What Is Logistics Analysis?

Logistics analysis is the technical planning a company will go through to manage the flow of goods or information through various business channels. Large firms may have their own set of sub-units that provide supply chain services such as packaging, shipping, warehousing and distributing. Other times, companies can outsource these services to other businesses. Logistics analysis reviews each stage in this process to maximize the opportunity in terms of return on value and economic wealth creation.

Most large companies will employ an individual or set up a small department that manages logistics analysis. Because this business activity requires a certain set of business skills, companies will only hire individuals with the requisite set of abilities for this position. A degree in shipping or supply chain management, along with a background in warehousing, fulfillment or other backroom business operations is often necessary.

To conduct reviews in the logistical analysis process, a company’s management team will often look at each step in the supply chain process and find areas of inefficiency or higher-than-normal operating costs. Because many of the supply chain or logistical functions can be secondary to a company’s main operating environment, costs can quickly escalate since the company may not have the proper facilities to complete logistical tasks at the cheapest possible cost. Therefore, a company must decide whether it can outsource these tasks at an overall cheaper cost, rather than continuing to complete them internally.

Another purpose of logistics analysis is to find areas where a company currently completes manual tasks, but should install a technological overhaul. Most times, the implementation cost of technology is offset by the lower operating costs in terms of reduced cash expenditures for daily activities. For example, using electronic data interchanges systems will allow a company to order goods quickly through the use of technology rather than relying on employees to constantly monitor inventory and place orders.

The use of logistics analysis also helps a company decide where to locate facilities for the transportation of physical goods. A manufacturer located in one region of a country will most likely prefer to sell its goods nationwide. In order to do so, it may determine that having multiple locations will allow the desired market access. Using logistics analysis, companies can determine which geographic locations provide the best options for moving goods via rail or truck, harvesting natural resources and employing a trained labor force for producing goods and services.

The ultimate point of logistics cost analysis is to help a company get a handle on how much each part of its supply chain costs, where the inefficiencies are, and how to design a better way of sourcing, storing and moving products. Therefore, a model for analyzing logistics costs must try to represent all or part of the company’s logistical network in all of its complexity. It does this through many calculations utilizing data such as inventory levels, labor and transportation costs, warehouse space and many other variables.

The sheer number of these variables is what makes a good analytical model difficult to design. Inventory, transportation and distribution costs all have to be factored in, and each of these broad categories will have many unpredictable elements that can make a huge impact on the bottom line. Trying to create a means of examining how all these elements interact is what makes logistics cost analysis so challenging and fascinating.

A wide variety of tools exist to help companies analyze their logistical costs, but in the broadest view, they come down to manual tools and automated or software tools. For years, companies have analyzed supply chain costs through painstaking manual processes, but today’s supply chains are sometimes too complex for that.

Manual tools used for logistics analysis are usually documents, spreadsheets and reports. They can be as simple as checklists and scorecards of performance that can be analyzed to give an overview of how a particular aspect of the logistics network is functioning. These findings may then be integrated into a report that helps management see the strengths and weaknesses of their operations.

Excel spreadsheets play a variety of roles in logistical analysis. At the simpler end, you can use Excel to create a fairly basic freight cost calculator. Logistics managers who rely on Excel more heavily may use multi-sheet workbooks with more complex functions and many variables to try and show the performance of a bigger slice of the supply chain. Databases that show relationships between inventory levels and warehousing functions can also be considered a manual tool, as they rely on continual human input and manipulation of data in order to generate useful insights.

As logistical networks have become more complex, analyzing and controlling their costs have naturally become more complex as well. The result is that more companies are relying on software to do the types of analysis and reporting that humans might have done in the past.

As with manual tools, these software tools range from simple to complex. Some do little more than automate the manual data gathering and reporting processes described above. Others include complex algorithms to try and model real-world scenarios so that a company can forecast and prepare for a range of logistical challenges. The best supply chain management solution for any company will likely be the one that is the most flexible and scaled to fit the size of the organization’s logistical framework.

You can think of different techniques in logistics cost analysis as different ways of approaching the issues being analyzed. One way of modeling the supply chain’s challenges and costs is through the perspective of optimization. A model that is designed to optimize a company’s logistics would theoretically generate an ideal system for the supply and distribution of goods. That is, an optimal model will try to show the absolute best-case solution for the problem being analyzed.

The data input into an optimizing model includes the end results or outcomes that are desired, and then the analysis seeks to provide the best solution to achieve these results. However, the analysis is going to assume a lot of things that may not actually happen in the real world. This technique may be best for individual elements of a company’s supply chain that have fewer unpredictable variables.

Using a simulation can be a much more involved and complex type of analysis. This type of modeling seeks to show how the different factors that affect logistics costs will actually interact in the real world. A large amount of data about all elements of the supply and distribution network must be included in order for such a model to work well. This could include everything from the cost of labor to the relative demand for products at different times to the many variables that affect transportation costs and much more. A simulation is less about helping management quickly make ideal decisions and more about showing what the effects of different decisions may be once they are actually implemented.