bl 2 logisticsstrategies

7/27/2019 BL 2 LogisticsStrategies

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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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Logistics Strategies

Topic 2

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Logistics StrategiesDistribucin Comercial

InventoryTransportationLocalization

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Methods to design networks


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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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Demand management and customer serviceInventory decisions and policiesTransportation decisionsLocalization strategies

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Facilitator: Information CommunicationTechnology ( ICT).


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Logistics StrategiesInformationtechnology

Inventorystrategy

Transportationstrategy

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Demand andservice level

Localization strategy

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Demand managementService level

* Marketing* Purchasing* Logistics

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Issue 3 and 4


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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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Shipment sizeMode of transportationInhouse or outsourcingTransportation planning

* Routing

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Issue 7


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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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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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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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Currentnetwork

Data

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Start Objectives

Team

system Model

Solutions

network

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- Structure

16 warehousesPeople: 86 Service

ww

w

w

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Lost sales

High costsFw

Fw Fw

w ww

ww

w

w w


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- Structure

4 owned storesseveral shared

Costs ss

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High external transportationLow inventory

Higher serviceFw

Fw Fw

s

ss

s

wss

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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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GovernmentEconomy and cultureMarket localization

Availability, productivity and attitudes of theworkforce

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Infrastructure costExchange rate


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Corporate strategies

AttractionLabor costsGovernment incentivesProximit to customers and su liers

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Land and construction costs

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Place sizeCost

Access to transportationProximity of servicesEnvironmental im act

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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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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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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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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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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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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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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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Gravity center method

CIT

The weight isproportional

Gravity center

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IES

to thenumber of

peoplein the city

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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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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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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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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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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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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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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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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

45

4

3 4

6

5

50

60

4050

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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

30

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

bl 2 logisticsstrategies

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