CHAPTER 7CHAPTER 7VEHICLE ROUTING AND VEHICLE ROUTING AND

SCHEDULINGSCHEDULING

transportation: a key decision in logistics mix

transportation absorbs a higher percentage of logistics costs than any other logistics activity

transportation decisions are mode selection carrier routing vehicle scheduling, and shipment consolidation

7.17.1TRANSPORT TRANSPORT

SERVICE SELECTIONSERVICE SELECTION

Selection of Mode of Transportation depends on a variety of service

characteristics speed time of delivery inventory carried

from surveys that rank transport service characteristics, shows that, except for cost, speed and dependability are the most important factors

cost of service, average transit time (speed), and transit-time variability (dependability) are the basis for transportation modal selection

7.1.17.1.1Basic Cost Trade-OffsBasic Cost Trade-Offs

Basic Cost Trade-Offs When transportation is not used to provide a

competitive advantage, the best choice is by trading off the cost of using a particular transport service with the indirect cost of inventory associated with the selected transportation mode

speed and dependability affect shippers and buyer’s inventory levels the amount of inventory in transit between the

shipper and buyer’s locations slower, less reliable services create more

inventories in the channel inventory carrying cost may be trade-off with

lower cost for the transportation service the favored service will be the one that offers the

lowest total cost consistent with customer service goals while meeting customer service objectives

Example 1The CarryAll Luggage Company produces a line of luggage goods finished goods inventories are kept at the plant site goods are then shipped to field warehouses by common

carriers rail is currently used average transit time for rail shipments is T = 21 days at each stocking point,

average of 100,000 units average cost of C = $30 per unit inventory carrying cost is I = 30% per unit cost per

year To select the mode of transportation that will minimize

the total costs estimated that for every day that transit time can be

reduced from the current 21 days, average inventory levels can be reduced by 1%

Demand, D = 700,000 units sold per year

Transport service

Rates ($/unit)

Door-to-door Transit Times

(days)

No. of shipments per

year

Rail 0.10 21 10

Piggyback 0.15 14 20

Truck 0.2 5 20

Air 1.40 2 40

Procurement costs and transit-time variability is assumed tobe negligible.

$1,244,771$677,801$797,769$1,333,966Totals

(0.30)(31.4)(25,000)/2= 117,750

(0.30)(30.2)(50,000)/2= 226,500

(0.30)(30.15)(50,000)/2= 226,125

(0.30)(30.1)(100,000)/2= 451,500

IC’Q/2Field inventory

(0.30)(30)(25,000)/2= 112,500

(0.30)(30)(50,000)/2= 225,000

(0.30)(30)(50,000)/2= 225,000

(0.30)(30)(100,000)/2= 450,000

ICQ/2Plant inventory

(0.30)(30)(700,000)(2) 365= 34,521

(0.30)(30)(700,000)(5) 365= 86,301

(0.30)(30)(700,000)(14) 365= 241,644

(0.30)(30)(700,000)(21) 365 = 362,466

ICDT365

In-transit Inventory

(1.40)(700,000)= 980,000

(0.20)(700,000)= 140,000

(0.15)(700,000)= 105,000

(0.10)(700,000)= 70,000

R X DTransportation

AirTruckPiggybackRailMethod of Computatio

n

Cost Type

Table 7-2 Transportation Choice Evaluations for the CarryAll Luggage Company

7.1.27.1.2Competitive Competitive

ConsiderationsConsiderations

Selection of transportation mode to create a competitive service advantage when buyer purchases goods from >1 supplier, the

logistics service offered + the price, may influence the supplier’s selection

if suppliers select the transport mode, they can control this element and thus influence the buyer’s patronage

to buyer, better transport service (lower transit time and transit-time variability) means

lower inventory levels and/or operating schedules can be met with greater

certainty The buyer’s action is to shift its purchasing

decision toward the supplier offering the preferred transport service

The profit may defray a premium transport service and encourage supplier to seek the transport service appealing to the buyer rather than simply the one offering the lowest cost

transport service selection becomes a joint decision between supplier and buyer

supplier competes for the buyer’s patronage through the choice of a transport mode

buyer responds to the choice by offering the supplier more business

more business will depend on the transport service differential created among competing suppliers

supplier will not settle on a single transport service in a dynamic, competitive environment

Example 2 A manufacturer purchases 3,000 cases of

plastic parts valued at $100 per case from two suppliers

purchases are currently divided equally between the suppliers

supplier uses rail transport and achieves the same average delivery time

if for each day that a supplier can reduce the average delivery time, the manufacturer will shift 5% of its total purchases, or 150 cases, to the supplier

supplier earns a margin of 20% per case before transportation charges

Supplier A would like to consider whether it would be beneficial to switch from rail to air or truck modes

Transport Mode

Transport Rate Delivery Time

Rail $2.50/case 7 days

Truck 6.00 4

Air 10.35 2

Transport Mode

CasesSold

GrossProfit

Transport cost Net profit

Rail 1,500 $30,000.00 - $ 3,750.00 =

$26,250.00

Truck 1,950 $39,000.00 - $11,700.00 = $27,300.00

Air 2,250 $45,000.00 - $23,287.50 = $21,712.50

Profit comparison for Supplier A’s Transport Modal Choices

7.1.37.1.3Appraisal of Selection Appraisal of Selection

MethodsMethods

Methods for transport service selection need to account for the

indirect effect that transportation choice has on inventory costs

the patronage of the shippers and consignees

there are other factors which are not under the control of the logistics manager

1. Effective Cooperation between Supplier and Buyer a reasonable knowledge of each party’s

cost is available if they are separate legal entities, doubt

that perfect cost information is possible unless some information exchange is worked out

Sensitivity to the other party’s reactions to a transport

service choice

or to the degree of patronage

should indicate the direction of cooperation

2. Competing suppliers in the distribution channel

buyer and the supplier should act rationally to gain optimum cost-transport service trade offs

rationality among the parties can not be guaranteed.

3. Price effects

supplier might raise product price to provide a higher-quality transportation service than the competitor

buyer should consider both price and transport performance when determining patronage

4. Transport rate

changes because of changes in product mix and inventory cost

adds a dynamic element to the problem that is not directly considered

5. Indirect effects of transport choice on supplier inventories

suppliers and buyers may experience increased or decreased inventory levels as a result of the shipment size associated with the transport choice

suppliers may adjust price to reflect this, which, in turn, will affect transport choice

7.27.2VEHICLE ROUTINGVEHICLE ROUTING

VEHICLE ROUTING transportation costs range between 1/3 to 2/3 of logistics

costs improve efficiency through maximum utilization of

transportation equipment and personnel is a major concern

length of time that goods are in tran sit reflects on the number of shipments a vehicle can made within a given period of time

to reduce transportation costs and improve customer service, finding the best path to minimize the time or distance of travel, is an important consideration

many variations of routing problems find a path through a network where the origin point is

different from the destination point find a path which involves multiple origin and

destination points find a path where origin and destination points are the

same

7.2.1 Separate and Single Origin and Destination Points

problem of routing a vehicle through a network can be solved by many methods

the simplest and most straightforward method is the shortest route method

Example 3

7.2.2 Multiple Origin and Destination Points multiple source points that may serve

multiple destination points commonly occurs when there is more than

one vendor, plant, or warehouse to serve more than one customer for the same product

further complicated when the source points are restricted in the amount of the total customer demand that can be supplied from each location

solved by transportation method Example 4

7.2.3 Coincident Origin and Destination Points

origin point is the same as the destination point commonly occurs when transport vehicles are

privately owned, e.g. routing of delivery trucks from a warehouse to

retail points and return to the warehouse local delivery trucks from retail stores to

customers routing of school buses, newspaper delivery

trucks, garbage collection trucks, and cars making deliveries of meals to offices

the objective is to find the sequence in which the points should be visited that will minimize to tal travel time or distance

known as the “traveling salesman” problem cognitive and heuristic solution procedures are

used to solve these problems

(a)Points Are Spatially Related solutions can be found by using the

pattern recognition capabilities of the human mind

good stop sequences are formed when the paths of the route do not cross

the shape of the route will usually bulge, or form a teardrop shape, where possible

illustrated in Figure 7-6 based on these two principles, an analyst

can quickly sketch out a route plan that might require a computer many hours to find

alternatively, a computer model can be used to find the stop sequences on a route

better choice when the spatial relationship between stops does not represent their true travel time or distance, e.g

travel barriers one-way streets, or traffic congestion present

locating stops geographically, e.g. coordinate points, can reduce the amount of data

the computer is assigned the task of estimating the distances or times

computational procedures have been developed that rapidly solve the problem and produce results that are close to optimum

Example 5

(a)Points Are Spatially Related

(b)Points Are Not Spatially Related where it is not easy to establish the spatial

relationship between stops on the tour, or where the spatial relationships become

distorted because of exact distances, or times, should be specified between stop pairs

cognitive procedures are less applicable must resort to a mathematical procedures

to treat this problem although the inter-stop distances, or times,

can be exact, solution procedures tend to gives approximate answers

example 6