart below.)
Step 1: Define Logistics Activity Interrelationships
What materials, products, or information come into the activity? What materials,
products, or information flow out of the activity? What interactions does the
activity have with other activities?
Before initiating or reworking an activity’s design, it is crucial to
understand the role the activity plays with other activities. This will help
avoid the trap of suboptimizing an interrelated system or chain of activities;
that is, making a change that benefits one activity but actually degrades overall
system performance. This can be mapped with a method called interrelationship
diagramming. Developing an interrelationship diagram can be as simple as showing
all of the associated activities on a chart and drawing in lines to represent
the flow of functional or information interactions. (See diagram below.)
diagrams are used to define the roles among activities.
Defining an activity’s “as is” and proposed “to be” interrelationships
serves as a precursor to activity design or redesign. If the activity is
already in operation, this will simply require mapping the
known relationships. If
the activity is not in operation, a knowledgeable, cross-functional team
and troubleshoot a few options to ensure material, function, and information
dynamics are addressed.
Once interrelationships are laid out, the analysts can review the relationships
to better understand the activity’s role and its inputs and outputs—whether
physical or informational. This review may help identify opportunities to
eliminate unnecessary redundancies, or it may illustrate opportunities to
within activities. At a minimum, analysts will better understand the environment
in which the activity functions.
Step 2: Conduct a Logistics Audit
A logistics audit is a crucial prerequisite to task, process, or system modification.
The logistics audit will determine or validate the “as is” baselines
by which intervention successes are measured.
The audit should answer the following questions: What resources are available,
such as storage, production, and throughput capacities; buildings by size; number
of personnel by type; materials-handling equipment by type; conveying systems;
and budgeted capital expenditures? What constraints does the activity face, such
as building layouts, storage capacities, time allotted for given production requirements,
use of certain automation systems, regulatory compliance requirements, surge
requirements, and capital expenditure budget? What processes does the activity
use, and what are the current standards governing those processes?
Ideally, an activity should use flow charts to demonstrate the processes used
to perform tasks, the performance standards required for those processes, and
the metrics employed to monitor success. If flow charts are not used, the processes
must be documented to ensure that tasks are being performed consistently. The
logistics audit provides a foundation for understanding an activity, analyzing
feasible solutions, and measuring the value of implemented solutions.
Quality engineers use the DMAIC (define, measure, analyze, improve, and control)
model to document processes before beginning process improvement. If processes
are documented, another series of logical questions apply: Are the processes
being followed? Are they within acceptable control and performance parameters?
Are they outdated? Can they be improved?
It is important to note that processes being performed consistently and within
statistical control still may be well outside required performance standards.
Processes that appear to be outside the tolerance of established performance
parameters must be analyzed for the factors that contribute to inconsistencies.
This may be a result of process deviations or inconsistencies in process measurement.
Each process analyzed must have a process owner who must be able to demonstrate
the performance data that validate process control. Controlling processes within
preestablished performance parameters should be part of the activity’s
ongoing quality control.
Once processes are documented, analysts can diagram process and system relationships
in order to investigate task relationships within processes and process relationships
within systems. This approach is called network diagramming. Although network
diagramming is most commonly used in the construction industry for project management,
the concept also can be helpful in designing a logistics activity. Network diagramming
is useful for determining a comprehensive cycle time of more than one task, process,
| In this
example, the two arrangements represent the same
process. By rearranging the relationships of how
the tasks are performed, the cycle time is reduced
by 14 units of measure (such as days) with arrangement
B. By changing the relationships, the critical path
(shown in red) also changes. Now tasks C and D have
5 days of float time before they affect the overall
Network diagramming helps to identify the time required to
complete a given process, activity, or project. This technique
provides an ability to identify those tasks
on the critical path—a task or process for which any deviation in time
will affect the overall process, activity, or project time. Those tasks not
on the critical path may have a degree of float time, or system slack, associated
with them and may slip forward or backward based on the amount of float time.
As long as a task does not slip past the amount of float time, it will not
the overall process or project time. Changes in the relationships among tasks
can affect the critical path and the overall cycle time. For example, if two
tasks are performed simultaneously rather than sequentially, the time required
to complete the process will be shorter. (See chart above.)
If the relationships of a given process, activity, or project are fixed, all
efforts to decrease the time must focus on critical path tasks, processes,
or activities. This approach is known as system “crashing,” or
system compression. Efforts to shorten time by compressing tasks not on the
path will not produce results until all system float time is eliminated. Therefore,
the most effective approach requires a focus on critical path activities. This
can be done by modernizing equipment, changing task or process performance,
or adding resources. Ideally, the system is only compressed to a point of optimal
investment. Often the cost to compress outweighs the amount saved by the compression;
however, other drivers, such as time constraints, may necessitate the addition
The boxes used in network diagramming typically show the
task to be performed, the task duration, early and late
starts, and early and late finishes. Determining
float time requires two passes through the network, one forward and one backward.
Once complete, subtracting the late start and finish times from the early
start and finish times will show the amount of float time.
(See chart below.)
diagramming, each task node box shows the starting
point, ending point, and duration.
Step 3: Define Desired Operational Baselines
This step builds on step 2 when a performance change is determined
to be necessary. The change may be an increase in production
requirements, a reduction in time to perform a chain of activities,
or a reduction of defect variation within existing operations.
To complete this step, analysts must work with the activity’s managers
to determine the desired activity performance benchmarks. Performance standards
generally reflect cumulative amounts of process or system cycle times. Any task,
relationship, or resource modification to a given process usually results in
the requirement to modify the performance standard for that process or system.
Several books have been written on benchmarking organizational performance. Therefore,
the complexity of this step should not be underestimated. Analyzing the difference
between the “as is” performance of an existing activity (step 2)
and defining its operational requirements (step 3) is also known as “gap
analysis.” The gap must be identified in order to investigate feasible
Step 4: Analyze Systems and Determine Options
The resources and constraints identified in step 2 will directly affect this
step of the analysis. Although many methods are available for determining feasible
options, simulation technology is often used because of its unquestionable value
in identifying or validating potential solution sets. Simulating the interrelationships
of an activity’s current systems can identify functional bottlenecks. These
bottlenecks are the areas that will require the most focus if the intent is to
increase production capability. Simulations may use queuing theory and portray
the impact of materials or products that converge at system points for necessary
process tasks to be performed. [Queuing theory addresses how systems with limited
resources distribute those resources to elements waiting in line and how those
elements waiting in line respond.]
Other simulations may focus on linear programming, or “optimization.” These
types of simulations try to maximize or minimize something (a given function)
subject to a set of constraints (the decision or control variables). The optimal
solution is referred to as the objective function because it is always a function
of the decision variables. Analysts may find many acceptable, although not optimal,
solution sets within the region of feasibility.
Identified solution sets can be placed in simulation software to measure the
forecasted value of given interventions, either alone or when combined with others.
This gives decisionmakers the ability to experiment with thousands of combinations
of interventions without making changes to equipment, numbers of personnel, their
schedules, the equipment they use, or other infra- and suprastructure enhancements.
Forecasting the value of an intervention can be critical in an environment of
limited resources and gives decisionmakers the ability to program capital investments
in a manner that makes the most sense for their given constraints.
Step 5: Define Required Decision Criteria
Military decisionmakers use both screening and decision criteria. Screening criteria
allow decisionmakers to identify solutions that are impracticable or too costly.
Screening criteria should be applied in step 4 to avoid wasting time designing
solution sets that hinge on unreasonable interventions. For example, an intervention
that requires resources that the organization cannot obtain may not be feasible.
Legal, physical, cultural, or sociological constraints may also make an intervention
Applying decision criteria allows decisionmakers to categorize various interventions.
For example, if the capital investment plan targets a high return on investment
before an intervention’s implementation, analysts should associate interventions
with a net initial investment. Additionally, a summary of each net initial investment
computation should be documented to ensure that stakeholders understand the computation.
For public sector organizations, these values often are determined by cost avoidance.
To determine the cash flows associated with cost avoidance, analysts should be
able to demonstrate the amount of time or money saved, the increase in production,
or the decrease in errors resulting from the intervention. This allows a value
to be associated with each improvement.
Interventions may need to be divided into categories if all are not given equal
consideration. The criteria in the example on page 34 were provided in order
to conduct a cost/benefit analysis using the payback computation. Depending on
the organization, use of other financial measures, such as the internal rate
of return, profitability index, or net present value, may improve the analysis.
All recommendations in the example were provided to enhance a Government warehousing
operation. The analysis was conducted in conjunction with computer simulation
Step 6: Decide Which Interventions to Implement
The complexity of this step is determined by the criteria defined and the documentation
of interventions after completing analyses of feasible solutions. Once decisionmakers
receive the analysis results, they must apply relevant qualitative information
to make final decisions for intervention programming.
Step 7: Identify Owners and Make Plans
For interventions to be successful, they must have upper management’s support
and someone must “own” the implementation plan. When implementation
strategies are personnel intensive, organizational change management considerations
should be addressed before the intervention begins. The value of creating personal
buy-in and a sense of urgency, establishing ownership, and generating early success
should not be underestimated.
Step 8: Implement and Monitor
Once implementation of the solution is underway, interventions should be monitored
to validate their success. Measuring implementation progress against the implementation
plan will provide the organization with valuable knowledge for future process
Change is a constant in all organizations. Conceptual models can provide a valuable
roadmap to those charged with designing or reengineering an activity. The eight-step
methodology described here is one such roadmap that, when followed, will produce
pleasing results. An infinite number of management systems and tools can be used
with this conceptual model, depending on the specific nature of the problem being
addressed. Sometimes merely beginning is the most difficult stage of problem
solving. As an old Chinese proverb states, “A journey of a thousand miles
begins with a single step.”
Major David R. Gibson is the Executive Officer of the 226th Medical Logistics
Battalion in Miesau, Germany. He has a bachelor’s degree in business from
the University of Central Oklahoma, a master’s degree in public administration
from Murray State University in Kentucky, and master’s degrees in construction
management and in business administration and finance from the University of
Denver. He is a graduate of the Army Medical Department Officer Basic and Advanced
Courses, the Combined Arms and Services Staff School, and the Army Command and
General Staff College.
Sample Cost/Benefit Analysis Using the Payback Computation
I. Life, health, and
safety improvements. Recommendations
in this category must include items that address current or
potential hazards within the scope of warehouse operations.
These may be based on specific Occupational Safety and Health
Administration (OSHA) violations or items that contribute to
a healthy work environment; for example, painting hazard marks
on the floor to separate foot traffic from materials-handling
equipment traffic or adding safety rails to prevent damage
to shelving. These items must have order-of-magnitude costs
identified. The benefits must be self-evident or required
by published safety guidance or regulations. Calculating
probable damage or expenses associated with accidents is not
II. Low-cost improvements. Recommendations in this category
must include items such as process or minor functional
changes that improve operations with little
or no cost to the organization. Two examples are building a small storage rack
to accommodate the organization and storage of packing materials and adding
small clipboard devices to hold paper materiel release
orders while pickers select
stock. These items must have orders-of-magnitude costs identified. The benefits
must be self-evident because of functional or ergonomic enhancements if cost
savings or increased capabilities cannot be readily quantified.
III. Capital investments to improve operations. This category must address
procurement of additional components, systems, technology, hardware, or other
will improve operations or significantly increase capabilities to improve operations.
These recommendations must be justified using the simulation model in order
to demonstrate the functional feasibility of the recommendation.
The cost/benefit analysis must be based on the payback computation, which is
used to demonstrate the viability of a given investment. The shorter the payback,
the higher the investment should be ranked. This analysis will be computed
Since the Federal Government generally does not include profit on services or
materials, it is difficult to compute cash flows in these terms. Therefore, these
investments will be reviewed in terms of cost avoidance. For example, if the
purchase of an additional stock selection device is recommended, the simulation
model must demonstrate that the addition of this device will result in saving
a given amount of time. Again, this must be within the required throughput production
threshold objective of processing 3,000 materiel release orders a day with the
recommended intervention. The final recommendation must show a total number of
dollars saved per year. The computations used to arrive at the result must be
The figure used to represent the cost will be the net initial investment and
must be computed as follows:
| Net initial
investment = the purchase price + the installation
cost + delivery fees + any initial training required
to operate this device
+ any increase required for labor, maintenance, or
materials required on hand for a 1-year period beginning
the day the investment is placed into operation.
For example, if a recommended item requires a
certain battery, a charging station, and special weekly maintenance, these costs must be itemized, computed
for the first year of operation and included in the net initial
Cost avoidance will serve as the annual cash flow and will be computed based
on the funds currently spent or required to meet the same level of output. For
example, if moving a conveyor belt from A bay to B bay eliminates the use of
three forklifts, this must be demonstrated and validated in the model. The cost
of these forklifts and their associated costs also should be included in the
annual cash flow. The associated costs should include forecasted maintenance
expenses and possibly adjustments if the recommendation includes the elimination
of a maintenance contract or full-time support personnel who currently maintain
a unique component or system. After analysis of the recommendations, the following
• A summary of recommendations, rank-ordered by category in a table.
• A brief description of each recommendation, the technical data required
for procurement, and the data used to arrive at the recommendation.
• A recommendation for the method or sequence of implementation if different
from that shown in the prioritization matrix.
Simulation technology can be helpful in this area by validating time saved with
process intervention or the addition of capital investments. The more quantifiable
the criteria and the analysis of the intervention, the better.