1. OPSM 301 Operations Management Class 21: Logistic Drivers: Facilities and Transportation Koç University Zeynep Aksin zaksin@ku.edu.tr

2. Drivers of Supply Chain Performance Efficiency Responsiveness InventoryTransportationFacilitiesInformation Supply chain structure Drivers

3. The Logistics Network The Logistics Network consists of:  Facilities: Vendors, Manufacturing Centers, Warehouse/ Distribution Centers, and Customers  Raw materials and finished products that flow between the facilities.

4. 4 Example: Efes Distribution Network

5. 5 Costs Total cost Inventory transportation Fixed costs Number of distribution centers costs ($ mil ion )

6. 6 Comparison between industries Sources: CLM 1999, Herbert W. Davis & Co; LogicTools Avg. Number Of Depots 31425 Pharmaceutical GroceryChemicals - Service is not important(or shipping is easy) - Inventory is more expensive than transportation - Service is very important -Outbound transportation is -expensive

7. Transportation in the Supply Chain  Throughout the supply chain SUPPLIERS CUSTOMERS WAREHOUSE PRODUCTION WAREHOUSE Transport.

8. Transportation Problem DesMoines (100 unit capacity) Fort Lauderdale (300 units capacity) Cleveland (200 units required) Evansville (300 units capacity) Albuquerque (300 units required) Boston (200 units required)

9.  How much should be shipped from several sources to several destinations –Sources: Factories, warehouses, etc. –Destinations: Warehouses, stores, etc.  Transportation models –Find lowest cost shipping arrangement –Used primarily for existing distribution systems Transportation Problem

10. The Transportation Problem D (demand) D (demand) D (demand) D (demand) S (supply) S (supply) S (supply)

11. Requirements for Transportation Model  List of origins and each one’s capacity  List of destinations and each one’s demand  Unit cost of shipping

12. The transportation problem  The setting –n factory (supply) locations –supplying m markets (demand points) –Cost of shipping one unit from factory i to market j is c ij –K i is the capacity of factory i –D j is the demand in market j  Formulate as an LP

13. Transportation Model  Which market is served by which plant?  Which supply sources are used by a plant? x ij = Quantity shipped from plant site i to customer j 5-13

14. A Transportation Problem: Tropicsun Distances (in miles) Capacity Supply 275,000 400,000 300,000 225,000 600,000 200,000 Mt. Dora 1 Eustis 2 Clermont 3 Groves Ocala 4 Orlando 5 Leesburg 6 Processing Plants 21 50 40 35 30 22 55 25 20

15. Defining the Decision Variables X ij = # of bushels shipped from node i to node j Specifically, the nine decision variables are: X 14 = # of bushels shipped from Mt. Dora (node 1) to Ocala (node 4) X 15 = # of bushels shipped from Mt. Dora (node 1) to Orlando (node 5) X 16 = # of bushels shipped from Mt. Dora (node 1) to Leesburg (node 6) X 24 = # of bushels shipped from Eustis (node 2) to Ocala (node 4) X 25 = # of bushels shipped from Eustis (node 2) to Orlando (node 5) X 26 = # of bushels shipped from Eustis (node 2) to Leesburg (node 6) X 34 = # of bushels shipped from Clermont (node 3) to Ocala (node 4) X 35 = # of bushels shipped from Clermont (node 3) to Orlando (node 5) X 36 = # of bushels shipped from Clermont (node 3) to Leesburg (node 6)

16. Defining the Objective Function Minimize the total number of bushel-miles. MIN:21X 14 + 50X 15 + 40X 16 + 35X 24 + 30X 25 + 22X 26 + 55X 34 + 20X 35 + 25X 36

17. Defining the Constraints  Capacity constraints X 14 + X 24 + X 34 <= 200,000} Ocala X 15 + X 25 + X 35 <= 600,000} Orlando X 16 + X 26 + X 36 <= 225,000} Leesburg  Supply constraints X 14 + X 15 + X 16 = 275,000} Mt. Dora X 24 + X 25 + X 26 = 400,000} Eustis X 34 + X 35 + X 36 = 300,000} Clermont  Nonnegativity conditions X ij >= 0 for all i and j

18. Implementing the Model