bl 2 logisticsstrategies
TRANSCRIPT
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Business Logistics
Issue 2: Logistics Strategies
2. Logistics Strategy2.1 Strategic decisions about transportation, warehousing and
location2.2 Network Design of logistics
Reading and References Ballou R.H., Business Logistics/ Supply Chain Management, Prentice
Hall, 2004. (Chapter 2, 13 & 14) Bowersox D.J ., D.J . Closs, M. B. Cooper Supply Chain Logistics
Management, McGraw-Hill, 2013. (Chapter 12) Chopra S. & Meindl P., Supply Chain Management: strategy,
planning, and operation, Pearson Education, 2004. (Chapter 3, 4 & 5)
SoftwareExcelOM2 (Heizer & Rendel 2001 s CD) TS155.H452001
Seminar 1Exercises on logistics strategies and network design
Intellec tual Property You may not use this material without a written authorization by owners:Helena Ramalhinho (UPF), and Cristina De Stefano (UPF). In this case, youhave to indicate clearly its origin and authors.
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Business LogisticsTopic 2. Logistics Strategies
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B u s
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L o g
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T o p
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L o g i s
t i c s
S t r a
t e g
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Logistics Strategies
Topic 2
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B u s
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L o g
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T o p
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L o g
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S t r a
t e g
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Logistics StrategiesDistribucin Comercial
InventoryTransportationLocalization
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Methods to design networks
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Business LogisticsTopic 2. Logistics Strategies
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B u s
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T o p
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t i c s
S t r a
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Logistics Strategies
To be able to identify and plan basic logisticsbusiness activities, such as supply, demandmanagement, inventory management, warehousemanagement and transportation management.To be able to use the basic analytical tools and
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,logistics area.
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Logistics Strategies
Demand management and customer serviceInventory decisions and policiesTransportation decisionsLocalization strategies
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Facilitator: Information CommunicationTechnology ( ICT).
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B u s
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S t r a
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Logistics StrategiesInformationtechnology
Inventorystrategy
Transportationstrategy
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Demand andservice level
Localization strategy
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Logistics Strategies
Demand managementService level
* Marketing* Purchasing* Logistics
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Issue 3 and 4
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B u s
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Logistics Strategies
Which companies in the network have to maintaininventory?What volume of inventory should be maintained?Management of the inventoryControl methods
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Issues 5 and 6
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Logistics Strategies
Shipment sizeMode of transportationInhouse or outsourcingTransportation planning
* Routing
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Issue 7
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Business LogisticsTopic 2. Logistics Strategies
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B u s
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Logistics Strategies
Impact on transportation and customer serviceNumber, size and facility location
Assignment of sale points to the warehouses or distribution centersDemand assignment
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Logistics network design
Fuente: http://www.mecalux.es
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Logis tics Strategies
chain
Finished goods inventories Economical buy quantities Large shipment sizes Batch order processing
Responsive Excess capacity
Supply-to-stock
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u c c angeovers Short lead times Flexible processing Premium transportation Single order processing
Supply-to-order
Fuente: Ballou (2004)
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Logistics Strategies
Product Characteristic
Supply ChainDesign Type
Predictable/ Mature Unpredictable/Introductory
Supply-to-Stock/Efficient
Tomato Soup If product is here
Supply-to-Order/ If product is here Personal
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Responsive Computer Models
Fuente: Ballou (2004)
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Logistics Strategies
High fixed costsLow transportation costs for distributionHigh supplying transportation costsImproved customer serviceHi h inventor costs
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Low fixed costsHigh transportation costs for distributionLow supplying transportation costsLow inventory costsCustomer service
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Design of logist ics network
FactoriesWarehousesSale points/stores
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Maximize salesMinimize costsMaximize service quality
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Design of logist ics network
Currentnetwork
Data
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Start Objectives
Team
system Model
Solutions
network
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Design of logist ics network
- Structure
16 warehousesPeople: 86 Service
ww
w
w
16
Lost sales
High costsFw
Fw Fw
w ww
ww
w
w w
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Design of logist ics network
- Structure
4 owned storesseveral shared
Costs ss
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High external transportationLow inventory
Higher serviceFw
Fw Fw
s
ss
s
wss
s
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Design of logist ics network
Tend to be long-term decisionsDifficult to revoke
Affect both fixed and variable costs* Transportation costs
They can be the 25% of product price
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* Other costs: taxations, salaries, etc.
Objective: to maximize companies profit
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Country Region/community
Location
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1995 Corel Corp. 1995 Corel Corp.
1995 Corel Corp.
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Design of logist ics network
GovernmentEconomy and cultureMarket localization
Availability, productivity and attitudes of theworkforce
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Infrastructure costExchange rate
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B u s
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Design of logist ics network
Corporate strategies
AttractionLabor costsGovernment incentivesProximit to customers and su liers
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Land and construction costs
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Design of logist ics network
Place sizeCost
Access to transportationProximity of servicesEnvironmental im act
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Design of logist ics network
Weighted factor methodCenter of gravity methodOperations research models
* Transportation model* Advanced Localization model
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Transport rate estimationPrivately Owned TransportFor-Hire Transport
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Design of logist ics network
It is the most used techniqueIt is useful as much for service as for manufacturing companiesWeights the locations using factors
* Intangible (Qualitative)
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Example: education quality, employ qualification* Tangible (Quantitative)
Example: short and long run costs
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Design of logist ics network
Make a list of factorsGive a weight in terms of importance to eachfactor Develop a scale for each factor (0-1, so.)
Assign a score to each location using scale factors
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Multiply scores by the weights for each factor Select the location with the highest total score
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Design of logist ics network
Labor availability Proximity to materials
and suppliers Proximity to markets Fiscal policies
regulation Services Land costs Transportation
availability
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Quality of Life Exchange rate Government Quality
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Design of logist ics network
Com etitor rade consumers in the area
Service and imagecompatible with theconsumer of the area
Competition in the area
Special features of the
locations of thecompany andcompetitors
Physical quality of facilities and
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ua y anagemen Company operations
policies
ne g or ng us nesses
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Design of logist ics network
Example:
* A company must decide among three places to locate itsnew plant.
* The company has selected five relevant factors andgiven a weight between 1 and 5.
* The following table shows these factors and evaluation
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that management has made for each factor and place.* Based on the data provided in the following table, which
is the best place?
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LOCATION FACTORS Weight Neighborhood A
Neighborhood B
Neighborhood C
Proximity to freeways 5 100 100 80
Avail abi li ty of energysources
3 70 60 50
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Att it ude and cost of lab or 4 10 40 60
Local grants 2 90 70 10
Total 990 1190 900 Average weight 58.2 70 52.9
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Design of logist ics network
Find the location of a single distribution center serving several clientsIt is used primarily in the service sector Consider:
* The location of the current destinations
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* Volume to be delivered* Distance or transportation costs
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Design of logist ics network
Gravity center method
CIT
The weight isproportional
Gravity center
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IES
to thenumber of
peoplein the city
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Design of logist ics network
Represent graphically through coordinates, thecurrent locations (the grille)
* The bar has a scale and an origin* Maintains relative distances
Calculate X and Y coordinates of the gravity
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* Give the location of a distribution center * Minimizes the transportation cost
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Design of logist ics network
Coordinate Xd ix = Coordinate x of the location i
W i = Volume of goods to deliver (or
Coordinate Yi
i
iiix
x W
Wd C
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d iy = Coordinate y of the location i
ii
iiiy
y W
Wd C
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Design of logist ics network
Example (1/4)
* The company Sabri has hired 5 distributioncenters, and plans to open a new store to servethese centers, using the center of gravitymethod.
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* The volume and the center coordinates of eachdistribution are given in the following table.
* What are the coordinates of the new store?
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Design of logist ics network
Example (2/4)
Centro de Distribucin Volumen X Y
1 3500 300 100
2 500 195 400
Distribution Center Volume
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3 800 375 375
4 1050 200 125
5 1150 400 110
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Example (3/4) Data
Weight X coord Y coordLocation 1 3500 300 100Location 2 500 195 400Location 3 800 375 375Location 4 1050 200 125
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oca on 1150 400 110
Results
Sum 7000 1470 1110 Average 294 222Weighted Average 302.5 158.25
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Example (4/4)
195375
250
300
350
400
450
Serie1Distribution Center
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300200
400
0
50
100
150200
0 100 200 300 400 500
Serie2
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Design of logist ics network
Model of operations researchDetermines the best pattern of deliveries fromdifferent points of supply to various demandpoints.
* Objective: minimize total transportation costs.
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estr ct ons: Production capacity (factory capacity). Demand of sale points.
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Design of logist ics network
Data to take into account:
* m = number of warehouses (origins)* n = number of point of sales (destinations)* a i = number of units available at the origin i* b j = number of units demanded from the destination j* c ij = transportation costs of a unit from the origin i to the
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es na on
* xij = number of units to deliver from the origin i to the salepoint j (?)
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Design of logist ics network
How do we distribute products minimizing the totaltransportation costs?
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2
m
n
c
404
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5
center
6
ab
x
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Design of logist ics network
Formulation in linear programming:
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Data
* Unit transportation cost between each warehouse andeach sale point.
* Sale points demand* Available stores
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CostsSale
Point 1Sale
Point 2Sale
Point 3Sale
Point 4Sale
Point 5Sale
Point 6 Stock
Warehouse 1 3 6 2 8 9 2 100
Warehouse 2 4 8 1 12 12 5 200
Warehouse 3 5 15 5 10 3 4 150
Warehouse 4 3 3 2 5 15 3 50
Demand 50 150 80 120 60 40 500
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How to solve the optimization problem
* Excel Solver
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* Total transportation cost 2570
CostsSale
Point 1Sale
Point 2Sale
Point 3Sale
Point 4Sale
Point 5Sale
Point 6 Stock
Warehouse 1 3 6 2 8 9 2 100
Warehouse 2 4 8 1 12 12 5 200
Warehouse 3 5 15 5 10 3 4 150
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Warehouse 4 3 3 2 5 15 3 50
Demand 50 150 80 120 60 40 500
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Design of logist ics network Modelo de transportes
Solution: Total transportation cost 2570
1
2
1
2
3Distributioncenter
Sale points
3050
70
80
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4
3 4
6
5
50
60
4050
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Design of logist ics network
Resolution:
* Informatics programs for linear programming models Example, SOLVER (EXCEL)
* ExcelOM (Heizer & Render 2001) TS155 .H45 2001
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* Computer programs that already incorporate a transportmethod.
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Design of networkOperation research models
* Advanced Localization models* p-median models* Exact methods, heuristics, simulation
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ILOG Supply Chain Applications
* ILOG LogicNet Plus XE* http://www.ilog.com/products/supplychain/
JDA* Network Design and Optimization
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ttp: www. a.com so ut ons networ - nventory-optimization-overview.html
INFOR* Infor SCM (Supply Chain Management) > Strategic Network
Design* http://www.infor.com/solutions/scm/strategicnetworkdesign/
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BuyPC.comCase Study:Optimal Network
49 McGraw-Hill/Irwin
2003 Simchi-Levi, Kaminsky,Simchi-Levi
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Sell by Internet:
* Presents a new perspective in the localization problems. The client can be far from the store ...
but the product has to be delivered at the customershouse
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* The design of the network has different characteristics.* Logistics operator * It is important the lead time.* Example: Dell, Amazon.
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Data Category Fact Weekly CostWeekl y mi l eage 2700 mi l esWeekl y hour s on dut y 66 hrs. / wk. Tr i ps per week 3 t r i ps/ wk.Dr i ver wages $ 12. 00/ hr . $792. 00
Benef i t s 18. 75% of wages 148. 50Fuel cost @ 10 mpg $ 1. 10/ gal 297. 00
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. . .Mai nt enance $ 45. 00/ wk. 45. 00I nsur ance $ 51. 00/ wk. 51. 00 Tol l s, f ood, and
l odgi ng $ 97. 50/ t r i p 292. 50Cont i ngency $ 30. 00/ t r i p 90. 00
Tot al $2, 032. 50
Cost per mile is $2,032.50/2,700 = $0.75
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Transport Rate Estimation: For-Hire
15
20
25
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t e ,
$ / c w
t .
Rate = 6.38 + 0.008456 D
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0
5
10
0 500 1000 1500 2000 2500
R a
Miles from Chicago, D
. .R2 = 0.93
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Conclusions
strategic decision
Direct effects on customer service.Direct effects on logistics cost.
In the logistics network, the transportation strategyand the inventor has to be
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* Flexible* Efficient
Give a quick response to a dynamic and customized market