Logistics
The process of planning, implementing, and controlling the efficient, cost-effective flow and storage of goods, services, and related information, from point of origin to point of consumption, for the purpose of conforming to customer requirements. Components of an Integrated Logistics System
± Physical Supply: links suppliers to operations process ± Internal Operations: manages in-process material flow ± Physical Distribution: links operations process to customers
Transportation and storage of inventory
Coal mining Raw Material Finished Goods Limestone mining Finished Goods Iron ore mining Raw Material Raw Material Raw Material Auto body stamping Finished Goods Raw Material Steel making Chassis building Finished Goods Finished Goods Finished Goods Raw Material Raw Material
Auto assembly
Finished Goods
Dealers
Customers
Supply Chain Management
A philosophy that describes how organizations should manage their supply chains to achieve strategic advantage The objective is to synchronize requirements of the final customer with the flow of materials and information along the supply chain. The goal is to eliminate variability and reach a balance between high customer service and low cost
SCM: the need to reduce variability or the impact of variability on the supply chain
Supply network variability
± late deliveries: weather,equipment breakdown ± quality problems
Manufacturing process variability
± machine reliability and equipment failure ± changeovers / setups / part expediting ± design and quality problems Carrying safety Customer network variability inventories are the ± cancellations and irregular orders most common ± equipment failure approach to dealing with variability ± scheduling
Information Technology in SCM
Seen as the key to variability reduction Links the success of independent suppliers, manufacturers, and customers Risks and rewards are shared among supply chain partners Many technologies are accepted among supply chain managers
± ± ± ± Electronic data interchange (EDI) Artificial intelligence / Expert systems Bar code and radio frequency systems Internet applications
Environmental Sensitivity
NOW: Supply chains create tremendous amounts of waste material to protect goods in shipment and storage. FUTURE: Distribution will use reverse logistics, the recycling or proper disposal of cardboard, packing material, strapping, shrink wrap, pallets, etc...
Two major problems in supply chain management
1. 2. How to synchronize to eliminate expensive decoupling inventory How to reduce transportation costs.
A study by A.T. Kearney & Company provides the average distribution cost (as a percentage of sales) across 270 companies. Functional Activity Administration Transportation : Inbound Outbound Receiving and shipping Packaging Warehousing Inventory carrying cost: Interest Taxes, insurance, obsolescence Or der processing Total % of sales 2.4 2.1 4.3
6.4 1.7 2.6 3.7 2.2 3.8 1.2 21.8%
1.6
Supply Chain Synchronization and Linear Programming
The Transportation Problem: a general formulation of a class of problems related to the supply and distribution of goods and services across a network. Generally, the transportation problem is concerned with the most cost effective (or cost minimizing) way to supply several demand locations (nodes) from more than one supply location (nodes)
Example
Special transportation concerns: Route (or arcs) that have a maximum capacity Routes that cannot be traversed
The Transshipment Problem: a more generalized version of the transportation problem in which intermediate, transship ment, nodes are added to the network. Transshipment nodes are often used to model warehouses, material transfer locations, or junctions for mixed mode delivery of goods and services.
Example
Special transshipment concerns: Backwards or sidewards movement in the network Capacity limitations of the transshipment nodes
Quaker Oats has begun manufacturing, in two of its plants, a new granola product made of three parts oats, two parts raisins and one part almonds. Two oat vendors and two almond vendors have been identified, but only one reliable vendor of raisins could be found. The supply of raw materials and the shipped costs are provided Vendor Oat 1 Oat 2 Raisin Almond 1 Almond 2 Supply in tons 25,000 30,000 50,000 9,000 10,000 Cost to Plant 1 $100 $105 $550 $1,050 $1,200 Cost to Plant 2 $110 $95 $525 $1,150 $1,100
Quaker ships to three distribution facilities. The shipping cost of completed (6-ton) pallets of product and the demand at each distribution facility are provided Hannaford Plant 1 Plant 2 Demand $100 $95 2,500 Quaker $65 $70 5,000 WalMart $90 $90 10,000 Plant Capacity 9,500 8,500
Left Hand Right Hand Side Direction Side 25,000.00 <= 27,500.00 <= 35,000.00 <= 9,000.00 <= 8,500.00 <= 2,500.00 >= 5,000.00 >= 10,000.00 >= 0 = 0 = 0 = 0 = 0 = 0 = 9,000.00 <= 8,500.00 <= 25,000.00 30,000.00 50,000.00 9,000.00 10,000.00 2,500.00 5,000.00 10,000.00 0 0 0 0 0 0 9,500.00 8,500.00
Bullwhip Effect
The magnification of variability in orders in the supply-chain.
Retailer¶s Orders
Wholesaler¶s Orders
Manufacturer¶s Orders
Time
Time
Time
A lot of retailers each with little variability in their orders«.
«can lead to greater variability for a fewer number of wholesalers, and«
«can lead to even greater variability for a single manufacturer.
The Assignment Problem: deals with a managerial decision to assign A resources (or agents) to specific customers (or tasks). Normally, the assignment problem is structured to assign one and only one agent to one and only one task. Example of an assignment problem
A g e nt 1 50 60 90 40 2 80 100 2 Task 1
Special assignment concerns: Multiple assignments The number of agents not equal to the number of tasks
3
30 50 60
3
The Marathon Oil Company operates two refineries, two distribution centers and three tankwaggon shipping points to service its customers in the southeast. Refined crude is shipped from a refinery to a distribution center and finally to a tankwaggon shipping point for final sale to oil distributors. Plant capacities and shipping costs (in $ per gallon) from each refinery to each distribution center (DC) are given below: Refinery Miami Refinery Springfield Refinery Columbia DC .004 .003 Macon DC .006 .008 Capacity 125,000 gals 95,000 gals
Estimated customer demand and per unit shipping costs (in $ per gallon) from each DC to each tankwaggon shipping point ( TWSP) are as follows: Distribution Center Columbia Macon Monthly Demand: Grade I Oil Grade II Oil Charleston TWSP .0016 .0024 20,000 gals 40,000 gals Durham TWSP .0021 .0035 25,000 gals 35,000 gals Carver TWSP .0031 .0022 45,000 gals 20,000 gals
Grade I and II oil consume the same amount of capacity to refine, however; only the Miami refinery is capable of refining Grade I oil.
Transportation and the Traveling Salesman Problem The traveling salesman problem is a special network formulations that requires a heuristic solution for all but the smallest problems. The object of the TSP is to find a network cycle that minimizes the total distance required to visit all nodes once. The nearest neighbor procedure (heuristic) 1. 2. 3. 4. Start with a node (location to be visited) at the beginning of the tour (the depot node). Find the closest to the last node added to the tour. Go back to step 2 until all nodes have been added. Connect the first and last nodes to complete the tour.
Example Use the following symmetric distance matrix to design a tour that minimizes total distance traveled. From Node 1 2 3 4 5 6 To Node (in miles) 2 3 4 5.4 2.8 10.5 5.0 9.5 5.0 7.8 9.5 7.8 5.0 6.0 5.0 8.5 3.6 9.5
1 5.4 2.8 10.5 8.2 4.1
5 8.2 5.0 6.0 5.0 9.2
6 4.1 8.5 3.6 9.5 9.2 -
The Clark and Wright Savings Heuristic
1. 2. Select any node as the depot node (node 1) Compute the savings, Sij , for linking nodes i and j: S ij = c1i + c1j - cij for i and j nodes 2,3,...,n where cij = the cost of traveling from node i to node j Rank the savings from largest to smallest Start at the top of the list, form larger subtours by linking appropriate nodes i and j. Stop when complete tour is formed.