Designing a Supply Chain Network

Designing a Supply Chain Network
SYST 4050 Slides Designing a Supply Chain Network In designing a supply chain, we need to consider how all supply chain drivers should be used together to support the competitive strategy of a company and maximize supply chain profits Corporate Strategy Competitive Strategy Supply Chain Strategy Responsiveness Efficiency Facilities Inventory Transportation Information Sourcing Pricing Chapter 1

Factors Influencing Distribution Network Design
SYST 4050 Slides Factors Influencing Distribution Network Design Performance of a distribution network should be evaluated along two dimensions Customer needs that are met (customer service) Response time (Time it takes for a customer to receive an order) Product variety (Number of different products that are offered) Product availability (Probability of having a product in stock) Customer experience (Ease of placing and receiving orders) Order visibility (Ability of customers to track their orders) Returnability (Ease of returning unsatisfactory merchandise) Cost of meeting customer needs (supply chain cost) Inventory (All raw materials, WIP, and finished goods) Transportation (Moving inventory from point to point) Facility & handling (Locations where product is stored, assembled, or fabricated) Information (Data and analysis of all drivers in a supply chain) Distribution network design options must therefore be compared according to their impact on customer service and the cost to provide this level of service Chapter 1

Design Options For a Distribution Network
SYST 4050 Slides Design Options For a Distribution Network Two key decisions when designing a distribution network Will the product be delivered to the customer location or picked up from a preordained site? Will product flow through an intermediary? Chapter 1

Retail Storage with Customer Pickup
SYST 4050 Slides Retail Storage with Customer Pickup Example: Retail stores such as Wal-Mart and JCPenney Customers pick up product from retailers Low transportation cost High facility cost Relative easy returnability Increased inventory cost No order tracking necessary If the product is available at the retailer, the consumer buys. Otherwise goes to another retailer Effective for fast moving items Retailer Consumers Distributor Warehouse Manufacturers Chapter 1

Manufacturer Storage with Direct Shipping (Drop Shipping)
SYST 4050 Slides Manufacturer Storage with Direct Shipping (Drop Shipping) Example: eBags Products are shipped directly to the consumer from the manufacturer Retailer is an information collector: Passes orders to the manufacturers It does not hold product inventory Inventory is centralized at manufacturer Drop shipping offers the manufacturer the opportunity to postpone customization Effective for high value, large variety, low demand products High transportation cost Retailer Manufacturers Consumers This model is also referred to as drop-shipping. Retailers carries no inventory. All inventory is at the manufacturer’s site. This is eBags model, which takes orders and arranges for the manufacturer’s to ship directly to the customers. Transportation cost is high because the average outbound distance to the end customer is large. Package carriers are used and are more expensive than TL or LTL. A good information infrastructure is needed. Response time tends to be large. eBags Nordstrom.com (for slow moving footwear) W.W. Grainer (for slow moving items) Chapter 1

Manufacturer Storage with Direct Shipping and In-Transit Merge
SYST 4050 Slides Manufacturer Storage with Direct Shipping and In-Transit Merge Example: Furniture retailers merge couches and coffee tables produced by different manufacturers Dell merges a Dell PC with a Sony flat screen Shipments from multiple manufactures are merged before making a single delivery to the consumer Shipments to Mergers are larger so economies of scale is achieved Mergers increase facility costs Response time may go up Retailer Mergers Consumers Manufacturers Chapter 1

Distributor Storage with Carrier Delivery
SYST 4050 Slides Distributor Storage with Carrier Delivery Example: Amazon Inventory is held at a warehouse which ships to customer by carriers With respect to direct shipping Inventory aggregation is less Higher inventory costs Facility costs are higher Less information to track Warehouses are physically closer to consumers which leads to Faster response time Lower transportation cost Not effective for slow moving items Distributor Warehouse Manufacturers Consumers Chapter 1

Distributor Storage with Last Mile Delivery
SYST 4050 Slides Distributor Storage with Last Mile Delivery Example: Milk delivery, Grocery delivery (Peapod, Albertsons), Denver Mattress Warehouse delivers to customers instead of carrier Warehouses are located closer to consumers Transportation costs go up because warehouses are not as effective as package carriers in aggregating loads to have economies of scale Warehouse may need to own a trucking fleet so the physical infrastructure costs are higher. Products must be flowing fast to justify the infrastructure Processing cost are high Distributor Warehouse Manufacturers Consumers Chapter 1

Manufacturer or Distributor Storage With Customer Pickup
SYST 4050 Slides Manufacturer or Distributor Storage With Customer Pickup Example: 7dream.com Customers come to pick up sites (warehouse, retailer) to get the products If consumers are willing to pick up the products, let them do so. Otherwise, they would be charged for the delivery costs Order tracking is crucial. Consumers must be alerted when their order is ready for pick up. Once a consumer arrives at the pick up site, the products must be quickly located. Significant amount of information is required Increased handling cost Distributor Warehouse Manufacturers Consumers Chapter 1

Comparing Distribution Networks
SYST 4050 Slides Comparing Distribution Networks 1 = strongest performance 6 = weakest performance Chapter 1

SYST 4050 Slides Design Options For a Distribution Network Retail Storage with Consumer Pickup Manufacturer Storage with Direct Shipping Manufacturer Storage with Direct Shipping and In-Transit Merge Distributor Storage with Carrier Delivery Distributor Storage with Last Mile Delivery Manufacturer or Distributor Storage with Consumer Pickup Chapter 1

SYST 4050 Slides Design Options For a Distribution Network Retailer Consumers Distributor Warehouse Manufacturers Retailer Manufacturers Consumers Retailer Mergers Consumers Manufacturers Distributor Warehouse Manufacturers Consumers Distributor Warehouse Manufacturers Consumers Distributor Warehouse Manufacturers Consumers Chapter 1

From brick-and-mortar to click-and-mortar
SYST 4050 Slides From brick-and-mortar to click-and-mortar What has been the impact of e-business on supply chain cost? What has been the impact of e-business on customer service? In the future, do you see the number of distributors decreasing, increasing, or staying about the same? Impact of e-business on customer service Response time to customers Longer for products that cannot be downloaded Product variety Easier to provide a larger product variety Product availability Aggregation of inventory allows for improved availability Customer experience Much broader reach Time to market Easier to introduce new products quickly Returnability Cost of reverse flows increases Impact of e-business on supply chain cost Inventory An e-business requires less inventory due to aggregation Postponement can lower inventory cost Facilities An e-business requires less facilities because of centralizing operations Reduced handling costs because fewer intermediaries are used Transportation Apart from digital products an e-business tends to have higher transportation cost (across the entire supply chain) Information Significant information infrastructure is needed Is e-business likely to be more beneficial in the early part or the mature part of a product’s life cycle? Why should an e-business such as Amazon.com build more warehouses as its sales volume grows? Chapter 1

Dell: Network Design (Europe)
SYST 4050 Slides Dell: Network Design (Europe) A successful distribution network satisfies customer needs at the lowest possible cost Chapter 1

Example: Dell Network Design Decision
SYST 4050 Slides Example: Dell Network Design Decision $31 $19 $23 Chapter 1

What is an Optimization Problem
SYST 4050 Slides What is an Optimization Problem Generally, an optimization problem seeks a solution where decisions need to be made in a constrained or limited resource environment Most supply chain optimization problems require matching demand and supply when one, the other, or both may be limited An optimization problem comprises three major components Decision variables Constraints Objective Chapter 1

Introduction to Excel Solver
SYST 4050 Slides Introduction to Excel Solver Installing Excel Solver Goto Tools > Add-ins… Select “Solver Add-in” and press OK Opening Excel Solver Goto Tools > Solver Chapter 1

Managing Transportation in a Supply Chain

Designing a Supply Chain Network
SYST 4050 Slides Designing a Supply Chain Network In designing a supply chain, we need to consider how all supply chain drivers should be used together to support the competitive strategy of a company and maximize supply chain profits Corporate Strategy Competitive Strategy Supply Chain Strategy Responsiveness Efficiency Facilities Inventory Transportation Information Sourcing Pricing Chapter 1

Factors Influencing Distribution Network Design
SYST 4050 Slides Factors Influencing Distribution Network Design Performance of a distribution network should be evaluated along two dimensions Customer needs that are met (customer service) Response time (Time it takes for a customer to receive an order) Product variety (Number of different products that are offered) Product availability (Probability of having a product in stock) Customer experience (Ease of placing and receiving orders) Order visibility (Ability of customers to track their orders) Returnability (Ease of returning unsatisfactory merchandise) Cost of meeting customer needs (supply chain cost) Inventory (All raw materials, WIP, and finished goods) Transportation (Moving inventory from point to point) Facility & handling (Locations where product is stored, assembled, or fabricated) Information (Data and analysis of all drivers in a supply chain) Distribution network design options must therefore be compared according to their impact on customer service and the cost to provide this level of service Chapter 1

SYST 4050 Slides Design Options For a Distribution Network Two key decisions when designing a distribution network Will the product be delivered to the customer location or picked up from a preordained site? Will product flow through an intermediary? Chapter 1

Retail Storage with Customer Pickup
SYST 4050 Slides Retail Storage with Customer Pickup Example: Retail stores such as Wal-Mart and JCPenney Customers pick up product from retailers Low transportation cost High facility cost Relative easy returnability Increased inventory cost No order tracking necessary If the product is available at the retailer, the consumer buys. Otherwise goes to another retailer Effective for fast moving items Retailer Consumers Distributor Warehouse Manufacturers Chapter 1

Manufacturer Storage with Direct Shipping (Drop Shipping)
SYST 4050 Slides Manufacturer Storage with Direct Shipping (Drop Shipping) Example: eBags Products are shipped directly to the consumer from the manufacturer Retailer is an information collector: Passes orders to the manufacturers It does not hold product inventory Inventory is centralized at manufacturer Drop shipping offers the manufacturer the opportunity to postpone customization Effective for high value, large variety, low demand products High transportation cost Retailer Manufacturers Consumers This model is also referred to as drop-shipping. Retailers carries no inventory. All inventory is at the manufacturer’s site. This is eBags model, which takes orders and arranges for the manufacturer’s to ship directly to the customers. Transportation cost is high because the average outbound distance to the end customer is large. Package carriers are used and are more expensive than TL or LTL. A good information infrastructure is needed. Response time tends to be large. eBags Nordstrom.com (for slow moving footwear) W.W. Grainer (for slow moving items) Chapter 1

Manufacturer Storage with Direct Shipping and In-Transit Merge
SYST 4050 Slides Manufacturer Storage with Direct Shipping and In-Transit Merge Example: Furniture retailers merge couches and coffee tables produced by different manufacturers Dell merges a Dell PC with a Sony flat screen Shipments from multiple manufactures are merged before making a single delivery to the consumer Shipments to Mergers are larger so economies of scale is achieved Mergers increase facility costs Response time may go up Retailer Mergers Consumers Manufacturers Chapter 1

Distributor Storage with Carrier Delivery
SYST 4050 Slides Distributor Storage with Carrier Delivery Example: Amazon Inventory is held at a warehouse which ships to customer by carriers With respect to direct shipping Inventory aggregation is less Higher inventory costs Facility costs are higher Less information to track Warehouses are physically closer to consumers which leads to Faster response time Lower transportation cost Not effective for slow moving items Distributor Warehouse Manufacturers Consumers Chapter 1

Distributor Storage with Last Mile Delivery
SYST 4050 Slides Distributor Storage with Last Mile Delivery Example: Milk delivery, Grocery delivery (Peapod, Albertsons), Denver Mattress Warehouse delivers to customers instead of carrier Warehouses are located closer to consumers Transportation costs go up because warehouses are not as effective as package carriers in aggregating loads to have economies of scale Warehouse may need to own a trucking fleet so the physical infrastructure costs are higher. Products must be flowing fast to justify the infrastructure Processing cost are high Distributor Warehouse Manufacturers Consumers Chapter 1

Manufacturer or Distributor Storage With Customer Pickup
SYST 4050 Slides Manufacturer or Distributor Storage With Customer Pickup Example: 7dream.com Customers come to pick up sites (warehouse, retailer) to get the products If consumers are willing to pick up the products, let them do so. Otherwise, they would be charged for the delivery costs Order tracking is crucial. Consumers must be alerted when their order is ready for pick up. Once a consumer arrives at the pick up site, the products must be quickly located. Significant amount of information is required Increased handling cost Distributor Warehouse Manufacturers Consumers Chapter 1

Outline Key modes of transport and major issues
Transportation System Design Tradeoffs in transportation design Transportation and service Vehicle Routing Notes:

Parties Involved in Transportation
Carriers, owners of the vehicles; E.g. Passengers by Southwest airlines; Cargo by Cargolux airlines, only freight; Passengers and cargo by railways Care about Vehicle related costs Fixed operating costs, hubs Trip related costs Quantity related cost Overhead cost Shippers, consolidator of shipments; E.g. Postal service; Administrative assistants; Care about Transportation cost -paid to carriers Inventory cost Consolidating facility cost Processing cost Service levels, customer satisfaction Is FedEx a Carrier or a Shipper?

14.3: Transportation Modes
Trucks TL: Truckload. High utilization of trucks. LTL: Less than truckload. Fast delivery. Suffering from high transportation costs, Lennox wants to use more TL in the future. Rail Carload Intermodal Air Package Carriers Water Pipeline Notes:

Truckload (TL) Average revenue per ton mile in 1996 = 9.13 Rupees
Average haul = 274 miles Average Capacity = 17.5 to 21 tons = 42, ,000 lb. Low fixed and variable costs Major Issues Coordination of local and interstate hauls Utilization Backhauls Return trips are empty What to send back to China from the U.S.? Consistent service among different companies Dynamic pricing, is the industry ready? Notes:

Less Than Truckload (LTL)
Average revenue per ton-mile in 1996 = cents Average haul = 646 miles compare to 274 miles of TL Higher fixed costs (terminals) and low variable costs Major Issues Location of consolidation facilities Utilization Vehicle routing Customer service Notes:

Rail Average revenue / ton-mile in 1996 = 2.5 cents
Average haul = 720 miles Average load = 80 tons Key Issues Scheduling to minimize delays / improve service Off track delays (at pick up and delivery end) Yard operations To build a train – on the next page Variability of delivery times Notes:

Air Service supply chains deal heavily with airline issues
Key Issues for Passenger Airlines, $250 B /year Cost cutting, costs in 2004 are about $0.1 per customer per mile Location/Number of hubs Depeaking: Moving operations away from rush hours Location of fleet bases / crew bases Schedule optimization, Fleet assignment, Crew scheduling Recent idea: Always keep the same crew with the same aircraft Yield management Cargo Airlines, $40 B /year Shape, weight, volume of the cargo Cargo shippers, consolidators Safety: Risk sharing between shipper and carrier. New legislation expected. Service supply chains deal heavily with airline issues Notes:

How far does 1 Ton of Cargo go with 1 Gallon of Fuel?

14.4: Transportation System Design
AC Delco: Very high value, low volume parts Three plants: Milwaukee(Wisc), Kokomo(Ind), Matamoros(Mex) 21 assembly plants (customers for above plants) Products: ACs, batteries, hoses, brakes, belts, etc. What are the distribution options? Which one to select? On what basis? Notes:

All Shipments Direct Milwaukee Kokomo Notes: Matamoros

All Shipments Via Kokomo (with or without cross dock)
Milwaukee Kokomo Notes: Matamoros

Some Shipments Direct, Others Via Kokomo
Milwaukee Kokomo Notes: Matamoros

Milk Runs From Kokomo Milk run is loop that contains either
Milwaukee Kokomo Milk run is loop that contains either a single supplier or a single customer. Notes: Matamoros

Milk Runs From Plants Milwaukee Kokomo Notes: Matamoros

Shipments via a Central Warehouse
Milwaukee Kokomo Notes: This is effective if there are several delivery sites in proximity that cannot all be delivered on one truck from the plant in time. For example if the assembly plants want just in time delivery, line hauling and dcross docking may be an effective way to achieve that. Matamoros

Shipments via Central Warehouse Using Milk Runs
Milwaukee Kokomo Notes: This is effective if there are several delivery sites in proximity that cannot all be delivered on one truck from the plant in time. For example if the assembly plants want just in time delivery, line hauling and dcross docking may be an effective way to achieve that. Matamoros

Cross Docking This approach is useful if deliveries are time sensitive and there are several small dropoffs in proximity, not all of which can be delivered on a single truck. Items are shifted from one truck to another without going in to storage. Timing of truck arrivals/departures is very crucial. Milwaukee Kokomo Notes: This is effective if there are several delivery sites in proximity that cannot all be delivered on one truck from the plant in time. For example if the assembly plants want just in time delivery, line hauling and dcross docking may be an effective way to achieve that. Matamoros

Total Costs=Transportation+Inventory
Notes:

Section 4. 3: Design Options for Distribution 4. 3
Section 4.3: Design Options for Distribution 4.3.1: Drop-Shipping or Direct Shipping to Consumer Products are shipped directly to the consumer from the manufacturer Manufacturer often uses package carriers for delivery Retailer is an information collector: It picks consumer orders from customers and passes them to the manufacturers It does not hold product inventory, rather it is purely for order generation (naturally or via promotions, ads) E.g.: Medical equipment salespeople can be considered as retailers. Dell, Nordstrom catalogues Retailer Manufacturers Consumers

Drop shipping for High-value and low, unpredictable demand items
All consumers’ needs for a particular product is satisfied from a manufacturer: All finished goods inventory for a product reside at one manufacturer. Finished goods inventory is aggregated over different consumers. Aggregated demand often has smaller standard deviation than the sum of the standard deviations of the individual demands in the aggregation because extremes cancel out. Manufacturers postpone customization of products until an order is placed. Component and sub-assembly inventory is aggregated over different products. A wide range of products can be provided at a low cost due to postponement. e.g. Dell uses postponement very effectively. Direct shipment simplifies retailers’ functions but complicates manufacturers’. Can manufacturer’s handle shipping units one by one to the consumers? Manufacturers and retailers must coordinate their actions using an integrated information systems. Product returns are harder to handle. Response times to consumer orders are longer with direct shipping. Direct shipping increases shipment costs.

How to reduce shipment costs for moderate demand. 4. 3
How to reduce shipment costs for moderate demand? 4.3.2: In-Transit Merge The distribution network is too extensive with direct shipping and no economies of scale in transportation costs can be achieved. Consider merging shipments at Mergers. Shipments to Mergers are larger so economies of scale is achieved. Mergers increase facility costs. Mergers can be done within trucks: Cross-docking becomes useful. Response time may go up. Example: Furniture retailers merge couches and coffee tables produced by different manufacturers Dell merges a Dell PC with a Sony flat screen Manufacturers Retailer Mergers Consumers

How to reduce transportation costs/response times. 4. 3
How to reduce transportation costs/response times? 4.3.3: Distributor Storage with Carrier Delivery Keep finished goods inventory at a warehouse which ships to consumers using carriers. Shipments from manufacturers to warehouses are in TL or LTL to exploit economies of scale. Warehouses are physically closer to consumers which leads to Shorter order fulfillment time Shorter distance to cover with package carriers for outbound shipment. With respect to In-Transit Merge Inventory aggregation is less because inventory is pushed to warehouses Higher inventory costs Facility costs are higher Easier to run. Warehouse meets the demands so infrequent orders from manufacturers to warehouses. Less information to keep track of. Only warehouses need real time demand/order status information. Example: Amazon Manufacturers Distributor Warehouse Distributor Warehouse Consumers

How to provide more delivery service. 4. 3
How to provide more delivery service? 4.3.4: Distributor Storage with Last Mile Delivery Very similar to Distributor Storage with Carrier Delivery except that the warehouse delivers to the consumers using Milk Runs. Transportation costs go up because warehouses are not as effective as package carriers in aggregating loads to have economies of scale. Warehouse may need to own a trucking fleet so the physical infrastructure costs are higher. Products must be flowing fast to justify the infrastructure. The cost for drivers and load handlers are high. Last mile delivery can be a sound option if labor costs are relatively small with respect to the premium consumers are willing to pay for home delivery. Response times are shorter Warehouses are located closer to consumers A private fleet of trucks can deliver faster than package carriers. Home delivery is high customer service; appreciated by the customers for bulky products, e.g. a washer Consumer must pay for delivery costs. Peapod charged $9.95/delivery Delivery costs can depend on the time of the day Example: Milk delivery, Grocery delivery Manufacturers Distributor Warehouse Distributor Warehouse Consumers

How to reduce eliminate consumer’s delivery cost. 4. 3
How to reduce eliminate consumer’s delivery cost? 4.3.5: Manufacturer or Distributor Storage with Consumer Pickup If consumers are willing to pick up the products easily, let them do so. Otherwise, they would be charged for the delivery costs. This is very similar to Last Mile Delivery except that the consumers come to pick up sites (warehouse, retailer) to get the products. Order tracking is crucial. Consumers must be alerted when their order is ready for pick up. Once a consumer arrives at the pick up site, the products must be quickly located. Significant amount of information is required to run. Example: 7dream.com of Japanese 7-Eleven Check it out but it is in Japanese Manufacturers Distributor Warehouse Distributor Warehouse Consumers

How to push products closer to consumers. 4. 3
How to push products closer to consumers? 4.3.5: Retail Storage with Consumer Pickup Consumers can also pick up from retailers. This is the most common form of shopping. This is very similar to consumer pick up from warehouses except that now the consumers go to retailers which are closer to consumers and more conveniently located for pick ups. Inventories at warehouses are aggregated over consumers. Typically a single warehouse serves many more consumers than a single retailer would. Inventory aggregation happens at a greater extent when consumers pick up from the warehouses. No order tracking necessary. If the product is available at the retailer, the consumer buys. Otherwise goes to another retailer Example: All the retail stores. Wal-Mart, Albertson’s, Van Heusen Shirts, JCPenny Manufacturers Retailer Retailer Retailer Consumers

Package Carrier Delivery
Performance: 1 is good Pickup from Retailer Drop Shipping In-Transit Merge Package Carrier Delivery Last Mile Delivery Pickup from Warehouse Response Time 1 4 4 3 2 4 Product Variety 4 1 1 2 3 1 2 3 Product Availability 4 1 1 1 Customer Experience 5 5 4 3 2 1 Order Visibility 1 5 4 3 2 6 Returnability 1 5 5 4 3 2 Inventory 4 1 1 2 3 1 Transportation 1 4 3 2 5 1 Facility & Handling 6 1 2 3 4 5 Information 1 4 4 3 2 5

Package Carrier Delivery
There are many distribution options but which are suitable for a given circumstance? Drop Ship In-Transit Merge Package Carrier Delivery Last Mile Delivery Pickup from Warehouse Pickup from Retailer High-demand Medium-demand Low-demand Very low-demand Many product resources High product value Quick desired response High product variety Low customer effort Red very suitable.

E-Business and the Distribution Network
Impact of E-Business on Customer Service Faster Response to customer orders New product introductions Modifications of Product portfolios, pricing, promotions Revenue collection Product variety Number of products Product availability Number of products in the storage Improved Information and Aggregation Potential Customer experience Ease (+); After-hours-shopping (+); Distant-shopping (+); Order visibility (-) for the customer. Profit can increase with the removal of the distributors

Clustering: Saving matrix method
Distances are Euclidean or Rectilinear Savings of consolidating two customers X and Y: Eliminating going from X to DC and Eliminating going from DC to Y But adding going from X to Y S(X,Y)=Dist(DC,X)+Dist(DC,Y)-Dist(X,Y) S(X,Y) < 0 , when is this possible if ever? Y X DC

Clustering Example Notes:

Clustering: Distance Matrix
Notes: S(6,11)=Dist(W,6)+Dist(W,11)-Dist(6,11)= =34

Clustering Largest saving 34, combine 6 and 11: consumed capacity 107.
Notes: Largest saving 34, combine 6 and 11: consumed capacity 107. Largest saving 33, combine 7: consumed capacity 163. Largest saving 32, combine 7: Not possible. Already in the route. Largest saving 32, combine 10: Not possible. Lack of capacity.

Clustering with savings matrix
Attempt to combine different routes with the highest available saving If load is over capacity, reject the combination Else accept the combination and make savings unavailable Truck routes: {1,3,4}, {2,9}, {6,7,8,11} (=fills truck by 193/200) and {5,10,12,13}

Clustering: Generalized Assignment Method Skip to page Traveling Salesman Problem
Assign seed points for each route Seeds: Center of retailers in the route Seeds do not exist, we imagine them to compute costs Sweep clockwise by  to obtain cones to assign seeds Seed is at (dmax, /2) where dmax is the distance from origin to the furthest demand point in the cone Evaluate insertion cost for each customer i and seed k cik=Dist(DC,i)+Dist(i,Sk)-Dist(DC,Sk) where DC is a seed. Assign customers to routes with an Integer Program

How Much to Sweep For every cone sweep as much as possible before going over the transportation (truck) capacity bk What if for same demand point i: If i is not included, below capacity and if i is included above capacity Use the ArcTan method of the book Decide ad hoc, remember you are not making the final call here. The final assignments and cluster construction is by the Integer Program.

Assign Customers to Routes
Using either savings matrix or generalized assignment we obtain the clustering.

Traveling Salesman Problem Routing by Construction
Traveling Salesman Problem, construction heuristics: Farthest insert: Given a trip and customers to be inserted, obtain the best way to insert each customer. Insert the customer giving the longest trip. Nearest insert: Exactly the same as farthest insert, except that the customer giving the shortest trip is inserted. Nearest neighbor: Insert the nearest neighbor. Sweep: Insert in the order of a sweep. Sweep needs a picture

Routing by Improvement
Traveling Salesman problem, route improvement 2-Opt, cuts into two paths, how many ways to join? 3-Opt, cuts into three paths, how many ways to join? Both needs a route to begin with. They cut and paste pieces of routes to improve the total length of the tour.

Yard operations to build a train
2 1 3 Disassembling and assembling a train 3 2 1 2 3 3 1 3 2 1 3 2 3 3 Cities: 1 2 1 2

What value do distributors add to SCs?
Economies of scale in inbound transportation costs to distributors by combining shipments of several products coming from the same manufacturer. Economies of scale in outbound transportation costs from distributor to retailers by combining shipments coming from several manufacturers and going to the same retailer. Inventory aggregation at the distributor as opposed to individual retailer inventories Smoothes out orders coming from retailers and going to manufacturers. This is a side effect of combining shipments. Distributors provide a compromise strategy, for keeping inventories in the SCs, between Storage at the manufacturer with direct shipments Low inventory cost but high transportation cost Storage at the retailer with customer pickups High inventory cost but low transportation cost By specializing on distribution, distributors do a better job in logistics of shipments: On time deliveries Breaking bulk shipments, e.g., kitting Shipment tracking

E-Business and the Distribution Network
Impact of E-Business on Cost Inventory Improved Information and Aggregation Potential Facilities Facility costs Operating costs Simplification of order taking Increased handling of products Transportation Aggregation increases the outbound transportation costs Information Increased demand visibility Increased supplier visibility Using E-Business: Dell, Amazon, Peapod, Grainger

13.5: Tradeoffs in Transportation Design
Transportation, facility, and inventory cost tradeoff Choice of transportation mode (later) Inventory aggregation (later) Transportation cost and responsiveness tradeoff Temporal aggregation leads to economies of scale Temporal aggregation decreases responsiveness

Temporal aggregation: Extremes cancel out
Day 1 Load: Day 2 Load: 2 trucks at the end of each day (one truck half-full) or 3 trucks at the end of the 2. day (both trucks full)?

13.6: Tailored Transportation
By product characteristics: life cycle, spoilage. By customer density and distance High density, short distance: private fleet, milk runs Milkman, 7-Eleven Japan Low density, high distance: package carrier Amazon By customer size Various frequencies of deliveries Delivery on Even days to Retailers L and H , on Odd days to Retailer H By value and volume If High value, use fast transportation; semiconductor chips If High volume, can afford to disaggregate inventories that is use several warehouses; Wal-Mart DCs If High cube (very heavy), ?

Routing and Scheduling in Transportation
Use frequency decomposition Clustering Assignment of trucks to demand points (retailers) Routing Sequencing demand points Trucks use these sequences to visit demand points Scheduling Exact time of visits/loading and unloading

Classification: Vehicle Routing Problems
Demand uncertainty Repair operations, spare parts demand for Xerox machines The nature of operations: pick up / load Planning periods: Single vs. Multiple In multiple periods, initial configuration of where trucks are every period can be different. Static vs. Dynamic, to the extent real time info used Wireless technologies can help After all what are RFID (Radio Frequency ID) tags for? Fleet capacity, known? Strategic vs Operational. Delivery time windows. I want my paper in the morning my pizza in the night Objective: transportation costs, inventory costs, crew costs

Two-phase VRP heuristics
Clustering Saving matrix method Generalized assignment method Sequencing Route sequencing Route improvement More detailed discussion is in OPRE 6370: Logistics and Distribution offered every Fall semester.

Summary of Learning Objectives
Strengths and weaknesses of transport modes Choices of transportation networks Tradeoffs in transportation network design Tailored transportation networks Heuristics for Clustering and Sequencing

Designing a Supply Chain Network

Similar presentations

Presentation on theme: "Designing a Supply Chain Network"— Presentation transcript:

Similar presentations

About project

Feedback

Log in

Auth with social network:

Designing a Supply Chain Network

Similar presentations

Presentation on theme: "Designing a Supply Chain Network"— Presentation transcript:

Similar presentations

About project

Feedback