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LOGISTICS PLANNING

The Increased Importance of Logistics


A Reduction in Economic Regulation
Recognition by Prominent Non-Logisticians
Technological Advances
The Growing Power of Retailers
Globalization of Trade
Three objectives of logistics strategy:
Cost reduction (variable costs)
Capital reduction (investment, fixed costs)
Service Improvement (may be at odds with
the above two objectives).
Marketing
orientation
(competitive
advantage)
Time and
place utility
Efficient
movement to
customer

Proprietary
asset
Natural resources
(land, facilities,
and equipments)

Human resources

Financial resources

Information
resources

Management actions
Planning Implementation Control
Logistics Activities
Customer Service
Demand forecasting
Distribution
communications
Inventory control
Material handling
Order Processing
Parts and service
support
Plant and warehouse
site selection
Procurement
Packaging
Return goods handling
Salvage and scrap
disposal
Traffic and
transportation
Warehousing and
storage
Raw
materials
In-process
inventory
Finished
goods
Inputs into logistics
Suppliers
Logistics management
Customers
Outputs of
logistics
Components of
logistics management :
To gain a better grasp of the fundamental
trade-offs in logistics, I will divide logistics
activities into three categories:

Production
Storage
Transportation

The term Resource applies to all of the
factors of production, including
materials (e.g., Iron, fabric, parts),
equipment (e.g., machines or vehicles),
energy (e.g., oil, coal, electricity) and
labor.
PRODUCTION: Fundamental logistics questions are: (1) when should a
resource be produced; and (2) where should a resource be
produced.
The when question includes the topics of aggregate resource
planning, and production scheduling.
The where question includes the topics of facility location and
production allocation.
Some of the important production questions are:
(a) What outside source should be used to supply a part?
(b) Where should a new facility be built?
(c) When should a facility produce different items, taking into account:
Seasonal demand patterns?
Demand uncertainty?
Cost of operating single, double, triple shifts?
Labor costs?
(d) When should a firm use two or more sources for a part?
INVENTORY: Fundamental logistics questions are (1) when should a
resource (material, machine or labor) be put in inventory and taken
out of inventory; and (2) where should a resource be stored.

The when question includes the general topics of economic-order-
quantity models, safety stock models and seasonal models, and
specialized topics of fleet management, and personnel planning.

The where questions includes the topic of inventory echelons.

Some of the important inventory questions are:

(a) How much does it cost to store resources in inventory?
(b) How much safety stock should be carried in inventory to prevent
against running out of a resource?
(c) How much inventory should be carried in order to smooth out
seasonal variations in demand?
(d) Where should replacement parts be stored in multi-echelon
inventory system?
TRANSPORTATION: Fundamental logistics are: (1) where should
resources be moved to, and by what mode and route; (2) when
should resources be moved.

The where question includes the topics of terminal location,
vehicle routing, and shortest path methods and network flow
allocation.

The when question includes the topic of distribution rules.

Some of the important questions are:

(a) When should shipment be sent through terminals, and when
should shipment be sent direct?
(b) Which, and how many, terminals should shipments be sent
through?
(c) What are the best vehicle routes?
(d) When should a vehicle be dispatched over a route?
Logistics - Science of managing (controlling) the movement and
storage of goods (or people) from acquisition to consumption.
Goods: Raw Materials Final products, and everything in between.
Logistics for services & people similar to goods logistics.
Ex. Police, fire, ambulance, passenger airlines, taxi cabs, etc.
Movement = Transportation (between locations).
Storage = Inventory, Warehousing (at locations).
Difference between acquisition and consumption is a matter of space
and time.
NOTE: Logistics does not deal with Technology of Production, such
as the design of machines and vehicles and the design of finished
products.
Focus: Best way to overcome space and time that separates acquisition
and consumption.
1998 CLM DEFINITION OF LOGISTICS
.is that part of the supply chain process that
plans, implements, and controls the efficient,
effective flow and storage of goods, services,
and related information from the point-of-
origin to the point-of-consumption in order to
meet customers' requirements.
Council of Logistics Management, 1998;
www.CLM1.org
Five Business Systems - Tightly Interconnected
Within The Organization
Measurement
Decisions
Management
Systems
Reward
Decisions
Strategic
Decisions
Transportation
Decisions
Sourcing
Decisions
Inventory
Decisions
Logistics
Systems
{
Price
Decisions
Promotion
Decisions
Marketing
Systems
Product
Decisions
Place (How,
where, how
much)
}
Production
Scheduling
Decisions
Production
Capacity
Decisions
Shop Floor
Decisions
Manufacturing
Systems
}
Product
Design
Decisions
Process
Design
Decisions
Engineering
Systems
}
Copyright 2000 - All Rights Reserved
Logistics Mission [A Bill of Rights]
Logistics embodies the effort to deliver:
the right product
in the right quantity
in the right condition
to the right place
at the right time
for the right customer
at the right cost
Activities and Logistics Decisions
Transportation
rate and contract negotiation
mode and service selection
routing and scheduling
Inventories
finished goods policies
supply scheduling
short term forecasting
Warehousing
private vs. public
space determination
warehouse configuration
Stock layout and dock design
stock placement
Cross-docking
Facility Location
determining location, number
and size of facilities
allocating demand to facilities
Customer Service
determining customer wants
determining customer response
to service changes
Materials Handling
equipment selection
equipment replacement
order picking procedures
Packaging design
Order Processing
order procedure determination
Production Scheduling
aggregate production quantities
sequencing and timing of
production runs

Logistics Planning
Decide what, when, how in three levels:
Strategic long range > 1 year
Tactical - < 1 year horizon
Operational frequently on hourly or daily basis

Examples of Decisions
Type Strategic Tactical Operational
Location


Transportation


Order Processing
(CS)
#Facilities, size,
location

Mode


Selecting order
entry system
Inventory
positioning

Seasonal Service
Mix

Priority rules for
customers
Routing


Replenishment Qty
and timing

Expediting orders
The Logistics (Strategic) Planning Triangle
Which mode?
Which carrier?
Which route?
Shipment size and
frequency?
Where?, How
many? What size?
Allocation?
Strategy/Control
system?
How much?
Where?
Transport Fundamentals
Transport involves
equipment (trucks, planes, trains, boats, pipeline),
people (drivers, loaders & un-loaders), and
decisions (routing, timing, quantities, equipment size,
transport mode).
When deciding the transport mode for a given product
there are several things to consider:
Mode price
Transit time and variability (reliability)
Potential for loss or damage.

NOTE: In developing countries we often find it necessary to
locate production close to both markets and resources,
while in countries with developed distribution systems people
can live in places far from production and resources.

Most important component of logistics cost.
Usually 1/3 - 2/3 of total cost.
Routes of Goods
Goods at
shippers
Freight
forwarder
warehouse
Air
terminal
plane
air
Freight
forwarder
warehouse
Goods at
consignees
Container
terminal
vessel
sea
May
change
transpor-
tation
modes
truck
land
railway
land
barge
mid-stream
pier
bulk goods
sea
let us guess
Air
Rapidly growing segment of transportation industry
Lightweight, small items [Products: Perishable and time
sensitive goods: Flowers, produce, electronics, mail, emergency
shipments, documents, etc.]
Quick, reliable, expensive
Often combined with trucking operations
Rail
Low cost, high-volume [Products: Heavy industry, minerals,
chemicals, agricultural products, autos, etc.]
Improving flexibility
intermodal service
Truck
Most used mode
Flexible, small loads [Products: Medium and light
manufacturing, food, clothing, all retail goods]
Trucks can go door-to-door as opposed to planes and trains.
Single-mode Service Choices and Issues
Water
One of oldest means of transport
Low-cost, high-volume, slow
Bulky, heavy and/or large items (Products: Nonperishable
bulk cargo - Liquids, minerals, grain, petroleum, lumber,
etc )]
Standardized shipping containers improve service
Combined with trucking & rail for complete systems
International trade
Pipeline
Primarily for oil & refined oil products
Slurry lines carry coal or kaolin
High capital investment
Low operating costs
Can cross difficult terrain
Highly reliable; Low product losses
Single-mode Service Choices and Issues (Contd.)
Transport Cost Characteristics
Fixed costs:
Terminal facilities
Transport equipment
Carrier administration
Roadway acquisition and maintenance
[Infrastructure (road, rail, pipeline,
navigation, etc.)]
Variable costs:
Fuel
Labor
Equipment maintenance
Handling, pickup & delivery, taxes

NOTE: Cost structure varies by mode
Transport Cost Characteristics
Rail
High fixed costs, low variable costs
High volumes result in lower per unit (variable) costs
Highway
Lower fixed costs (dont need to own or maintain roads)
Higher unit costs than rail due to lower capacity per truck
Terminal expenses and line-haul expenses
Water
High terminal (port) costs and high equipment costs (both fixed)
Very low unit costs
Air
Substantial fixed costs
Variable costs depend highly on distance traveled
Pipeline
Highest proportion of fixed cost of any mode due to pipeline
ownership and maintenance and extremely low variable costs
Vehicle Routing:

- Separate single origin and destination:

Once we have selected a transport mode and have
goods that need to go from point A to point B, we
must decide how to route a vehicle (or vehicles)
from point A to point B.
Given a map of all of our route choices between A and
B we can create a network representing these
choices The problem then reduces to the problem of
finding the shortest path in the network from point
A to B.
This is a well solved problem that can use Dijkstras
Algorithm for quick solution of small to medium
(several thousand nodes) sized problems.
Suppose we have multiple sources and multiple
destinations, that each destination requires some integer
number of truckloads, and that none of the sources have
capacity restrictions [No Capacity Restriction].

In this case we can simply apply the transportation method
of linear programming to determine the assignment of
sources to destinations.
Sources Destinations

Vehicle Routing:

- Multiple Origin and Destination Points

- Coincident Origin and Destination: The TSP
If a vehicle must deliver to more than two customers, we
must decide the order in which we will visit those customers
so as to minimize the total cost of making the delivery.
We first suppose that any time that we make a delivery to
customers we are able to make use of only a single vehicle,
i.e., that vehicle capacity of our only truck is never an issue.
In this case, we need to dispatch a single vehicle from our
depot to n - 1 customers, with the vehicle returning to the
depot following its final delivery.
This is the well-known Traveling Salesman Problem (TSP).
The TSP has been well studied and solved for problem
instances involving thousands of nodes. We can formulate the
TSP as follows:
Vehicle Routing:
TSP Formulation
Minimize

Subject to:
c x
ij ij
j J i I e e

x i I
x j J
x U U N
x i I j J
ij
j J
ij
i I
ij
i j E U
ij
e
e
e

= e
= e
s c
e e e
1
1
1
,
,
,
{0,1},
( , ) ( )
,
In the TSP formulation if we remove the third constraint set we
have the simple assignment problem, which can be easily
solved.
The addition of the third constraint set, commonly called sub-
tour elimination constraints, makes this a very difficult problem
to solve.
Questions about the TSP
Given a problem with n nodes, how many distinct
feasible tours exist?
How many arcs will the network have?
How many x
ij
variables will we have?
How could we quantify the number of subtour
elimination constraints?
The complexity of the TSP has led to several heuristic
or approximate methods for finding good feasible
solutions. The simplest solution we might think of is
that of the nearest neighbor.
Vehicle Routing: TSP, inventory routing, and vehicle routing
Traveling Salesman Problem (TSP): salesman visits n cities at
minimum cost
vehicle routing problem (VRP): m vehicles with capacity to
deliver to n customers who have volume requirement, time
windows, etc.
Inventory Routing: m vehicle to delivery to n customer with
time windows, vehicle and storage capacity constraints, and un-
specificed amount to be delivered.
Heuristics
1. Load points closest together on the same truck
2. Build routes starting with points farther from depot first
3. Fill the largest vehicle to capacity first
4. Routes should not cross
5. Form teardrop pattern routes.
6. Plan pickups during deliveries, not after all deliveries have
been made.
Illustration of VRP
(Outlier)
Depot
50
76
39
112
88
29
123
44
58
90
77
89
57
115
124
59 176
65
98 125
Truck Capacity = 250
What is the minimum # of trucks we would need? Maximum?
Vehicle Routing
Find best vehicle route(s) to serve a set of orders
from customers.

Best route may be
minimum cost,
minimum distance, or
minimum travel time.

Orders may be
Delivery from depot to customer.
Pickup at customer and return to depot.
Pickup at one place and deliver to another
place.
Complications
Multiple vehicle types.

Multiple vehicle capacities.
Weight, Cubic feet, Floor space, Value.

Many Costs:
Fixed charge.
Variable costs per loaded mile & per empty mile.
Waiting time; Layover time.
Cost per stop (handling).
Loading and unloading cost.

Priorities for customers or orders.
Pure Pickup or Delivery Problems.
Mixed Pickups and Deliveries.
Pickup-Delivery Problems.
Backhauls
More Complications
Time windows for pickup and delivery.
Hard vs. soft

Compatibility
Vehicles and customers.
Vehicles and orders.
Order types.
Drivers and vehicles.

Driver rules (DOT)
Max drive duration = 10 hrs. before 8 hr. break.
Max work duration = 15 hrs. before 8 hr break.
Max trip duration = 144 hrs.
Simple Models
Homogeneous vehicles.

One capacity (weight or volume).

Minimize distance.

No time windows or one time window per
customer.

No compatibility constraints.

No DOT rules.
VRP Solutions
Heuristics
Construction: build a feasible route.
Improvement: improve a feasible route.
Not necessarily optimal, but fast.
Performance depends on problem.
Worst case performance may be very poor.

Exact algorithms
Integer programming.
Branch and bound.
Optimal, but usually slow and applicable for small size
problem
Difficult to include complications.
The VRP is applicable in many practical situations directly related to

the physical delivery of goods such as
distribution of petroleum products,
distribution of industrial gases,
newspaper deliveries,
delivery of goods to retail store,
garbage collection and disposal,
package pick-up and delivery,
milk pick-up and delivery, etc.

the non-movement of goods such as
picking up of students by school buses,
routing of salesmen,
reading of electric meters,
preventive maintenance inspection tours,
employee pick-up and drop-off , etc.
APPLICATIONS OF VRP
A DSS
Employee Bus Routing
Commodity Distribution

In COVERS
Efficient Heuristic Procedures
NNH
MNNH
MSCWH

Simulation Features
Manipulate the System Generated Routes
Completely User Generated Routes

COVERS Handles
Multi-Depot VRP
Heterogeneous VRP
COVERS- COMPUTERIZED VEHICLE ROUTING SYSTEM
EMPLOYEE PICKUP VEHICLE ROUTING PROBLEM (EPVRP)
BANGALORE, KARNATAKA, INDIA
Indian Telephone Industries [ITI] Limited
Bharat Electronics Limited [BEL]
Hindustan Machine Tools [HMT]
Hindustan Aeronautics Limited [HAL]
Indian Space Research Organization [ISRO]
National Aeronautical Laboratory [NAL]
Central Machine Tools of India [CMTI]

AS A PROBLEM IN OR, A SIMPLIFIED EPVRP CAN BE DESCRIBED AS FOLLOWS:
GIVEN
A set (fixed number) of pick-up or delivery points,
The demand at every pick-up or delivery points (deterministic),
A set (fixed number) of vehicles (homogeneous) and
All relevant distance information across pick-up points.
IT IS REQUIRED TO FIND AN EFFECTIVE/EFFICIENT SOLUTION FOR
Assigning pick-up points to vehicles and
Sequencing pick-up points on the route of each vehicle
SO AS TO ACHIEVE THE OBJECTIVE OF
Minimizing the total distance traveled by the vehicles and/or the number of vehicles
used.
UNDER THE CONSTRAINTS THAT
Every route originates and terminates at the depot
The capacity of vehicle is restricted
The maximum distance (time) allowed for a vehicle on any route is within a pre-
specified limit
Each pick-up point is visited once only
Etc.,
AN ILP FORMULATION - EPVRP
Source : WATERS (1998)

ASSUMPTIONS
Vehicle capacity is known and constant (homogenous)
The number of vehicles available is known (at least the minimum
number of vehicles required is known)
The demand at every pick-up point is known (deterministic)
Maximum distance to be traveled by each vehicle is known and
constant for all vehicles
Demand at every pick-up point is less than or equal to vehicle
capacity
Every pick-up point is served by only one vehicle
Further, keeping in line with Waters formulation, the model formulation is
oriented towards routing during drop-back rather than pick-up. It is assumed
that the reverse logic holds good for pick-up.

Expanding the Scope of Linear Programming Solutions for Vehicle
Scheduling Problems. OMEGA, 16(6), 577-583
COMPUTATIONAL COMPLEXITY - OPTIMAL SOLUTION
#
PUP
Tot
Quantities
(Units)
# Variables
Including (0, 1)
Variables
# (0, 1)
Variables
#
Constraints
Optimal
Distance
(Km.)
# Routes # Iterations
(LINDO)
CPU Time
(AT 486)
4 61 48 16 60 13.2 1 45 2
5 71 75 25 85 26.4 2 330 3
6 79 108 36 114 28.6 2 353 6
7 106 147 49 147 31.0 2 2780 23
8 117 192 64 187 31.0 2 70724 80
9 132 243 81 225 37.4 2 43021 667
(11 Mts)
10 137 300 100 270 47.8 3 4963340 100800
(28 Hrs.)
Sutcliffe and Board (1990)
#
estimated that a simple extrapolation of Waters (1988) ILP approach using
the SCICONIC software might take nearly 1,20,000 years of CPU time on a VAX 8600 machine to solve a
VRP with 38 pick-up points!

#
Optimal Solution of VRP: Transporting Mentally Handicapped Adults to an Adult Training Center. JORS, 41(1), 61-67.


Nearest Insertion Heuristic (NIH)

Cheapest Insertion Heuristic (CIH)

Parallel Version of Clarke & Wright Heuristic (PCWH)

Sequential Version of Clarke & Wright Heuristic (SCWH)

Convex Hull Heuristic (CHH)

Nearest Neighbour Heuristic (NHH)

Modified NNH (MNNH)

Modified SCWH 1 (MSCWH-1)

Modified SCWH 2 (MSCWH-2)
HEURISTIC ALGORITHMS
CASE STUDY : DETAILS OF ROUTES, DISTANCES & SEAT UTILIZATION
Shift Timings #
Commuters
# Pickup
Points
#
Routes
Total Distance
per Trip (Km.)
Seat
Utilization (%)
A 06.15 02.15 PM 3659 303 64 1977.0 89.0
FG 07.30 04.15 PM 3999 313 66 2163.0 94.3
AG 08.45 05.30 PM 3042 286 53 1808.3 90.0
B 02.15 10.15 PM 975 242 30 1056.7 54.0
C

10.15 06.15 AM 40 ---- ---- ---- ----
Total

11715 410

213+
(426)
7005.0


(14010)
----
Ignored in our study
Each Bus Route (Trip) Repeated; Two Trips a day, Once for Pick-up and once for Drop-off.
Distinct Pick-up Points
COMPARATIVE PERFORMANCE (CASE STUDY) TOTAL DISTANCE
Procedures Shift 1
A
Shift 2
FG
Shift 3
AG
Shift 4
B
Total Distance
(Km.)
Savings
(in %)
CPU Time
PC/AT 486
@ 33 MHz
(Minutes)
Existing
Practice
(Manual)
1977.0 2163.0 1808.3 1056.7 7005.0 ----- ----
NIH 1875.8 2047.7 1734.1 890.3 6547.9 6.5 12
CIH 2155.2 2322.3 1914.2 1020.7 7412.4 - 5.8 52
PCWH 1803.5 2026.1 1761.1 1080.9 6671.6 4.76 19
SCWH 2139.2 2306.6 1889.2 1014.5 7349.5 - 4.9 18
CHH 1903.8 2047.7 1749.2 964.7 6665.4 4.85 55
NNH 1822.9 2063.2 1708.0 900.0 6494.1 7.29 1
MNNH 1817.7 2040.8 1740.7 858.9 6458.1 7.81 1
MSCWH-1 1796.2 2066.4 1687.5 910.2 6460.3 7.78 2
MSCWH-2 1799.4 2047.0 1688.5 908.5 6443.4 8.02 2
(Figures in Table represent travel distance in Km. For Pick-up only)
COMPARATIVE PERFORMANCE (CASE STUDY) TOTAL NUMBER ROUTES
Procedures Shift 1
A
Shift 2
FG
Shift 3
AG
Shift 4
B
Total Routes Reduction in
Trips (%)
Existing
Practice
(Manual)
64 66 53 30 213 -----
NIH 60 63 51 23 197 7.51
CIH 65 69 52 27 213 0
PCWH 63 68 56 36 223 - 4.7
SCWH 65 70 55 28 218 - 2.3
CHH 60 62 51 25 198 7.04
NNH 57 64 50 24 195 8.45
MNNH 57 63 51 23 194 8.92
MSCWH-1 58 63 49 24 195 8.45
MSCWH-2 58 63 49 24 194 8.92
Figures in Table represent number of trips for Pick-up only
Nearest Neighbour Heuristic (NHH)

Modified NNH (MNNH)

Modified SCWH-2 (MSCWH-2)
HEURISTIC ALGORITHMS - DSS IMPLEMENTATION
A Schematic Diagram of COVERS
DATA MANAGEMENT MODULE
General file
Depot Data File
Vehicle Data File
Pickup point Demand Data File
Inter-Stop Distance Data File
MODEL MANAGEMENT MODULE

Heuristic Procedures
Simulation Model
REPORT MANAGEMENT MODULE

Details of Route Sequence
Summary of Routes
Overall Summary of Routes
Depot wise Route Allocation
Vehicle Type wise Route Allocation
CONTROL MODULE
COMPUTER SYSTEM
USER