Download - Chapter 1-integrated location -routing
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CHAPTER 1
INTRODUCTION
A supply chain is a facilities and distribution options that performs the functions of
procurement of materials, transformation of these materials in to intermediate and finished
products, and the distribution of these finished products, and the distribution of these finished
products to customers.A supply network deals with distribution of goods/products from
source to customers. Supply chains exist in both service and manufacturing organizations,
although the complexity of the chain may vary greatly from industry to industry and firm to
firm. Traditionally, marketing, distribution, planning, manufacturing and the purchasing
organizations along the supply chain operated independently. These organizations have their
own objectives and these are often conflicting. The result of these factors is that there is not a
single, integrated plan for the organization. So clearly, there is a need for a mechanism
through which these different functions can be integrated together. Supply chain management
is a strategy through which such integration can be achieved.
Supply chain management is typically viewed to lie between fully integrated firms,
where the entire material flow is owned by a single firm, where each channel member
operates independently. Therefore coordination between the various players in the chain is
key in its effective management, which can be achieved by efficient location and routing
decisions.
1.1 DECISION PHASES IN A SUPPLY CHAIN
A Supply chain needs three phases to build. These phases are strategy or design
phase, planning phase, and operation phase.
(1) Supply chain strategy or design.
In this phase, we must consider how to structure the supply chain. Location, capacities
of production and warehousing facilities will be considered in this phase too.
(2) Supply chain planning
In this phase, companies define a set of operating policies that govern short-term
operations. They collect data and produce market and inventory level forecast. And they
decide whether they need subcontract some of manufacturing or not in this phase.
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(3) Supply chain operation
In this phase, companies make decisions regarding individual customer orders. Then,
they allocate individual orders to inventory or production. And they also manage shipments,
delivery and schedules of trucks.
Figure 1.1 Decision Phases in Supply chain Management
This study focuses on mathematical modeling of the problem by integrating the
strategic decision of locating warehouses and tactical decision of vehicle routing. This
integrated approach takes the advantages of integrating warehouses location, allocation of
customers to the warehouses and vehicle routing decisions, which was dealt separately in
conventional models.
1.2 WAREHOUSE
A warehouse is a commercial building for storage of goods. Warehouses are used by
manufacturers, importers, exporters, wholesalers,transport businesses, customs, etc. They are
usually large plain buildings in industrial areas of cities and towns and villages. They usually
have loading docks to load and unload goods from transportation facilities, the vehicles.
Warehouse allow transport optimization along the supply chain, and allow companies to
work with an optimal inventory regarding service quality. For example, at the terminal point
of a transport system it is necessary to stockpile produce until a full load can be transported.
Warehouses can also be used to store the unloaded goods from the vessel.
Strategic
level
Tactical level
Operational level
Long term
decisions
Medium term
decisions
Daily operations
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1.2.1 Importance of Warehousing Location
To support the companys customer policy.
To maintain a source of supply without interruptions.
To achieve transport economies.
To provide timely deliveries for the customers.
To ensure least logistics cost for the desired level of customer service.
1.2.2 Warehousing Strategy
The very first strategy is concerned with deciding the number of warehouses that
needs to be employed.
The second one is to identify the type of the warehouse.
This project deals with the very first strategy of locating the warehouse by considering the
cost incurred as our major criteria.
1.2.3 Need for Warehouse Location Model
Warehouse location is another typical integer-programming problem. Each possible
warehouse has a fixed maintenance cost and a maximum capacity specifying how many
stores it can support. In addition, each store can be supplied by only one warehouse and the
supply cost to the store differs according to the warehouse selected. Locating these facilities
is crucial for companies. These locations will determine what distance will be covered to
arrive to the client. Consequently they will determine load transporting costs. In some cases
when there are thousands of clients these costs can be very high, but if facilities are well
located those costs can be reduced.
1.3 VEHICLE ROUTING PROBLEM
The challenging strategy in the field of supply chain management and logistics
industry is to optimize the product delivery from suppliers to customers thus satisfying
constraints. Such problems are known as Vehicle Routing Problems (VRP), in which the
vehicles leave the depot, serve customers assigned and upon completion of their routes return
to the depot. The classical vehicle routing problem (VRP) aims to find a set of routes at a
minimal cost ( finding the shortest path, minimizing the number of vehicles, etc.) beginning
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and ending the route at the depot, so that the known demand of all nodes are fulfilled. Each
node is visited only once, by only one vehicle, and each vehicle has a limited capacity. Some
formulations also present constraints on the maximum travelling time. The VRPSD is a
variation of the classical VRP, where each customer can be served by more than one vehicle.
Thus, for the VRPSD, besides the delivery routes, the amount to be delivered to each
customer in each vehicle must also be determined. The option of splitting a demand makes it
possible to service a customer whose demand exceeds the vehicle capacity. Splitting may also
allow decreasing costs. The vehicle routing problem with time windows and split deliveries
(VRPTWSD) is an extension of the VRPSD, adding to it the time window restraints. The
VRPTWSD is NP-hard, since it is a combination of the vehicle routing problem with time
windows (VRPTW) and the vehicle routing problem with split delivery (VRPSD), and that
makes a strong point for applying heuristics and meta-heuristic in order to solve the problem.
1.4 COMBINED WAREHOUSE LOCATION AND ROUTING MODEL
The phrase location-routing problem is misleading, as location-routing is not a
single well-defined problem like the Weber problem or the travelling salesman problem. It
can be thought of as a set of problems within location theory. However, it is preferable to
think of the LRP (Location Routing Problem) as an approach to modelling and solving
location problems. Location/routing problems are essentially strategic decisions concerning
facility location, our aim is to solve a facility location problem (the master problem), but
in order to achieve this we simultaneously need to solve a vehicle routing problem (the
subproblem). Location-routing problems are clearly related to both the classical location
problem and the vehicle routing problem. In fact, both of the latter problems can be viewed as
special cases of the LRP. If we require all customers to be directly linked to a depot, the LRP
becomes a standard location problem. If on the other hand, the depot locations are fixed, the
LRP reduces to a VRP.
From a practical viewpoint, location-routing forms part of distribution management, while
from a mathematical point of view, it can usually be modelled as a combinatorial
optimisation problem.
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1.5 APPLICATIONS OF LOCATION-ROUTING
Operational Research is primarily an applications-oriented discipline. Therefore, we
thought it important to highlight practical applications of location-routing. It also shows the
size of the largest instances solved, in terms of the number of potential facilities and number
of customers. Practical problems with hundreds of possible depot locations and thousands of
customers can be solved. Most of the paper focuses on distribution of consumer goods or
parcels, there are also some applications in health, military and communications. Operational
Research is all too often applied only in the affluent countries of Western Europe and North
America, thus it is pleasing to see that LRP has also been applied in developing countries.
Application-oriented papers account for about a fifth of the LRP literature. The above
observations show that LRP is really applicable in practice and is not just a purely academic
construct.
1.6 PROBLEM OBJECTIVE
To propose an integrated approach, for solving the warehouse location and routing
problem under the distribution and transportation system of a supply chain. Upon solving the
integrated warehouse location and routing problem, the decisions regarding the installation of
warehouse at potential sites, allocation of customer demand points to the warehouse installed
at the potential sites available, the vehicle routings for vehicles that provide shipment from
the warehouse to its customer demand points allotted can be made from the solutions
obtained from the proposed model. The objective of the proposed model is to minimize the
total cost incurred in installing and operating the warehouses for stocking products and
vehicles for transporting the products from the warehouses to the customer demand points.
The main goal of the following work is to give a MILP model for the integrated warehouse
location routing problem so that it can be solved using exact methods. As it is a NP-hard
problem, exact heuristics will yield optimal results only up to a certain level, so we also aim
to propose heuristics for higher complexity (larger number of customers).
1.7 ORGANISATION OF THE PROJECT REPORT
This report is organised in the following manner. The literature survey and the
research findings are presented in chapter 2. Chapter 3 gives the problem description and the
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mathematical model formulation. Chapter 4 discusses the development of exact and heuristic
method for solving the integrated location and routing problem. Chapter 5 presents the
conclusion and future scope.