2. 1 1 Transportation & Supply Chain Systems John H. Vande Vate Spring, 2001

3. 2 2 Who am I? John H. Vande Vate Professor and EMIL Director Office: 433 Phone: (404) 894-3035 Office Hours: –Tuesday, Thursday 11-12 or –By appointment

4. 3 3 Administrative Details Class Home Page: www.isye.gatech.edu/~jvandeva/Classes/6203/syllabus2001.htm Keep up with information here! Text: Logistic Systems Analysis by Daganzo You may also want to read: –Business Logistics Management by Ballou

5. 4 4 Grading Exams: 60% –Mid-term: March 1, 2001 –Final Projects: 30% –Groups of 3 or 4 Class Participation: 10% –What you contribute to the class

6. 5 5 Objectives Issues and Tools for Design and Analysis of Logistics Systems –Daganzo: Analytical models based on summary data –Class Discussions: Mathematical Programming models incorporating more detailed data

7. 6 6 Motivation Analytic models: –Identify trade-offs –Communicate arguments –Ball park answers Numerical Models: –Consider the details –Manage the complexity –Refine solutions

8. 7 7 Algebraic Modeling Languages AMPL –www.ampl.com –AMPL A Modeling Language for Mathematical Programming, Fourer, Gay and Kernighan –$ –No full version generally available XPress-MP: –Academic version available for download at: www.isye.gatech.edu/class/xpress/ www.isye.gatech.edu/class/xpress/ –Full version available in the graduate and undergraduate labs.

9. 8 8 More Options AIMMS: –This application is supported in the Lab. –Student version?? MPL or related tools: –Can be downloaded free from www.maximal-usa.com/download/ www.maximal-usa.com/download/ –No full version available

10. 9 9 Good and Bad of EMIL Good: –Executive Master’s in International Logistics –CIO’s, VP’s, Directors and Managers from Agilent, Baxter, Fedex, Ford, GM, Hapag-Lloyd, Intel, Lucent, Milliken, Motorola, Ryder, UPS, … –Meeting with Execs from BMW, DaimlerChrysler, HP, Infineon, Quelle, … –...

11. 10 Good and Bad of EMIL Bad: –I will be out of the country January 19 to February 3 –Possible trip to Asia in April Still wanted to do this class.

12. 11 Resolution Weeks of January 22 January 29 No class. Your assignment is: Get access to and master a modeling language Complete a small “case” to test your skill.

13. 12 Project 1: Due February 6 Build and solve a mathematical programming model for determining the best strategy for shipping the goods in The example of Section 1.2 of Daganzo Comments: –Use the data given in the text and the distances given on the class home page –Your model must be linear (integer). –The plants and warehouse stagger shipments.

14. 13 Comments Cont’d –Shipments between plants and and from plants to the warehouse are full truck load. –Each DC receives all supply of each part from one plant. (Different parts may come from different plants) –If your model is too large for the student version of the solver, drop the last dcs until it fits.

15. 14 To Turn In Model –with clear but concise explanation Solution –Summarize intelligently Compare with an Analytic model –What are the key differences and why are they there.

16. 15 Tentative Schedule

17. 16 Illustrative Example Develop a distribution strategy to minimize inventory and transportation costs Purpose: –Illustrate the analytical modeling approach –Outline issues covered in the course

18. 17 Overview Products: –Computers: CPU, Monitor, Keyboard –Televisions: TV and Console Distribution Centers –100 across the US –Sell 10 TVs and 10 computers per day

19. 18 An Illustrative Example Facts

20. 19 Strategies to Consider All direct shipments in full truckloads All shipments via Indianapolis in full truckloads All direct shipments at the optimal frequency All shipments via Indianapolis at the optimal frequency ….

21. 20 Simplification Shipments on the order of 1,000 miles Facts

22. 21 Inventory At the DC’s? –1/2 truckload or 500 Consoles at $100 each: $ 50,000 –1/2 truckload or 3,000 CPUs at $300 each: $900,000 –1/2 truckload or 1,500 Monitors at $400 each: $600,000 $1,550,000 Carrying cost: 15% of $1,550,000 or $232,500 Total Carrying cost at the DCs: $23,250,000!

23. 22 Inventory at the Plants Two Extremes –Simultaneous shipments –Staggered shipments Reality?

24. 23 Simultaneous shipments –Green Bay ships once every 2.4 years Inventory is 1.2 years demand or 3,000 CPUs Inventory value is $900,000 Inventory carrying cost is $135,000 –Denver ships 2.5 times per year Inventory is 20% of annual demand or 500 Consoles Inventory value is $50,000 Inventory carrying cost is $7,500 –Indianapolis ships 1.6 times per year Inventory is 5,000/3.2 or about 1,500 items Inventory value is $600,000 Inventory carrying cost is $90,000

25. 24 Staggered Shipments Each plant holds 1/2 a truck load Total plant inventory like one more DC

26. 25 Transportation Costs: $ 460,000 Inventory Costs at DCs: $ 23,250,000 Inventory Costs at Plants: $ 232,500 Total: $ 23,942,500! The Next Step: Trade-off Inventory and Transportation Total Cost

27. 26 Costs, Inventory and Transport

28. 27 The Big Picture: Finance

29. 28 Extending the Analysis

30. 29 Simple Location Models

31. 30 Back to Our Example Using Transshipment to Reduce Inventory Strategy 2: Assemble Products in Indianapolis and distribute by truckload from there

32. 31 Via Indianapolis Facts

33. 32 Inventory Effects Inventory at a DC: –Visited by truck 4.6 times per year –Same as before –So inventory costs at DC are the same as before, right?

34. 33 Wrong! Total Inventory Carrying Cost at DCs: $4,891,300 compared with $23,250,000 under earlier strategy. Explain!

35. 34 The Difference Other resolutions?

36. 35 Inventory at the Plants Denver –1/2 truckload of Consoles –Same as before, right? $7,500 Green Bay –1/2 truckload of CPUs –Same as before: $135,000 Indianapolis –1/2 truckload of Consoles :$ 7,500 –1/2 truckload of CPUs :$135,000 –1/2 truckload of TVs and Computers:$ 48,900 $191,400

37. 36 With Transshipment –Transportation Costs: $ 751,800 –Inventory Costs at DCs: $ 4,891,300 –Inventory Costs at Plants: $ 333,900 Total: $ 5,977,000 Without Transshipment –Transportation Costs: $ 460,000 –Inventory Costs at DCs: $ 23,250,000 –Inventory Costs at Plants: $ 232,500 Total: $ 23,942,500!

38. 37 Other Advantages/Disadvantages Disadvantages –Capital Cost of Warehouse –Extra handling at Warehouse Advantages –Economies of Scale in Assembly –Reduced demands on DC labor

39. 38 1-Many Distribution with Transhipment

40. 39 1-Many Distribution

41. 40 Vehicle Routing

42. 41 Transshipment

43. 42 Vehicle Routing

44. 43 Many-to-Many Distribution

45. 44 Many-to-Many Distribution

46. 45 Other Issues Workload balancing: UPS case Combinatorial Bidding: Home Depot Case Yield/Demand Management ….

47. 46