Cost benefit estimate: The final feasibility assessment is a preplanning estimate of the potential benefits of performing a logistics analysis and implementing the recommendation. Benefits should be categorized in terms of:
ü Service improvements – It includes results that enhance availability, quality or capability. Improved sciences increase loyalty of existing customers and may also attract business.
ü Cost reduction – Cost reduction benefits may be observed in two forms:
First, they may occur as a result of a one time reduction in financial or managerial resources required to operate the existing system for e.g. Reduction in capital deployed for inventory and other distribution related assets
Second, cost reductions may be found in the form of out – of – pocket or variable expenses. For e.g. new technologies for material handling and information processing often reduce variable cost by allowing more efficient procedures and operations.
ü Cost prevention – Cost prevention reduces involvement in programs and operations experiencing cost increases. Any cost prevention justification is based on an estimate of future conditions and therefore is vulnerable to some error for e.g. many material – handling and information technology upgrades are at least partially justified through financial analysis of the implications of future labor availability and wage levels.
In the final analysis, the decision to undertake in – depth planning will depend on how convincing the supporting logic is, how believable estimated benefits are, and whether estimated benefits offer sufficient return on investment to justify organizational and operational change. These potential benefits must be balances against the out 0- of pocket cost required to complete the process.
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