Professional Documents
Culture Documents
Outline
What is it? Methodology
Modeling Data Aggregation Validation
Solution Techniques.
Facilities: Vendors, Manufacturing Centers, Warehouse/ Distribution Centers, and Customers Raw materials and finished products that flow between the facilities.
Supply
Inventory & warehousing costs Transportation costs Inventory & warehousing costs
Transportation costs
Decision Classifications
Strategic Planning: Decisions that typically involve major capital investments and have a long term effect
1. Determination of the number, location and size of new plants, distribution centers and warehouses 2. Acquisition of new production equipment and the design of working centers within each plant
Decision Classifications
Tactical Planning: Effective allocation of manufacturing and distribution resources over a period of several months
1. Work-force size 2. Inventory policies 3. Definition of the distribution channels 4. Selection of transportation and trans-shipment alternatives
Decision Classifications
Transportation costs
That is, we would like to find a minimal-annual-cost configuration of the distribution network that satisfies product demands at specified customer service levels.
Data
Data specifies the costs of your supply chain The baseline cost data should match your accounting data The output data allows you to quantify changes to the supply chain
Engine
Optimization Techniques
Aggregating Customers
Customers located in close proximity are aggregated using a grid network or clustering techniques. All customers within a single cell or a single cluster are replaced by a single customer located at the centroid of the cell or cluster.
We refer to a cell or a cluster as a customer zone.
Why Aggregate?
The cost of obtaining and processing data
The form in which data is available
Recommended Approach
Use at least 300 aggregated points
Make sure each zone has an equal
the zone
Comparing Output
Total Cost:$5,796,000 Total Customers: 18,000 Total Cost:$5,793,000 Total Customers: 800
Product Grouping
Companies may have hundreds to thousands of individual items in their production line
Within each of the source-groups, aggregate the SKUs by similar logistics characteristics
Weight Volume Holding Cost
50.0
40.0
30.0
20.0
10.0
0.0 0.000
0.010
0.020
0.030
0.040
0.050
0.060
0.070
0.080
0.090
0.100
Minimize the cost of your logistics network without compromising service levels
$90 $80
Cost (millions $)
$70 $60 $50 $40 $30 $20 $10 $Total Cost Transportation Cost Fixed Cost Inventory Cost
10
Number of Warehouses
Avg. # of WH
3
- High margin product - Service not important (or easy to ship express) - Inventory expensive relative to transportation
14
25
- Low margin product - Service very important - Outbound transportation expensive relative to inbound
A set of potential location sites for the new facilities was identified
Costs: Set-up costs Transportation cost is proportional to the distance Storage and handling costs Production/supply costs
Solution Techniques
Mathematical optimization techniques:
1. Heuristics: find good solutions, not necessarily optimal 2. Exact algorithms: find optimal solutions Simulation models: provide a mechanism to evaluate specified design alternatives created by the designer.
The two plants have the same production costs. There are two warehouses w1 and w2 with identical warehouse handling costs. There are three markets areas c1,c2 and c3 with demands of 50,000, 100,000 and 50,000, respectively.
$0
Cap = 200,000
$5
$4
$3 $4 $5
D = 50,000
D = 100,000
$2 $1 $2
Cap = 60,000
$2
D = 50,000
Production costs are the same, warehousing costs are the same
D = 100,000
Cap = 60,000
$2 x 60,000
D = 50,000
$0
Cap = 200,000
$5
$4
$3 $4 $5 $2 $2 $1 $2
D = 50,000
P1 to WH1 P1 to WH2 P2 to WH1 P2 to WH 2 $3 $7 $7 $4
D = 100,000
P1 to WH1 P1 to WH2 P2 to WH1 P2 to WH 2 $4 $6 $8 $3
Cap = 60,000
D = 50,000
P1 to WH1 P1 to WH2 P2 to WH1 P2 to WH 2 $5 $7 $9 $4
$0
Cap = 200,000
$5
$4
$3 $4 $5 $2 $2 $1 $2
D = 50,000
P1 to WH1 P1 to WH2 P2 to WH1 P2 to WH 2 $3 $7 $7 $4
D = 100,000
P1 to WH1 P1 to WH2 P2 to WH1 P2 to WH 2 $4 $6 $8 $3
Cap = 60,000
D = 50,000
P1 to WH1 P1 to WH2 P2 to WH1 P2 to WH 2 $5 $7 $9 $4
$0 x 50,000
Cap = 200,000
$3 x 50,000
D = 50,000
P1 to WH1 P1 to WH2 P2 to WH1 P2 to WH 2 $3 $7 $7 $4
$5 x 90,000
$1 x 100,000 $2 x 50,000
D = 100,000
P1 to WH1 P1 to WH2 P2 to WH1 P2 to WH 2 $4 $6 $8 $3
Cap = 60,000
$2 x 60,000
D = 50,000
P1 to WH1 P1 to WH2 P2 to WH1 P2 to WH 2 $5 $7 $9 $4