Transport Decisions Chapter 7 If you are planning for one year, grow rice. If you are planning for 20 years, grow trees. If you are planning for centuries, grow men. A Chinese proverb Chapter 7 CR (2004) Prentice Hall, Inc.

Transport Decisions in Transport Strategy PLANNING ORGANIZING CONTROLLING Transport Strategy • Transport fundamentals Transport decisions Customer service goals The product Logistics service Ord . proc. & info. sys. Inventory Strategy Forecasting Inventory decisions Purchasing and supply scheduling decisions Storage fundamentals Storage decisions Location Strategy Location decisions The network planning process CR (2004) Prentice Hall, Inc.

problems in transportation Typical Transport Decisions · Mode/Service selection Private fleet planning - Carrier routing Routing from multiple points Routing from coincident origin destination points Vehicle routing and scheduling Freight consolidation Just a few of the many problems in transportation CR (2004) Prentice Hall, Inc.

Mode/Service Selection · The problem - Define the available choices Balance performance effects on inventory against the cost of transport Methods for selection Indirectly through network configuration Directly through channel simulation Directly through a spreadsheet approach as f ollows: Alternatives Cost types Air Truck Rail Transportation In transit inventory Source inventory Destination inventory CR (2004) Prentice Hall, Inc.

Mode/Service Selection (Cont’d) Example Finished goods are to be shipped from a plant inventory to a warehouse inventory some distance away. The expected volume to be shipped in a year is 1,200,000 lb. The product is worth $25 per lb. and the plant and carrying costs are 30% per year. Other data are: Transport choice Rate, $/lb. Transit time, days Shipment size, lb. Rail 0.11 25 100,000 Truck 0.20 13 40,000 Air 0.88 1 16,000 CR (2004) Prentice Hall, Inc.

Include transport rate Transport Selection Analysis Cost Compu- type tation Rail Truck Air Trans- RD .11(1,200,000) .20(1,200,000) .88(1,200,000) portation = $132,000 = $240,000 = $1,056,000 In-transit ICDT 365 [.30(25) ´ ´ [.30(25) [.30(25) inventory ´ 1,200,000(25)]/365 1,200,000(13)]/365 1,200,000(1)]/365 = $616,438 = $320,548 = $24,658 Plant ICQ 2 ´ ´ ´ [.30(25) [.30(25) [.30(25) inventory 100,000]/2 40,000]/2 16,000]/2 = $375,000 = $150,000 = $60,000 IC ' Q 2 ´ ´ ´ Whse [.30(25.11) [.30(25.20) [.30(25.88) inventory 100,000]/2 40,000]/2 16,000]/2 = $376,650 = $151,200 = $62,112 Include transport rate Totals $1,500,088 $ 861,748 $1,706,770 Improved service CR (2004) Prentice Hall, Inc. 7-6

Carrier Routing CR (2004) Prentice Hall, Inc.

Can be a weighted index of time and distance Carrier Routing (Cont’d) Origin Amarillo Oklahoma City Destination Fort Worth A B E I C D G F H J 90 minutes 84 138 348 156 48 132 150 126 120 66 60 Note : All link times are in minutes 90 Can be a weighted index of time and distance CR (2004) Prentice Hall, Inc.

Shortest Route Method Step Solved Nodes Directly Connected to Unsolved Its Closest Unsolved Node Total Cost Involved nth Nearest Minimu m Cost Its Last Connection a 1 A B 90 AB * 2 C 138 AC 90+66=156 3 D 348 E 90+84=174 174 BE F 138+90=228 4 228 CF I 174+84=258 5 138+156=294 258 EI H 228+60=288 6 228+60= 288 FH J 258+126=384 7 294 CD G 288+132=360 288+48=336 8 288+126=414 384 IJ Shortest Route Method CR (2004) Prentice Hall, Inc.

MAPQUEST SOLUTION Mapquest at www.mapquest.com CR (2004) Prentice Hall, Inc.

Routing from Multiple Points This problem is solved by the traditional transportation method of linear programming Plant 1 Requirements = 600 Plant 2 Requirements = 500 Plant 3 Requirements = 300 Supplier A Supply  400 Supplier C Supply  500 Supplier B Supply  700 4 a 7 6 5 9 8 The transportation rate in $ per ton for an optimal routing between supplier A and plant 1 . CR (2004) Prentice Hall, Inc.

TRANLP problem setup Solution CR (2004) Prentice Hall, Inc.

Routing with a Coincident Origin/Destination Point · Typical of many single truck routing problems from a single depot. Mathematically, a complex problem to solve efficiently. However, good routes can be found by forming a route pattern where the paths do not cross ¾ a "tear drop" pattern. CR (2004) Prentice Hall, Inc.

Single Route Developed by ROUTESEQ in LOGWARE Y coordinates Y coordinates 8 8 7 4 9 13 16 7 4 9 13 16 6 10 19 6 10 19 5 6 15 20 5 6 15 20 4 2 8 18 4 2 8 18 3 5 D 12 17 3 5 D 12 17 2 2 3 3 1 7 11 14 1 7 11 14 1 1 0 1 2 3 4 5 6 7 8 0 1 2 3 4 5 6 7 8 X coordinates X coordinates (a) Location of beverage accounts and distribution center (D) with grid overlay (b) Suggested routing pattern 7-14 CR (2004) Prentice Hall, Inc.

Multi-Vehicle Routing and Scheduling CR (2004) Prentice Hall, Inc.

Practical Guidelines for Good Routing and Scheduling 1. Load trucks with stop volumes that are in closest proximity to each other D Depot Stops Depot (a) Weak clustering (b) Better clustering CR (2004) Prentice Hall, Inc.

May need to coordinate with sales to achieve clusters Guidelines (Cont’d) 2. Stops on different days should be arranged to produce tight clusters F T D Depot (a) Weak clustering-- routes cross (b) Better clustering Stop May need to coordinate with sales to achieve clusters CR (2004) Prentice Hall, Inc.

Guidelines (Cont’d) 3. Build routes beginning with the farthest stop from the depot 4. The stop sequence on a route should form a teardrop pattern (without time windows) 5. The most efficient routes are built using the largest vehicles available first 6. Pickups should be mixed into delivery routes rather than assigned to the end of the routes 7. A stop that is greatly removed from a route cluster is a good candidate for an alternate means of delivery 8. Narrow stop time window restrictions should be avoided (relaxed)

Application of Guidelines to Casket Distribution Warehouse Funeral home Typical weekly demand and pickups CR (2004) Prentice Hall, Inc.

Application of Guidelines to Casket Distribution (Cont’d) Territories of equal size to minimize number of trucks Warehouse Funeral home Division of sales territories into days of the week CR (2004) Prentice Hall, Inc.

Application of Guidelines to Casket Distribution (Cont’d) Warehouse Funeral home Route design within territories CR (2004) Prentice Hall, Inc.

“Sweep” Method for VRP Example A trucking company has 10,000-unit vans for merchandise pickup to be consolidated into larger loads for moving over long distances. A day’s pickups are shown in the figure below. How should the routes be designed for minimal total travel distance? CR (2004) Prentice Hall, Inc.

Stop Volume and Location Geographical region Pickup points 1,000 4,000 2,000 3,000 2,000 3,000 3,000 2,000 Depot 1,000 2,000 2,000 2,000 CR (2004) Prentice Hall, Inc.

“Sweep” Method Solution Sweep direction is arbitrary Route #3 8,000 units Route #1 10,000 units 1,000 4,000 2,000 3,000 2,000 3,000 3,000 2,000 Depot 1,000 2,000 2,000 2,000 Route #2 9,000 units CR (2004) Prentice Hall, Inc.

The “Savings” Method for VRP Stop d A,0 d 0,A A A d 0,A d A,B d 0,B Depot Depot d B,0 B d B,0 B Stop (a) Initial routing (b) Combining two stops on a route Route distance = d +d +d + d Route distance = d +d +d 0,A A,0 0,B B,0 0,A A,B B,0 “Savings” is better than “Sweep” method—has lower average error 7-25 CR (2004) Prentice Hall, Inc.

Savings Method Observation The points that offer the greatest savings when combined on the same route are those that are farthest from the depot and that are closest to each other. This is a good principle for constructing multiple-stop routes CR (2004) Prentice Hall, Inc.

Route Sequencing in VRP AM PM 8 9 10 11 12 1 2 3 4 5 6 Route #1 Route #10 Route #6 Truck #1 Route #9 Route #4 Truck #2 Route #5 Route #8 Truck #3 Route #2 Route #7 Truck #4 Route #3 Truck #5 Minimize number of trucks by maximizing number of routes handled by a single truck 7-27 CR (2004) Prentice Hall, Inc.

Freight Consolidation Combine small shipments into larger ones A problem of balancing cost savings against customer service reductions An important area for cost reduction in many firms Based on the rate-shipment size relationship for for-hire carriers CR (2004) Prentice Hall, Inc.

Freight Consolidation Analysis Suppose we have the following orders for the next three days. Consider shipping these orders each day or consolidating them into one shipment. Suppose that we know the transport rates. Note: Rates from an interstate tariff From: Ft Worth Day 1 Day 2 Day 3 To: Topeka 5,000 lb. 25,000 lb. 18,000 lb. Kansas City 7,000 12,000 21,000 Wichita 42,000 38,000 61,000 CR (2004) Prentice Hall, Inc.

Freight Consolidation Analysis (Cont’d) Separate shipments Day 1 Day 2 Rate x volume = cost Topeka 3.42 x 50 = $171.00 1.14 x 250 = $285.00 Kansas City 3.60 x 70 = 252.00 1.44 x 120 = 172.80 Wichita 0.68 x 420 = 285.60 0.68 x 400 a = 272.00 Total $708.60 Total $729.80 a Ship 380 cwt., as if full truckload of 400 cwt. Day 3 Totals 1.36 x 180 = $244.80 $700.80 1.20 x 210 = 252.00 676.80 0.68 x 610 = 414.80 972.40 Total $911.60 $2,350.00 CR (2004) Prentice Hall, Inc. 7-30

Freight Consolidation Analysis (Cont’d) Consolidated shipment Computing transport cost for one combined, three-day shipment Day 3 Rate x volume = cost a Topeka 0.82 x 480 = $393.60 Kansas City 0.86 x 400 = 344.00 Wichita 0.68 x 1410 = 958.80 Total $1,696.40 a 480 = 50 + 250 + 180 Cheaper, but what about the service effects of holding early orders for a longer time to accumulate larger shipment sizes? CR (2004) Prentice Hall, Inc. 7-31