SCM Group 9 - Assignment 3

Erasmus University Rotterdam
Seminar Supply Chain Management and Optimisation
Assignment 3
Basic Distribution Network Design and Intermodal transport
Authors
group 9
Steven Rozema (433489)

Sophie van der kuijl (426383)
Niels Westdorp (452899)
Patrick Korpel (445852)
November 29, 2020
Prof. Rommert Dekker, Amy Ma MSc

Table of Contents
1 INTRODUCTION AND RECAP PREVIOUS ASSIGNMENTS ......................................................................... 3

2 METHODOLOGY.................................................................................................................................... 5
3 BASIC NETWORK DESIGN ...................................................................................................................... 6
3.1 LOCAL DISTRIBUTION CENTERS ................................................................................................................... 6

3.1.1 Changes to the model of assignment 2 .......................................................................................... 6
3.1.2 Calculating outbound transport cost .............................................................................................. 8
3.1.3 Results .......................................................................................................................................... 11
3.2 EUROPEAN DISTRIBUTION CENTERS ........................................................................................................... 12
3.3 HYBRID DISTRIBUTION NETWORK .............................................................................................................. 15
3.4 HYBRID DISTRIBUTION NETWORK WITH UNCERTAINTY .................................................................................. 18
3.4.1 50 percent demand in 100 percent demand hybrid model........................................................... 18
3.4.2 Tailor fit model for 50 percent of predicted demand ................................................................... 18
4 INTERMODAL TRANSPORT.................................................................................................................. 20
4.1 DATA AND METHODOLOGY....................................................................................................................... 20
4.2 RESULTS INTERMODAL TRANSPORT MODEL .................................................................................................. 21
4.2.1 Without restricted inland lead time ............................................................................................. 21
4.2.2 Restricted inland lead time ........................................................................................................... 23
5 CONCLUSION ...................................................................................................................................... 25
6 REFERENCES ....................................................................................................................................... 26
7 APPENDICES ....................................................................................................................................... 27
1 Introduction and recap previous assignments
In previous assignments, we forecasted the demand of Haier products and the corresponding optimal
ports of entry selection. The next step in establishing the supply chain network of Haier is analyzing
whether the company will be best of using European distribution centers (EDCs) or local distribution
centers (local DCs) to distribute their goods across Europe. By using EDCs, a company can limit the
locations needed to distribute to all demand regions in a certain area, however it provides limited
(quick) responsiveness compared to a supply chain network using local DCs.
Furthermore, we will also analyze the possibility of intermodal transportation between ports, DCs and
demand locations. Previously we assumed that all in- and outbound transportation took place by
truck. However, certain demand locations might be better served by different modes of
transportation, like train or barge. This way, by accounting for the different modes of transportation
available, a lower total cost might be obtained for Haier.
To analyze the optimal DC locations and transportation modes, we will again make use of different
solver models to minimize the total cost for Haier. These models will be largely based of the models
used in assignment 2, with a few adaptions. Therefore, we will make a short recap of the equations
used in assignment 2.
To estimate the seaborne transport cost, we used equation 1 and added the terminal handling cost
afterwards.
1 4
!"#$%&#'( #*&+",-*# .-"# /*-% 0$+1(&- #- ,-*# 2 = ∗ #*&+",-*#.-"#7,9:;:; + ∗ #*&+",-*#.-"#7,9:;>? (1)
5 5
Where q stands for Qingdao and j for the port destination.
Next, we calculated inland transport cost by equation 2.
B*&+",-*# .-"#"C,9 = 1,38 ∗ ($"#&+.'C,9 + #-FF"C,9 (2)
Where i stands for the warehouse and j for the port.
Then we calculated the warehouse volume by equation 3.

KNO
HC = I J0C,K ∗ LK M (3)
KN>
Where HC is the total yearly demand volume of all three products for warehouse $, # is the product
type, 0C,K is the total demand in units for type # in warehouse $, and LK is the package volume in m3
for type #.
Furthermore, we calculated the lead time by equation 4.
Q&$F$+1 $+#'*L&F7,9
P'&(#$%'7,9,C = Q&$F$+1 #$%'7,9 + + RL'*F&+( #$%'9,C + S-*# #$%'9 (4)
2
Where q stands for Qingdao and j for the port destination and i for the warehouse.
3
Next comes the cycle stock in equation 5, max cycle stock in equation 6, the safety stock in equation
7 and the total capacity needed for a warehouse in equation 8.
HC
TU.F' "#-.V7,9,C = P'&(#$%'7,9,C ∗ (5)
365
X&Y .U.F' "#-.V7,9,C = 1.1 ∗ TU.F' "#-.V7,9,C (6)
P'&(#$%'7,9,C HC
Q&/'#U "#-.V7,9,C = [ ∗ ∗ "&/'#U "#-.V /&.#-* (7)
365⁄12 12
T&,&.$#U +''('(7,9,C = JX&Y .U.F' "#-.V7,9,C + Q&/'#U "#-.V7,9,C M ∗ 4 (8)
The warehouse cost are calculated by equation 9

1 ^&1'C 1 f'+#C
^&*'ℎ-`"' .-"#C = ∗ aC ∗ + ∗ aC ∗ (9)
2 ^&1'bcdded 2 f'+#bcdded
with
aC = 677.55 ∗ F+JT&,&.$#U +''('(7,9,C M − 4934.80
Where aC is the Greece equivalent daily operating expense for a warehouse of volume “x”.
The inventory cost are calculated by equations 10 and 11.
kNO
j+L'+#-*U .-"# = I &L'*&1' $+L'+#-*U $+ `+$#"K ∗ ,`*.ℎ&"' ,*$.'($+.F $+/F&#$-+)K ∗ ℎ-F($+1 .-"# *&#' (10)
KN>
max .U.F' "#-.VK

lL'*&1' $+L'+#-*U $+ `+$#"K = + #-#&F "&/'#U "#-.VK (11)
2
When all costs are calculated we minimized total cost by equation 13 with its constraints below.
k r
min I I .9C Y9C + /$Y'( .-"# ∗ U (13)

9N> CN>
Where n is the number of opened ports, m the number of warehouses, .9C the total cost per container
from port 2 to warehouse $, and Y9C is the number of containers from port 2 to warehouse $.
The model has a couple of constraints which are:
1. Maximum number of opened ports is equal to 4
+ ≤ 4 t$#ℎ + = I 2uvdkdw
2. Warehouse city $’s demand (xC ) is fulfilled
4
k
I Y9C = xC , /-* $ = 1, … , %
9N>
3. The number of containers transported is limited to the capacity (z9 ) of port 2
r
I Y9C ≤ z9 U9 , /-* 2 = 1, … , +
CN>
4. Port is open U9 = 1 with U9 ∈ {0,1}, /-* 2 = 1, … , +
5. Supply is positive Y9C ≥ 0
2 Methodology
In the first two assignments we forecasted the European demand for Haier appliances, and we
mapped out a cost-efficient distribution network. For this distribution network we considered eleven
European ports, but under a set of restrictions we were assigned to pick a maximum of four ports via
which all 27 European demand centers had to be supplied. The selection of ports can be found in
Appendix 1. This assignment elaborates on the distribution network and consist out of two parts. In
the first part we compare three different distribution network solutions and subject the most cost-
efficient model to a demand uncertainty test. In the second part of this paper, we consider three other
transport modalities besides trucking.
In the first part of this paper three basic network designs are set forth, a model with local distribution
centers only, a model with European Distribution Centers only, and hybrid model where both variants
are taken into account. In all these models we consider five cost types: seaborn transport costs,
inbound transport costs (incurred when shipping from port to warehouse), outbound transportation
costs (incurred when shipping from warehouse to demand region), warehouse costs, and inventory
costs. In all three models we use linear solving to minimize total costs and to determine the optimal
supply route for all demand regions. The most efficient model is subjected to a demand uncertainty
test in order to estimate the impact of an overestimated demand projection. We do this by running
50 percent of the projected demand through our preferred model and comparing the total cost output
with the total cost of running 50 percent of the demand through a tailor fit distribution model.
Thus far we only considered trucking as our designated mode of transport in the distribution models,
in part two of this assignment we consider three additional transport modes for the in- and outbound
transportation. Short-sea shipping, trans, and barges are added into our EDC-only model, the cost-
and time characteristics of these modalities differ from that of trucking. It is interesting to add these
modalities, since they might reduce the total distribution costs of Haier. In the first model there is no
restriction on the outbound lead time, in the second model the lead time is restricted to a maximum
of two days. The train of thought behind this, is that Haier needs to be dynamic and quick when
supplying consumer appliance retailer, a standard maximum delivery time is beneficial for the
customer relationship with retailers.
5
3 Basic Network Design
Haier can employ various distribution network solutions to supply the European market with
refrigerators and washing machines, all come at a different cost. This analysis considers three network
designs and their respective costs. The first network design we consider is a network with local
distribution centers in all 27 demand regions, the 27 demand regions and corresponding demand for
appliances are depicted in Appendix 1. Secondly, we consider a network with 11 EDCs that supply
these 27 demand regions centrally, the location for de EDCs can be found in Appendix 1. Thirdly, we
consider a hybrid model that considers both local DCs and EDCs in the linear cost minimization model.
Finally, we compare the costs of the three models and determine which one is optimal and test how
sensitive this model is to lower actual demand levels than we forecasted. We do this by running half
of the forecasted demand trough the optimal model and compare this with the costs of a model that
is tailor made for handling half of the demand. It will be interesting to see whether more cargo will
flow through EDCs when demand is lower than expected, in order to save on fixed warehouse costs.
3.1 Local Distribution Centers

3.1.1 Changes to the model of assignment 2
In this section we used our model from assignment 2 and made a few adaptions. As we made an error
in the last assignment, we first adapted the safety stock factor from equation 7 from 1.818 with n=3
to 2.862 with n=50. From assignment 1 we found that Haier has 38 different variants in refrigerators
and from Haier’s website we found that Haier has 12 in washing machines.
Next, we changed the warehouse cost function aC in equation 9 from logarithmic to linear to be able
to add up outcomes from solver in the scenario of European Distribution Centers (EDC) which will be
discussed after this section. The linear method also allows for introducing fixed warehouse cost to our
solver model. This will make the decision making of opening an (E)DC more realistic.
We have changed it to aC = 0.032 ∗ JT&,&.$#U +''('(7,9,C M
Where $ stands for the local DC.
The fixed costs are obtained from the linear formula being 510.49 and are calculated by the same
formula as warehouse cost, instead here aC is replaced by the fixed cost:
> ÅÇbdÉ > àdkKÉ

$Y'( t&*'ℎ-`"' .-"#C = Ä ∗ 510.49 ∗ + ∗ 510.49 ∗ â ∗ 365 (14)
: ÅÇbdÑÖÜÜáÜ : àdkKÑÖÜÜáÜ
Figure 1a shows the old logarithmic function and figure 1b the linear. A limitation to this method is
that we do not take economies of scale for warehouses into account. A plus of this method is that it
can determine the size of an EDC. With a linear warehouse cost function, we can calculate the
warehouse cost of an EDC by adding up the demand volume of multiple demand regions at one EDC
and multiple this with the warehouse cost per container. With non-linear warehouse costs It would
have been difficult to add the warehouse costs of the EDC to the linear solver, due to a decrease in
warehouse cost per m3 when solver adds another demand region to a certain EDC. When the variable
warehouse costs are linear you don’t have this problem. The only caveat is that the model does not
6
consider economies of scale any longer, but we think this is now partly reflected in the fixed costs of
opening an additional EDC. In a model with non-linear warehouse costs, when closing an extra EDC,
there is an interplay between increased economies of scale for the remaining opened EDCs and an
increase in total transportation costs that are incurred after closing an EDC. If the total reduction in
warehouse costs – due to economies of scale – is larger than the additional transportation cost, the
linear solver chooses to close this EDC. In a model with linear warehouse costs, we have a fixed and
variable component. The fixed warehouse cost component represents a similar interplay between the
cost reduction of closing an EDC and the increased transportation costs that are incurred. If the
reduction in fixed costs is higher than the increase in total transportation costs, the linear solver opts
to not use the respective EDC. We think this assumption is reasonable since the R2 for a linear
warehouse cost is just slightly lower than the R2 of a non-linear model.
Figure 1a – old logarithmic warehouse operating costs
Figure 1b – new linear warehouse operating costs
Additionally, we changed the transport cost from equation 2 by introducing outbound transport cost
to the model.
j+ä-`+( B*&+",-*# .-"#"C,9 = 1,38 ∗ ($"#&+.'C,9 + #-FF"C,9 + /'**UCw (15)

R`#ä-`+( B*&+",-*# .-"#"C,w = ã ∗ *&($`"C,w (16)
Where $ stands for the local DC, 2 the port, ( the demand city and X the outbound tariff.
7
Lastly, we relieved the limitation of four ports in assignment 2’s solver model and let the model
calculate the optimal port – local DC pair. The cost minimization model is as follows:
r k r
min I /C + I I .9Cw Y9Cw (17)

CN> 9N> CN>
Where ∑r CN> /C is the sum of fixed warehouse cost for all DCs as each DC serves its own region, n is
the number of opened ports, m the number of local DCs, .9Cw the total cost per container from port
2 to local DC $ to demand region (, and Y9Cw is the number of containers from port 2 to local DC $ to
demand region (.
1. DC $’s demand (xC ) is fulfilled

k
I Y9Cw = xC , /-* $ = 1, … , %
9N>
2. The number of containers transported is limited to the capacity (z9 ) of port 2
r
I Y9Cw ≤ z9 U9 , /-* 2 = 1, … , +
CN>
3. Port is open U9 = 1 with U9 ∈ {0,1}, /-* 2 = 1, … , +
4. Supply is positive Y9Cw ≥ 0
3.1.2 Calculating outbound transport cost

In calculating the outbound transport cost from local distribution centers to the demand regions. As
stated in equation 16, we have to make an estimation for the average trip distance from the local DC
to these regions. As Chrisman (1985) found in his research that the location choice of businesses seems
to follow the location choice of population, we assume that most shops that need to be supplied from
the local DC are found in densely populated areas. Therefore, we estimate a radius around the local
DC in which most of the densely populated area (see figures 2 and 3) of the corresponding region is
located. We then take 50% of this radius as the average trip distance from a local DC. The result is
depicted in the last column of Table 1. This value will be used as *&($`"C,w in equation 16.
8
Figure 2 – Map showing the population density of Europe. Each red dot represents a sq. km with >250 inhabitants. Source:
Eurostat
Figure 3 – Radius per local distribution center that includes most of the densely populated area per region
9
Table 1 – Radius and corresponding estimated trip distance per local DC used for transport cost calculations
Region Location local DC Radius (km) Average trip distance estimated
(50% * radius) (km)
Greece Athens 360 180
Serbia Belgrade 220 110
Germany East Berlin 200 100
England + Wales Birmingham 225 112.5
Romania Bucharest 205 102.5
Hungary Budapest 155 77.5
Denmark Copenhagen 255 127.5
Ireland + N Ireland Dublin 195 97.5
Scotland Edinburgh 150 75
Benelux Eindhoven 200 100
Germany West Frankfurt 220 110
Germany North Hamburg 170 85
Finland Helsinki 330 165
Portugal Lisbon 310 155
Slovenia + Croatia Ljubljana 160 80
Spain Madrid 470 235
Italy North Milan 330 165
Germany South Munich 285 142.5
France North Paris 340 170
Czech Republic + Slovakia Prague 385 192.5
Baltic States Riga 305 152.5
Italy South Rome 320 160
Bulgaria Sofia 255 127.5
Sweden + Norway Stockholm 275 137.5
France South Toulouse 360 180
Austria Vienna 175 87.5
Poland Warsaw 305 152.5
To compare a supply chain network consisting of EDCs and a network consisting of local distribution
centers, we need to know the in- and outbound transportation tariffs in both scenarios. The tariffs for
EDCs are provided to us, however the tariff for outbound transportation from the local distribution
centers is yet to be estimated.
First, it should be noted that in both supply chain networks, all goods need to be delivered at the same
demand locations. On average, the outbound transportation costs from an EDC or local DC to the
shops in these demand locations tend to be higher as outbound goods are heavier and larger than
inbound goods. Therefore, less-than-full truckloads are more common in outbound transportation.
We assume that in EDCs, truckloads are filled up more than in outbound transport from local DCs, as
the trips from the EDCs to the demand locations are longer and therefore an extra trip is relatively
more expensive. This would mean higher prices per kilometer for outbound transportation stemming
from a local DC, compared to the same prices from EDCs. However, another factor influencing the
outbound transportation cost is time pressure. As local DCs are better equipped to serve demand
locations on short notice, we assume less time pressure for the local DCs. The local DCs therefore are
assumed to encounter less cost concerning time pressure. So, taking into account the relatively higher
10
truckloads cost, but lower time pressure cost, we assume that outbound transportation costs for EDCs
and local DCs are roughly the same (€1.50 per km). Hence, tariff X in equation 16 will be €1.50 per km.
3.1.3 Results
After running our solver model, we obtained the following port-DC allocation as presented in Figure
4. From this table we see that when we relief the restriction of 4 ports, our cost minimizing model
uses all ports except of the port of Marseille. All distribution centers are now served by the nearest
port as can be seen in Figure 4. This results in the use of all ports except for Marseille.
Figure 4 – Cost-efficient DC network with all ports except of Marseille, where a larger red circle indicates a higher warehouse
demand and an unfilled box an unused port
The total cost of this allocation is €412.76 million, and its allocation and further specification is stated
in Appendix 3. The logistic cost per unit is calculated with equation 18 and are depicted in Table 2.
B-#&F .-"#
P-1$"#$. .-"#K = (18)
+*. -/ .-+#&$+'*" ∗ `+$#"K $+ .-+#&$+'*
Where # stands for the unit type.
11
Table 2 – Cost specification per unit type in the case of overall cost minimization of the local DC network
Seaborne Inland Fixed
transport transport Warehouse Inventory pallet Total nr of units nr of
Unit type cost (€) cost (€) cost (€) cost (€) cost (€) cost (€) in container containers
Ref. Type I 75.67 37.72 32.82 74.46 7.92 228.59 22 11822
Ref. Type II 66.59 33.19 28.89 65.52 6.97 201.16 25 41580
WM 16.65 8.30 7.22 16.38 1.74 50.29 100 28657
Percentage 33% 17% 14% 33% 3% 100%
of Total cost
3.2 European Distribution Centers

For this part of the assignment, we made the same adaptions to assignment 2’s model as mentioned
above. However, not all data was used from assignment 2 as we now have different in- and outbound
transport routes. We used the in- and outbound data provided by Prof. Dekker. To calculate an EDC’s
warehouse cost we have different rental rates compared to a city warehouse. We obtained data from
Collier International (2020) and use the prime headline rent for logistic & distribution space in
€/sqm/month. For the wages we did not have to make changes. We used the same dataset from
Eurostat as in assignment 2. The data is presented in Table 3.
Table 3 – Hourly wage and monthly rental cost for EDCs in 2020
EDC Hourly wage warehouse employee (€/hour) Monthly rental costs 2020 (€/sqm/month) Proxy
Venlo 29.07 4.4
Paris 22.77 5.4
Frankfurt 22.1 6.5
Berlin 22.1 6.1
Prague 8.43 4.9
Krakow 7.35 3.6
Athens 20.81 3
Milan 17.15 4.6
Budapest 6.65 4.9
Zaragoza 18.02 4.4 Valencia
Bucharest 5.93 4
Compared to the local DC model, the outbound transport costs for EDCs are calculated differently by
the following formula:
R`#ä-`+( B*&+",-*# .-"#"Cw = 1,50 ∗ ($"#&+.'Cw + #-FF"Cw + /'**UCw (19)
Where i stands for EDC and d for demand region.
All other costs are calculated the same way as in the local DC model; however, the total cost is slightly
differently optimized as stated in equation 20. For the EDC model we determined the port-EDC
allocation beforehand, based on the minimal cost of sea transport plus inbound transport cost. These
costs, amongst the other cost are processed in .Cw .
12
k k r
min I /C UC + I I .Cw YCw (20)

CN> CN> wN>
Where/C is the fixed warehouse cost of EDC $, n is the number of opened EDCs J+ = ∑ $uvdk M, m the
number of demand cities, .Cw the total cost per container from EDC $ to demand region (, and YCw is
the number of containers from EDC $ to demand region (.
1. Demand city (’s demand (xw ) is fulfilled

k
I YCw = xw , /-* ( = 1, … , %
CN>
2. The number of containers transported is limited to the capacity (zC ) of EDC $
r
I YCw ≤ zC UC , /-* $ = 1, … , +
wN>
3. EDC is open UC = 1 with UC ∈ {0,1}, /-* $ = 1, … , +
4. Supply is positive YCw ≥ 0
The outcome of this model is presented in Figure 5. From this figure we see that all EDCs except for
Frankfurt are used, and that each EDC supplies the demand region nearest by. The reason for not using
Frankfurt EDC is because Venlo is more centralized between the demand cities Eindhoven and
Frankfurt, minimizing outbound distance.
13
Figure 5 – Cost-efficient EDC network, where a larger red circle indicates a higher warehouse demand and an unfilled box an
unused port
The total cost of this model is €419.64 million and is further specified in Appendix 4. The total costs
per unit are depicted in Table 4. When we compare the EDC model to the local DC model in Table 5,
we find that the EDC model is 2 percent more expensive per unit. This is likely due to the larger
distance travelled at the outbound tariff of €1.50/km.
Table 4 – cost specification per unit type in the case of overall cost minimization of the EDC network
Seaborne Inland Fixed nr of
transport transport cost Warehouse Inventory pallet cost Total cost units in nr of
Unit type cost (€) (€) cost (€) cost (€) (€) (€) container containers
Ref. Type I 74.33 52.21 24.23 73.75 7.92 232.45 22 11822
Ref. Type II 65.41 45.95 21.32 64.90 6.97 204.56 25 41580
WM 16.35 11.49 5.33 16.23 1.74 51.14 100 28657
Percentage 32% 22% 10% 32% 3% 100%
of total cost
Table 5 – comparison DC and EDC model in total cost per unit in €

Model Ref. Type I Ref. Type II WM
DC 228.59 201.16 50.29
EDC 232.45 204.56 51.14
Increase EDC model 2% 2% 2%
compared to the DC
14
3.3 Hybrid Distribution Network
As we found that the EDC model is 2 percent more expensive compared to the DC model, we were
interested in the combination of both in the hybrid model. For this model we used the cost per
container for the EDCs as calculated in the EDC model. For the local DCs we have the restriction that
each local DC serves its own demand region. Therefore, we picked the total cost per container for
every optimal port-DC combination obtained from the local DC model. We use this as the total cost
per container for that DC to its own demand region.
To minimize total cost, we used the same cost minimization formula as for the EDCs in equation 20,
but now the interpretation of $ changes to (E)DC. Moreover, we have the restriction that an EDC
cannot only serve its own region, then it functions as a local DC. For these outcomes we changed the
variable cost to a high amount such that Solver would pick the local DC over the EDC. The result is
presented in Figure 6. From this figure we see that we now only use four EDCs: Venlo, Zaragoza,
Bucharest and Budapest. All other demand regions are served by a local DC. The closure of multiple
EDCs is not surprising as we found higher cost for operating EDCs in the EDC-only model compared to
the local DC model. Yet, not all EDCs are closed as they seem to be cost-efficient when they are more
centrally located. From the figure we see that opening one centrally located EDC is cheaper than
opening multiple local DCs, despite the relatively larger overland transport cost. Additionally, an EDC
can become cost-efficient when you have it located at a relatively cheaper location such as Budapest
EDC. Budapest EDC serves Austria because Budapest’s yearly warehouse operating cost is significantly
lower. Where the hourly wage of a warehouse employee Austria’s local DC Vienna equals €26.46,
Budapest EDC is much cheaper with an hourly wage of €6.65.
15
Figure 6 – Cost-efficient hybrid network, where a larger red circle indicates a higher warehouse demand, an unfilled box an
unused port/EDC and a filled box a used port/EDC
The total cost of this model is €408.60 million, which is cheapest of all three models. The cost
specification and supply route are stated in Table 6.
Table 6 – Supply (E)DC and cost specification per demand region in the case of overall cost minimization of the entire Hybrid
network (all costs are in million € per year)
Seaborne Inland Fixed Fixed

transport transport Warehouse warehouse Inventory pallet
cost cost cost cost EDC cost cost Total cost
(million (million (million (million (million (million (million
Demand region Supplied via €/year) €/year) €/year) €/year) €/year) €) €/year)
Greece Athens 1.06 0.12 0.56 1.11 0.12 2.97
Serbia Belgrade 0.81 0.58 0.28 0.67 0.09 2.42
Germany East Berlin 5.08 1.76 2.61 5.13 0.54 15.12
England + Wales Birmingham 21.33 4.86 8.99 20.74 0.99 56.92
Romania Bucharest EDC 2.70 0.56 0.38 1.89 0.25 5.79
Hungary Budapest EDC 4.51 2.74 0.87 3.52 0.47 12.12
Denmark Copenhagen 1.57 0.60 1.24 1.80 0.17 5.38
16
Ireland Dublin 2.11 1.08 1.32 2.12 0.20 6.83
Scotland Edinburgh 1.94 1.23 1.06 1.89 1.18 7.29
Benelux Venlo EDC 7.59 1.77 3.09 8.02 0.82 21.28
Germany West Venlo EDC 9.68 4.76 3.95 10.44 1.04 29.87
Germany North Hamburg 4.79 0.57 2.41 5.35 0.51 13.64
Finland Helsinki 1.83 1.90 1.41 2.30 0.21 7.63
Portugal Zaragoza EDC 1.91 2.28 0.54 1.74 0.21 6.69
Slovenia + Croatia Ljubljana 2.58 0.65 0.87 1.94 0.27 6.31
Spain Zaragoza EDC 6.49 3.79 1.85 6.15 0.71 18.98
Italy North Milan 5.36 2.56 2.08 5.35 0.57 15.91
Germany South Munich 8.14 5.15 4.27 7.91 0.87 26.34
France North Paris 12.37 4.21 5.80 12.84 1.34 36.55
Czech Republic + Slovakia Prague 5.20 3.65 1.33 4.72 0.55 15.45
Baltic States Riga 1.20 0.81 0.40 1.25 0.13 3.79
Italy South Rome 6.77 5.56 2.65 6.90 0.71 22.59
Bulgaria Bucharest EDC 1.17 0.61 0.17 0.79 0.11 2.85
Sweden + Norway Stockholm 4.63 5.04 2.83 4.65 0.49 17.65
France South Zaragoza EDC 6.77 4.58 1.91 6.00 0.74 19.99
Austria Budapest EDC 2.92 2.56 0.57 2.58 0.31 8.94
Poland Warsaw 6.30 3.53 1.65 6.55 0.71 18.74
Total 136.81 67.49 55.09 0.57 134.35 14.30 408.60
Percentage of total cost 33.5% 16.5% 13.5% 0.1% 32.9% 3.5% 100%
The cost of Table 6 are calculated in cost per unit in Table 7. When we compare all models in Table 8,
we see that the hybrid model is 1 percent cheaper compared to the DC model. Concluding, the hybrid
model takes the best of both models.
Table 7 – cost specification per unit type in the case of overall cost minimization of the Hybrid network
Seaborne Inland nr of units
transport transport Warehouse Inventory Fixed pallet Total cost in nr of
Unit type cost (€) cost (€) cost (€) cost (€) cost (€) (€) container containers
Ref. Type I 75.78 37.38 30.83 74.42 7.92 226.33 22 11822
Ref. Type II 66.69 32.90 27.13 65.49 6.97 199.17 25 41580
WM 16.67 8.22 6.78 16.37 1.74 49.79 100 28657
Percentage 33.5% 16.5% 13.6% 32.9% 3.5% 100%
of Total cost
Table 8 – comparison DC and EDC model in total cost per unit in €

Model Ref. Type I Ref. Type II WM
DC 228.59 201.16 50.29
EDC 232.45 204.56 51.14
Hybrid 226.33 199.17 49.79
increase hybrid cost -1% -1% -1%
compared to the DC model
17
3.4 Hybrid Distribution Network with Uncertainty
To test how the hybrid distribution model functions under uncertainty, we will compare two
situations. The first situation will be where we designed the hybrid model for the assumed market
share but with half demand in practice. This will be discussed in section 3.4.1. The second situation is
a hybrid model designed for half the demand. This will be discussed in section 3.4.2.
3.4.1 50 percent demand in 100 percent demand hybrid model

In the situation where demand turns out to be half, all cost except for the warehouse cost change by
half. In this situation the contracts for the warehouses based on a full demand are already signed and
can therefore not be reversed. The total cost of this model is €232.78 million. The cost specification
per unit is depicted in Table 9 and the cost specification per region can be found in Appendix 5.
Table 9 - cost specification per unit type in the model developed for full demand when there is half demand in reality
Seaborne Inland Fixed nr of units
transport transport Warehouse Inventory pallet cost Total cost in nr of
Unit type cost (€) cost (€) cost (€) cost (€) (€) (€) container containers
Ref. Type I 75.83 38.03 61.64 74.41 7.92 257.83 22 5912
Ref. Type II 66.73 33.46 54.25 65.48 6.97 226.89 25 20795
WM 16.68 8.37 13.56 16.37 1.74 56.72 100 14332
Percentage of 29.4% 14.7% 23.9% 28.9% 3.1% 100%
Total cost
3.4.2 Tailor fit model for 50 percent of predicted demand

Now that we know the cost per unit for the model developed for full demand, we can run the hybrid
model on half the demand. The total cost of this model is €205.61 million, which is €27.17 million or
11.7 percent lower than the model designed for full demand. The cost per unit are presented in Table
10. When we compare both tables 9 and 10, we see that the warehouse cost per unit are nearly half.
Table 10 - cost specification per unit type in the model developed for half demand
Seaborne Inland Fixed nr of units
transport transport Warehouse Inventory pallet cost Total cost in nr of
Unit type cost (€) cost (€) cost (€) cost (€) (€) (€) container containers
Ref. Type I 75.83 38.03 31.55 74.41 7.92 227.74 22 5912
Ref. Type II 66.73 33.46 27.77 65.48 6.97 200.41 25 20795
WM 16.68 8.37 6.94 16.37 1.74 50.10 100 14332
Percentage of 33.3% 16.7% 13.9% 32.7% 3.5% 100%
Total cost
The result of the new (E)DC – demand region allocation is presented in Figure 7. In the adapted hybrid
model 6 EDCs are opened, 2 more than in the full demand model. The EDCs of Milan and Berlin are
now opened as their fixed warehouse cost are lower than those of the local DCs. Moreover, Budapest
now also serves one demand region extra, namely Serbia. From this outcome can be stated that when
there is a situation with half demand, warehousing becomes relatively expensive. Therefore, the
optimal allocation is a network with relatively low fixed warehouse cost.
18
Figure 7 - Map of Hybrid distribution network, adapted for 50 percent of the forecasted demand
To summarize the part about the basic network design, we find that a hybrid model is the most cost-
efficient model compared to a local DC and an EDC only model when we assume that truck is the only
mode of transport. Moreover, when the hybrid model faces uncertainty the model designed for full
demand incurs €27.7 million or 11.7 percent higher cost. These costs are fully allocated to
warehousing. Hence, when a model for half the demand is designed, we find that we make more use
of EDCs as these warehouse costs are lower than for local DCs.
19
4 Intermodal transport
For the second part of the assignment, different modes of transportation between ports, EDCs and
demand locations are analysed. Again, the ultimate goal is for Haier to minimize the total transport
costs. To do so, a solver model was constructed in excel.
We examine the optimal modal choice for the demand regions, considering the use of EDCs. Rail, road
and barge are taken into account as transport modes from the port to an EDCS, rail and road are
included as transport modes from an EDC to the demand locations. Similar to previous assignments,
the aim is to minimize the total transport costs for Haier. In order to do so, we employ Solver for this
optimization process.
4.1 Data and methodology

Regarding the inbound transportation; we assume that the EDCs are supplied via the nearest port.
The distances via the rail network per OD-pair are retrieved from railrates.com. The distances via the
road network are used from previous assignment. The distance of the barge transport routes are
retrieved from ww.navigate.nl for Rotterdam-Venlo and Rotterdam-Frankfurt, www.french-
waterways.com for Le Havre-Paris and by visual estimation for Hamburg-Prague and Constanza-
Budapest. We deliberately left the “short-sea shipping” inbound transportation out of the dataset. We
choose to do so as none of the 11 potential EDC locations mentioned in the assignment are located at
a shore or coastline, therefore making short-sea shipping from port to EDC irrelevant to analyze.
By using the default speed given for train and barge given by prof. Dekker, and the estimated speed
for trucks from TLN planner, the lead time per transport mode per OD-pair is calculated. For the lead
time, we assume that the transport by rail and barge is a biweekly and weekly service. We expect that
the lead time will be negatively impacted by the increased interval for those transport modes and that
the warehouse and inventory costs will be higher than for the transport via trucks.
However, as we analyse several modal choices with different delivery speeds, we also have to take
into account the pipeline inventory. The pipeline inventory is the number of goods that is deemed to
be transported at any given time to ensure a steady inflow of goods for the DCs. As the lead time
increases, the number of goods in the pipeline inventory also increases. Therefore, the slower modes
of transportation endure higher pipeline inventory cost.
The corresponding cost of this pipeline inventory is stated by equation 21:

kNO
max .U.F' "#-.VK
S$,'F$+' $+L'+#-*U .-"#K = I ∗ ,`*.ℎ&"' ,*$.'($+.F $+/F&#$-+)K ∗ ℎ-F($+1 .-"# *&#' (21)
2
KN>
Here t stands for the type of product (refrigerator type 1, refrigerator type 2, washing machine). The
holding cost rate is set at 15 percent as the holding cost for pipeline inventory is without the storage
cost.
As mentioned above, all available modes of transportation differ in cost and speed. Both these factors
impact the total transportation cost of the respective network. The parameters for all inbound and
outbound transportation modes can be found in Table 11.
20
Table 11 – Parameters for different transportation modes (inbound and outbound)
Parameter Train Truck Barge Unit Measure
Fixed Cost 80 0 60 €/container
Variable Cost 0.5 1.38 (inbound) / 1.5 (outbound) 0.4 €/container/km
Speed 18 70 10 Km/hour
To calculate the total cost needed for the optimization model, we make use of the same model created
for the EDCs with the addition of equation 22 to take into account the intermodal transport options.
These total costs are then optimized by the following equation:
k k r
min I /C UC + I I . K Cw YCw (22)

CN> CN> wN>
Where/C is the fixed warehouse cost of EDC $, n is the number of opened EDCs J+ = ∑ $uvdk M, m the
number of demand cities, . K Cw the total cost per container from EDC $ to demand region ( using
transport mode #, and YCw is the number of containers from EDC $ to demand region (.
The model also has a couple of adjusted constraints which are:
1. Demand city (’s demand (xw ) is fulfilled

k
I YCw = xw , /-* ( = 1, … , %
CN>
2. The number of containers transported is limited to the capacity (zC ) of EDC $
r
I YCw ≤ zC UC , /-* $ = 1, … , +
wN>
3. EDC is open UC = 1 with UC ∈ {0,1}, /-* $ = 1, … , +
4. Supply is positive YCw ≥ 0
4.2 Results intermodal transport model

4.2.1 Without restricted inland lead time
After running the Solver optimization model, we find that the Haier goods for all OD-pairs will be
transported from port to EDC either by train or truck. Even though relatively cheap barge transport is
available for some OD-pairs, the speed downgrade outweighs the financial benefits compared to train
transport. Moreover, we observe that the EDC in Bucharest is not used.
The outbound transportation however almost exclusively takes place by train. Only for EDC and
demand locations with matching locations (e.g. Paris – Paris), outbound truck transport is the best
available option as we assumed that same-city transportation cannot take place by train. However,
even if we would have allowed same-city transport to take place by train, truck transportation would
still have been more popular due the fixed cost of zero.
21
The preference of outbound train transportation is due to the relatively low cost. Although the train
has some fixed cost, the low variable cost in combination with the low fixed cost over large distances
make the train a more attractive option from a cost-minimization stance than truck transport. The
financial advantage of the lower variable transport cost per kilometre over truck transport outweighs
the drawbacks from slower transport, and therefore larger lead times.
Remarkable is that the delivery via the EDC in Athens is optimal for several demand regions. In this
case, the delivery from the port of Piraeus to the EDC in Athens via trucks. Hereafter, the delivery from
the EDC to the demand locations is done via the rail network. Again, the relatively low transport cost
for train over large distance seems to be the reason for these outcomes. All results can be seen in
Table 12 and Table 13.
Table 12 - Intermodal transport model Cost specification in million €/year except for fixed pallet cost
Fixed
Seaborne Inland Fixed Pipeline pallet
transport transport Warehouse warehouse Inventory Inventory cost Total
Demand City Supplied via Modality cost cost cost cost cost cost million€ cost
Athens Athens EDC Truck - Train 1.06 0.07 0.34 1.02 0.10 0.12 2.71
Belgrade Athens EDC Truck - Train 0.74 0.25 0.14 0.60 0.06 0.09 1.88
Berlin Berlin EDC Train - Truck 5.08 0.76 2.25 4.89 0.55 0.54 14.07
Birmingham Paris EDC Train - Train 18.25 5.68 8.50 20.21 2.27 0.99 55.89
Bucharest Athens EDC Truck - Train 2.21 0.69 0.35 1.74 0.18 0.25 5.42
Budapest Budapest EDC Train - Truck 4.51 0.94 0.83 3.35 0.35 0.47 10.46
Copenhagen Venlo EDC Train - Train 1.55 0.52 0.91 1.75 0.20 0.17 5.10
Dublin Athens EDC Truck - Train 1.68 0.11 0.84 1.76 0.18 0.20 4.76
Edinburgh Venlo EDC Train - Train 1.67 0.64 0.80 1.86 0.21 1.18 6.36
Eindhoven Venlo EDC Train - Truck 7.59 1.09 3.02 7.62 0.85 0.82 20.99
Frankfurt Frankfurt EDC Train - Truck 9.68 1.77 4.34 9.99 1.12 1.04 27.95
Hamburg Venlo EDC Train - Train 4.74 1.18 2.12 5.22 0.59 0.51 14.36
Helsinki Athens EDC Truck - Train 1.77 1.57 0.87 1.83 0.18 0.21 6.43
Lisbon Zaragoza EDC Train - Train 1.91 0.81 0.58 1.69 0.18 0.21 5.39
Ljubljana Athens EDC Truck - Train 2.35 1.07 0.63 1.76 0.18 0.27 6.27
Madrid Zaragoza EDC Train - Train 6.49 1.73 2.20 5.98 0.64 0.71 17.75
Milan Milan EDC Train - Truck 5.45 0.96 1.77 5.07 0.53 0.57 14.35
Munich Athens EDC Truck - Train 7.42 4.18 3.57 7.15 0.72 0.87 23.91
Paris Paris EDC Train - Truck 12.37 1.59 5.27 12.20 1.35 1.34 34.11
Prague Prague EDC Train - Truck 5.20 1.16 1.15 4.53 0.51 0.55 13.09
Riga Krakow EDC Train - Train 1.29 0.63 0.24 1.08 0.12 0.13 3.49
Rome Athens EDC Truck - Train 6.08 2.52 2.18 6.22 0.63 0.71 18.34
Sofia Athens EDC Truck - Train 0.96 0.23 0.17 0.73 0.07 0.11 2.27
Stockholm Krakow EDC Train - Train 4.73 2.61 2.23 4.12 0.44 0.49 14.61
Toulouse Zaragoza EDC Train - Train 6.77 1.85 2.65 5.84 0.63 0.74 18.46
Vienna Athens EDC Truck - Train 2.67 1.31 0.99 2.33 0.23 0.31 7.84
Warsaw Krakow EDC Train - Train 6.80 2.15 1.31 5.68 0.61 0.71 17.26
Total 131.01 38.05 50.29 1.59 126.22 13.65 14.30 375.10
Percentage of total cost 34.9% 10.1% 13.4% 0.4% 33.6% 3.6% 3.8% 100%
22
Table 13 - intermodal transport model cost per unit
Fixed
Seaborne Inland Pipeline pallet Total
Unit transport transport Warehouse Inventory inventory cost cost nr of units nr of
type cost (€) cost (€) cost (€) cost (€) cost (€) (€) (€) in container containers
Ref. 207.7
Type I 72.57 21.08 28.74 69.92 7.56 7.92 8 22 11822
Ref. 182.8
Type II 63.86 18.55 25.29 61.53 6.66 6.97 5 25 41580
WM 15.96 4.64 6.32 15.38 1.66 1.74 45.71 100 28657
4.2.2 Restricted inland lead time

To take into account the widely varying delivery times from EDC to demand locations, a restricted
model is constructed. In this model, we restrict the outbound lead time to be equal to- or less than
two days. In Appendix 7 and Table 16, the results of the restricted model can be observed.
Similar to the previous model, the city of Bucharest does not function as EDC location and is supplied
via the Athens EDC. The EDC in Frankfurt and Prague only serve their own corresponding demand
location, while all other EDCs serve two or more demand locations. When comparing the last two
models, we observe that eight locations will be supplied from a different EDC, namely Copenhagen,
Dublin, Helsinki, Ljubljana, Munich, Rome, Stockholm and Vienna. The majority of demand locations
in the first model are supplied via Athens, but are relocated due to the time restriction. As Athens was
one of the cheapest, but also one of the locations furthest away in the previous model, the changes
of OD-pairs were to be expected. In Table 14, the major differences regarding those relocations are
shown.
Table 14 - Reallocation of demand locations as result of the inland lead time restriction
Initial modal New modal Initial total New total
Demand City Initial EDC New EDC choice choice cost cost
Copenhagen Venlo EDC Berlin EDC Train - Train Train - Train 5.1 5.06
Dublin Athens EDC Paris EDC Truck - Train Train - Truck 4.76 6.83
Helsinki Athens EDC Krakow EDC Truck - Train Train - Truck 6.43 7.99
Ljubljana Athens EDC Milan EDC Truck - Train Train - Train 6.27 6.54
Munich Athens EDC Milan EDC Truck - Train Train - Train 23.91 24.08
Rome Athens EDC Milan EDC Truck - Train Train - Train 18.34 19.61
Stockholm Krakow EDC Berlin EDC Train - Train Train - Train 14.61 14.58
Vienna Athens EDC Budapest EDC Truck - Train Train - Train 7.84 7.98
Copenhagen Venlo EDC Berlin EDC Train - Train Train - Train 5.1 5.06
Besides the reallocation of the EDCs, the modal choice is also reconsidered as a result of the
restriction. In general, the preferred inbound mode is by train, except for Athens. The optimal
transport mode for supplying Athens is via truck, as the distance to the port as well as to the demand
locations is rather small. Regarding the outbound transport, the majority of the cargo is still
transported by train. Even though the time restriction means that train transportation is unavailable
for many OD-pairs, the low variable cost still makes it the most attractive way of transportation
23
As can be seen in Table 15, ten demand locations are supplied via other modes under the restriction.
Without the restriction, those demand regions are supplied via truck as inbound transport mode and
train as an outbound mode. As discussed earlier, this might be caused by the low lead time of the
trucks and very low fixed costs for the rail network for long distances. However, many demand
locations are solely supplied via the rail network under the restriction. Remarkable is that all demand
locations with a changing transport mode are originally supplied via the EDC in Athens. This is due to
the fact that these demand locations cannot be reach from Athens within 2 days.
Table 15 - Reconsidered modal choice as a result of the restricted lead time

Demand Initial modal New modal Initial total New total
City Initial EDC New EDC choice choice cost cost
Athens Athens EDC Athens EDC Truck - Train Truck - Truck 2.71 2.63
Belgrade Athens EDC Athens EDC Truck - Train Train - Train 1.88 1.88
Bucharest Athens EDC Athens EDC Truck - Train Train - Train 5.42 5.42
Helsinki Athens EDC Krakow EDC Truck - Train Train - Truck 6.43 7.99
Ljubljana Athens EDC Milan EDC Truck - Train Train - Train 6.27 6.54
Munich Athens EDC Milan EDC Truck - Train Train - Train 23.91 24.08
Rome Athens EDC Milan EDC Truck - Train Train - Train 18.34 19.61
Sofia Athens EDC Athens EDC Truck - Train Train - Train 2.27 2.27
Vienna Athens EDC Budapest EDC Truck - Train Train - Train 7.84 7.98
Table 16 - Intermodal transport with lead time more than 2 days removed with cost per unit
Seaborne Inland Pipeline Fixed nr of
Unit transport transport Warehouse Inventory inventory pallet Total units in nr of
type cost (€) cost (€) cost (€) cost (€) cost (€) cost (€) cost (€) container containers
Ref.
Type I 73.85 20.79 29.32 71.07 7.77 7.92 210.73 22 11822
Ref.
Type II 64.99 18.30 25.80 62.54 6.84 6.97 185.44 25 41580
WM 16.25 4.57 6.45 15.64 1.71 1.74 46.36 100 28657
All of the constructed models in sections 3 and 4 are summarized in Table 17. From this table we
observe that the intermodal model is the most cost-efficient in terms of total cost per unit. This is due
to the extensive use of railway as this is the most cost-efficient mode of transport. However, this
transport mode also results in slower and less frequent delivery, making it vulnerable to unexpected
demand fluctuations. When we add the restriction of a maximum lead time of two days, we still find
that the intermodal model is the most cost-efficient in terms of total cost per unit.
Table 17 – Total cost per unit in € for all three types of products in each model analyzed in the assignment
Model Ref. type I Ref. type II WM
Local DCs only 228.59 201.16 50.29
EDCs only 232.45 204.56 51.14
Hybrid 226.33 199.17 49.79
Hybrid (uncertainty: demand 50%) 257.83 226.89 56.72
Hybrid (tailor fit for demand 50%) 227.74 200.41 50.10
Intermodal 207.78 182.85 45.71
Intermodal (2 day restriction) 210.73 185.44 46.36
24
5 Conclusion
In section 3 of the basic network design, we find that a hybrid model is the most cost-efficient model
compared to a local DC and an EDC only model when we assume that truck is the only mode of
transport. Moreover, when the hybrid model faces uncertainty the model designed for full demand
incurs €27.7 million or 11.7 percent higher cost. These costs are fully allocated to warehousing. Hence,
when a model for half the demand is designed, we find that we make more use of EDCs as these
warehouse costs are lower than for local DCs.
However, a limitation to our solver model is that it does not take economies of scale into account for
larger warehouses since we made the function linear to add the solver results up for the EDCs.
Additionally, in calculating inventory cost we assumed the same holding cost for EDCs and local DCs,
while in reality these might be lower due to economies of scale.
For section 4, we see that the introduction of multiple transportation modes in the supply chain
network can lower the total cost for Haier. First, we modelled the optimal transportation network by
introducing train, truck and barge transport modes into the model. The results show that all in- and
outbound transportation take place by either truck or train. Especially the outbound transport
predominantly takes place by train. Although the transportation time is relatively long, the low
variable cost in combination with the low fixed cost over long distances makes the train the most cost-
efficient transport mode for outbound transport.
However, the long delivery times from EDCs to demand locations might not be desirable for a
producer. Therefore, we also modelled the optimal transportation network taking into account a
maximum delivery time of 2 days. This restriction implies that outbound train transport is no longer
an option for many OD-pairs in the dataset. The results show a relocation of EDC for some demand
locations from Athens EDC to EDC that are more nearby.
However, we believe there are some limitations that should be addressed regarding the intermodal
transport. Due to the scope of the assignment, we assumed that the transport via rail and barge is a
biweekly and weekly service. However, we believe this depends on the connectivity of the port to the
hinterland or the DC to the demand region and therefore will vary from port to port and DC to DC.
Therefore, it might give a general interpretation. It might be interesting to further diversify the
transport interval for the specific modal choices. Moreover, the last mile transport has not been taken
into account. We believe that in reality this might be harder by rail or barge than by truck.
To conclude, the results from all models constructed in this assignment show that the total cost per
unit is the lowest for the intermodal transportation networks.
25
6 References
Chrisman, J. J. (1985). Population Change and its Effects on the Retail Sector: An Exploratory Study.
International Small Business Journal, 3(4), 26–46.
https://doi.org/10.1177/026624268500300402
Collier International. (2020). EMEA I&L RENTS 2020 H1. Retrieved from colliers.com:
https://www.colliers.com/-
/media/files/emea/emea/research/2020_h1_colliers_emea_ilrentmap_final.pdf?la=en-gb
26
7 Appendices
Appendix 1 - Selection of European Ports and EDC candidates considered in Distribution Network Models
Ports EDC candidates
Barcelona Koper Rotterdam Venlo Prague Budapest
Constanza Le Havre Southampton Paris Krakow Zaragoza
Gdansk Marseille Trieste Frankfurt Athens Bucharest
Hamburg Piraeus Berlin Milan
Appendix 2 – Demand regions and representative demand cities

Region/Country City Region/Country City
Benelux Eindhoven Italy – North Milan
Bulgaria Sofia Italy – South Rome
Czech Republic + Slovakia Prague Hungary Budapest
Danmark Copenhagen Austria Vienna
Germany_STH Munich Poland Warsaw
Germany_EAST Berlin Ireland + N Ireland Dublin
Germany_NORTH Hamburg Romania Bucharest
Germany_WEST Frankfurt Slovenia + Croatia Ljubljana
Baltic States (E,L,L) Riga Serbia Belgrade
Greece Athens Finland Helsinki
Spain Madrid Sweden + Norway Stockholm
Portugal Lisbon England + Wales Birmingham
France_STH Toulouse Scotland Edinburgh
France_NORTH Paris
Appendix 3 – Supply port and cost specification per local DC in the case of overall cost minimization of the DC network (all
costs are in million € per year)
Fixed
Seaborne Inland Inventory pallet
transport transport Warehouse cost cost Total cost
Supplied via cost (million cost (million cost (million (million (million (million
Location DC port €/year) €/year) €/year) €/year) €) €/year)
Athens Piraeus 1.06 0.12 0.56 1.11 0.12 2.97
Belgrade Koper 0.81 0.58 0.28 0.67 0.09 2.42
Berlin Hamburg 5.08 1.76 2.61 5.13 0.54 15.12
Birmingham Southampton 21.33 4.86 8.99 20.74 0.99 56.92
Bucharest Constanza 2.70 0.84 0.48 1.89 0.25 6.16
Budapest Koper 4.51 3.30 1.00 3.52 0.47 12.80
Copenhagen Hamburg 1.57 0.60 1.24 1.80 0.17 5.38
Dublin Southampton 2.11 1.08 1.32 2.12 0.20 6.83
Edinburgh Southampton 1.94 1.23 1.06 1.89 1.18 7.29
Eindhoven Rotterdam 7.59 1.99 3.40 8.01 0.82 21.82
Frankfurt Rotterdam 9.68 4.96 4.82 10.49 1.04 31.00
Hamburg Hamburg 4.79 0.57 2.41 5.35 0.51 13.64
Helsinki Gdansk 1.83 1.90 1.41 2.30 0.21 7.63
Lisbon Barcelona 1.91 2.33 0.77 1.75 0.21 6.98
Ljubljana Koper 2.58 0.65 0.87 1.94 0.27 6.31
Madrid Barcelona 6.49 4.39 2.47 6.16 0.71 20.22
Milan Koper 5.36 2.56 2.08 5.35 0.57 15.91
Munich Koper 8.14 5.15 4.27 7.91 0.87 26.34
27
Paris Le Havre 12.37 4.21 5.80 12.84 1.34 36.55
Prague Hamburg 5.20 3.65 1.33 4.72 0.55 15.45
Riga Gdansk 1.20 0.81 0.40 1.25 0.13 3.79
Rome Trieste 6.77 5.56 2.65 6.90 0.71 22.59
Sofia Piraeus 0.96 0.86 0.29 0.78 0.11 3.00
Stockholm Hamburg 4.63 5.04 2.83 4.65 0.49 17.65
Toulouse Barcelona 6.77 3.72 2.95 6.00 0.74 20.19
Vienna Koper 2.92 1.84 1.32 2.58 0.31 8.97
Warsaw Gdansk 6.30 3.53 1.65 6.55 0.71 18.74
Total 136.60 68.10 59.26 134.42 14.30 412.67
Percentage of total cost 33% 17% 14% 33% 3% 100%
Appendix 4 – Supply EDC and cost specification per demand city in the case of overall cost minimization of the entire EDC
network (all costs are in million € per year)
Inland
Seaborne transport Fixed
transport cost Warehouse warehouse Fixed
Demand cost (million (million cost (million cost (million Inventory pallet Total
city Supplied via €/year) €/year) €/year) €/year) cost cost cost
Athens
Athens EDC 1.06 0.04 0.28 1.09 0.12 2.59
Belgrade
Budapest EDC 0.81 0.77 0.16 0.67 0.09 2.50
Berlin Berlin EDC 5.08 1.54 2.01 5.13 0.54 14.29
Birmingham Paris EDC 18.25 17.55 7.07 20.75 0.99 64.61
Bucharest
Bucharest EDC 2.70 0.56 0.38 1.89 0.25 5.79
Budapest
Budapest EDC 4.51 2.74 0.87 3.52 0.47 12.12
Copenhagen
Berlin EDC 1.57 1.30 0.64 1.80 0.17 5.47
Dublin
Paris EDC 1.81 2.57 0.70 2.11 0.20 7.38
Edinburgh
Paris EDC 1.66 2.31 0.64 1.88 1.18 7.67
Eindhoven
Venlo EDC 7.59 1.77 3.09 8.02 0.82 21.28
Frankfurt
Venlo EDC 9.68 4.76 3.95 10.44 1.04 29.87
Hamburg
Berlin EDC 4.79 2.75 1.93 5.36 0.51 15.35
Helsinki Krakow EDC 1.97 3.50 0.33 2.03 0.21 8.03
Lisbon
Zaragoza EDC 1.91 2.28 0.54 1.74 0.21 6.69
Ljubljana Milan EDC 2.62 2.30 0.68 1.95 0.27 7.82
Madrid
Zaragoza EDC 6.49 3.79 1.85 6.15 0.71 18.98
Milan
Milan EDC 5.45 2.21 1.48 5.35 0.57 15.05
Munich Milan EDC 8.27 8.17 2.23 7.91 0.87 27.45
Paris
Paris EDC 12.37 2.71 4.71 12.83 1.34 33.95
Prague Prague EDC 5.20 3.32 1.21 4.72 0.55 15.00
Riga
Krakow EDC 1.29 1.67 0.21 1.11 0.13 4.41
Rome Milan EDC 6.77 6.40 1.85 6.88 0.71 22.62
Sofia Bucharest EDC 1.17 0.61 0.17 0.79 0.11 2.85
Stockholm
Berlin EDC 4.63 7.01 1.83 4.63 0.49 18.59
Toulouse Zaragoza EDC 6.77 4.58 1.91 6.00 0.74 19.99
Vienna Krakow EDC 2.97 2.52 0.48 2.59 0.31 8.87
Warsaw
Krakow EDC 6.80 4.54 1.09 5.83 0.71 18.96
28
Total 134.19 94.26 42.27 1.48 133.15 14.30 419.64
Appendix 5 - Hybrid model designed for full demand, but in reality there is only half

transport transport Warehouse warehouse Inventory pallet Total
cost cost cost cost EDC cost cost cost
Greece Athens 0.53 0.06 0.56 0.56 0.06 1.77
Serbia Belgrade 0.41 0.29 0.28 0.33 0.04 1.35
Germany East Berlin 2.54 0.88 2.61 2.57 0.27 8.87
Denmark Copenhagen 0.78 0.30 1.24 0.90 0.08 3.31
Ireland Dublin 1.06 0.54 1.32 1.06 0.10 4.07
Italy South Rome 3.39 2.78 2.65 3.45 0.36 12.62
Poland Warsaw 3.15 1.76 1.65 3.27 0.35 10.20
Total 68.46 34.33 55.09 0.57 67.18 7.15 232.78
Appendix 6 – Cost specification hybrid model designed to distribute 50 percent of the projected demand
transport transport Warehouse warehouse Inventory pallet
cost cost cost cost cost cost Total cost
Greece Athens 0.53 0.06 0.38 0.56 0.06 1.58
29
Serbia Budapest EDC 0.41 0.39 0.08 0.33 0.04 1.25
Germany East Berlin EDC 2.54 0.77 1.00 2.57 0.27 7.15
Denmark Berlin EDC 0.78 0.65 0.32 0.90 0.08 2.73
Ireland Dublin 1.06 0.54 0.80 1.06 0.10 3.55
Italy South Milan EDC 3.39 3.20 0.92 3.44 0.36 11.31
Poland Warsaw 3.15 1.76 0.89 3.28 0.35 9.43
Total 68.46 34.33 27.56 0.92 67.18 7.15 205.61

Appendix 7 - Intermodal transport with outbound lead time more than 2 days removed in million €/year except for fixed
pallet cost
Inland
Seaborne trans- Ware- Fixed Pipeline Fixed pallet
Demand Supplied transport port house warehouse Inventory Inventory cost Total
Region via Modality cost cost cost cost cost cost (million €) cost
Athens Truck -
Athens EDC Truck 1.06 0.04 0.33 0.99 0.10 0.12 2.63
Athens Train -
Belgrade EDC Train 0.74 0.25 0.14 0.60 0.06 0.09 1.88
Train -
Berlin Berlin EDC Truck 5.08 0.76 2.25 4.89 0.55 0.54 14.07
Train -
Birmingham Paris EDC Train 18.25 5.68 8.50 20.21 2.27 0.99 55.89
Athens Train -
Bucharest EDC Train 2.21 0.69 0.35 1.74 0.18 0.25 5.42
Budapest Train -
Budapest EDC Truck 4.51 0.94 0.83 3.35 0.35 0.47 10.46
Train -
Copenhagen Berlin EDC Train 1.57 0.45 0.92 1.76 0.20 0.17 5.06
Train -
Dublin Paris EDC Truck 1.81 1.63 0.97 2.00 0.22 0.20 6.83
30
Train -
Edinburgh Venlo EDC Train 1.67 0.64 0.80 1.86 0.21 1.18 6.36
Train -
Eindhoven Venlo EDC Truck 7.59 1.09 3.02 7.62 0.85 0.82 20.99
Frankfurt Train -
Frankfurt EDC Truck 9.68 1.77 4.34 9.99 1.12 1.04 27.95
Train -
Hamburg Venlo EDC Train 4.74 1.18 2.12 5.22 0.59 0.51 14.36
Krakow Train -
Helsinki EDC Truck 1.97 2.76 0.92 1.92 0.20 0.21 7.99
Zaragoza Train -
Lisbon EDC Train 1.91 0.81 0.58 1.69 0.18 0.21 5.39
Train -
Ljubljana Milan EDC Train 2.62 0.86 0.69 1.90 0.20 0.27 6.54
Zaragoza Train -
Madrid EDC Train 6.49 1.73 2.20 5.98 0.64 0.71 17.75
Train -
Milan Milan EDC Truck 5.45 0.96 1.77 5.07 0.53 0.57 14.35
Train -
Munich Milan EDC Train 8.27 2.53 3.88 7.71 0.82 0.87 24.08
Train -
Paris Paris EDC Truck 12.37 1.59 5.27 12.20 1.35 1.34 34.11
Prague Train -
Prague EDC Truck 5.20 1.16 1.15 4.53 0.51 0.55 13.09
Krakow Train -
Riga EDC Train 1.29 0.63 0.24 1.08 0.12 0.13 3.49
Train -
Rome Milan EDC Train 6.77 2.33 2.37 6.71 0.71 0.71 19.61
Athens Train -
Sofia EDC Train 0.96 0.23 0.17 0.73 0.07 0.11 2.27
Train -
Stockholm Berlin EDC Train 4.63 1.96 2.46 4.52 0.51 0.49 14.58
Zaragoza Train -
Toulouse EDC Train 6.77 1.85 2.65 5.84 0.63 0.74 18.46
Budapest Train -
Vienna EDC Train 2.92 0.88 1.08 2.52 0.27 0.31 7.98
Krakow Train -
Warsaw EDC Train 6.80 2.15 1.31 5.68 0.61 0.71 17.26
Total 133.33 37.54 51.34 1.59 128.30 14.03 14.30 380.42
Percentage of total cost 35.0% 9.9% 13.5% 0.4% 33.7% 3.7% 3.8% 100%
31

SCM Group 9 - Assignment 3

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SCM Group 9 - Assignment 3

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Erasmus University Rotterdam

Seminar Supply Chain Management and Optimisation

Steven Rozema (433489)

November 29, 2020

Prof. Rommert Dekker, Amy Ma MSc

1 INTRODUCTION AND RECAP PREVIOUS ASSIGNMENTS ......................................................................... 3

3.1 LOCAL DISTRIBUTION CENTERS ................................................................................................................... 6

Where q stands for Qingdao and j for the port destination.

Next, we calculated inland transport cost by equation 2.

B*&+",-*# .-"#"C,9 = 1,38 ∗ ($"#&+.'C,9 + #-FF"C,9 (2)

Where i stands for the warehouse and j for the port.

Then we calculated the warehouse volume by equation 3.

Furthermore, we calculated the lead time by equation 4.

X&Y .U.F' "#-.V7,9,C = 1.1 ∗ TU.F' "#-.V7,9,C (6)

The warehouse cost are calculated by equation 9

The inventory cost are calculated by equations 10 and 11.

max .U.F' "#-.VK

min I I .9C Y9C + /$Y'( .-"# ∗ U (13)

The model has a couple of constraints which are:

1. Maximum number of opened ports is equal to 4

2. Warehouse city $’s demand (xC ) is fulfilled

5. Supply is positive Y9C ≥ 0

3.1 Local Distribution Centers

We have changed it to aC = 0.032 ∗ JT&,&.$#U +''('(7,9,C M

Where $ stands for the local DC.

> ÅÇbdÉ > àdkKÉ

Figure 1a – old logarithmic warehouse operating costs

Figure 1b – new linear warehouse operating costs

j+ä-`+( B*&+",-*# .-"#"C,9 = 1,38 ∗ ($"#&+.'C,9 + #-FF"C,9 + /'**UCw (15)

min I /C + I I .9Cw Y9Cw (17)

The model has a couple of constraints which are:

1. DC $’s demand (xC ) is fulfilled

4. Supply is positive Y9Cw ≥ 0

3.1.2 Calculating outbound transport cost

Where # stands for the unit type.

3.2 European Distribution Centers

R`#ä-`+( B*&+",-*# .-"#"Cw = 1,50 ∗ ($"#&+.'Cw + #-FF"Cw + /'**UCw (19)

Where i stands for EDC and d for demand region.

min I /C UC + I I .Cw YCw (20)

The model has a couple of constraints which are:

1. Demand city (’s demand (xw ) is fulfilled

4. Supply is positive YCw ≥ 0

Table 5 – comparison DC and EDC model in total cost per unit in €

Seaborne Inland Fixed Fixed

Table 8 – comparison DC and EDC model in total cost per unit in €

3.4.1 50 percent demand in 100 percent demand hybrid model

3.4.2 Tailor fit model for 50 percent of predicted demand

4.1 Data and methodology

The corresponding cost of this pipeline inventory is stated by equation 21:

min I /C UC + I I . K Cw YCw (22)

The model also has a couple of adjusted constraints which are:

1. Demand city (’s demand (xw ) is fulfilled

4. Supply is positive YCw ≥ 0

4.2 Results intermodal transport model

4.2.2 Restricted inland lead time

Table 15 - Reconsidered modal choice as a result of the restricted lead time

Appendix 2 – Demand regions and representative demand cities

Seaborne Inland Fixed Fixed

Total 68.46 34.33 27.56 0.92 67.18 7.15 205.61

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B&+",-# .-"#"C,9 = 1,38 ∗ ($"#&+.'C,9 + #-FF"C,9 (2)

j+ä-`+( B&+",-# .-"#"C,9 = 1,38 ∗ ($"#&+.'C,9 + #-FF"C,9 + /'**UCw (15)

R`#ä-`+( B&+",-# .-"#"Cw = 1,50 ∗ ($"#&+.'Cw + #-FF"Cw + /'**UCw (19)