Logistics activities are being looked upon as a promising area for change because of the major potential available in improving the customer satisfaction and simultaneously reducing the logistics related costs. The analysis of dynamic behavior of complex logistics chains resulting from a re-engineering effort is a difficult task because of the interaction among various components of the system, many of which are non-linear and time-delayed. Dynamic modeling is a technique to understand the dynamic behavior of such complex systems. This paper presents the re-engineering effort on the outbound logistics chain of a Public Sector Undertaking (PSU) in India using dynamic modeling. A valid dynamic model of the outbound logistics chain was developed and analyzed to identify the possible areas of improvement. Alternative configurations taking advantage of these opportunities were developed. The performance of the present and alternative configurations was computed using a Performance Indicator (PI) incorporating cost and service level. Further, the impact of unexpected step and impulse rise in demand on the performance of the alternative configurations were evaluated. The alternative configurations resulted in significantly better performance compared to the present configuration, resulting in reduced inventory and cost. They also performed satisfactorily during the unexpected demand conditions.

Empirical investigation by Green et al. (2008), revealed that logistics performance is positively impacted by supply chain management strategy, which directly impacts the marketing performance which, in turn, impacts the financial performance. These results support the positive relationship between logistics performance and organizational performance within the manufacturing sector. Cooper and Stephan (1994) report the scope of re-engineering the logistics activities. They suggest that logistics re-engineering can bring about significant improvements in the order fulfillment of customers. They stress the point that re-engineering is not much about making incremental improvements to the existing processes, but rather to revolutionize those processes. For this purpose, the focus should shift from problem solving to proactive improvements. Kumar et al. (2008) reported the re-engineering of the supply chain of healthcare industry of Singapore. The re-engineered system in addition to carrying lesser inventory, resulted in a cost reduction of 60%. Hollis (1996) reported how the re-engineering of the supply chain resulted in the improved performance of `Littlewoods chain stores', UK's largest private retailer. These show the potential of re-engineering to bring about improvements in the system.

The goals of the logistics system—effectiveness and efficiency are determined by a number of interrelated factors. The optimization of each of the factors may not optimize the entire system. Sobotka (2000) reported the use of simulation modeling in logistics re-engineering by taking the example of construction industry. Towill (1996), Laiet al. (2003) and Wilson (2007) reported the use of system dynamics modeling for analysis and comparison of re-engineering strategies of supply and logistic chains.

Supply Chain Management Journal, Logistics Chain Re-Engineering, Dynamic Modeling, Performance Indicator, Manufacturing Sectors, Construction Industry, Re-Engineering Strategies, Marketing Department, Decision Making Process, Inventory Control Methods, Logistics Chain Benchmarking, Optimization Algorithms.