OPSM 301 Operations Management

Class 21:

Logistic Drivers: Facilities and Transportation

Koç University

Zeynep Aksinzaksin@ku.edu.tr

Drivers of Supply Chain Performance

Efficiency Responsiveness

Inventory Transportation Facilities Information

Supply chain structure

Drivers

The Logistics Network

The Logistics Network consists of:

Facilities:Vendors, Manufacturing Centers, Warehouse/ Distribution Centers, and Customers

Raw materials and finished products that flow between the facilities.

4

Example: Efes Distribution Network

5

Costs

$0$2$4$6$8

$10$12$14$16$18$20

0 5 10 15

Number of DC's

Co

st (

$ m

illio

n)

Total Cost

Inventory

Transportation

Fixed Cost

Total cost

Inventory

transportation

Fixed costs

Number of distribution centers

cost

s ($

m

ilio

n)

6

Comparison between industries

Sources: CLM 1999, Herbert W. Davis & Co; LogicTools

Avg.NumberOf Depots 3 14 25

Pharmaceutical Grocery Chemicals

- Service is not important(or shipping is easy)- Inventory is more expensive than transportation

- Service is very important-Outbound transportation is -expensive

Transportation in the Supply Chain

Throughout the supply chain

SUPPLIERS

CUSTOMERS

WAREHOUSE

PRODUCTION

WAREHOUSE

Transport.

Transport.

Transport.

Transport.

Transportation Problem

DesMoines(100 unit capacity)

Fort Lauderdale(300 units capacity)

Cleveland(200 units required)

Evansville(300 units capacity)

Albuquerque(300 units required)

Boston(200 units required)

How much should be shipped from several sources to several destinations – Sources: Factories, warehouses, etc.– Destinations: Warehouses, stores, etc.

Transportation models– Find lowest cost shipping arrangement– Used primarily for existing distribution

systems

Transportation Problem

The Transportation Problem

D(demand)

D(demand)

D(demand)

D(demand)

S(supply)

S(supply)

S(supply)

Requirements for Transportation Model

List of origins and each one’s capacity

List of destinations and each one’s demand

Unit cost of shipping

The transportation problem

The setting– n factory (supply) locations– supplying m markets (demand points)– Cost of shipping one unit from factory i to

market j is cij

– Ki is the capacity of factory i– Dj is the demand in market j

Formulate as an LP

Transportation Model

Which market is served by which plant?

Which supply sources are used by a plant?

xij = Quantity shipped from plant site i to customer j 0

..

1

1

1 1

x

Kx

Dx

ts

xcMin

ij

i

m

jij

j

n

iij

n

i

m

jijij

5-13

A Transportation Problem:Tropicsun

Distances (in miles)CapacitySupply

275,000

400,000

300,000 225,000

600,000

200,000Mt. Dora

1

Eustis

2

Clermont

3

Groves

Ocala

4

Orlando

5

Leesburg

6

Processing Plants

21

50

40

3530

22

55

25

20

Defining the Decision Variables

Xij = # of bushels shipped from node i to node j

Specifically, the nine decision variables are:

X14 = # of bushels shipped from Mt. Dora (node 1) to Ocala (node 4)

X15 = # of bushels shipped from Mt. Dora (node 1) to Orlando (node 5)

X16 = # of bushels shipped from Mt. Dora (node 1) to Leesburg (node 6)

X24 = # of bushels shipped from Eustis (node 2) to Ocala (node 4)

X25 = # of bushels shipped from Eustis (node 2) to Orlando (node 5)

X26 = # of bushels shipped from Eustis (node 2) to Leesburg (node 6)

X34 = # of bushels shipped from Clermont (node 3) to Ocala (node 4)

X35 = # of bushels shipped from Clermont (node 3) to Orlando (node 5)

X36 = # of bushels shipped from Clermont (node 3) to Leesburg (node 6)

Defining the Objective Function

Minimize the total number of bushel-miles.

MIN: 21X14 + 50X15 + 40X16 +

35X24 + 30X25 + 22X26 +

55X34 + 20X35 + 25X36

Defining the Constraints

Capacity constraintsX14 + X24 + X34 <= 200,000 } Ocala

X15 + X25 + X35 <= 600,000 } Orlando

X16 + X26 + X36 <= 225,000 } Leesburg

Supply constraintsX14 + X15 + X16 = 275,000 } Mt. Dora

X24 + X25 + X26 = 400,000 } Eustis

X34 + X35 + X36 = 300,000 } Clermont

Nonnegativity conditionsXij >= 0 for all i and j

Implementing the Model