CHAPTER 1:

INTRODUCTION
Logistics management is that part of supply chain management that deals with meeting
customer demands through planning, control and implementation of the process used for the
movement of goods, services and related information between the origin and the point of
consumption in order to meet the customers’ requirements. This is achieved by locating and
discarding the redundancies and incapability within the distribution network. The efficiency of
the logistics system is influenced by many factors. One of them is to decide the number of
distribution centres (DC) and find a good location to be opened in such a way that the customer
demand is satisfied at minimum DCs’ opening cost and minimum shipping cost.

Supply chain management (SCM) goals include transportation network design, plant/DC
location, production scheduling streamlining and efforts to reduce order response time.
Transportation network design is one of the most important fields of SCM. It offers great
potential to reduce cost and to improve service quality. The activities of SCM have their
objectives that are very contrasting. For example, the objective of marketing of superior
customer service plus maximum sales money clash with manufacturing as well as distribution
goals. On one hand a better marketing strategy tends to increase demand, which also have
indirect results on buying, production, inventory including distribution. Also, faulty customer
forecasting for products could affect a number of process areas that includes purchase,
production, inventory and movement. Clearly, it is required for these activities to be integrated,
coordinated and synchronized because changes in a part of the SCM will cause the
accomplishment of other processes.

In order to find out which customer should be served along with the amount to serve each one
of the selected customer i.e., the inventory allotment decision, the information of routing cost
is required so that the minimal profit i.e., delivery cost removed from the revenue for each
selected customer could be precisely computed. On the contrary the transportation cost for
selected individual customer relies on the routing of the vehicles, which then requires the
information regarding selection of the customers and the inventory amount allocated for an
individual customer.

In the area of service part logistics, a relationship is established between the customer and the
service provider that can extend over a sufficient period, usually years. These types of
agreements generally specify the service level and the time limit within which the service
would be provided. These customer agreements might involve various locations of the
customers; therefore it is required to achieve a net service level across various locations.
Therefore a service level provider has to face a challenge of establishing ideal stocking level
within the specified time window, while providing the parts demanded by the customers.
Hence, several tradeoffs are brought forth because insufficient inventory can bring extended
customer system downtime which may lead to loss of trust from the customer and many times
heavy penalties, during which the maintenance of huge service parts could lead to heavy
inventory carrying costs. The response time which is the time dimension is another unique
property of the problem. This is the interaction between transportation and inventory. The
response time being a function of the distance to the customer, it depends on the provision in
the network from which the demand is satisfied and the type of transportation used to satisfy
the demand. So these decisions of transportations and the cost associated by it are affected by
inventory decisions.

Multi-grade distribution network are use to supply service parts. The reason to use multi-
echelon distribution network is to achieve quick response time and to reduce cost of holding
by stock centralisation. The use of multi-echelon distribution system has now become a trend.
By use of fast transportation modes and stocking of essential parts close to the customers the
efficient network is facilitated. However the integration of such problems becomes unique
when many transportation alternatives are available with multiple modes of different costs and
speed and there are several opportunities to investigate for net cost saving and efficiency.

The main problem in designing and establishing a network is to make sure a readily responsive
service to the customers who are in need of getting the demanded product within few hours of
customers’ request, so that their essential systems are fulfilled and functioning all over again
quickly. This challenge compels an integrated reach to logistics network designing and
inventory stocking in logistics systems, which were usually handled separately. In this paper,
we will find optimised solution techniques regarding the problem of designing of and also
stocking of a logistics network to satisfy demanded parts arriving from geographically
distributed customers. Therefore, while designing and stocking logistics network, we have to
be sure of that we are selecting the correct set of facilities which are to be stocked, accomplish
the accurate allocations of requests to facilities and stocking the correct levels of parts so that
the aimed service level is obtained. The problem shows challenges in designing and also in
solution methodology .One of the challenges is to accurately express the relationship between
the unsteady facility fill rates, which are properties of the stock levels and allocation of
demands and the accomplished service level .Thus, convincing the aimed service level that
interprets as locating individual facility fill rates, that all together achieves the service level.
The most important methodological challenge is devising computationally systematic
algorithms that discover solutions which are provably very close to being optimal.
In global conditions, firms have started to integrate their distribution practices to some centres
as activities such as transportation have become equivalent globally and transportation
activities have become fast, variable, and efficient.
The role of logistics in the enduring and companies’ prosperity is significant, an issue of
management such as “what amount of combined distribution centres (DCs) must be located
and in which places?” is a huge challenge .Therefore, in the operation of developing optimal
logistics system, detailed analysis of the locations i.e., mapping and clustering administrators
and determining ideal location of DC and analysis of routes i.e., creating optimal routes for
part collection and distribution, imitating route distance as well as delivery time, are of utmost
importance.
Value creating logistics is another form of inventory management which introduces Vendor
managed resupply. It is a transpiring trend in logistics which points to a situation where a
supplier usually manages the inventory loading of its customers. Vendor managed resupply
generates value for both the suppliers and the customers, becoming a win-win situation for
both. Vendors cut down distribution cost by coordinating deliveries to different customers and
customers are not required to allocate resources for inventory management. Various industries
are thinking to implement vendor managed resupply. Recently, vendor managed resupply
have been on the top on the list of the logistics managers in the various industries such as
petrochemical and gas industries. Most recently the automotive industries which deal with
distribution of parts
and the vending machines of the soft drinks industry have
have shown interest in this arena. One of the reasons that the vendor managed resupply has
been receiving a lot of attention has to be the rapidly decreasing technology cost allowing for
the monitoring of customer inventories. Vendor managed resupply needs for accurate and
timed information of the inventory customers’ status. Vendor managed resupply being a win-
win situation for both the customers and suppliers and also a proportionally cheap monitoring
technology is available, then what is the reason that the vendor managed resupply is not used
in a larger scale? One of the reasons is that being a complex task to create a distribution strategy
it minimizes the amount of stock outs but at the same time the potential savings in distribution
costs is realised.
 LITERATURE SURVEY

Inventory routing problems: a Logistical review by N H Moin and S Salhi. This paper focuses
on the inventory routing problem in the supply chain management. They first treated the
transportation management and inventory control management separately. However they both
are interrelated. To determine the inventory allocation decision the routing cost information is
required. On the other hand the delivery cost depends on the routing. This interrelation between
both of them has made it possible to use both of them simultaneously to reduce the total cost.
It was noted that, in general, most activities done by IRP can be distinguished based on the
strategic time horizon, which could be tactical or operational. Approximate and aggregated
data, is required in the strategic level, whereas an accurate input is required in the operational
level. The change in number of vehicles is required from time to time which may result in loss
of revenues because of idle vehicles, which might be needed in one specific time instant, or the
cost because of the additional hired vehicles. This can be moderately overcome by taking in
consideration the column size to be one of the decision variables. Also, most customers often
press time limit on goods that are to be delivered, thus the present IRP models could be
extended to consider such practical restrictions.

Integrated inventory and transportation mode selection: A service part logistics system by
Erhan Kutanoglu and Divi Lohiya. This paper presented a model based on optimisation as so
to achieve the perception into the integrated inventory and transportation system for a single-
echelon and multi-facility service parts logistics system based on time, service level
constraints. As making optimisation the goal, they minimized the applicable inventory and
transportation costs making sure that service constraints will be fulfilled. The model is built on
speculative base-stock inventory, the model and integrated it with options of transportation and
responsiveness of service which could be obtained using alternate modes.

Logistics network design with inventory stocking for low-demand parts: Modeling and
optimization by Vishv Jeet, Erhan Kotanoglu and Amkit Partani.
The proposed model has captured very important properties of all service part logistics system,
which are service level requirements based on time, and speculative demands which are
satisfied by facilities that are operating by a one-for-one replenishment strategy. Along with
regular decisions of location and allotment, the model has considered stock levels and stock
fill rates identified as decisions, changing across facilities so as to achieve wide target service
levels. Variable substitution scheme has been used for non-convex problem so as to develop a
convex model. An outer-approximation scheme has been used to adjust the convex model.
Exact solution schemes are based on the adjusted model and are proposed and are
computationally less demanding of lower and upper bounding strategies for the problem that
have been devised. Results are achieved from immense computational experiments over a
number of problem instances that are based on real-life industrial data that show the optimality
of the overall approach.

Cluster building and logistics network integration of local food supply chain by T.G. Bosona,
G. Gebresenbet. The food supply chain has been an existing focus for food safety
considerations and environmental impacts. Its objective was to study so that it can be
investigated for local food supply chain’s characteristics and developing a coordinated
distribution facility so as to improve logistics efficiency, reducing environmental impact,
increasing potentiality of the market for local food manufacturers and improving the
traceability of origin of origin of food for consumers. The research was based on the data found
from ninety local food producers and the existing nineteen large scale food distribution centres
(LSFDC) located in Sweden. Analysis of Location was performed utilising the Geographic
Information System (GIS) to find out the locations of the food producers and LSFDCs; so as
to build a cluster of producers as well as the determination of the optimum product collection
centres (CC).

The Inventory Routing Problem by Ann Campbell, Lloyd Clarke, Anton Kleywegt, Martin
Savelsbergh. Vendor managed resupply has been an emerging course in the logistics and
referring to the situations where a supplier has managed the inventory replenishment for the
sake of its customers. Vendors have saved distribution cost by better coordination of deliveries
to various customers and customers are not requires to dedicate resources for inventory
management. They have presented and discussed about inventory routing problem. The basic
characteristics of positions where vendor have managed to resupply might be used and
methodologies that have been developed for the solution could have become life blocks for the
logistics systems of planning.
 PROBLEM FORMULATION

In today’s world the data is new oil. And it is true, a lot of data from various sector are now
implemented in the business area for the improvement and optimization. The company are
using it for getting the insight about the operations. Our project is also about the same. We are
utilising the data for the optimization of the process of logistics. As the commodities or the
product from warehouse is distributed to different Distribution center. Typically retail and
warehouse orders are shipped from a distribution center and not a warehouse to the end point
or the customer. Basically a warehouse generally doesn’t serve external customers while a
distribution center does. The operations at a distribution center is much more complex than that
at a warehouse. As a result, the distribution centers are equipped with latest technology for
order processing, warehouse management, transportation management etc. The optimum
location of distribution centers reduces the extra movement of products and leads to decrease
in freight cost. It also ensure the fast and safe delivery of the product. In our project, the data
so obtained by one of the supply chain company is utilised in getting the optimized location of
the distribution centre between the source and the destination. The data contain the location of
the customer and the pin code of the area along with various description, but the main and
important for our project is only the pin code of the destination. The pin code is converted to
the respective latitude and longitude coordinate and this coordinate are used in the genetic
algorithm optimization. As, in our problem the assumption is that the distance and cost are
directly proportional to each other. Prior to it, the regression is implemented on the data set
which is also called best fitted line approach. This whole gives the optimal location of the
distribution center. The location so obtained has the minimum cost association with the
different destination point.
 GENETIC ALGORITHM
Genetic algorithms (GAs) are the type of search algorithm that are associated with the
evolutionary algorithm or it a derived form of the evolutionary algorithm. It is based on the
natural phenomena of the evolution and the natural idea of genetics and selection. The fittest
individual are used to reproduce the offspring of the next generation. These algorithm are the
optimization of the general solution of the problem.

Genetic algorithm initiates the process of natural selection, it mean those who are able to
survive goes to the next level by reproducing. Each individual in the population represents the
possible solution in the space. And the individual is termed as the chromosomes like biological
terms.

Genetic algorithm are analogous to the concept of genetic structure and chromosomes. On the
basis of analogy following are the foundation:

1. The solution or the individual compete for mating and resources.

2. The fittest among the all or those who are successful then mate to create the child or
offspring.
3. From the fittest parent the gene is propagated throughout the generations by creating
the offspring.
The analogous of natural selection starts with the selection of the fittest individual from the
space. The fittest individual also called parents generates the offspring or child which contains
the characteristics of the parents gets added in the generation. The offspring so produced from
the parents have higher chances of survivability. As the characteristics in the offspring are
better than the parents. This whole process repeat itself till in the end a generation with the
fittest individual is found.

There are five stages while applying genetic algorithm.

1. Initial Population.
2. Fitness function or Objective function.
3. Selection.
4. Crossover.
5. Mutation.
The brief about the each stage in the Genetic algorithm:
Initial Population

This process is the beginning stage where the set of individual is the population. Each one in
the population is the solution of the problem.

Every solution has the sets of variable which are known as Genes. They join to create a
chromosomes in the form of string.

In this heuristic algorithm, the collection of gene of a solution (Individual) is displayed using
a string. And these gene are encoded in a chromosomes.

Fitness Function

The fitness function evaluates the fitness level of an individual to compete with other in the
population. It is also a form of the objective function of the problem. Each individual is
assigned with a fitness score which determine the probability of the individual for the selection
for reproduction.

Selection

The Selection process select the fittest individual from the population and pass on their gene to
the next level or next generation.

On the basis of the fitness score two pair of individual (Parents) are selected. Parents with
highest fitness score have more probability to be selected for reproduction.

Crossover

This is the main stage of the genetic algorithm. Each selected pair of the parents are mated, a
cross over point is picked within the chromosomes. Then the genes at these crossover are
interchanged with their corresponding gene creating a new offspring. The new off spring is
added to the space (Population).
Mutation

The new offspring so formed after crossover is subjected to mutation. The main idea behind
this is to insert a random gene to maintain the diversity or the gene can be flipped. It also
prevent from premature convergence.

The population converges and terminates and provide a set of solution. The population has
fixed size and once the new offspring are formed the older with least fitness is removed from
the population, providing the space to the upcoming offspring.

These Stages repeat itself to produces new generation in the population which are better than
the old ones.
 LINE OF BEST FIT
This concept is used to get the best line between the scattered data set which gives the best
relationship between these points. Line of best fit is the most important analysis that gives the
representation of the characteristic of the data.

This is a simple regression analysis, the data on the charts are scattered. These points may or
may not form a straight line which would have the least distance from other scattered points.
If no such line is visually generated, regression analysis uses the least square method to
generate a best fit line among the points. The line so formed has the minimized squared distance
of all the points to the line.

The equation of line can be obtained by getting the relationship between the dependent and
independent variable. Since, our data set mainly has latitude and longitude of the destination.
So, the basic structure of the formula of the line is:

Y= a(X1) +b(X2) +c

In this equation, y is the dependent variable, c is a constant, a is the first regression constant
and X1 is the first independent variable, b is the second regression constant and X2 is the
second independent variable.

Here X1 and X2 is the latitude and longitude of the destination point.

 DATA DESCRIPTION AND SUMMARY
The data set consists of the information about the total delivery happened between a warehouse
and different location of the India. The raw data contain many information but the relevant are
only about the destination pin code. The raw data has 189986 observation.

The raw data summary is obtained in R:

The above figure gives the details about the raw data. It has destination, destination pin code,
mode of transport, city, state etc.

After removing the missing pin code from the data, we have 123276 observation in which
various pin code have many deliveries. Considering single pin code for the important data point
we have 6780 distinct data points which are actually the pin code of the destination.

Excel and R are used for data cleansing and formatting.

 METHODOLOGY

So the problem is to minimize the cost of transportation of goods which is going to be

distributed in a region. In our problem we took the data of Jharkhand state. For the optimization
we implemented the Genetic Algorithm to find the optimum solution and the reason of using
Genetic Algorithm is to find the Global optimum instead of local optimum.

The data that we had have Pin codes of several locations across all over India we choose the
data of Jharkhand only to make our solution reasonable to some extent.

Assumptions
There are some assumptions that we made to simplify and fill the information that we didn’t
have.

We are minimizing the cost of transportation but we didn’t have anything as such cost but
we do have distances between the location so we took the distances as disguise of cost and
It depends directly and varies linearly with distance.

In our case we treated the demand as constant which means the demand is independent of
time. The data of demand comes from the number of times that pin code repeated itself.

STEP 1.

First, we converted the pin codes of Jharkhand state to it’s corresponding Latitude and
Longitude to plot it on the map which helps us in visualizing it better and we achieved this
by using the tableau software and Google Maps API.

Here is just a example from our data set,

STEP 2.
Now we plotted a scatter plot of locations on the map of Jharkhand by the use of Tableau
software to help in visualization so that we can make some useful decisions and we also
plotted the entire pin codes on the Map of India.

Pin codes on Map of India

Pin codes on Jharkhand Map

As one can see in the figure the locations are all over the state of Jharkhand having different
demands and distances from each other and we have 139 such unique demand destinations.

STEP 3

Now after all this we formulated our Objective function that calculates the overall cost of
shipping which is pair wise addition of multiply demand and distance(cost) and having
several other constraints.

Objective Function:

Min Z = ∑∑𝑡𝑖 𝑥𝑖𝑗

𝑡𝑖 = Demand at the location t

𝑥𝑖𝑗 = Distance between i and j

We have demand in our data and all we have to do is to calculate the distances and for that we
applied simple coordinate geometry by defining the points by their coordinates which are
latitude and longitudes in our case acting as ordinate and abscissa. Now we plotted a graph
having x-axis as latitude and y-axis as longitude and locations as several points

Now in optimization of anything one of thing is constant and other one is variable which is
distance in our case and we are going to give a coordinate of location from where the cost
is minimum and the problem here was to give a range of values or area in which the optimum
coordinate is going to fall in and here comes the role of best fit line.

We took the best fit line because of the character of it which is the distance of each point
from this line is minimum or the error is minimum and then we plotted the line on the above
graph and now we can firmly say that the point of optimum cost must be on this line or in
vicinity of it.
Equation of best fit line is: Longitude = 0.305928*Latitude + 78.7166

For plotting this line, we use python and tableau software.

Now the stage is set for the implementation of Genetic Algorithm and till here we:

1. Coordinates of destination
2. Demand at each destination
3. Equation of best fit line

STEP 4

Now there is one problem in implementing the algorithm that the range of values are
constrained on a line only, because of which the probability of the offspring is also on the line
is very less which leads to poor quality of result.

So, in order to avoid this kind of situation what used an area instead of line. Area is simply the
enclosed by the 2 other parallel lines plotted symmetrically on the both side of Best fit line for
this to happen we just simply changed the intercepts of that line.
In the figure the middle on is the best fit line and bounded by parallel lines.

STEP 5

Now that we have adequate data we move forward and rest of the work done is in Python 3.7
and after plotting of data we write all the useful data in csv file and read it in python by help of
different libraries such as- Pandas, Matplotlib, numpy, csv etc.

There are several steps in our work flow which is as follows:

1. A list is created having ordinate and abscissa of destinations.

2. A list is created having random coordinates on best fit line.
3. Now a function is defined to calculate the distance between 2 points in 2D space
4. An array of individual distances was created from each point on line to every point of
locations
5. Now demand is multiplied to their respective distances(cost) and then summed up to
give total cost.
6. A fitness function is defined which is inverse of cost function for giving the idea of
goodness of quality of result.
7. Fitness value is calculated for each of the cost and sorted in descending order.
8. Now for the initial selection of parents the roulette wheel method is used.
9. We calculated the relative fitness value which is = fitness [ i ] /sum(fitness).
10. Now created a bin of cumulative relative fitness.
 11. Now a random number is generated between (0,1).
12. Correspond to each random no. there is a fitness value which ultimately gives us the
coordinate of the parent responsible for it.

Now the Crossover begins:

For the crossover to happen every parent should be on the same page and for that to happen
following processes are followed:

1. Conversion of each coordinates of parent from decimal to whole number.

2. Now that whole number is converted into its binary equivalent.
3. Then binary of x and y coordinates are concatenated with each other.
4. A random number is generated in between 0 to length of concatenated pair.
5. A cut is made in the binary string in pair of concatenated binary number and from that
cut the right-hand elements were swapped to generate the offspring.
6. From that offspring binary values, the coordinates of corresponding offspring are
generated.

The constrained conditions:

For an offspring to be a valid one the conditions are as follows:

1. New coordinates ordinate must be in range of latitude values of Jharkhand data.

2. It must lie in between the bandwidth.
3. For 2nd condition to satisfy we used simple property of line that if a point is in between
2 lines then the values coming from 2 lines putting that point must be of opposite sign.

Now all the same previous steps were calculated for the offspring as well and new values were
stored as child values in new data.
 Results and Discussions
With the implementation of simple linear regression and Genetic Algorithm to the general set
of solution, the optimal solution obtained is by iterating for next two generations.

Fitness Value:

Fig: Fitness value of the offspring. Fig: Fitness Value of the parent.

The Fitness value of offspring and the offspring determines how good the solution with respect
to the problem is. Individual having higher fitness value is termed good as it gets prevented
from the gene convergence. Most of the times the offspring fitness value is higher than the
parent individual.

Cost of Offspring and Parent.

Fig: Cost of the Offspring(child) i.e. the cost Fig: Cost of the Parent i.e. the cost
of the probable Distribution Center to destiantion of the probable distribution center
point after final iteration to destination point after initial iteration.
The above two figure is the minimum cost of the offspring and the parent individual in the
ascending order. With the crossover, the offspring so obtained has the solution better than the
parent individual.

As from the figure the optimum cost of the parent chromosomes is 1135.88 unit and the
optimum cost of the offspring is 1115.80 unit. Hence, this shows that the iteration done results
to the optimality.
Since we are iterating only for two generations, the result obatined is only optimum among
the all iterations. The more iteration takes place, the solution reaches more closer to optimality.

Optimum Location and Coordinate:

Fig: The optimum position of the Distribution center and its coordinate (Latitude: 23.33 and
longitude: 85.8539).
 CONCLUSION:
In the recent times the computational power has increased exponentially which opens a door
for better optimization problems in field of supply chain management by the use evolutionary
optimization algorithms.

Our Project is just a small demonstration of that and lot of companies currently started to
implement these technologies in their problems.

There is lot of scope of further work in our project and there are many other variables left that
one should consider before implementing it to real world like:

1. Mode of Transport.

2. Weight of parcel that is being transported.

3. Order in which transfer is being made.

4. Variable Demand etc.

In our project we iterated it to 2 generations and one can increase the number of generations
to get more optimal result.

One can also change the method of crossover and mutation and initial selection as well to see
various changes in result.

One can also make it to 2 stage multiple distribution center problem like more than 1 DC to
optimize the cost and 2 stage means from warehouse to distribution center then from
Distribution center to Customer.