Logistics and Supply Chain Management

Logistics
‡ The process of planning, implementing, and controlling the efficient, cost-effective flow and storage of goods, services, and related information, from point of origin to point of consumption, for the purpose of conforming to customer requirements. ‡ Components of an Integrated Logistics System
± Physical Supply: links suppliers to operations process ± Internal Operations: manages in-process material flow ± Physical Distribution: links operations process to customers

Transportation and storage of inventory
Coal mining Raw Material Finished Goods Limestone mining Finished Goods Iron ore mining Raw Material Raw Material Raw Material Auto body stamping Finished Goods Raw Material Steel making Chassis building Finished Goods Finished Goods Finished Goods Raw Material Raw Material

Auto assembly

Finished Goods

Dealers

Customers

Supply Chain Management
‡ A philosophy that describes how organizations should manage their supply chains to achieve strategic advantage ‡ The objective is to synchronize requirements of the final customer with the flow of materials and information along the supply chain. The goal is to eliminate variability and reach a balance between high customer service and low cost

SCM: the need to reduce variability or the impact of variability on the supply chain
‡ Supply network variability
± late deliveries: weather,equipment breakdown ± quality problems

‡ Manufacturing process variability
± machine reliability and equipment failure ± changeovers / setups / part expediting ± design and quality problems Carrying safety ‡ Customer network variability inventories are the ± cancellations and irregular orders most common ± equipment failure approach to dealing with variability ± scheduling

Information Technology in SCM
‡ Seen as the key to variability reduction ‡ Links the success of independent suppliers, manufacturers, and customers ‡ Risks and rewards are shared among supply chain partners ‡ Many technologies are accepted among supply chain managers
± ± ± ± Electronic data interchange (EDI) Artificial intelligence / Expert systems Bar code and radio frequency systems Internet applications

Environmental Sensitivity
‡ NOW: Supply chains create tremendous amounts of waste material to protect goods in shipment and storage. ‡ FUTURE: Distribution will use reverse logistics, the recycling or proper disposal of cardboard, packing material, strapping, shrink wrap, pallets, etc...

Two major problems in supply chain management
1. 2. How to synchronize to eliminate expensive decoupling inventory How to reduce transportation costs.

A study by A.T. Kearney & Company provides the average distribution cost (as a percentage of sales) across 270 companies. unctional Activity Administration Transportation : Inbound Outbound Receiving and shipping Packaging Warehousing Inventory carrying cost: Interest Taxes, insurance, obsolescence Order processing Total % of sales 2.4 2.1 4.3

6.4 1.7 2.6 3.7 2.2 3.8 1.2 21.8%

1.6

Supply

ai Sy c ro izatio a

i ear rogrammi g

T e Tra sportatio

ro lem: a general ormulation o a class o problems

related to the supply and distribution o goods and services across a net ork. Generally, the transportation problem is concerned ith the most cost e ective (or cost minimizing) ay to supply several demand locations (nodes) rom more than one supply location (nodes)

Example

Special tra sportatio co cer s: oute (or arcs) that have a ma ximum capacity outes that cannot be traversed

The Transshipment roblem a more generalized vers ion of the
transportation problem in which intermediate, transship ment, nodes are added to the network. Transshipment nodes are often used to model warehouses, material transfer locations, or junctions for mixed mode delivery of goods and services .

Example

Special transshipment concerns Backwards or sidewards movement in the network Capacity limitations of the transshipment nodes

Quaker Oats as begun manufacturing, in t of its plants, a new granola product ats egun anufacturing, two f lants, roduct ade arts arts art al onds. endors made of t ree parts oats, two parts raisins and one part almonds. wo oat vendors and two al ond endors ave een identified, ut onl one reliable vendor of raisins e suppl of raw aterials and t e s ipped costs are provided could be found. Vendor at 1 Oat 2 aisin l ond 1 Al ond 2 uppl in tons 25,000 30,000 50,000 9,000 10,000 ost to lant 1 $100 $105 $550 $1,050 $1,200 ost to lant 2 $110 $95 $525 $1,150 $1,100

Quaker s ips to t ree distribution facilities. e s ipping cost of completed (6-ton) pallets of product and t e demand at eac distribution facilit are provided Hannaford lant 1 Plant 2 Demand $100 $95 2,500 Quaker $65 $70 5,000 Wal art $90 $90 10,000 lant apacit 9,500 8,500

Formulation
Mi i ize Z= 100 1Q1+ 110 1Q2+105 2Q1+95 2Q2+ 550 Q 1+ 525 Q2+ 1050 1Q1+1150 1Q2+1200 2Q 1+ 1100 2Q2+100Q 1H+65Q 1 + 90Q1 +95Q2H+ 70Q 2 + 90Q2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 1 1Q1+1 1Q2<= 25000 1 2Q1+1 2Q2<= 30000 1 Q1+ 1 Q 2<= 50000 1 1Q1+1 1Q2<= 9000 1 2Q1+1 2Q2<= 10000 1Q1H+1Q2H> =2500 1Q1 + 1Q2 >= 5000 1Q1 +1Q2 >=10000 1 1Q1+1 2Q1-3Q1H-3Q1 -3Q1 1 1Q2+1 2Q2-3Q2H-3Q2 -3Q2 1 Q1-2Q1H-2Q 1 -2Q1 =0 1 Q2-2Q2H-2Q 2 -2Q2 =0 1 1Q1+1 2Q1-1Q1H-1Q1 -1Q1 1 1Q2+1 2Q2-1Q2H-1Q2 -1Q2 Q1H+ Q1 +Q1 <= 9500 Q2H+ Q2 +Q2 <= 8500

ject

:

=0 =0

=0 =0

Com i d e port for ined
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 O1Q1 O1Q2 O2Q1 O2Q2 RQ1 RQ2 A1Q1 A1Q2 A2Q1 A2Q2 Q1H Q1D Q1W Q2H Q2D Q2W
©

ranola
All able Allowable Allowable All able Min. c(j) Max. c(j) i . -M 90.00 100.00 -M 535.00 -M 1,020.00 1,100.00 1,050.00 -M 95.00 -2,465.00 85.0000 -2,465.00 65.00 85.00 105.0000 M M 105.0000 M 540.0000 1,200.0000 M M 1,130.0000 M 70.0000 95.0000 100.0000 M 95.0000
¦¡ ¢§ ¦¡

25,000.00 25, . 0 2,000.00 25,500.00 18,000.00 17,000.00 9,000.00 0 0 8,500.00 0 5,000.00 4,000.00 2,500.00 0 6,000.00

100.0000 110.0000 105.0000 95.0000 550.0000 525.0000 1,050.00 1,150.00 1,200.00 1,100.00 100.0000 65.0000 90.0000 95.0000 70.0000 90.0000 (Min.) = 

2,500,000.00 0 210,000.00 2,422,500.00 9,900,000.00 8,925,000.00 9,450,000.00 0 0 9,350,000.00 0 325,000.00 360,000.00 237,500.00 0 540,000.00 44,220,000.0000

Objecti e Function Const 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 C1 C2 C3 C4 C5 C6 C7 C8 C9 C10 C11 C12 C13 C14 C15 C16 


25,000.00 <= 27,500.00 <= 35,000.00 <= 9,000.00 <= 8,500.00 <= 2,500.00 >= 5,000.00 >= 10,000.00 >= 0 = 0 = 0 = 0 = 0 = 0 = 9,000.00 <= 8,500.00 <=

25,000.00 30,000.00 50,000.00 9,000.00 10,000.00 2,500.00 5,000.00 10,000.00 0 0 0 0 0 0 9,500.00 8,500.00

0 2,500.00 15,000.00 0 1,500.00 0 0 0 0 0 0 0 0 0 500.00 0 

eft Hand Ri t Hand Side Direction Side

Slack Sur lus

S adow Price -5.00 0 0 0 0 2,560.00 2,530.00 2,555.00 105.00 95.00 550.00 525.00 1,050.00 1,100.00 0 -30.00 



¡¤

¢¡

Decision Deci i Variable

S l ti Solution Value
¨¨ ¨¨¨

U it Cost T t l t Total Unit Pr fit c(j) Contribution Profit tributi 



¢¡¤ ¥¡

¡   ¡¤ ¢

¢¡ £ ¡

¢¡  

Reduced Basis Cost st Status 0 20.0000 0 0 0 0 0 50.0000 150.0000 0 5.0000 0 0 0 5.0000 0 basic at bound basic basic basic basic basic at bound at bound basic at bound basic basic basic at bound basic

Allowable Min. RHS 22,500.0000 27,500.0000 35,000.0000 9,000.0000 8,500.0000 1,833.3330 4,333.3340 9,333.3330 -2,000.0000 -25,500.0000 -18,000.0000 -17,000.0000 -9,000.0000 -8,500.0000 9,000.0000 8,500.0000

Allowable Max. RHS 27,000.0000 M M M M 2,500.0000 5,000.0000 10,000.0000 2,500.0000 2,500.0000 15,000.0000 15,000.0000 0 1,500.0000 M 9,166.6670

Bullwhip Effect
The magnification of variability in orders in the supply-chain.

Retailer¶s Orders

Wholesaler¶s Orders

Manufacturer¶s Orders

Time

Time

Time

A lot of retailers each with little variability in their orders«.

«can lead to greater variability for a fewer number of wholesalers, and«

«can lead to even greater variability for a single manufacturer.

The Assignment roblem: deals ith a manage ial decision to assign esou ces (o agents to speci ic custome s (o tasks . No mally, the assignment p oblem is st uctu ed to assign one and only one agent to one and only one task. Example o an assignment p oblem
A g e nt Task

9

pecial assignment concerns: ultiple assignments The numbe o agents not equal to the numbe o tasks

The Marathon Oil Company operates two refineries, two distribution centers and Co pany customers three tankwaggon shipping points to service its custo ers in the southeast. Refined crude is shipped fro a refinery to a distribution center and finally to a tankwaggon shipping point for final sale to oil distributors. Plant capacities and shipping costs (in $ per gallon fro each refinery to each distribution center (DC) are given below: Refinery Mia i Refinery Springfield Refinery Colu bia DC .004 .003 Macon DC .006 .008 Capacity 125,000 gals 95,000 gals

Estimated customer demand and per unit shipping costs (in $ per gallon) from each DC to each tankwaggon shipping point ( TWSP) are as follows: Distribution Center Columbia Macon Monthly Demand: Grade I Oil Grade II Oil Charleston TWSP .0016 .0024 20,000 gals 40,000 gals Durham TWSP .0021 .0035 25,000 gals 35,000 gals Carver TWSP .0031 .0022 45,000 gals 20,000 gals

Grade I and II oil consume the same amount of capacity to refine, however; only the Miami refinery is capable of refining Grade I oil.

Network
1 M1 2 1 M2 M1 2 a1 2 M2 a2 1 2

For
Minimize

lation

0.004MC1+0.006MC2+0.004MM1+0.006MM2+0.003SC 2+0.008SM2+0.0016C1CH1+0.0021C1D1+0.0031C1CA 1+0.0016C2CH2+0.0021C2D2+0.0031C2CA2+0.0024M 1CH1+0.0035M1D1+0.0022M1CA1+0.0024M2CH2+0.0 035M2D2+0.0022M2CA2 C1 C2 C3 C4 C5 C6 C7 C8 C9 C10 C11 C12 MC1+MC2+MM1+MM2<125,000 SC2+SM2<95,000 -MC1+C1CH1+C1D1+C1CA1=0 -MC2-SC2+C2CH2+C2D2+C2CA2=0 -MM1+M1CH1+M1D1+M1CA1=0 -MM2-SM2+M2CH2+M2D2+M2CA2=0 C1CH1+M1CH1=20000 C2CH2+M2CH2=40000 C1D1+M1D1=25000 C2D2+M2D2=35000 C1CA1+M1CA1=45000 C2CA2+M2CA2=20000

Subject To:

Solution.
Decision Solution Variable Value 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 MC1 MC2 MM1 MM2 SC2 SM2 C1CH1 C1D1 C1CA1 C2CH2 C2D2 C2CA2 M1CH1 M1D1 M1CA1 M2CH2 M2D2 M2CA2 45,000.00 0 45,000.00 0 95,000.00 0 20,000.00 25,000.00 0 40,000.00 35,000.00 20,000.00 0 0 45,000.00 0 0 0 Unit Cost Total Profit c(j) Contri 0.0040 0.0060 0.0040 0.0060 0.0030 0.0080 0.0016 0.0021 0.0031 0.0016 0.0021 0.0031 0.0024 0.0035 0.0022 0.0024 0.0035 0.0022 180.0000 0 180.0000 0 285.0000 0 32.0000 52.5000 0 64.0000 73.5000 62.0000 0 0 99.0000 0 0 0 Reduced Basis Cost Status 0 0.0030 0 0.0021 0 0.0041 0 0 0.0009 0 0 0 0.0008 0.0014 0 0.0017 0.0023 0 basic at bound basic at bound basic at bound basic basic at bound basic basic basic at bound at bound basic at bound at bound basic Allowable Allowable Min. c(j) Max. c(j) 0.0031 0.0030 0.0032 0.0039 -M 0.0039 -M -M 0.0022 -M -M 0.0014 0.0016 0.0021 -M 0.0007 0.0012 0.0001 0.0048 M 0.0049 M 0.0051 M 0.0024 0.0035 M 0.0033 0.0044 0.0052 M M 0.0031 M M 0.0039

Objecti e Function (Min.) = Constrnt 1 2 3 4 5 6 7 8 9 10 11 12 C1 C2 C3 C4 C5 C6 C7 C8 C9 C10 C11 C12

1,028.0000 Slack S adow or Sur lus Price 35,000.00 0 0 0 0 0 0 0 0 0 0 0 0 0 -0.0040 -0.0030 -0.0040 -0.0039 0.0056 0.0046 0.0061 0.0051 0.0062 0.0061 Allowable Allowable Min. RHS Max. RHS 90,000.00 95,000.00 -35,000.0 0 -35,000.0 0 0 0 0 0 0 0 M M 45,000.0000 95,000.0000 45,000.0000 20,000.0000 55,000.0000 40,000.0000 60,000.0000 35,000.0000 80,000.0000 20,000.0000

eft Hand Ri t Hand Side Direction Side 90,000.00 95,000.00 0 0 0 0 20,000.00 40,000.00 25,000.00 35,000.00 45,000.00 20,000.00 <= <= = = = = = = = = = = 125,000.0000 95,000.0000 0 0 0 0 20,000.0000 40,000.0000 25,000.0000 35,000.0000 45,000.0000 20,000.0000

1 2 3 4 5 7 9
1. 2. 3. 4. 5. 6. I ve t ries a d m lti-peri d pla i g Limitati s shippi g q a tities ha ges i dema d ltim de shippi g Ret r s Reverse l gistics

6

8

A Multi-Period ransshipment Problem

1 2 3 4 5 7 9 6 8

Transportation and the Traveling Salesman Problem The traveli g salesma pr lem is a special etw rk f rm lati s that req ires a he ristic s l ti f r all t the smallest pr lems. The ject f the TSP is t fi d a etw rk cycle that mi imizes the t tal dista ce req ired t visit all des ce. The nearest neighbor procedure (heuristic) 1. 2. 3. 4. Start with a de (l cati t e visited) at the egi i g f the t r (the dep t de). Fi d the cl sest t the last de added t the t r. G ack t step 2 til all des have ee added. ect the first a d last des t c mplete the t r.

Example Use the following symmetric distance matrix to design a tour that minimizes total distance traveled. From ode . . . . . . . . . . . . . . . To ode (in miles) . . . . . . . . . . . . . . .

The lar and
1. 2.

right Savings Heuristic

3. 4.

Select an no e as t e e ot no e (no e 1) Com ute t e sa in s, Sij , for lin in no es i an j: S ij = c1i + c1j - cij for i an j no es 2,3,...,n ere cij = t e cost of tra elin from no e i to no e j an t e sa in s from lar est to smallest Start at t e to of t e list, form lar er subtours b lin in a ro riate no es i an j. Sto en com lete tour is forme .

Exam le

4

1 10 miles 3

2

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