APPENDIX $3A$

Techniques of Logistics System

Analysis

basic models are examined; more sophisticated techniques of total cost analysis are discussed

later in this text. The basic approaches exame for much of the macke concept

discussed thus far and provide a background

this text.

Short$-$Run$/$Static Analysis

One general approach to total cost analysis for logistics is known as short$-$run analysis.

In a short$-$run analysis, a specific point in time or level of production is chosen and costs

are developed for the various logistics cost centers described previously. Multiple short$-$run

analyses would be considered and then the system with the lowest overall cost would be

selected, as long as it was consistent with constraints the organization imposed on the logis$-$

tics area. Some authors refer to this short$-$run analysis as static analysis. ${?}^5$

Essentially, they are saying that this method analyzes costs associated with a logistics

system's various components at one point in time or one output level.

Example

Table $3$A$.1$ shows an example of static, or short$-$run, analysis. In this example, an organi$-$

zation is currently using an all$-$rail route from its plant and the associated plant warehouse

to its customers. At the plant warehouse, the chemicals are bagged and palletized and

shipped by rail to the customer. A proposed second system would use a market$-$oriented

warehouse. The chemicals would be shipped from the plant to the market warehouse and

then packaged and sent to the customer. Instead of shipping all goods by rail, the organi$-$

zation would ship them by barge to the market warehouse, taking advantage of low, bulk

transportation prices. Then, after bagging, the chemicals would move by rail from the

warehouse to the customer.

In this example, the tradeoff is lower transportation costs versus some increases in storage

and warehousing. If the analysis is strictly static $($at a specific level of output$),$ the proposed

system is more expensive than the current one. So$,$ unless further analysis provided addi$-$

tional information more favorable to the proposed system, the organization would continue

with its current system.

However, there are two reasons to favor the proposed system. First, there is no infor$-$

mation about customer service requirements. The new market$-$oriented warehouse might

provide better customer service, therefore increasing sales and profits and offsetting some

of the higher costs of System $2.$

Second, the organization might switch to System $2,$ even though it is experiencing lower

costs with the current system $($System $1),$ because the organization expects System $2$ to result

in lower costs in the future. This will require the use of dynamic analysis, which is the topic