Background

For a CPG company, the various stages of outbound distribution can be categorized at a high level as:

1. Primary : From manufacturing facility to main distribution centers (typically RDC)

2. Secondary : From DC/ RDC to depots
3. Tertiary : From depots to dealers

A CPG company needs to move its merchandise at every stage from the upstream location to the
downstream location using own or contracted transportation facility. Once the merchandise reaches the
dealer, it becomes a sale and ownership is transferred from the company to the dealer.

For a CPG company that uses own or contracted transportation capacity for moving multiple SKU using
different type of delivery pack sizes across multiple transportation lanes, the ability to estimate long
term transportation capacity requirement can become a core competitive advantage. On one hand, such
a capability may give accurate pointers about the optimum fleet size and fleet mix if the shipper is using
own fleet. On the other hand, a shipper using a contracted fleet can potentially come with a fleet
estimate that nearly optimizes transportation cost within the given service level.

This paper outlines an approach for estimating the long term transportation capacity for primary
outbound distribution based upon the shipment plan from the manufacturing facilities to the
distribution centers. The primary modeling approach is using linear programming with some integer
constraints.

Constraints

1. Different products have different case sizes

2. Products may be palletized or non-palletized
3. Palletized and non-palletized products would not be loaded into the same vehicle
4. Any given vehicle may have multiple pallet capacities depending upon the pallet loaded
5. A vehicle can carry multiple pallet types in a single run
6. Vehicle capacity is lane dependent
7. Vehicle capacity is season dependent
8. Vehicle capacity is product dependent
9. Vehicles are lane specific certain lanes can handle only certain type of vehicles
10. Vehicles are product specific certain products can be shipped only through certain vehicles
11. Product incompatibility is defined at a product group level
12. There should be atleast one carrier per lane
13. Each carrier only operates certain types of vehicles on a given lane
14. Carrier capacity is constrained
15. Lane attributes are not modeled in the first model
 16. Carrier business share needs to be respected (probably a soft constraint)
17. Each truck has a finite weight, volume and pallet capacity
18. Only full pallets can be shipped

Problem Construct

1. Different products have different case sizes

Cij = no. of cases of product i that makes a pallet of type j
Wi = wt. of a case of product i in kg

Typical data table setup

Product Case Count Pallet Count Pallet type

P1 C11 = 60 1 PL1
P2 C21 = 48 1 PL1
P3 C32 = 56 1 PL2

Explanation : 60 cases of P1 would go into 1 pallet of pallet type PL1

Product Case Count Weight (Kg)

P1 1 W1 = 12
P2 1 W2 = 15
P3 1 W3 = 14

Explanation : 1 case of product P1 would weigh 12 kg

2. Truck capacity is product, pallet and lane dependent

PCijkl = Pallet capacity of truck type i for pallet type j from shipping location k to DC l
WCijk = Weight capacity of truck type i from shipping location j to DC k
VCijk = Volume capacity of truck type i from shipping location j to DC k

Truck type Plant DC Weight (kg)

T1 M1 DC1 WC111 = 9000
T2 M1 DC1 WC211 = 4000
T3 M1 DC2 WC312 =12000
T4 M1 DC2 WC412 =9000
T1 M1 DC3 WC113 =9000
T3 M1 DC3 WC313 =12000
T5 M1 DC3 WC513 =15000
 Truck type Pallet Type Plant DC Pallet Capacity
T1 1 M1 DC1 PC1111=10
T1 2 M1 DC1 PC1211=11
T2 1 M1 DC1 PC2111=4
T3 2 M1 DC2 PC3212=16
T4 3 M1 DC2 PC4312=10
T1 1 M1 DC3 PC1113=12
T3 1 M1 DC3 PC3113=15
T5 3 M1 DC3 PC5313=17
T1 3 M1 DC3 PC1313=10

Explanation : Pallet constraint does not depend upon the product

3. Only certain vehicle types are allowed for a product on a lane

Tijkl = [0,1] whether Truck type i is allowed for product j from shipping facility k to distribution
facility l

Truck type Product Plant DC Variable Value

T1 P1 M1 DC1 T1111 1
T1 P2 M1 DC1 T1211 1
T2 P1 M1 DC1 T2111 1
T2 P2 M1 DC2 T2212 0
T3 P2 M1 DC2 T3212 1
T4 P2 M1 DC2 T4212 0
T4 P3 M1 DC2 T4312 1
T1 P1 M1 DC3 T1113 1
T3 P1 M1 DC3 T3113 1
T5 P3 M1 DC3 T5313 1
T1 P3 M1 DC3 T1313 1

Explanation : This is the finer grain of the next constraint where every manufacturing facility can
ship only certain products to certain distribution centers

4. Only certain products can be shipped from a manufacturing facility to a DC

Pijk = [0,1] whether product i can be shipped from shipping facility j to distribution facility k

Product Plant DC Variable Value

P1 M1 DC1 P111 1
P2 M1 DC1 P211 1
 P3 M1 DC1 P311 0
P1 M1 DC2 P112 0
P2 M1 DC2 P212 1
P3 M1 DC2 P312 1
P1 M1 DC3 P113 1
P2 M1 DC3 P213 0
P3 M1 DC3 P313 1

5. Product compatibility
Xijkl = [0,1] whether product i can be shipped with product j from shipping facility k to
distribution facility l

Product Product Plant DC Variable Value

P1 P2 M1 DC1 X1211 0
P2 P3 M1 DC2 X2312 1
P3 P1 M1 DC3 X3113 1

PS this is relevant only if we are moving cases. In case of pallet distribution, we assume that
this has already been considered during palletization

6. Total shipment by cases / weight

Qijk = No. of cases of product i to be moved from shipping facility j to distribution facility k
Wijk = Weight of product i to be moved from shipping facility j to distribution facility k

Product Plant DC Variable Value

P1 M1 DC1 Q111 15000

P2 M1 DC1 Q211 18000
P2 M1 DC2 Q212 12500
P3 M1 DC2 Q312 19000
P1 M1 DC3 Q113 21000
P3 M1 DC3 Q313 17000

Product Plant DC Variable Value

P1 M1 DC1 W111 Q111 * W1

P2 M1 DC1 W211 Q211 * W2
P2 M1 DC2 W212 Q212 * W2
P3 M1 DC2 W312 Q312 * W3
P1 M1 DC3 W113 Q113 * W1
 P3 M1 DC3 W313 Q313 * W3

7. No. of truckload
Tijkl = No. of trucks of truck type i carrying product j from shipping location k to distribution
facility l

Problem Formulation (TBD)

Basic formulation : Optimize the fleet mix (minimize the number of trucks)