LOGISTICS NETWORK DESIGN OF RICE IN MAKASSAR, SOUTH SULAWESI

Urban Logistics & Land Transportation Management Workshop

Driving E-commerce Logistics Forward
Leaders’ Workshop
Jakarta, 15 March 2017

Dr. Rosmalina Hanafi

Industrial Engineering Department, Hasanuddin University,
Makassar, South Sulawesi
LOGISTICS NETWORK DESIGN

 Logistics network design is concerned with finding

the number and location of warehouses and
production plants (suppliers), allocation of customer
demand points to warehouses, and allocation of
warehouses to production plants.

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LOGISTICS NETWORK DESIGN

 The Logistics Network consists of:

 Suppliers, manufacturing centers, warehouse/
distribution centers, retail outlets, and customers
 Raw materials, work-in-process inventory, and finished
products that flow between the facilities.

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LOGISTICS NETWORK DESIGN

 The optimal configuration should be able to deliver

the products to the customers with minimal cost while
satisfying the service level requirements.

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LOGISTICS NETWORK DESIGN & OPTIMIZATION

 The objective of evaluating a logistics network design

is to reduce cost, and/or to improve service.

 The network design optimizes transportation,

distribution operations, and inventory management to
find the ideal balance of cost and service.

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LOGISTICS NETWORK DESIGN & OPTIMIZATION

 Designing logistics network means to find the solutions

to problems such as;
 Where should the plants or warehouses be located?
 Should existing facilities be used or new ones built?
 Which products should be produced at which plants?
 How much of which products should be produced and by which?
 How much inventory should be kept in stock?
 When is the best to move the goods?
 Which transport mode should be used? Monday, January 03, 2022 6
CASE STUDY

Makassar is the capital city of South Sulawesi Province

 Bulog Sub Regional Division Makassar:

 Current logistics facilities include three warehouses
 Rice suppliers are found in Takalar, Gowa, Makassar, & Maros
 Distribute subsidized rice for low income households to fourteen consumer distribution
points or municipalities in Makassar city.
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CASE STUDY

 The State Logistics Agency (Bulog) is a state owned

enterprise performing several roles and functions for
managing food security, domestic price stabilizer and
buffer stock agency for Indonesia's main commodities.
 The Sub Regional Division Makassar (Subdivre) is the
subregional logistics agency at the district/city level.

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CASE STUDY

 There is a need to improve

delivery performance, lower
transport cost, and achieve
social optimization for rice
distribution to low income
families, using a multi-
echelon supply network. Supplie Warehouse Customer
r

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CASE STUDY

Makassar city:
14 Municipalities
(consumer distribution
points)

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Map of Makassar city
CASE STUDY

Development stage of logistics distribution network model

- Determine possible
Development of improvemet Select the best
Analysis of current Data collection and
mathematical optimal network
logistics processes analysis - Identify optimal
optimization model model
network distribution

 Analyse current situation of logistics processes and mapping distribution processes for a
4-supplier, 3-warehouse, 14-customer network
 Clarification of detailed project scope
 Create logistics network model to accurately represent the current rice logistics system
 Determine possible improvement for logistics operations
 Optimisation of existing logistics process
 Identify optimal network distribution and validate optimal network model
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CASE STUDY

Distance from a supplier Distance from a warehouse

to the warehouse to a customer distribution
point
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CASE STUDY

Optimization Model
 Objective Function

Min
 

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CASE STUDY

Optimization Model
Constraints: Notation:
𝑃𝑐𝑖𝑡 Procurement cost at supplier i in period t
𝑄𝑖𝑡 Quantity supplied by supplier i
𝑇𝑐𝑖𝑗𝑡 Transportation cost per unit (kg) from supplier i to warehouse j
𝑊𝑐𝑗𝑡 Cost of opening a warehouse
𝐼𝑓𝑐𝑗𝑡 Inventory fixed cost at warehouse j in period t
𝐼𝑣𝑐𝑗𝑡 Inventory variable cost at warehouse j in period t
𝐼𝑙𝑗𝑡 Inventory level at warehouse j in period t
𝑇𝑐𝑗𝑘𝑡 Transportation cost per unit (kg) from warehouse j to consumer k
𝑆𝑚𝑎𝑥 Maximum quantity of rice that can supplied
𝑊𝑐𝑎𝑝𝑗 Capacity of warehouse j
𝐷𝑘𝑡 Demand of rice at consumer location k in period t
𝑥𝑖𝑗𝑡 Decision variable representing the amount of rice to be supplied from
supplier i to warehouse j in period t
𝑡
𝑦𝑗𝑘 Decision variable representing the amount of rice to be transported from
warehouse j to consumer k in period t
𝑧𝑗𝑡 Binary decision variable indicating whether warehouse j to be opened or not
in period t.
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CASE STUDY

 
Original Cost Obtained Cost Saving Solution (optimal) with
Transportation Cost
(Rp) Solution (Rp) objective
    Rp 81.545.340 per year
Total Rp 160.046.987 Rp Rp 78.633.815- Rp
transportation cost (Quantity = 64.917.000 64.917.000 = Open of Warehouse= [0 0 0]
from supplier to 16.995.390 kg) Rp 13.716.815 Cost of opening warehouse=0
warehouse 160.046.987/16.995.3 13.716.815/78.633.8
90= Rp 9.417 /kg * Rp 15= 0.1744 *100% =
8350125 = 17.44% The average cost to deliver
Rp 78.633.815  
   
the quantity of 8350125 kg
Total Rp 17.629.805 Rp 17.629.805 – from supplier to warehouse
transportation cost   16.628.340 16.628.340 = = Rp 78.633.815
from warehouse to Rp 1.001.465
consumer 1.001.465/
17.629.805 =
0.0568 * 100% =
5.68%
  Monday, January 03, 2022 15
 CASE STUDY

Optimized rice quantity delivered from supplier to warehouse;

significantly minimize total transportation cost by 17.44%.
Supply quantity (kg) that should be
transported to warehouse

4000000
S = Suppliers
2000000 C = Customers
W = Warehouses
Opt = Optimal combination of
0 rice quantity to be transported
from supplier to warehouse

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CASE STUDY

C1

S1 C2
C3
C4
W1 C6
C5
S2 C8
C7
W2 C10
C9
S3
C12
C11
W3
C14
S4 C13

Illustration of optimized rice distribution network

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CASE STUDY

C1

S1 C2
C3
C4
W1 C6
C5
S2 C8
C7
W2 C10
C9
S3
C12
C11
W3
C14
S4 C13

Illustration of optimized rice distribution network

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CASE STUDY

C1

S1 C2
C3
C4
W1 C6
C5
S2 C8
C7
W2 C10
C9
S3
C12
C11
W3
C14
S4 C13

Illustration of optimized rice distribution network

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 CASE STUDY

Optimized rice quantity distributed from warehouse to consumer

locations and which warehouse should supply to a consumer
distribution point reduced transportation cost by 5.68%
Delivery quantity (kg) that should be distributed to consumer
1500000 locations
1200000
900000
600000 S = Suppliers
300000 C = Customers
W = Warehouses
0
C1 C2 C3 C4 C5 C6 C7 C8 C9 C10C11C12C13C14
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 STAKEHOLDER IMPACTS

Group of
On farm Partners
farmers

 Increase competitiveness and efficiency

 Improve existing
through the application of optimized
Grain-Rice Processing Unit procurement logistics
distribution model (UPGB)
system
 Improve management of  Reduced transportation
stock, distribution, costs
transportation and other Distribution
logistics facilities  
 Optimize warehouse
Inter-
PSO
storage UPGB Inter-
Inter-
 Reduced stock levels divre/ Groceries Retailers
island
subdivre Monday, January 03, 2022 21
FURTHER RESEARCH

 Analyse the entire network of rice logistics operations in

regional division of South Sulawesi and West Sulawesi of
BULOG (Bulog Divre Sulselbar) and simulate relevant
aspects of rice flow from surplus areas to deficit areas.

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FURTHER RESEARCH

 Improve and extend the 3-echelon optimization model

to include relevant elements of logistics systems and
apply model to other logistics systems involving of
suppliers, warehouses, and customers.
 Take bi-level robust optimisation approach

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THANK YOU

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