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POLITECNICO DI MILANO
Facoltà di Ingegneria Meccanica
Master of Science in
Mechanical Engineering
FACILITY LAYOUT DESIGN AND COST
ANALYSIS FOR RETURN MANAGEMENT IN
APPARELS SECTOR
Supervisor: Prof. Riccardo Mangiaracina
MSc Thesis of:
PRITHIV RAMASAMY
ID. No. 837473
Academic Year 2015 – 2016
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ACKNOWLEDGEMENT
I would like to sincerely thank Prof. Riccardo Mangiaracina for his guidance, support and
encouragement as supervisor which helped me greatly in the successful completion of this thesis
work.
I wish to thank Prof. Alessandro Perego for providing the initial supports and
arrangement to meet Prof. Riccardo Mangiaracina and for his support and encouragement
towards the successful completion of this thesis.
I would like to thank Prof. Guido Jacopo Luca Micheli for giving me knowledge on
Industrial plant which helped me in completing my thesis
I would like to thank Prof. Andrea Tommaso Vania of Department of Mechanical Lecco
for giving the preliminary approval for the thesis and Mr. Sandro Morselli for his guidance for
the process involved during the start-up of my thesis.
Last but not the least, I would like to thank my parents and my friends who during these
years have comforted me morally and encouraged me to achieve my goals.
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ABSTRACT
Technical and business solutions for the recovery of products returns and to reuse them are
available these days. To have these technologies implemented in a real case scenario, a
feasibility study is always performed. Reverse logistics is one of such processes which has
become a main segment of the supply chain network. They have gained most important these
days because it is an efficient process for planning, implementing and controlling the flow of
returned products and information relating to the flow, in upstream of supply chain network.
Thus, in this process we must optimise and manage the flow from end customer to the
manufacturer so that it can become one of the after sales services and tends to develop towards
recycling. In this defective product returns, overstock or end of life products should be handled
carefully in a proper way. Apart from the customer satisfaction they always have a lot of
negative impact for the manufacturers, the main problem here is the return handling cost which
is more when compared to the outbound shipping cost and opening of the new facility location
which is a central issue of the reverse logistics networks. This paper will give an idea about the
steps involved in reverse logistics and the types of cost involved in this process. In particular,
we focus on reverse logistics process involved in the apparel industrial sector for which we are
proposing a new conceptual model for the betterment of both multi-channel & An online
retailer. In this article, we go much in detail on different elements and features of distribution
networks including warehouse management, transportation and establishment of new facilities
as well as existing centers. we propose cost-effective solution by using a Mixed integer linear
programming to find the best routing solution along with the facility layout planning and design
for the collection centers and centralized return centers. Where the Systematic layout planning
(SLP) is used for design of these logistics centers by deciding the position of work units and
maps out the initial position relationship chart. Through further amendments and adjustment,
we get the feasible layout plan. We also focus much in detail on optimal (internal) layout design
and assignment methods of storage system and at last we use a case study numerical elements
for validation of model.
Keywords: Facility Layout Planning, Reverse logistics, Warehouse Management, MILP
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ASTRATTO
Oggigiorno sono disponibili soluzioni tecniche e di business per il recupero dei prodotti resi e
per il loro riutilizzo. Per avere queste tecnologie implementate in uno scenario vero e proprio,
uno studio di fattibilità viene sempre eseguito.La logistica inversa è uno di questi processi che
è diventato un segmento principale della rete filiera. Essi hanno acquisito più importanza in
questi giorni perché è un processo efficiente per la pianificazione, attuazione e controllo del
flusso dei prodotti e delle informazioni relative al flusso di quelli restituiti, a monte della rete
della filiera. Così, in questo processo dobbiamo ottimizzare e gestire il flusso dal cliente finale
al produttore in modo che possa diventare uno dei servizi post-vendita e andare verso il
riciclaggio. Questi prodotti difettosi , overstock o obsoleti devono essere maneggiati con cura
in modo corretto. A parte il problema della soddisfazione del cliente, la logistica inversa ha
sempre molti effetti negativi per i produttori: Il problema principale è il costo di trattamento
di ritorno che è maggiore rispetto al costo di trasporto in uscita e all'apertura della struttura
della nuova sede, che è una questione centrale delle reti della logistica inversa. Questo articolo
vi darà un'idea circa i passi necessari nella logistica inversa e le tipologie di costo coinvolti in
questo processo. In particolare, ci concentriamo sul processo logistico inverso riguardo il
settore dell'abbigliamento industriale, per il quale stiamo proponendo un nuovo modello
concettuale per il miglioramento sia del multi-canale che del rivenditore online. In questo
articolo, si va molto più in dettaglio su diversi elementi e caratteristiche delle reti di
distribuzione, tra cui la gestione del magazzino, il trasporto e la creazione di nuove strutture,
nonché dei centri esistenti. Proponiamo una soluzione conveniente utilizzando una
programmazione intera mista per trovare la migliore soluzione di routing con la progettazione
del layout della struttura e del design per i centri di raccolta nei centri di ritorno centralizzati.
Quando viene utilizzata la sistematica pianificazione di layout (SLP) per la progettazione di
questi centri logistici, decidiamo la posizione delle unità di lavoro e delineamo la tabella
iniziale rapporto-posizione. Attraverso ulteriori modifiche e regolazioni, si ottiene la
planimetria fattibile. Ci concentriamo anche molto più in dettaglio su una soluzione ottimale
(interna) di progettazione di layout e di assegnazione dei metodi di stoccaggio e infiner si usano
elementi numerici di un caso di studio per la validazione del modello.
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SUMMARY OF THE PAPER
Purpose:
The aim of this paper is to study the return management process involved in handling the
returns of apparel products and to provide a reverse process network design, Facility layout
design, Storage system design in order to better facilitate the location and design of Centralized
& Regional return centers (warehouse), initial collection points, and to explore the cost
involved in the reverse process in the context of a multi-channel retailer (manufacturer) who
acts as a 3PL logistics provider for the single channel retailer (online retailer).
Introduction:
Return management is one of the main area of supply chain process. This is the area where the
return goods of all the industries are planned and managed. Designing and handling the returns
are not easy. Though it provides a fast response and better customer service. There are lot of
draw backs are involved while designing them. While in the case of apparel sector it is much
more difficult. This paper will give the idea on the return management, the steps involved in
the return management process. We will talk much in detail about the different types of
merchants like manufacturer, traditional retailer etc and their difference, what is commerce,
about traditional and e-commerce, their differences. These things will give an outline view on
the commerce channel.
Later this paper will give much information about what is mean by a logistic channel. How the
logistics channel operates and the steps involved in designing the reverse logistics network
design. We will go through the concept of how to design a facility (warehouse, factories) and
what are the departments a facility has and how the material flow between these department.
A detail study on the departments involved in a warehouse, types of storage system, picking
system and material handling system currently available in the market. How to design these
systems by selecting which will be the best and based on which parameter we should design
are seen. The material also talk about the different types of distribution network and the cost
involved in them.
The paper in the second part go in detail on the challenges involved in designing the return
management like uncertainty, environmental issue, communication problem, complexities of
reverse logistics network and customer’s problems.
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In the literature part, we will go through three mathematical and conceptual model proposed
by the researchers for facility planning under uncertainties. Muther’s systematic layout
procedure is studied for designing the facility layout. Single selective rack system is taken as
an example to how to design the storage system.
Design/methodology/approach:
First of all, the problem faced in apparel sector these days in reverse logistics is studied, how
much complications arriving in the designing of this system these days are studied. Later for
the better understanding an illustrative approach is done to say what are stuffs and areas we are
focusing onto get the result. Then a conceptual model and its objective is proposed. The steps
involved in the design of the return management is went through in detail for the proposed
model. We will also go through the cost involved in designing the RL network. A mathematical
model is developed by using mixed integer linear programming for both primary and local
distribution for our proposed model. To avoid the difficulty of uncertainty in predicting the
return rate a predictive model is proposed using normal distribution. Later a detailed layout for
how to design a regional and centralized return centers is proposed along with the essential
departments required in these centers. How the material flow between these department are
structured. A simulation model is developed by using Any logic PLE to know about the system
dynamics involved in these departments in the regional return center. A new storage system
model is designed by using the plastic tote as the unit of containerization and storage. For this
different types of configurations and solutions are framed.
Experimentation:
Experimentations are done based on numerical case scenarios and inputs taken from the
internet and based on statics for the steps involved in designing reverse logistics model. Where
predictive model for forecasting is used based on which initial collection point are selected and
validated. The calculation for the local distribution network is done based on travelling
salesman model using the cheapest insertion method. Muther’s systematic layout planning is
used to design the facility layout of regional return center and centralized return centers by
using the empty space within the existing facilities. The storage system design calculation is
done from the model we proposed from this paper which uses the plastic totes as a
containerization unit. In this a sensitivity analysis is done to choose the best configuration and
design available from the model, which can be implemented with less space and good space
utilization and the system dynamics is performed from the simulation model which we built
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gives the results on the minimum number of system and utilities required and their utilization
rate. From this we can find out the minimum number of space and utilities required for starting
the regional and centralized return center in an existing facility. With the help of sensitivity
analysis, a much more detailed study is done on the utilization rate and minimum number of
workers needed with considering the cost as a primary factor. We use the mathematical model
which we developed based on our conceptual model to calculate the best routing solution
available and a sensitivity analysis for the primary distribution network developed based on
our proposed model is performed to decide the opening and closing of new facilities and their
locations. This also gives us the idea on the parameters that controlling the cost. How the cost
is varying based on the changes in the potential goods and damaged goods and their effects on
facility planning. This experimentation will show all the steps involved in the reverse logistics
design and also about better view on the cost and how it varies based on what and where we
should focus more on the return management in apparel sector for reducing the cost.
Findings/Result:
The paper identifies solution for a single channel retailer (e- commerce) to deal with returned
products from customers by using a multi-channel retailer (Manufacturer) as their 3PL
provider. The case taken here are for the apparel sector. The paper also discusses about the
return management problems in the apparel market especially for a single channel retailer. It
also discusses the cost parameters involved.
The paper provides you with the cost optimization technique needed for Facility planning and
layout design, Storage system design to be adopted by the multi-channel retailer who will be
acting as the 3PL for the single channel retailer. The results which we obtained from the results
of our numerical case study from the paper.
1. In the case of regional distribution when the percentage of remaining potential goods
after resale is less than 70% we can operate our plant with two centralized return
centers. Thus, potential goods always have more impact on cost then the fault goods
and they determine whether to open or close the centralized return center.
2. In the designing of storage system based on our proposed design Configuration, A with
(U=V) square shaped longitudinal system always requires less space and have better
space utilization rate when compared to the other configurations.
3. In the case of system dynamics in Retail Store/ Regional return center. The changes in
the percentage of potential and damaged goods only had effect on the utilization rate.
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But they don’t have any impact on the potential workers. So, there is was no effect on
saturation rate.
The proposed method will also give the best solution practices for handling the returns of even
the multi-channel retailer. They can adopt this model and use the step involved in constructing
the return logistics network.
Thus, at last the paper give you better suggestion for reselling the apparel goods instead of re-
engineering which is much more cost efficient when compared to the later
Practical implications:
The procedure proposed here can help practitioners with their return management decisions.
The model presented is conceptual and all the experimentations and findings are based on that.
Application and validation is still required.
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Table of Contents
Introduction ............................................................................................................................ 16
1 Introduction to return management ................................................................................. 19
1.1 Types of merchant ......................................................................................................... 19
1.1.1 Manufacturers ......................................................................................................... 20
1.1.2 Traditional Retailer ................................................................................................. 20
1.1.3 Online Retailer ........................................................................................................ 20
1.1.4 Single channel retailer ............................................................................................ 20
1.1.5 Multi/ Omni channel retailer .................................................................................. 20
1.1.6 Managing the Returns.............................................................................................. 21
1.2 Logistic channel ........................................................................................................... 25
1.2.1 Distribution network ............................................................................................... 25
1.3 Warehouse System ......................................................................................................... 27
1.3.1 Types of storage system .......................................................................................... 27
1.3.2 Material Handling system........................................................................................ 32
1.3.3 Picking system ......................................................................................................... 33
1.3.4 Sorting ...................................................................................................................... 35
1.3.5 Packaging ................................................................................................................. 35
1.3.6 Transport Oder Consolidation.................................................................................. 35
1.4 Facility Layout design & planning ................................................................................ 35
1.4.1 Characteristics of an Effective Layout Design ........................................................ 36
1.4.2 Types of layout ........................................................................................................ 37
1.4.3 Material flow systems charts ................................................................................... 37
1.4.4 Systematic Layout Planning .................................................................................... 40
1.5 Steps involved in return management ............................................................................ 40
2 Return Management Challenges and Models .................................................................. 42
2.1 Challenges involved in Return Management ................................................................. 42
2.1.1 Uncertainty ............................................................................................................... 42
2.1.2 Complexities of the reverse logistics process .......................................................... 42
2.1.3 Environmental Issues and Communication ............................................................. 42
2.1.4 Customer Support .................................................................................................... 43
2.2 Models for Reverse Logistics Proposed in Literature ................................................... 43
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2.2.1 Model on Facility planning - Mehran & Soroush Model ....................................... 43
2.2.2 Model on Multi -Product and Multi-Period Facility Location Benaissa Model ..... 45
2.2.3 Quan model .............................................................................................................. 49
2.3 Models for Facility Layout design proposed in books ................................................... 53
2.3.1 Muther’s Systematic Layout Planning (SLP) Procedure ......................................... 53
2.4 Storage System Design ................................................................................................... 56
2.3.2 Layout Design .......................................................................................................... 57
2.3.3 Layout Design – Constraints .................................................................................... 60
3 Methodology and Model Formation.................................................................................. 61
3.1 Problem Definition ......................................................................................................... 61
3.2 Objective ........................................................................................................................ 62
3.3 Model Design ................................................................................................................ 64
3.3.1 Conceptual Model .................................................................................................... 64
3.3.2 Predictive Model of Forecasting .............................................................................. 66
3.3.3 Model for local distribution ..................................................................................... 67
3.3.4 Mathematical Model for Primary Distribution network ........................................ 68
3.3.5 Facility layout design for Regional return center & centralized return center ....... 71
3.3.6 Storage Rack Design ................................................................................................ 78
3.4 Summary ........................................................................................................................ 81
4 Experimentation and Discussion ....................................................................................... 82
4.1 Result from the Predictive Model .................................................................................. 82
4.2 Calculation of Local Distribution network ..................................................................... 86
4.3 Regional Return center/ Retail store outlet Results........................................................ 87
4.3.1 Layout systematic design .......................................................................................... 87
4.3.2 Storage area design ................................................................................................... 89
4.3.3 System Dynamics Experimentation for regional return center ................................. 91
4.4 Primary Distribution Network Design ........................................................................... 94
4.5 Centralized Return Center Result ................................................................................... 98
4.5.1 Layout design ............................................................................................................ 98
4.5.2 Storage area design ................................................................................................. 100
4.6 Summary ...................................................................................................................... 105
Conclusion ............................................................................................................................ 106
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APPENDIX .......................................................................................................................... 107
Bibliography ........................................................................................................................ 109
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Table of Figures
Figure 1 Types of merchants ................................................................................................................. 21
Figure 2 Return management process ................................................................................................... 21
Figure 3 Logistics channel .................................................................................................................... 25
Figure 4 Local distribution network ...................................................................................................... 26
Figure 5 Selective pallet racks .............................................................................................................. 28
Figure 6 Carousel .................................................................................................................................. 29
Figure 7 AR/RS Miniload ..................................................................................................................... 31
Figure 8 Types of picking system ......................................................................................................... 33
Figure 9 Picker truck ............................................................................................................................. 34
Figure 10 Facility Layout ...................................................................................................................... 36
Figure 11 Layout of flow in product department .................................................................................. 38
Figure 12 Types of flow in product department.................................................................................... 38
Figure 13 Layout of flow in process department .................................................................................. 39
Figure 14 Types of flow in process department .................................................................................... 39
Figure 15 Layout design phases ............................................................................................................ 40
Figure 16 Mehran & Soroush conceptual model .................................................................................. 43
Figure 17 objective function Mehran & Soroush Model ...................................................................... 45
Figure 18 Constraints Mehran & Soroush Model ................................................................................. 46
Figure 19 Multi facility conceptual model ............................................................................................ 47
Figure 20 Benaissa model objective function and constraints .............................................................. 49
Figure 21 conceptual model .................................................................................................................. 51
Figure 22 single ow system ................................................................................................................... 51
Figure 23 single ow system constraints and objective function ............................................................ 52
Figure 24 Muther’s Systematic Layout ................................................................................................. 53
Figure 25 Activity relationship diagram ............................................................................................... 54
Figure 26 Relationship diagram ............................................................................................................ 55
Figure 27 Space relationship diagram ................................................................................................... 55
Figure 28 Alternative Layout ................................................................................................................ 56
Figure 29 storage system design steps .................................................................................................. 57
Figure 30 Layout Design – Typologies ................................................................................................. 58
Figure 31 I/O location ........................................................................................................................... 58
Figure 32 Bay design of single selective racks ..................................................................................... 59
Figure 33 Module of single selective racks .......................................................................................... 60
Figure 34 Our model reverse logistic network ...................................................................................... 65
Figure 35 Conceptual model ................................................................................................................. 66
Figure 36 Model for primary distribution network ............................................................................... 69
Figure 37 Activities in regional return centers ...................................................................................... 72
Figure 38 Material flow in the product department of RR .................................................................... 73
Figure 39 Plastic tote 35 ....................................................................................................................... 73
Figure 40 Any logic model of Regional return center .......................................................................... 75
Figure 41 Activities in centralized return centers ................................................................................. 77
Figure 42 Material flow in the product department of CR .................................................................... 78
Figure 43 Plastic tote dimensions ......................................................................................................... 78
Figure 44 Top view of bay .................................................................................................................... 79
Figure 45 Configuration A Module ...................................................................................................... 80
Figure 46 Potential Customer return areas ............................................................................................ 82
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Figure 47 Potential Initial collection points and Regional return center............................................... 84
Figure 48 sketch of distance between each place in city limit .............................................................. 85
Figure 49 Final shortest distance layout of city 1 ................................................................................. 86
Figure 50 Relationship activity diagram RRC ...................................................................................... 87
Figure 51 Layout Design Quantitative Optimization ............................................................................ 88
Figure 52 Final Layouts of Retail store/ Regional Return center ......................................................... 89
Figure 53 AMPL Result ........................................................................................................................ 96
Figure 54 Relationship diagram in CRC ............................................................................................... 99
Figure 55 Final layout of CRC ............................................................................................................ 100
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List of Tables
Table 1 Traditional commerce vs E-commerce .................................................................................... 24
Table 2 Comparison Between Trucks Serving Single-deep Selective Racks ....................................... 33
Table 3 Reasons for the closeness value ............................................................................................... 53
Table 4 Potential Customer return areas and rate of returns ................................................................. 83
Table 5 Potential initial collection points ............................................................................................. 84
Table 6 Distance between initial collection points and RRC ................................................................ 85
Table 7 Regional return center input details ......................................................................................... 87
Table 8 Relationship between each department .................................................................................... 88
Table 9 Warehouse Results in RRC for height 3m (U=V) ................................................................... 90
Table 10 Case 1 Solution ...................................................................................................................... 91
Table 11 Case 2 Solution ...................................................................................................................... 92
Table 12 Number of worker’s calculation based on utilization rate for case 2 using sensitivity analysis
.............................................................................................................................................................. 93
Table 13 Number of worker’s calculation based on utilization rate for case 1 using sensitivity analysis
.............................................................................................................................................................. 93
Table 14 Rate of returns in all regional return center ........................................................................... 94
Table 15 Total goods available for transport from regional return centers after resales ....................... 95
Table 16 Total plastic totes transported from each regional return centers after resales ...................... 95
Table 17 Transportation cost is provided based on euros/ totes ........................................................... 95
Table 18 Transportation cost to centralized return center in euros ....................................................... 97
Table 19 Total Transportation cost in euros ......................................................................................... 97
Table 20 Number of goods going to each centralized return center ..................................................... 98
Table 21 Centralized return center input details ................................................................................... 98
Table 22 Relationship between each department in CRC ................................................................... 100
Table 23 Warehouse Results in CRC for height 3m (U=V) ............................................................... 101
Table 24 Warehouse Results in CRC for height 5m (U=V) ............................................................... 102
Table 25 Warehouse Results in CRC for height 3m (U=2V) ............................................................. 103
Table 26 Warehouse Results in CRC for height 5m (U=2V) ............................................................. 104
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Introduction
Reverse logistics (RL) is one of the main areas discussed in the area of supply chain in
various industries. Because of the great effects on customer relationships, reverse logistics and
logistics related to operational capabilities should be regarded as a managerial priority. Reverse
logistics is defined as all operations related to the reuse of products and materials. It is the
process of moving goods from their typical final destination for the purpose of capturing value,
or proper disposal.
Though the reverse logistics adds value to the service side of the customers. There are lot of
problems and drawbacks involved in designing the return management system. The drawback
starts with the uncertainty of return products (demand forecasting), inventory planning, product
quality, arrival and retrieval time and waste recycling. Though the above-mentioned points
may be some of the draw backs. The main issue start will the calculating the cost parameters.
There is a term that only handling cost in the reverse logistics weigh higher than the
transportation cost involved in the forward logistics. So only most of the sellers and
manufacturers are not focusing much on the return side of their products or they will give the
entire process to be handled by a third-party logistics provider.
Researchers and practitioners have consistently given attention to the forward supply chains
and ignored the reverse flow of supply chains. The scope for the forward supply chain has been
extended to include the reverse flow of products from the point of consumption back to the
source. (RL) has recently received growing importance and more firms are adopting it as a
strategic tool for economic benefits and corporate social image. Firms have also realized that a
better understanding of product returns and efficient (RL) can provide a competitive advantage.
Although many industries have realized that (RL) is necessary for sustainable competitiveness,
there is a lack of agreement on timing of adaptation and implementation of (RL) system. RL
has been beneficial to some of the organizations like General Motors, Canon, Dell, and
Hewlett-Packard. While Kodak is able to reuse up to eighty percent of the used camera’s parts.
Studies on reverse logistics implementation have been done in many sectors such as carpet
industry, retail industry, bottling and paper industry.
Literatures on RL have been reviewed by many researchers in the past. Lot of studies on (RL)
from the perspectives of distribution planning, inventory management and production planning
had been carried out. some on the environmental aspects of transportation, packaging and
purchasing. While some reviewed (RL) features such as product acquisition, pricing, collection
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of used products, (RL) network structure, integration of manufacturing, and remanufacturing
facilities of location of facilities for inspection and consolidation activity. These reviews
provide insight to the RL previous research on various issues. However, it was observed that
issues like adoption and implementation, forecasting product returns, outsourcing, (RL)
networks from secondary market perspectives, and disposition decisions are not covered in
depth.
This paper work concentrate on the steps and cost parameters involved in the various processes
in the reverse logistics. In particular, we will focus on the apparel market and we propose a
new conceptual design which can be combinedly applied by both multi-channel retailer and an
e-commerce retailer. Where we go in detail on the various steps involved in this model and
designing of each step involved in reverse logistics along with their cost parameter. We will
do a case study on this process for which we will build a prescriptive model by using mixed
integer programming for the (RL) network transport routing. Apart from that this paper focus
on facility layout design and planning of localized and centralized return centers in the Reverse
logistics network. Where the Systematic layout planning (SLP) is used for design of these
logistics centers by deciding the position of work units and maps out the initial position
relationship chart. Through further amendments and adjustment, we get the feasible layout
plan. We also focus much in detail on optimal (internal) layout design and assignment methods
of storage system and at last we use a case study numerical elements for validation of model.
The expectation from this paper is plenty because it gives a clear insight on all the process
involved in return management and what are the cost involved in these processes and how to
minimize them. It also gives a clear idea on how to do a facility planning for a new or already
existing warehouses in a (RL) network.
To enable the reader to understand the paper clearly, a brief description of the chapters is given
below,
Chapter 1 introduces the Return management process. The chapter explains the difference
between traditional and e- commerce retailer, how a retail channel operates. While it gives a
brief idea on the logistics channel especially the local distribution channel. The chapter also
describes the most important process of how to design a facility (warehouse) and steps involved
in designing them. In the end the chapter explains different types of storage and picking system
and how to design a storage system in the warehouse process.
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Chapter 2 describes the challenges involved in return management; it describes various RL
mathematical model described in the literatures for the transportation routing. Finally, some of
the internationally accepted systematic model for the facility layout design. These models shed
light on how to design a Return logistics network.
Chapter 3 describes in detail about the conceptual model and the mathematical models involved
in designing the local distribution network and the transportation routing. It also describes the
techniques involved in facility layout design. The chapter also describes the planning of each
departments involved in the regional & centralized return centers (warehouse).
Chapter 4 describes the experimental setups and calculations carried out in detail for the case
study numerical element for the validation of model. These experiments give the valid results
on transportation routing and facility layout design. This Chapter also describes the simulation
study which is done to determine the utilization rate and saturation level involved in each
facility. Apart from that a sensitivity analysis is also done which gives a brief insight on how
the final cost calculation changes based on the variation in the return rates of the goods. The
chapter concludes with the results obtain in designing a regional & centralized return centers
(warehouse).
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Chapter 1
1 Introduction to return management
The term reverse logistics refers to all operations related to the reuse of products and materials.
It is "the process of moving goods from their typical destination for capturing value, or proper
disposal. Remanufacturing and refurbishing activities also may be included in the definition of
reverse logistics." Reverse logistics is an important part of supply chain process these days.
The challenges of reverse logistics are significant and should be considered in terms of
branding, sustainability and profitability. The term "reverse logistics" does not only refer to
waste treatment. It also deals with the management of returned or unsold products. Properly
managing reverse logistics not only reduces costs but can also increase turnover. The consumer
is more loyal, the brand is better protected. Reverse logistics is fundamentally different from
"conventional logistics" Manufacturers and distributors design the supply chain to deliver
quickly and efficiently a continuous flow of products from the place of production to the places
of consumption. The operational and strategic levers of reverse logistics differ across
organisations. Many companies still see it as a side effect of their business. Selling a product
on the secondary market is an admission that the original sale was not a success. Therefore,
companies tend to postpone decisions on returns processing or disposal of unsold. The products
in question end up losing more value than if the decision to clear the inventory was taken
quickly. With a better understanding of the nature and levers of reverse logistics, it is easier to
manage this business effectively, the basic principles of which are simple and require common
sense. The performance of logistics depends on a short process, with little handling and
reloading. The longer a product stays in the system, the more its value will decline. For
example, any product with a technology component loses value every month. Companies must
then minimise the time the product goes in the "reverse system" to recover the maximum value.
1.1 Types of merchant
There are different types of merchants in the business. But they are basically classified in to
three types namely. (OEM) original equipment manufacturers, Traditional retailers, Online
retailers.
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1.1.1 Manufacturers
Manufacturers are a company which make products. There are two different types of
manufacturers based on their sales strategy. Manufacturers who involve in the B2b (Business
to business) sales and others are the manufacturers who involve in B2c (Business to customer
sales). While the later involve directly with the customers in both selling and in customer
services by means of their owned stores. Aditya Birla and ITC are some of known
manufacturers in apparel business.
1.1.2 Traditional Retailer
Traditional retailers are the guys who sell their products by means of a retail outlet shop or
stores. They also involve directly with the customers for sales and after sales services. The
difference between them and the manufacturers are they will not involve in the manufacturing
of any product but they will buy the products from their respective suppliers who are indeed
the manufacturers. Some examples of the traditional retailers are H&M, Zara in apparel market.
1.1.3 Online Retailer
Online retailers are the guys who involve in selling the products through the internet. They
don’t own any shop or they don’t produce any products. Like the traditional retailers, they will
buy their products from supplier who are the manufacturers or a traditional retailer and sell
these products in the online. Some of the well-known names are Zalando & amazon.
1.1.4 Single channel retailer
When the above-mentioned merchants involve with the customers through a single medium
like shops or internet etc. for selling their products to their customers. They are called as single
channel retailers.
1.1.5 Multi/ Omni channel retailer
Multi or omni channel retailers are people who use all the medium like shop, internet, gadgets
etc. as their medium for selling their products to the customers. For example, like Benetton,
Zara etc. since due to the growing market these days most of the merchant has become a omni
channel retailer.
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Figure 1 Types of merchants
1.1.6 Managing the Returns
The management of returns vary for traditional commerce and e-commerce. The return
management process in a traditional commerce always starts from customers and finishes when
reaches the manufacturer.
Flow of returned goods
Figure 2 Return management process
These days return management practices are not only followed in the traditional commerce but
also used in the e commerce sectors due to the emerging growth in the e commerce field.
1.1.6.1 Traditional commerce
Traditional Commerce or Commerce is a part of business, which encompasses all those
activities that facilitate exchange. Two kinds of activities are included in commerce, i.e. trade
and auxiliaries to trade. The term trade refers to the buying and selling of goods and services
for cash or kind and auxiliaries to trade, implies all those activities like banking, insurance,
MANUFACTURER
RETAILER
END
CUSTOMER
ONLINE
RETAILER
Manufacturer Retailers Customer
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transportation, advertisement, insurance, packaging, and so on, that helps in the successful
completion of exchange between parties.
In finer terms, commerce encompasses all those activities that simplify the exchange of goods
and services, from manufacturer to the final consumer. When the goods are produced, it does
not reach to the customer directly rather it must pass from various activities, which are included
under commerce. Its main function is to satisfy the wants of consumers by making goods
available to them, at the right time and place.
1.1.6.2 E-Commerce
E-Commerce or electronic commerce refers to the exchange of goods and services, funds or
information, between businesses and consumers using the electronic network, i.e. internet or
online social network. e-Commerce means trading and aiding trading activities, using the
electronic medium, i.e. all the activities like purchasing, selling, ordering and paying are
performed over the internet. The scope of e-commerce is discussed in the following points:
B2B commerce: When the business transaction takes place between two business houses,
through the electronic channel, it is called B2B commerce.
B2C commerce: When the exchange of goods and service takes place between the business
entity and the customer, over the internet, then it is known as B2C commerce.
C2C commerce: When the buying and selling of goods and services take place between
customers using electronic medium, then it is called C2C commerce.
Intra-B commerce: When the exchange occurs within the firm or business house, with the use
of electronic media, it is called as Intra B-commerce.
1.1.6.3 Traditional commerce vs E Commerce
The following points are noteworthy so far as the difference between traditional commerce and
e-commerce is concerned:
A part of business, that focuses on the exchange of products and services, and includes all those
activities which encourage exchange, in some way or the other, is called traditional commerce.
e-Commerce means carrying out commercial transactions or exchange of information,
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electronically on the internet. In traditional commerce, the transactions are processed manually
whereas, in the case of e-commerce, there is automatic processing of transactions.
In traditional commerce, the exchange of goods and services, for money can take place, only
during working hours. On the other hand, in e-commerce, the buying and selling of goods can
occur anytime. One of the major drawbacks of e-commerce is that the customers cannot
physically inspect the goods before purchase, however, if customers do not like the goods after
delivery they can return it within the stipulated time. Conversely, in traditional commerce
physical inspection of goods is possible. In traditional commerce, the interaction between
buyers and sellers is direct, i.e. face to face. As against this, there is indirect customer
interaction, in the case of e-commerce, because it may be possible that the customer is miles
away from where they place an order for the purchase of goods.
The scope of business in traditional commerce is limited to an area, i.e. the reach of business
is limited to the nearby places where it operates. On the contrary, the business has worldwide
reach in case of e-commerce, due to its ease of access. As there is no fixed platform for
information exchange in traditional commerce, the business must rely on the intermediaries for
information fully. Unlike e-Commerce, wherein there is a universal platform for information
exchange, i.e. electronic communication channel, which lessen the dependency on persons for
information.
Traditional commerce is concerned with the supply side. In contrast, the resource focus of e-
commerce is the demand side. In traditional commerce, the business relationship is vertical or
linear, while in the case of e-commerce there is directness in command leading to a horizontal
business relationship. In traditional commerce, due to standardisation, there is mass/one way
marketing. However, customization exists in e-commerce leading to one to one marketing.
Payment for transactions can be done by paying cash, cheque or via credit card. On the other
hand, payment in e-commerce transactions can be done through online payment modes like
credit card, fund transfer, etc. The delivery of goods is immediate in traditional commerce but
in the case of e-commerce, the goods are delivered at the customer’s place, after some time,
usually within a week.
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Basics for comparison Traditional commerce E commerce
Meaning Traditional commerce is a
branch of business which
focuses on the exchange of
products and services, and
includes all those activities
which encourages exchange,
in some way or the other.
e-Commerce means carrying
out commercial transactions
or exchange of information,
electronically on the internet.
Processing of Transactions
Manual Automatic
Accessibility
Limited Time 24×7×365
Physical inspection
Goods can be inspected
physically before purchase.
Goods cannot be inspected
physically before purchase.
Customer interaction
Face-to-face Screen-to-face
Scope of business
Limited to area. Worldwide reach
Information exchange No uniform platform for
exchange of information.
Provides a uniform platform
for information exchange.
Resource focus
Supply side Demand side
Business Relationship
Linear End-to-end
Marketing
One way marketing One-to-one marketing
Payment Cash, cheque, credit card,
etc.
Credit card, fund transfer etc.
Delivery of goods
Instantly Takes time
Table 1 Traditional commerce vs E-commerce
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1.2 Logistic channel
Logistics channel is the term refers to the network of all participants involved in the supply
chain in receiving, handling, storage, transportation and communication. The designing of a
logistic channel involves in designing the transportation, facility layout planning (warehouse),
storage system & picking system design.
The distribution network, whose nodes are the plants, the warehouses (central and regional
warehouses, transit points) and the points of sale.
The transportation systems (connections) which connect the nodes of the network.
Figure 3 Logistics channel
The logistic channel has the following functions: consolidation/sorting/transport optimization
is collection from upstream of large lots (in terms of both quantity and time) and preparation
of the materials that are required downstream, product mixing: gathering together all the
different product lines which are manufactured in different plants, customer service: reduce the
order cycle time and increase the order cycle time reliability, efficient inventory holding: keep
efficiently the safety and cycle stocks which are deemed necessary within the supply chain (to
tackle uncertainties and to smooth operations).
1.2.1 Distribution network
A distribution network is an interrelated arrangement of people, storage facilities and
transportation systems that moves goods and services from producers to consumers. A
distribution network is the system a company uses to get products from the manufacturer to the
retailer. A fast and reliable distribution network is essential to a successful business because
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customers must be able to get products and services when they want them.
1.2.1.1 Local distribution network
Local distribution network plays a key role in both forward and reverse supply chain process.
It the point where the forward supply chain end. That is the product reaches the customer from
the regional warehouse. While in the reverse supply chain it the point where the supply chain
process starts from the collection of return goods from the customers to the regional return
center or a collection point.
Figure 4 Local distribution network
Where the below mentioned formula is normally used for calculating the local distribution cost.
LDC = f (dRW i- Ak + dAk; Fkm; #del)
Where here
#del – no of deliveries per year
Fkm - fare in (euros/km)
dRW i – distance between regional warehouse to delivery area
Ak -distance with in the delivery area
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1.2.1.2 Primary distribution network:
Primary distribution network is the other part of the distribution which involves the
transportation routing from the central warehouse to the regional warehouse and supplier to the
central warehouse in a forward supply chain network while in the reverse logistics it deals with
the planning of transportation routing from regional return center or collection point to
centralized return center where the return products are kept for storage. Where medium of
transport which is mainly used in the primary distribution is the road transport where we will
use a truck for transporting. The truck consists of trailer or a semi-trailer for the storing of in
transit goods. These trucks normally carry a full truck load during the forward supply chain
process from central warehouse to the regional warehouse. While in the return they will go
empty are with less than truck load. These are called backhaul trips where the return journey
of a vehicle from its destination to its point of origin with a non- paying load and/or paying
load. These shipments are sent on return vehicle.
1.3 Warehouse System
Warehouse are the place where we keep the inventories, guarantee a determined safety stock
coverage, decouple asynchronous processes, to keep the goods safe. they also involve in flow
management or material handling. transform the flows from Full pallet loads to customer
orders, from unpacked products to packed products, from untailored products to tailored
products. The warehouse normally consists of storage system, picking system and material
handling system.
1.3.1 Types of storage system
Storage systems for big size UL (typically pallet loads): Block stacking, Rail racks (drive-
in, drive-through), Selective pallet racks (served by counterweight forklift trucks, straddle
reach trucks, turret trucks), Flow racks (gravity, push-back)
Storage systems for small size UL: Miniload, Carousels (vertical, horizontal), Vertical AS/RS
systems
1.3.1.1 Drive-in or Drive-through Systems
Storage systems like block stacking, but provided with racks to carry the unit loads. One item
per lane. They provide a higher exploitation in height, (particularly relevant if UL cannot be
stacked). Special trucks are required to enter the lanes (width = 1 meter). In Drive-in systems
access to the lanes is only from one side, thus implying a LIFO stock management for the lane,
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while in drive-through systems it is from both sides thus permitting a FIFO stock management
for the lane. Like block stacking, these systems are useful for articles with high inventory level.
1.3.1.2 Pallet/Case Flow Rack Systems
Storage systems made by uprights sustaining slightly inclined roll conveyors, to enable gravity-
based movement. Low selectivity (only the UL facing the aisle is directly accessible). Each
channel is dedicated to one article. Low retrieval times (high facing density). Useful for articles
with a medium-high stock level. Cost is high (150-200 euros per UL location)
1.3.1.3 Selective Pallet Rack Systems
Storage systems typically made by couples of racks separated by working aisles. Racks are
made by joining uprights (vertical elements) and beams (horizontal elements). Selectivity is
high. It is equal to 1 in case of single deep storage racks. Each bay can hold more than one UL
(depending on the characteristics of the UL), i.e. a bay can have more than one pallet location.
They can be used simultaneously to stock full pallet loads and as picking stock. Their cost is
low, around 20-30 euro per UL location.
Figure 5 Selective pallet racks
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1.3.1.4 Carousel:
Carousel are highly flexible semi/fully automated vertical carousel designed to provide high
storage density for bulky and heavier items. This automated storage system works by delivering
the product directly to the operator, eliminating climbing and bending to retrieve heavy and
bulky items. The carrier in this mechanical shelving concept is frequently customized for
unique applications that do not conform to conventional systems.
Figure 6 Carousel
Increases Available Storage: The Shelving Carousel can increase your available storage
capacity by utilising the vertical space normally unoccupied by static shelving systems. With
a variety of large carrier sizes the Shelving Carousel can haul up bulkier items which cannot
normally be stored in a typical vertical carousel. Moreover, line of Shelving Carousels can
receive a heavy-duty upgrade which provides lifting capacities of up to 34,000 lbs, 15,422 kg.
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Fast and Effective Retrieval Times: Automated vertical carousels such as the Shelving
Carousel increase the effectiveness of order processing through a combination of quick
retrieval times and increased picking accuracy. The Shelving Carousel can be integrated with
order processing software that will not only track your inventory but process pick lists which
provides fast, reliable, and worry free retrieval.
Increase Health and Safety: Implementation of the product to person principle eliminates
wasteful and harmful steps for stocking and retrieving parts. Shelving Carousel ensures that
operators are working at ergonomically acceptable heights, this reduction in unnecessary
bending, walking, and other haphazard retrieval techniques such as ladders and cherry pickers
increase workplace health and safety.
1.3.3.5 AS/RS Miniload system:
An automated storage and retrieval system (ASRS or AS/RS) consists of a variety of
computer-controlled systems for automatically placing and retrieving loads from defined
storage locations. Automated storage and retrieval systems (AS/RS) are typically used in
applications where:
• There is a very high volume of loads being moved into and out of storage
• Storage density is important because of space constraints
• No value is added in this process (no processing, only storage and transport)
• Accuracy is critical because of potential expensive damages to the load
An AS/RS can be used with standard loads as well as nonstandard loads, meaning that each
standard load can fit in a uniformly-sized volume; for example, the film canisters in the image
of the Défense Visual Information Center are each stored as part of the contents of the
uniformly sized metal boxes, which are shown in the image. Standard loads simplify the
handling of a request of an item. In addition, audits of the accuracy of the inventory of contents
can be restricted to the contents of an individual metal box, rather than undergoing a top-to-
bottom search of the entire facility, for a single item.
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Figure 7 AR/RS Miniload
1.3.1.6 Design Parameters and Cost Indicators
Storage capacity (SC) - Number of Unit load locations (with dimensions: a x b x h and a
determined weight capacity)
Throughput capacity (TC) - Flow of Unit Loads [UL/h], Input capacity (only storage
activities), Output capacity (only retrieval activities).
Storage cost / (UL location) [€/(UL*year)]: Annual cost of Building and facility services,
Racks, Part of the annual cost related to general facility services
Handling cost / (UL handled) [€/UL]: Annual cost of Materials handling system, Labour
(handling operators), Energy consumption related to handling, Handling equipment
maintenance
1.3.1.7Allocation Policies
Randomized Storage, the unit load can be stored in each pallet location, if available
Retrieving index: NO of UL retrieved from the storage system at time t
Access index: RI/ no of locations assigned at time t
Where RI- Retrieval index
Dedicated Storage, the unit load of a specific item must be stored in a specific set of pallet
locations (usually based on the AI, i.e. the items with the highest access index must be stored
in the pallet locations closest to the Input/output)
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Class Based Storage, the unit load of a specific family of items must be stored in a specific
set of pallet locations (usually based on the AI).
1.3.2 Material Handling system
Material handling system involve in flow management or material handling. transform the
flows from Full pallet loads to customer orders, from unpacked products to packed products,
from untailored products to tailored products.
1.3.2.1 MH Equipment Classification
1. Containers (pallets, skids, tote pans) and unitizing equipment (stretch wrap, palletizers)
2. Material Transport Equipment
a. Conveyors (chute, belt, roller, wheel, slat, chain, trolley, sorting)
b. Industrial vehicles (walking, riding, automated)
c. Monorails, hoists & cranes
3. Automatic identification and communication equipment
1. Automatic identification and recognition (bar-codes, radio frequency tag)
2. Automatic paperless communication (voice headset, smart card)
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1.3.2.2 Types of pallet handling trucks:
Walkie stackers: Mainly used to move horizontally the pallet loads and to load/unload the
trucks
Front loading forklift trucks: Used to move the pallets both horizontally and vertically, Two
main typologies: counterbalance forklift trucks (Max forks height 6 m, Min aisle width 3 m),
straddle reach trucks (Max forks height 10 m, Min aisle width 2,5 m)
Side loading forklift trucks: Used to move the pallets both horizontally and vertically, usually
in the aisles
More expensive than front loading forklift trucks, Two main typologies: side loaders (Max
forks height 14 m, Min aisle width 1,5 m), turret trucks (Max forks height 14 m, Min aisle
width 1,5 m)
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Table 2 Comparison Between Trucks Serving Single-deep Selective Racks
1.3.3 Picking system
The selective retrieval of unit loads from high-level unit loads or single pieces/cases from racks
or plastic crates (where they were previously inserted) to fulfil customer purchase orders. As
far as picking is concerned a customer order is a collection of several order lines, each one
requesting a defined quantity of a specific SKU/item.
Figure 8 Types of picking system
1.3.3.1 Picker to parts
The picker carries out a “picking mission” within the “picking area”, visiting in sequence all
the locations which are detailed in the “picking list”.
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Figure 9 Picker truck
1.3.3.2 Parts to picker
The pickers work in one or more picking stations. The pallet loads of the items detailed in the
picking list are retrieved from the storage area and carried in sequence to the pickers who pick
only the quantity required in the picking list. Then the pallet loads, unless finished, are put to
store again.
1.3.3.3 Pick to box
The pick-to-box system divides the picking area into picking stations (also called ‘picking
zones’), each of which normally dedicated to one or more pickers. The picking stations are
connected by a conveyor on which bins are placed, that are filled with picked items. Each bin
corresponds (partially or completely) to a customer order (“order picking” policy).
1.3.3.4 Pick and sort
Pickers retrieve the quantity of each single item resulting from the batching of multiple orders
(wave) and place these onto a takeaway conveyor connecting the picking area to the sorting
system. In some cases, takeaway conveyor is not implemented.
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1.3.4 Sorting
It is a process through which the goods are divided per their destination (customer,
geographical area, etc.). It is required only if the goods have been picked in “batch”, i.e.
collecting together the goods requested in more than one order. It can be manual or automated
(sorting machine).
1.3.5 Packaging
It is the process by which single pieces are assembled in boxes/cases (secondary packaging)
and the boxes/cases are weighted and labelled and/or boxes/cases are assembled into Unit
Loads (tertiary packaging)
1.3.6 Transport Oder Consolidation
It is the process through which the Unit Loads (for single customers or single destination) are
assembled into a Transport Load, including also the final check and the matching with the
shipping note.
1.4 Facility Layout design & planning
Facility: Facility is area where we will provide services or involve production or storage. They
can be retail store, production plant, warehouses.
Layout design & planning is one of the main process involved in the construction of the
regional or centralized return centers irrespective whether we are building a new one or
modifying the existing one. This process involves in defining the placement of departments,
equipment’s and storage areas.
Facility layout, either for a plant, a warehouse or a workspace deals with specifying physical
location of: Departments, workshops, Machines, storage areas, Including; offices and business-
related service areas
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Figure 10 Facility Layout
The proper planning of facility layout helps in establishing material flow patterns, optimize the
usage of manpower, machinery, space & time. They also involve in establishing successful
operations. They also mainly needed for Maintaining flexible installations of equipment,
considering both the need of future enlargements, or future changes in the production cycle,
Reduction of costs, through careful use of equipment, Rational use of labour, ensuring safe
working conditions, Improvement of safety and comfort, while eliminating harmful factors
(e.g. noise, vibration, fumes).
6
1.4.1 Characteristics of an Effective Layout Design
• Material flow planning
• Routes and provisions sufficiently linear
• Buildings configured per a systematic prearranged plan
• Stable production times
• Reduced amount of material in the production cycle
• Minimum distances for the transport of WIP material
• Minimization of manual transport
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• Minimization of transport of materials between operations and the absence of unnecessary
loading and unloading
• Storage and transport of goods organized, definition and standardization of loading units, etc.
• Future expansion plans are considered.
1.4.2 Types of layout
Once we start to design a layout we should involve in planning which type of layout we are
drawing. There are basically two types of layout.
Block Layout: Location, shape, and size of each department Concerned with “Macro” flows
in the facility.
Detailed Layout: Location of equipment, work benches, and storage areas within each
department Concerned with “Micro” flows in the facility.
1.4.3 Material flow systems charts
Before we start with the design we should also plan for what type of material flow will take
place or the material flow which is taking place in the exciting plant should be checked. They
are basically designed based on two types.
Material flow within departments (process/product), and
Material flow between departments (inward/outward)
1.4.3.1 Flow within a Product Department
Intended to produce a single product or product range undiversified Suitable for mass
production (automotive, food, etc.). Continuous transport of material/product (belt conveyors,
roller conveyors, overhead conveyors, etc.)
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Figure 11 Layout of flow in product department
Flow within a Product Department (sequential): a. End to end, b. Back to back, c. Front to front
(one operator), d. Circular (one operator), e. Odd angle.
15
Figure 12 Types of flow in product department
1.4.3.2 Flow within a Process Department
The flow inside the process department can be Identical/similar machines are grouped together
(=shops), Batch by batch process, Discontinuous movement of material/product.
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Figure 13 Layout of flow in process department
Flow within a Process Department: Similar or identical machines a. Parallel, b. Perpendicular,
c. Diagonal (one-way aisles, less space required but less flexible)
Figure 14 Types of flow in process department
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1.4.4 Systematic Layout Planning 10 Designing a layout for a facility involves a series of systematic steps. The systematic layout
planning is defined as (SLP) is a tool used to arrange a workplace in a plant by locating areas
with high frequency and logical relationships close to each other. The process permits the
quickest material flow in processing the product at the lowest cost and least amount of
handling. Thus the (SLP) involves series of steps starting with analysis of initial data like lot
sizes, layout arrangement and building configurations. The next step involves with selecting
the internal transportation. Then we must check the flow systems, safety for doing the work
place design and departments localization. Where we will now make a draft layout, and based
on the cost analysis and mathematical model we will select the best layout out of others. The
steps involve in the layout design phases are shown in figure 15.
Figure 15 Layout design phases
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1.5 Steps involved in return management
1. Forecasting of the return products
2. Planning of local distribution network
3. Planning of Regional distribution network
4. Facility Layout design & planning of regional return center
5. Facility Layout design & planning of centralized return center
6. Designing of warehouse system
Forecasting of the returns: Forecasting of return involves the same procedures used in
the demand forecasting. Normally using the predictive model for solving the issues of
uncertainty by using the continuous distribution phenomenon. For ex: normal distribution.
Planning of Local & Regional Distribution: Transportation of return good should be
planned carefully and cost effectively. Where they involve in transit cost so we should
transport it as soon as possible.
Facility layout design of RRC & CRC: Regional return center and centralized return
center are the main segment in reverse logistics. So, planning to open or modify these
existing facilities involves a great task and must be carefully evaluated.
Designing of warehouse system: planning the facility layout design involve planning the
detail sketch what are systems should be used inside the facility. Thus, selection of different
types of storage and picking system plays a crucial role in reducing cost and providing
better service.
These are the basic necessary step involved in designing a return management process for
all types of retailers & manufacturers. While in case of third party logistics providers the
above-mentioned steps are a must and they should be carefully evaluated and planned for
their business.
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Chapter 2
2 Return Management Challenges and Models
2.1 Challenges involved in Return Management
Designing a reverse logistics process or the return management is tedious process. There are
lot challenges involved in designing. Since the reverse logistics network is very complex and
we cannot predict when which customer will return which type of product and when it will be
returned to which place by means of which medium. Some of challenges are mentioned below.
2.1.1 Uncertainty
Since the uncertainty of recovery features, remanufacturing enterprises are often faced with
remanufacturing planning, inventory and recovery network design and management issues.
Therefore, it is necessary to analyse the uncertainty of recovery management process, it can be
summarized as follows:
(1) Uncertain amount of waste materials recycling
(2) Uncertainty of recovery and arrival time
(3) Uncertain of returned products quality
(4) Uncertain demand of recovered goods
(5) Uncertainty of remanufacturing and other process cost
2.1.2 complexities of the reverse logistics process
Different types, different conditions are mixed with waste materials, resulting in
remanufacturing process are quite different, making the uncertainty of recovery cost. These
uncertainties result in complexity of reverse logistics, including production planning,
inventory, organizational model, network design management.
2.1.3Environmental Issues and Communication
1. Involves areas such as recycling, legal requirements, green practices, and disposal practices.
2. Involves areas of asset visibility, system integration, real-time
information updating, and package tracking.
Top Management Support: Involves areas of organizational buy-in, continuous improvement,
definition of mission for the system, and clear purpose.
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2.1.4 Customer Support
Involves areas of effectively and efficiently meeting established customer service levels,
resolving order disputes, product protection, and achieving established customer support
metrics
2.2 Models for Reverse Logistics Proposed in Literature
2.2.1 Model on Facility planning - Mehran & Soroush Model:
Mehran and Soroush in their paper, proposed a mathematical model to minimize the setting
cost and relevant transportation costs involved in facility planning and RL network. Using this
model, they seek to find a solution for optimized design of reverse logistic network and best
recovery situation.
2.2.1.1 Conceptual Model
A facility location model for the reverse logistics systems, in which both direct and reverse
flows must be considered simultaneously by O.E.M, is presented. The model has been
developed for the case of a remanufacturing/manufacturing system. The results showed that
reverse flows influence the decisions about facilities locations and flow allocations. So, the
manufacturer would have the significant role in this network and needs to supervise the whole
treatment process and develop efficient recovery techniques to minimize the costs.
Figure 16 Mehran & Soroush conceptual model
In figure 2.1 model for R.L network
C: Collection center I: Inspection center Re: Recovery center Wh: Warehouse center
W: Waste gathering center
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2.2.1.2 Assumptions
Collection center: center in which returned products are collected and separated.
Inspection center: A center in which separated returned products are inspected, tested and
then sorted.
Recovery center: A center in which sorted returned products are reprocessed for recovery.
Warehouse center: A center in which recovered products are stored and waited for
distribution.
Waste gathering center: A center in which unrecoverable returned products is collected.
The potential locations for setting up the distribution-collection centers are assumed, where the
optimal locations of these facilities will be found among these locations by running the
proposed model. For each center, the capacities for stocking new returned products may be
different and the costs of setting up these capacities are varying. The distance between
inspection centers and waste gathering center, also between recovery centers and warehouse
center are equal. There is only one system for products transportation. There is not any product
flow between similar centers. The warehouse and waste gathering centers each one have only
one location.
2.2.1.3 Mathematical Model
To build the mathematical model, indices, parameters and decision variables have been defined
as the following:
FCm: The fixed cost of opening a collection center with capacity level, m
FIm: The fixed cost of opening an inspection center with capacity level, m
FRem: The fixed cost of opening a recovery center with capacity level, m
dij: Distance between ith collection center and jth inspection center
d’jq: Distance between jth inspection center and qth recovery center jq d
d’jw: Distance between jth inspection center and Waste gathering center jw d ′
d’’qwh: Distance between qth recovery center and Warehouse center qwh d
m: Center capacity level
CTk: Transportation cost of product type k, per distance unit
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mi: Maximum potential capacity of collection center in capacity level, m
m'j: Maximum potential capacity of inspection center in capacity level, m
m"q: Maximum potential capacity of recovery center in capacity level, m
nk: Amount of returned products, type k
N: Total amount of returned products number
α: Percentage of returned products type k, to be cannibalized
Ic: Maximum number of collection center
J: Maximum number of inspection center
Q: Maximum number of recovery center
Figure 17 objective function Mehran & Soroush Model
In the figure 17 The first three section of objective function are fixed costs of each open
facilities. The last two parts are total products transportation costs between open centers.
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Figure 18 Constraints Mehran & Soroush Model
In the figure 18 (6) indicates that all returned products must be collected in collection centers.
(8), (9), (11) shows that in each potential location only each facility with one capacity level can
be installed. (11), (12): Maximum numbers of facilities may be existing
2.2.2 Model on Multi -Product and Multi-Period Facility Location
Benaissa Model
Benaissa in his paper proposed a model for optimizing of the sites facility location for a reverse
logistics network for product end of life. Specifically, it uses a Mixed Linear Program model
for the strategic problem of collection sites facility location, cannibalization and recycling. This
model allows determining to open or to close the sites previously in the reverse logistics
network. These decisions are to minimize the costs of end of life product returns at various
time periods considered in the planning. To solve the mathematical program, we have used the
evaluation process and separation implemented in CPLEX commercial solver
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2.2.2.1 Conceptual Model
The proposed model aims to determine the sites to open or to close each period and the flow
of goods between the different sites that make up the reverse logistics network (site collection,
site recycling and landfill).
Figure 19 Multi facility conceptual model
The proposed model aims to determine the sites to open or to close each period and the flow
of goods between the different sites that make up the reverse logistics network (site collection,
site recycling and landfill).
In this model, we assume that: The location of potential sites for the collection and treatment
is known at period. The costs of opening the site and transportation costs are known in advance.
The capacity of each site is limited to the period. The cost of investment and divestiture of a
portion of capacity at a site from one period to another are fixed. The various costs considered
in the different nodes are: opening site cost and cost of unit transportation of products at the
end of life. several products at the end of life to be recovered by the company and no storage
in collection sites. no storage in the collection site.
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2.2.2.2 Mathematical Model
Indices:
p: end of life product index, p = {1, 2, …P}
i: customers, I = {1, 2, …I}
j: potential collection sites, j = {1, 2, …J}
t: time period t = {1, …. T}
k: potential recycling sites k = {1, …K}
k’: potential landfill sites = {1, …K’}
Fjt: fixed cost of collection site j
Fkt: fixed cost of recycling site k
Fk’t: fixed cost of landfill site k’
Cpijt: cost of transportation from customer i to collection site j
Cpjkt: cost of transportation from collection site j to recycling site k
Cpjk’t: cost of transportation from recycling site k to landfill site k’
Ymin: minimum no of collection sites to open
Zmin: minimum no of recycling sites to open
Wmin: minimum no of land fill sites to open
M: a constant size A
Gt: sum of customers return at time t
Decision variables:
Yjt: Binary variable equal to 1 if site j is open at time t
Wk’t: Binary variable equal to 1 if site k’ is open at time t
Zkt: Binary variable equal to 1 if site k is open at time t
X Pijt: end of life products quantity stored at customer I and transported to the collection site j
in period t
X Pjkt: end of life cycle products quantity to recycled and transported from the collection site j
to recycling site k at period t
X pjk’t: end of life products quantity to be eliminated and transported.
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Figure 20 Benaissa model objective function and constraints
50
The main objective of this mathematical model is the determination of the collection and
treatment sites (site of recycling and landfill) location in each period and the flow between
these sites. This model aims to minimize the costs of end of life products recovery. The
mathematical model specifies is the variety of end-of-life product and multiple periods. In the
figure 20 the constraint (2) describes that all the end of life products is collected by the
company. Float balance between the different sites is assured by constraint (3). The respect of
the available capacity is provided by the constraint (4,5,6). Constraints (7), (8) and (9) ensure
that if a site is closed, the flow of incoming and outgoing products are zero, M is a size constant.
The respect of opening site constraint is provided by the constraint (10,11,12). Constraint set
(13) check for binary variables and the last constraint s (14) check for the non-negativity of
decision variables.
This model has presented a cost-minimization model for minimizing the total operating costs
of a multi-period, multi-type product reverse logistics system. By identifying the critical
activities and related basic requirements involved in the process of end of life reverse logistics
operations
2.2.3 Hierarchical Facility Location for the Reverse Logistics
Network Design under Uncertainty (Quan model)
One of the most important concerns of reverse logistics network design is to locate interacting
facilities in an efficient and cost effective manner, which forms a typical hierarchical system
with multiple layer configuration. Considering the hierarchical relationship and ow of waste
among the different facility types, both single-ow pattern and multi-ow pattern is discussed in
this paper. To model the hierarchical facility location problem in an uncertain environment,
two types of uncertain programming models, uncertain expected cost minimization model and
uncertain _-cost minimization model, are proposed per different decision criteria. It is shown
that these models can be transformed into their deterministic counterparts and then be solved
efficiently. Numerical examples are presented for illustration. Moreover, the optimal locations
for the reverse logistics network with different ow patterns are compared as well
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2.2.3.1 Conceptual and Mathematical model
Figure 21 conceptual model
Figure 22 single ow system
Figure 22 illustrates the single-ow pattern of the reverse logistics network, and some indices,
parameters, and decision variables related to this pattern are labelled in the figure as well. The
total logistics cost of this pattern consists of the transportation cost from residential points to
collection sites, from collection sites to transfer stations, and from transfer stations to disposal
centers, and the fixed cost of opening the collection sites and transfer stations. Denote by CSF
the total logistics cost of the single-ow pattern. It can be formulated as follows:
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Figure 23 single ow system constraints and objective function
Thus figure 23 gives the objective function and constraints for the single ow system. Based on
this we can calculate the cost using the objective function for the system under uncertainity.
Where this system consider that there is no any alternate route from the collection site. The
goods are collected only through a single way. Thus give an idea on how under uncertainity
the system works.
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2.3 Models for Facility Layout design proposed in books
2.3.1Muther’s Systematic Layout Planning (SLP) Procedure
Figure 24 Muther’s Systematic Layout
STEP 1: Material flow design with in the process or product area
STEP 2: Involves the Listing departments activities (e.g. 1,2,3…) and Reasons behind the
closeness value.
Code Reason
1 Same deck
2 Flow of materials
3 Service
4 Convenience
5 Inventory control
6 Communication
7 Same personnel
8 Cleanliness
9 Flow of parts
Table 3 Reasons for the closeness value
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STEP 3: Activity relationship which provides a diagrammatic figure on the closeness rating
between the departments
Figure 25 Activity relationship diagram
STEP 4: Relationship diagram:
Based on the material flow charts and activity relationship chart, a Relationship Diagram is
developed. It reflects relationships between pairs of activities and the space between them.
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Figure 26 Relationship diagram
Step 5: Space Relationship Diagram:
Based on space requirements, and the relationship diagram, a Space Relationship Diagram is
developed.
Figure 27 Space relationship diagram
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Step 6: Final layout
Based on the Space Relationship Diagram, check for any practical limitations (e.g. building
design, electricity connections, sewage system…etc.), then apply the required modifications
(if needed); afterwards, you can develop Alternative Block Layouts (figures below).
43
Figure 28 Alternative Layout
These are the steps used in the systematic layout design for the design of the facility
which can be a warehouse, retail store, production plant, regional center or the centralized
returned and later the different types of these layout are evaluated for the best results.
2.4 Storage System Design
There standard rule and procedures involved in the designing of the storage system. They start
with identification of design parameters, layout design and the throughput capacity assessment.
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Figure 29 storage system design steps
2.4.1 Layout Design
The layout design involves the following procedures for the designing a storage area, to
calculate no of levels used, module design, no of aisles design and bay column.
1. The choice of both the layout typology and the location of the
input/output points
2. Determination of the storage area: The bay design, The number of levels, The module design,
The determination of the required area
3. Determination of the optimal shape
4. Storage area design: Number of aisles, Number of bay columns, Real storage capacity
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Figure 30 Layout Design – Typologies
Figure 31 I/O location
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Figure 32 Bay design of single selective racks
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Figure 33 Module of single selective racks
2.4.2 Layout Design – Constraints
Imposed by the handling equipment: Maximum height that can be reached by the forks,
Minimum width of the aisles
Imposed by the building structure: Net height of the building, Maximum storage area, Position
of the pillars, Maximum load admitted (N/m2)
Imposed by the law (safety)
2.4.3 Number of Storage Levels
The maximum number of storage levels depends on the more relevant constraints between the
maximum height that can be reached by the forks and the net height of the building.
2.4.4 Area Utilization Rate (AUR)
To calculate the AUR it is sufficient to calculate it only for a module as the module is
representative of the whole storage area
AUR: NO OF STORED PALLETS/ MODULE AREA (UL/M^2)
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Chapter 3
3 Methodology and Model Formation
3.1 Problem Definition
As of 2000, product returns averaged approximately 6% of sales. The rate of return of products
is usually higher for books, magazines, apparels, greeting cards and electronics. Thus, taking
our case of apparel product sector. In online retailing, has soured over the last decade. Current
sales value of eCommerce retail sales is $294 million and might hit $414 by 2018.
Unfortunately, the rate of returns of online products is alarming. Based on the information from
Inves infographic on online return rates statistics, at least 30% of all apparel products ordered
online are returned compared to only 8.89% bough in brick-and-mortar shops. Where this
product return for apparel goods are found based on the statics from different countries. Where
in Europe the rate of return as per average is 25%, In America it is 56% while the rest of the
world is 19%. Though in the apparel sector 24% of the market increases with a growth of 2%
every year, but the return rate is also high. Where ecommerce return statics and trends
infographics states that 49% of retailers offer free return shipping. Because 79% of the people
purchasing online want a free and easy return process. While 92% of consumers will buy again
if the return rates are easy. Where 67% of shoppers check the returns policies before making a
purchase. Thus, we got some statics of 29% of retailers sell through two or three acquisition
channels, while the half of the retailers are selling through multi-channel and only 21% are
selling through one channel. In this market, even the cross- border trade is also involved where
88% national sellers, 30% are sellers from other regions of Europe and 18% are outside the
Europe. Thus, for example in the case of Zalando who is a well-established online retailer
experience a return rate of 50% of apparel products and in case of Zappas it is 25% as an
average.
Thus, typical reasons for product returns are due to defects mainly, in transit damage, trade-
ins, product upgrade, exchange for other products, refunds, repair, recalls and order errors.
Regardless of the reason for returns, many e-retailers (84%) must absorb this return cost for
the shipment and offer a money back for the guarantee for return goods making the products
return a major cost to the center. To control this cost of handling of returns most of the e-
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retailers and third party logistics providers (3PLs) have begun to examine ways to improve the
efficiency of product returns.
1. Reduction of return shipping cost by using economies of scale. By means of several
separate centralized collection points have been established to aggregate small
shipments in to large shipments.
2. Thus, this enhance the customer convenience for the product returns. This initial
collection points are located near to the customer population center can help customer
reduce their travel time to the collection points for the returns.
3. Reduction in in-transit inventory carrying costs associated with product returns. Since
in transit inventory carrying cost are proportionately related to the transit time of
transportation modes that are used for return shipments, one should consider the fastest
mode of transportation and environment friendly.
In the case of the returned goods we get 20% of the goods as received as damaged goods, 22%
product received looking different, 23% received as wrong items and 35% as other reason in
the case for the e-retailer. Where though the rate of return cannot be predicted naturally due to
uncertainties such as seasonality, holidays etc.
While these third-party logistics providers or e-retailers also have the problem in the following
1. Where to create a centralized collection points and how much it will cost
2. How much materials it can store and what are process involved inside the centralized
return center.
3. How to do a facility layout design for the centralized return centers and how to make
use of the returned products.
In our problem, we are taking all this in to considerations and we will formulate a model and
give an optimal solution based on our idea.
3.2 Objective
Our paper majorly focus on giving a solution for handling the returns of the retailers who are
selling the apparel goods through a single channel especially the online retailer. The model
which we are proposing in this paper is based on the idea of considering an e-retailer (single
channel) without a warehouse is working together with an (OEM) or a Multichannel retailer
with a central warehouse. Where we will consider that our (OEM) or the Multi-channel retailer
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will act as a 3PL provider for the e-retailer (single channel) for handling his returned apparel
goods. This process of handling the returned goods of the e-retailer (single-channel) is managed
along with the return goods of a multi-channel retailer. Thus, for the above proposed idea we
will develop a model and design the steps involved in the reverse logistics along with the cost
parameters involved in the return area for the multi-channel retailer.
Let for an illustrative purpose we are considering an online single channel e-retailers called (ab
apparels) and a multi-channel retailer named (cd retailers). where this cd retailers act as 3PL
provider for the returned products for the ab apparels along with their returned goods. Why we
are considering this type of idea because direct shipment is costlier when compared to the
indirect shipping due to frequent, small volume shipment that often requires a premium mode
of transportation, such as UPS small package delivery services. In addition, many customers
do not want to deal with handle of making shipping arrangements for returns through regional
postal services instead they would like to drop off their goods at one of the initial collection
points located near the residence or office.
Candidates for the initial collection points include local pharmacies, video-rental stores, 24 hrs
convince stores and gas stations. Since (ab apparels) doesn’t own any off the stuff and they
don’t involve in handling their returns they just need to pay for the service provider. While in
the case of the service provider (cd retailers) they do not own these collection points so there
will be no fixed cost such as land purchase, lease and property tax. However, the collection
points will incur variables cost associated with renting limited space designated for non-selling
returned products. Given the limited storage space of the initial collection points, returned
products at the collection points should be quickly transhipped to the regional return center
which are the stores of (cd retailers) located in the city. Where returned products will be
inspected for quality failure, sorted between damaged and potential goods and stored for some
period for re-sale in the (cd retailer) stores. Then the remaining goods which are not sold are
moved to the centralized return center where all goods are sorted, inspection for the quality is
done and they are stored. Later they are sold for the secondary market and the damaged goods
as raw material for the other industries. Thus, the centralized return centers are dedicated to
return handling and processing. Both regional (cd retailer stores) and centralized return centers
(existing central warehouse) are owned and operated by (cd retailers). These centralized return
centers play a very critical role in linking the stores with the future customers. With the above
situation in mind we will study
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1. Cost involve in the above-mentioned procedures and how to minimize them.
2. Whether the located initial collection points are enough and they are located near the
area in such a way the travel time (or distance) from exciting and potential customer to
the collection points is minimized?
3. In which existing central warehouse to open the centralized return centers in a manner
that cost of transhipment between the stores and future demand locations are
minimized?
4. How to build the reverse logistics network in such a way that a timely pickup can be
made between initial collection points, stores (regional return center) and centralized
return centers. In such a way, the location of the initial collection points should be
within an hour travel distance for the regional return center(stores).
5. How many centralized return centers are needed.
6. Facility layout design for the regional return center and centralized return center.
7. Designing the storage system in these return centers.
To summarize the problem faced by the (cd retailers) is how to forecast the return goods and
select the initial collection points. How many centralized return centers are needed. Facility
layout design for the regional and centralized return centers along with the type storage system
needed with in these centers. What impact will be there in total cost because of the resold goods
in the regional return centers (stores) and damaged goods. Such above mentioned things
involve lot of trade off along with the decision aided tool like integer programming model for
the transhipment cost estimation, predictive model for the forecasting of return products and
along with a simulation study for the finding utilization rate of regional and centralized return
centers.
3.3 Model Design
3.3.1 Conceptual Model
For designing the reverse logistics process, we should have a better idea of the concept. In our
conceptual model, there are three steps involved in handling apparel returns namely Initial
collection points, regional return center (stores) and centralized return center.
65
Figure 34 Our model reverse logistic network
Thus, for the above-mentioned reverse logistic network we are going to build our conceptual
model.
3.3.1.1 Initial collection points
These centers which are used to collect the materials from the customers. Which acts as a link
between the customers and the regional return center (stores). We are renting here convince
stores, pharmacies, gas stations. So, there is only a variable cost for renting the small place for
storing the returned apparel goods.
3.3.1.2 Regional return center / retail stores
This is point which act as a link between the initial collection point and centralized return
centers. They collect the returned goods from the initial collection point. They are normally the
apparel goods selling store. Where these return, products are inspected for damage and kept for
reselling for certain period. Then the unsold and damaged goods are sent to the centralized
customers Initial
collection
points
Regional
return
center/
stores
Centralized
Return
center
Secondary
market
Parallel
Industries
(paint,
cement,
adhesives)
Returned apparel goods flow Damaged
goods
Rest of the goods
66
return center. This is owned by the multichannel retailer (cd retailers). So, there will be a fixed
cost in setting a place inside the store for inspecting and storing the returned goods.
3.3.1.3 Centralized return center
This place act as the link between the regional return center/ retail store and secondary market.
Here the products are inspected for quality and then they are stored and then sold to the
secondary market while the damaged goods to the other industries (paints, cement) as a raw
material has a process of recycling.
Figure 35 Conceptual model
3.3.2 Predictive Model of Forecasting
The first step in designing a reverse logistic process always start with calculating the demand
that is the rate of return which acts as the input. We will use predictive model. since we cannot
find how much products will be returned in the case of apparel goods. Uncertainty in this is
very common. They will also vary based on seasonality. So, will be using a predictive model
for forecasting returned good by managing uncertainties. Where we are taking in to
consideration a continues distribution model.
This continuous distribution describes the probabilities of the possible values of a continuous
random variable. A continuous random variable is a random variable with a set of possible
values (known as the range or support) that is infinite and uncountable. Probabilities of
continuous random variables (X) are defined as the area under the curve of its distribution.
Thus, only ranges of values can have a nonzero probability. The probability that a continuous
random variable equals some value is always zero.
Regional
retail store
Central
return
center
Initial collection points
67
In the continuous probability distribution, we are taking in to account normal distribution. For
generating the random variables. Where this random variable is built on as a normal
distribution. Where rate of return is normally distributed across a given specific region based
on the given mean and standard deviation. So, we are calculating the rate of return based on
this and randomly opening an initial collection point based on the to the customer’s location
and within the city limit.
Thus, we are using the following formula to build the model in the excel solver
Rate of Returns =INT (NORM.INV (RAND (), mean, std. dev)).
3.3.3 Model for local distribution
We are going to use the travelling salesman problem. The integer linear programming which
use will have TSP in our problem is formulated has follow for our model. This model will give
an exact solution for the local distribution network and to minimize the local distribution cost.
Where we will consider of renting a vehicle to collect all the returned goods in the initial
collection point. Thus, we will have a fixed cost of renting the vehicle and the labour (driver)
charge along with a variable cost of the consumption of fuel. This will give us the total cost of
local distribution.
{1,2………, n} - initial collection points in the city.
Xij = {1 - the path goes from initial collection point i to j, where 0 – otherwise.
For i= 1,2…., n - let ui be a dummy variable.
Cij- distance from city i to j
Thus, we can calculate the minimum distance based on the formula
n n
Min ∑ ∑ cij * xij
i=1 j=1
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Constraints.
0 <= xij <= 1 i, j =1, 2, ..., n;
ui € z i= 1, 2, …, n;
n
∑ xij =1 j= 1, 2, …., n;
i=1, i≠j
n
∑ xij =1 i= 1, 2, ..., n;
j=1, i≠j
ui - uj + n * xij<= n-1 2 <= I ≠ j <=n
The first set of equalities requires that each initial collection point be arrived at from exactly
one other initial collection point, and the second set of equalities requires that from each initial
collection point there is a departure to exactly one other initial collection point. The last
constraints enforce that there is only a single tour covering all initial collection points, and not
two or more disjointed tours that only collectively cover all initial collection point.
3.3.4 Mathematical Model for Primary Distribution network
The primary distribution network involves the transportation of damaged goods and potential
apparel goods which are not sold in the cd retail stores. These goods are transported from the
stores by using the backhaul trips of the trucks coming from the central warehouse. Because,
these backhaul trips will be mostly consisting of carrying an empty trailer or a semi-trailer. we
are, considering to transport it by backhaul trips since instead of sending the truck empty
without utilizing it to the full capacity. It is better to use them and the transportation price is
also less. So, we will make use of these trucks for transporting these goods to centralized return
center located in the central warehouses of the (cd retailers). Where these goods are already
inspected, and separated in the regional return center - cd retail stores. We are while loading
the items we will separate the damaged goods and the potential goods inside the truck as like
69
a compartmentation. We want to transport these goods as a single unit load. So, we are
considering the plastic tote as item for unitization of these apparel products.
Figure 36 Model for primary distribution network
In the figure 36 RR- regional return center/ retail store, C- centralized return center, D – demand
or future customer points.
Thus, now we can calculate the transportation routing based on the above given model.
Where the total Distribution cost= variable cost (transport cost) + fixed cost (centralized,
regional return centers)
3.3.4.1 Mathematical Model
To build the mathematical model, indices, parameter and decision variables have been defined
as the following
r
r
r
r
r
r
RR1
RR2
RR3
RR4
RR5
RR6
C1
1
C2
C3
D1
D2
D3
D4
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Indices:
i: Regional return center/ retail stores; 1, 2, ……., I
j: centralized return center; 1, 2, …., J
k: future demand points; 1, 2, ……, Q
p: Product kind; 1, 2, ……., P
Parameters:
Cij: cost of transportation from i retail store/ regional return center to j centralized return center
for unit plastic tote
Cjk: cost of transportation from j centralized return center to k future demand point for a unit
plastic tote
Fj: fixed cost for setting up centralized return center.
dij: distance between the regional return center i and centralized return center j.
djk: distance between the centralized return center j and future demand points k
Mj: maximum capacity of centralized return center j
Dk: demand from future demand point k
Pi: number of products (potential & damaged goods) returned from regional return center i
Decision variables:
Xij: flow amount from regional return center i to the centralized return j. (damaged & not resold
goods)
Xjk: flow amount from centralized return j to the future demand points k. (damaged & not resold
goods)
Yj: Binary variable Yj: 1 if centralized return center is open, Yj: 0 otherwise.
Objective Function:
Cpd = ∑ ∑ Cij dij Xij + ∑ ∑ Cjk djk Xjk + ∑ Fj Yj
i j j k j
Cpd : cost for primary distribution
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Constraints:
∑ Xij > ∑ Xjk ¥ j € J 1
i k
∑ Xij = Pi ¥ i € I 2
i
∑ Xjk >= Dk ¥ k € K 3
k
∑ Xij <= Mj ¥ j € J 4
i
∑ Xij <= Mj Yj ¥ j € J 5
i
Xij, Xjk >=0 ¥ i € I, ¥ j € J, ¥ k € K 6
Yj € {0,1} ¥ j € J 7
Thus, we have derived the objective function which is the total primary distribution cost. While
the constraints (1) represent the product flow, (4) on capacity of centralized return center, (5)
fixed cost for installing the centralized return center. (2) product return rate. Thus, with this
above equation we are trying to do the sensitivity analysis based on varying the damaged goods
and potential goods percentage which will have major impact on opening of centralized return
center and cost calculation.
3.3.5 Facility layout design for Regional return center and
centralized return center
3.3.5.1 Regional return center/ Retail outlet shop
Facility layout design is one of the main part in installation of new return center or to modify
these return centers. We are considering here that there is an extra vacant space available in the
retail stores of (cd retailers) in all the major cities. We will now use the Muther’s systematic
layout planning procedure to build our layout for the storage and selling area for the returned
goods.
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3.3.5.2 Departments & activities in regional return center
There are primarly five areas in the regional return center. They are primarly classified based
on the physical activities involved in them.
Receiving & Shipping: This is the area where we will receive our goods from the initial
collection points via truck and shipping is place where we will the potential goods and damaged
goods in truck for transporting it to the centralized return center.
Inspection area: This is the department located next to receiving. Where will check the goods
for quality check and we will sort the products in to two categories namely the potential goods
which can be resold and the damaged goods.
Packaging & rfid: Once this goods are sorted they are packed and the price tags are labelled
in the potential good products for resale.
Figure 37 Activities in regional return centers
Receiving
Inspection
Packaging & Rfid
Damaged goods storage
racks Potential goods storage
racks
Retail outlet store racks System clearance &
shipping
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Storage area: The storage area consist of three thing. The storage racks for damaged goods,
storage area for potentially good goods and the retail sale area for selling the potentially good
products. Where the items are stored for considerable amount of time for example three days.
Then they are moved back to the potential goods storage racks.
Figure 38 Material flow in the product department of RR
System clearance/ Transport consolidation: This is a major area where after this the goods
will be sent to shipping. The potential goods which are not sold and damaged goods are picked
by means of picker to parts mechanism. Here we don’t need any picking truck or others since
we are storing only a small amount of goods. So, it can be handled easily. Then they are system
cleared and they are made as unitized load using plastic tote for transportation consolidation.
Figure 39 Plastic tote 35
Specifications:
OD - 300 x 210 x 160 mm
Effective HT. - 85 mm
Receiving
Quality Inspection
Packing & Rfid
storage
Retail store
storage
racks
System
clearance shipping
74
Where the
Yellow colour bin: damaged goods
Blue colour bin: potential goods
Conveyer are used as medium of transport to packaging and RFID tagging area
Containerization: Assembling of items in a box or a bin (up to a large “container”). It is quite
suitable for use with conveyors, especially for small items. Where the unit load can be achieved
based on this. Thus, we will load the items coming from the shipping in the plastic tote from
quality inspection till the loading the truck.
3.3.5.3 Layout Assessment: Closeness Rating
Thus, these department areas are planned and systemized by using the Muther’s systematic
layout planning procedure. Thus, we will finally have many alternative layout using this
principle. Where we opt the best out of the other layout. We will use the closeness rating as
point for layout assessment.
Z = ∑ ∑ wij * Dij
I j
Dij = distance between departments i and j
(be careful when using the negative value of wij)
wij = weight of closeness rating attributes between activities i and j.
Example of Closeness Rating (Muther):
A- Absolutely necessary wA = 20
E- Especially important wE = 10
I -Important wI = 5
O- Ordinary wO = 2
U- Unimportant wU = 0
X- Undesirable wX = -10
Two departments can be placed adjacent to each department with relationship value u but
should not be placed adjacent to each other with relationship value x. With the above procedure,
we will be able to design a layout for the regional return center.
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3.3.5.4 simulation study of regional return center
We will use the software any logic to check the system dynamics in the regional return center
to find the saturation level and utilization rate of the components and workers involved in the
process.
Figure 40 Any logic model of Regional return center
The above model is built based on the flow pattern of our product with in the regional return
center.
Where we have a front door, which is the receiving area, then the product goes to the qc- quality
inspection area and then to the pack- packing & RFID area, then goes to queue- storage area
and then to the queue1- retail outlet store. Where the product splits into two groups as
1. Damaged goods
2. Potentially resalable goods.
Once after the few days the potentially resalable goods which are not sold are moved to the
queue- storage area. Now both damaged goods and potential goods are moved to the system-
system clearance and at last they are shipped through the truck.
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We are now giving the inputs in the any logic model to find number of workers needed in each
area and their utilization rate. Then we do a strict sensitivity analysis based on the percentage
of damaged goods and resold goods to find the utilization rate so that we can finalize the
number of workers needed for each area.
Once we calculated number of workers needed in each area we will be calculating the cost
involved in regional return center.
Which involves Total cost: fixed cost + handling cost + inventory carrying cost
Where the fixed cost involves all the land value and the components used in the retail store.
While the handling cost involves the number of people working in regional return center and
the inventory carrying cost involves the insurance, depreciation, storage cost etc.
3.3.5.5 Centralized return center
Now we are doing a layout planning study for the centralized return centers of (cd retailers).
we are considering to open this centralized return center facility in the existing regional
warehouse location in the country. We are considering there are some excess space available
for the opening of new centralized return centers in those regional warehouses. Now we will
follow the same procedures which we used in the building a regional return center.
There are primarly five areas in the regional return center. They are primarly classified based
on the physical activities involved in them.
Receiving & Shipping: This is the area where we will receive our goods from the retail stores/
regional return centers via truck and shipping is place where we will the potential goods and
damaged goods in truck for transporting it to the future demand center.
Picking & sorting: This is the department located next to receiving. Where will check the
goods they are case picked and then sorted based on two categories namely the potential goods
which can be resold and the damaged goods which can be sold for other industries.
Storage area: The storage area consist of two parts. The storage racks for damaged goods,
storage area for potentially good goods
77
Figure 41 Activities in centralized return centers
Packaging & rfid: Before the packing we will have a outbound picking which will be a picker
to parts picking. We normally don’t need any picker trucks. If needed it can be of picker truck
reaching a maximum height of 3-4 metres. Later the picked items are sorted and packed
according to the destination.
System clearance/ Transport consolidation: This is a major area where after this the goods
will be sent to shipping. Then they are system cleared and they are made as unitized load using
for transportation consolidation.
Receiving
Case picking
Piece picking & sorting
Damaged goods storage
racks Potential goods storage
racks
System clearance &
shipping
Outbound Picking
Packing & Rfid
78
Figure 42 Material flow in the product department of CR
Thus, like the procedures which involved in the designing of regional return center. We will
use the same Muther’s systematic layout planning procedure for finalizing the layout.
3.3.6 Storage Rack Design
Design of storage rack play a key role in warehousing. We are considering to store the apparel
product in plastic tote to form a unit load by means of containerization. So, we are going to
design the storage racks and area and other parameters based on this unitization unit.
Figure 43 Plastic tote dimensions
Receiving
Case picking
Piece picking & sorting
Potential goods
storage area
Damaged
goods
storage area
Packing & Rfid
System clearance
&
shipping
300
m
600 mm
79
The plastic tote used for containerization as a dimension of
300mm * 600mm
Height = 600mm
3.3.6.1 Bay Design
Now we are taking the selective pallet racks a sample and we are going to design the bay using
the plastic tote.
Figure 44 Top view of bay
600 mm
2000
mm
Top view of the bay:
Height = 600mm +
50mm
Length = 2000mm
Lateral distance at
middle = 60 -80mm
Breadth: 600m
80
3.3.6.2 Module Design
The module is designed based on the above calculated bay dimension based plastic totes
Figure 45 Configuration A Module
configuration A Module area: 2 * 3.3 = 6.6m^2 while if we consider the
configuration B Module area: 3.8 * 2.7 = 10.26m^2
We are limiting this design for the storage rack only to the storage area. We are not designing
for the resale area of the store.
650mm 650mm 2m
2m
81
3.4 Summary
Thus, in this chapter we went through the problem faced in apparel sector these days in reverse
logistics. How much the designing of this system getting complicated these days. Then we gave
our objective and conceptual model. The steps involved in the reverse logistics is designed and
went through in detail for the proposed model. Thus, we went through the cost involved in
designing the RL network. We went much in detail for how to design a regional and centralized
return centers. We also designed the storage system for the proposed model. Where we
proposed a new unitization unit and we designed our storage racks and module design based
on these unitization units. Mathematical model is proposed by means of Integer linear
programming for the calculation of primary and local distribution network. We used the
software Anylogic to design the system dynamics involved in regional return center for our
proposed model.
82
Chapter 4
4 Experimentation and Discussion
An experimentation is done for our proposed model. We now calculate the cost involved in the
reverse logistics network and discuss on the results from the simulation study and for our
proposed mathematical model for our idea.
4.1 Result from the Predictive Model
The result which we get by applying the normal distribution for finding the rate of returns are
given in the table 4. Where here X and Y represent the co-ordinate area where there is potential
rate of returns. While Ec1 and Ec2 are the amount of returned apparel goods of the E-
commerce single channel retailer (ab apparels) while Mc1 represent the rate of returns of the
Multi-channel retailer (cd retailer).
Figure 46 Potential Customer return areas
The figure 46 will give detail idea on the place where there are major return rates experienced
from the customer in a major city. This chart is taken as the input for solving our problem of
return logistic network. where in table 4 we get a total demand on average of 475 products are
collected at the initial collection centers as a result for a single city. This return rate only
belongs to one potential major city. Like this we will be calculating for all other major potential
cities where there is a remarkable amount of product returns.
0
10
20
30
40
50
60
70
0 10 20 30 40 50 60 70
yco
-ord
inat
e
xco-ordinate
Customers location
83
CUSTOMERS CUSTOMER RETURNS
Area X Y Ec1 Ec2 Mc1 Total demand
1 0 10.3 9 5 4 18
2 10.3 14.6 7 4 2 13
3 20.6 12.2 7 6 4 17
4 22.3 34.5 9 5 4 18
5 22.7 32.7 9 4 3 16
6 24.7 45.6 6 5 3 14
7 26.3 23.8 6 5 4 15
8 28.1 34.7 10 5 2 17
9 30.7 23.8 9 5 5 19
10 33.5 32.8 8 4 3 15
11 36.2 46.9 8 5 2 15
12 60 21.9 7 3 4 14
13 57.4 56.7 5 5 4 14
14 52.8 32.3 8 5 4 17
15 44.9 43.6 11 3 3 17
16 38.5 15.8 8 6 4 18
17 42.1 12.8 8 3 4 15
18 41.8 17.6 8 5 5 18
19 45.8 37.9 7 6 3 16
20 47.3 35.2 8 6 3 17
21 49.7 54.8 8 5 4 17
22 52.1 57.9 6 4 4 14
23 56.8 0.81 7 5 4 16
24 54.2 54.9 7 5 2 14
25 0.78 34.9 6 5 4 15
26 1.65 43.9 9 4 3 16
27 5.86 45.9 7 6 4 17
28 59.7 34.9 7 4 4 15
29 15.3 43 5 5 5 15
30 43.9 42.1 10 4 3 17
Table 4 Potential Customer return areas and rate of returns
The value in table 4 will help us to constructs the potential initial collection points for these
customer locations. These initial collection points/ shops will have average maximum capacity
of holding 50 goods per day.
84
s.no x- co-ordinate y-co-ordinate
1 10 10.8
2 37.9 12
3 39.3 19.96
4 58.3 12.3
5 10 45.9
6 5.8 53.5
7 6.3 23.1
8 50 41.7
9 45.9 40
10 60.5 43.4
11 55 53.8
12 30 42.3
13 31.8 43.2
14 33 22.8
15 40.8 40.7
16 50.7 48.7
17 10.7 28.9
18 25.6 52.2
Table 5 Potential initial collection points
Based on the above data we get a scattered plot. While for the regional return center or the
retail stores the locations are x: 30 & y: 34.7.
Figure 47 Potential Initial collection points and Regional return center
From this above data and we will be able calculate the distance for each initial collection points
from the regional return center. We are getting the below mentioned value.
0
10
20
30
40
50
60
70
0 10 20 30 40 50 60 70
y co
rdin
ate
x cordinate
customer location initial collection point rg point
85
X1 Y1 D1
20 23.9 43.9
7.9 22.7 30.6
9.3 14.74 24.04
28.3 22.4 50.7
20 11.2 31.2
24.2 18.8 43
23.7 11.6 35.3
20 7 27
15.9 5.3 21.2
30.5 8.7 39.2
25 19.1 44.1
0 7.6 7.6
1.8 8.5 10.3
3 11.9 14.9
10.8 6 16.8
20.7 14 34.7
19.3 5.8 25.1
4.4 17.5 21.9
Table 6 Distance between initial collection points and RRC
In the table 6, X1 & Y1 are the co-ordinates of initial collection points and D1 is the distance
between these collection points from the regional return center. Thus, now we can get a detail
sketch of local distribution line. Here the square represent initial collection point and circle is
the regional return center.
Figure 48 sketch of distance between each place in city limit
11.8
21.1
36.3
23.6
15.2
2.7
17.7 32.77.6
10.2
16
29.3
14.9
31.2
25.1
35.3
43.935
9.14
15.7
20.7
26.66
24.0430.74
22.24
26.54
32.44
44.64 33.3
16.4
9.4
17.115.9
7.713.5
17.924.4
11.5 5.85.8
12.2
31
9.36
86
4.2 Calculation of Local Distribution network
Where in figure 48 here 1km=0.5 km practically. Where we get, the shortest reachable distance
based on applying the proposed model using the travelling sales man method using the cheapest
insertion heuristic model.
In the figure 48 Triangle= Regional return center/ Retail store, Circle= Initial collection point
Figure 49 Final shortest distance layout of city 1
The total distance we get based on cheapest insertion heuristics is calculated as 135.5km.
Cost for renting the truck for one day: 200 euros
Labour cost: 40 euros/day
Stopping time at every initial collection point: 10 minutes
Truck speed: 40km/hr
Where based on the above data we can get the number of trips needed for covering the distance.
We are able calculate the total journey hours as 6.3875 hr/trip which is equal to 1shift.
87
So, the total cost= 200+40= 240 euros per day. Thus, like the above result we are calculating
all above mentioned initial collection points, regional return center and cost of local distribution
for city 2, 3, 4…6.
4.3 Regional Return center/ Retail store outlet Results:
4.3.1 Layout systematic design
Based on the Muther’s systematic layout procedure we are constructing the regional return
center based on considering there is empty space of 320m^2 and a height of 5m in the existing
retail store of (cd retailers) and we are planning the layout based on this information.
Code Activity Area m^2 Number of standard
units
1 Receiving 20 1
2 Quality assurance 40 2
3 Packing & Rfid 40 2
4 Storage area 80 4
5 Retail store storage
area
80 4
6 System clearance 40 2
7 shipping 20 1
Table 7 Regional return center input details
Figure 50 Relationship activity diagram RRC
88
By using the initial input data. We are constructing relationship activity diagram shown in
figure 50 and later we will select the final layout from the alternative layout from figure 4.7.
Where here for the assessment the values are given as
A - Absolutely necessary wA = 20
E - Especially important wE = 10
I - Important wI = 5
O- Ordinary wO = 2
U - Unimportant wU = 0
X- Undesirable wX = -10
RELC Receiving
(1)
Q/I
(2)
Packing
& RFID
(3)
Storage
area
(4)
Retail
storage
area
(5)
System
clearance
(6)
Shipping
(7)
A
E
I
O
U
X
2,7
-
-
6
3,4,5
-
3,1
-
-
4,5
6,7
-
4,2
-
-
5,6
7,1
-
5,3
6
-
-
7,2,1
-
4
-
-
3
6.7,1,2
-
-
7,4
-
3,2,1
5
-
1
6
-
2
5,4,3
-
Table 8 Relationship between each department
Figure 51 Layout Design Quantitative Optimization
RES Q/I Q/I R RES Q/I R Q/I
RES
RES
RES
PA
SS
PA
SS
SS SS
S
SC
SC
RES
RES
RES
PA SC
PA SC
SS
SS
SS SS
S
89
From the figure 51 the final layout is constructed for the two possible scenarios which are shown in
figure 52. from these two we will select the best possible outcome.
Figure 52 Final Layouts of Retail store/ Regional Return center
4.3.2 Storage area design
We are considering here based on a single selective rack and constructing this storage system
based on the plastic tote which we formed in our model and bay design and module design are
calculated based on it. We don’t need any external trucks, considering height of 3m which is
easily reachable.
Storage medium is cases (unit load)
Case= 300*600*600 mm
Required storage area= 400 cases
Result:
No of levels = allowed height/ height of each rack= 3/.65= 4 levels
Cases in module = 6(case/bay) * 2 (sides) * NL = 48 cases/ module
Area utilization rate for configuration A: 48/6.6 = 7.3 cases/m^2
QUALITY
STORAGE AREA
S/P
REC
PACK
/RFID
SYST
/CLR
R
E
T
A
I
L
-
S
A
R
E
T
A
I
L
-
S
A
PACK
/RFID
STORAGE AREA SYST
/CLR
REC
S/P
QUA
LITY
90
Area utilization rate for configuration B: 4.678 cases/m^2
In the table 9 U= Horizontal distance, V= Vertical distance, SC eff – effective storage capacity,
N.A – number of aisles, N.C – number of columns, Area eff- effective area which can be used.
By changing the required storage capacity, we will have different results as shown in table 9.
Input storage
cases
300 400 500 600
Output obtained
case1:
Configuration A
AREA
Required in
m^2 for
V
U
N.A
N.C
SC eff
U eff
V eff
Area eff
Configuration B
AREA
Required
V
U
N.A
N.C
SC eff
U eff
V eff
Area eff
41 m^2
6.40 m
6.40 m
2
3
288 cases
6.6 m
6 m
39.6 m^2
64 m^2
8 m
8 m
3
2
288 cases
8.1 m
7.6 m
61.56 m^2
55 m^2
7.42 m
7.42 m
2
4
384 cases
6.6 m
8 m
52.8 m^2
86 m^2
9.27 m
9.27 m
3
3
432 cases
8.1 m
11.4 m
92.34 m^2
69 m^2
8.31 m
8.31 m
3
3
432 cases
9.9 m
6 m
59.4 m^2
107 m^2
10.34 m
10.34 m
4
3
576 cases
10.81 m
11.4 m
123.12 m^2
82 m^2
9.06 m
9.06 m
3
4
576 cases
9.9 m
8 m
79.2 m^2
128 m^2
11.31 m
11.31 m
4
3
576 cases
10.8 m
11.4 m
123.12 m^2
Table 9 Warehouse Results in RRC for height 3m (U=V)
For Material handling we can use the pallet jacks. We can opt from the table 9 configuration A
is the best solution for which we can store up to 550 cases based on given allotted area.
91
4.3.3 System Dynamics Experimentation for regional return center
Based on the simulation model which we constructed through the software any logic PLE. We
can calculate Utilization rate of personnel in each department and their saturation level. Thus,
as result we will be also doing a sensitivity analysis for utilization rate based on variation in
damaged goods and resold goods in regional return center
Input Data: Arrival rate= 60 /hr
Quality area: Working time:
Minimum Average Maximum
2.5 3.5 7
Packing area: Working time
Minimum Average Maximum
2 3 5
Storage area: 500 goods (good & damaged goods), Retail outlet racks: 1400
System clearance: working time
Minimum Average Maximum
1.5 2.5 5
Where we are considering rejection rate: 15% and goods sold in retail store: 40%
Thus, the simulation check is done for two cases: Case 1: 1500 agents Case 2: 45000 agents
Result:
s.no Area No of workers Utilization rate Idle units
1 Quality inspection
Packing &RFID
System clearance
4
3
3
0.95
0.94
0.62
0
0
1
2 Quality inspection
Packing &RFID
System clearance
4
4
4
0.94
0.72
0.48
0
3
2
3 Quality inspection
Packing &RFID
System clearance
4
3
2
0.96
0.96
0.93
0
0
0
Table 10 Case 1 Solution
92
Based on the results from table 10 for case 1 we can finalize option 3 based on best utilization
rate from table 11 we can finalize option 1 for case 2.
s.no Area No of workers Utilization rate Idle units
1 Quality inspection
Packing &RFID
System clearance
5
4
3
0.76
0.72
0.63
0
0
2
2 Quality inspection
Packing &RFID
System clearance
5
4
4
0.75
0.72
0.5
0
0
2
3 Quality inspection
Packing &RFID
System clearance
6
4
4
0.68
0.7
0.54
1
0
2
Table 11 Case 2 Solution
4.3.3.1 Sensitivity Analysis
Now we will do the sensitivity analysis based on the changing the percentage of goods sold in
retail store and rejected goods. So, we will have a variety of result for both case 1 and case 2.
Based on this result we can finalize our result.
Damaged goods% Ret Goods %
15 10 5
5
q/i=76% pack=72% system clearance=99% goods to shipping=44480 sold goods=520
q/i=76% pack=72% system clearance=97% goods to shipping=44300 sold goods=645
q/i=76% pack=72% system clearance=95% goods to shipping=44245 sold goods=745
10 q/i=76% pack=73% system clearance=83% goods to shipping=40900 sold goods=3866
q/i=76% pack=73% system clearance=88% goods to shipping=40700 sold goods=3866
20
q/i=76% pack=72% system clearance=99%
q/i=76% pack=72% system clearance=80%
93
goods to shipping=44480 sold goods=520
goods to shipping=38337 sold goods=6977
30 q/i=76% pack=72% system clearance=68% goods to shipping=30200 sold goods=11400
q/i=76% pack=72% system clearance=70% goods to shipping=30800 sold goods=11095
q/i=76% pack=72% system clearance=72% goods to shipping=34000 sold goods=10590
40 q/i=76% pack=72% system clearance=62% goods to shipping=30190 sold goods=14945
q/i=76% pack=72% system clearance=62% goods to shipping=30234 sold goods=14877
q/i=76% pack=72% system clearance=63% goods to shipping=30600 sold goods=13500
Table 12 Number of worker’s calculation based on utilization rate for case 2 using
sensitivity analysis
Damaged goods% Ret Goods %
15 10 5
10 q/i=94% pack=95% system clearance=95% goods to shipping=1335 sold goods=19
q/i=95% pack=94% system clearance=85% goods to shipping=1215 sold goods=134
20
q/i=98% pack=98% system clearance=80% goods to shipping=1141 sold goods=250
q/i=98% pack=98% system clearance=84% goods to shipping=1194 sold goods=280
30 q/i=98% pack=98% system clearance=68% goods to shipping=1054 sold goods=420
q/i=98% pack=98% system clearance=70% goods to shipping=1004 sold goods=387
q/i=98% pack=98% system clearance=72% goods to shipping=980 sold goods=460
40 q/i=93% pack=92% system clearance=50% goods to shipping=780 sold goods=590
q/i=93% pack=94% system clearance=57% goods to shipping=808 sold goods=518
q/i=95% pack=94% system clearance=62% goods to shipping=885 sold goods=518
Table 13 Number of worker’s calculation based on utilization rate for case 1 using
sensitivity analysis
94
Thus, based on the above-mentioned result we come to a term that we can use the case1
result:
Quality inspection
Packing &RFID
System clearance
Helper & Storage area
4
3
2
2
Are the total number of workers needed, only single shift is needed For cost calculation let us
consider the input data as mentioned below.
Labour charge: 26.5 euro/ day for a person
Packing charge & other charges: 70 euros/ day
Cost of capital: 10%
Average 1 item value: 25 euros
Value of a unit load (container consist of 10 items) = 250 euros
Annual storage cost: 77.5 euros/UL
Inventory carrying cost for single trip: 1210 euros
Handling cost for single trip: 26.5 *11+ 70 = 361.5 euros
4.4 Primary Distribution Network Design
We will be now calculating the cost value based on the mathematical model which we proposed.
Where the input data applicable are given in the tables below. We have considering here three
centralized return centers which can be constructed with in the existing central warehouse. In these
center the goods (clothes) are packed and transported in small plastic totes. and1 plastic totes can
hold 5 clothes.
DAMAGED GOODS %
PRODUCT RETURNS
0.15 0.1 0.05
RR1 480 72 48 24
RR2 450 68 45 23
RR3 420 63 42 21
RR4 300 45 30 15
RR5 360 54 36 18
RR6 390 59 39 20
RR7 400 60 40 20
RR8 340 51 34 17
Table 14 Rate of returns in all regional return center
95
D P
0.15 0.60
0.10 0.60
0.05 0.60
0.15 0.70
0.10 0.70
0.05 0.70
0.15 0.80
0.10 0.80
0.05 0.80
0.15 0.90
0.10 0.90
0.05 0.90
RR1 317 307 298 358 351 343 399 394 389 439 437 435
RR2 297 288 279 335 329 322 374 369 365 412 410 408
RR3 277 269 261 313 307 301 349 345 340 384 382 380
RR4 198 192 186 224 219 215 249 246 243 275 273 272
RR5 238 231 223 268 263 258 299 295 292 330 328 326
RR6 258 250 242 291 285 279 324 320 316 357 355 353
RR7 264 256 248 298 292 286 332 328 324 366 364 362
RR8 225 218 211 253 248 243 282 279 276 311 310 307
Table 15 Total goods available for transport from regional return centers after resales
Maximum goods are transported when damaged goods: 15% and potential goods not resold=
90%
D P
0.15 0.60
0.10 0.60
0.05 0.60
0.15 0.70
0.10 0.70
0.05 0.70
0.15 0.80
0.10 0.80
0.05 0.80
0.15 0.90
0.10 0.90
0.05 0.90
RR1 64 62 60 72 70 69 80 79 78 88 87 87
RR2 60 58 56 67 66 65 75 74 73 83 82 82
RR3 56 54 52 63 62 60 70 69 68 77 77 76
RR4 40 39 37 45 44 43 50 49 49 60 55 54
RR5 48 46 45 54 53 52 60 59 59 66 66 65
RR6 52 50 49 58 57 56 65 64 63 72 71 71
RR7 53 51 50 60 59 57 67 66 65 73 73 73
RR8 45 44 42 51 50 49 57 58 55 62 62 62
Table 16 Total plastic totes transported from each regional return centers after resales
Warehouse capacity: C= 3750 totes
C1 C2 C3
RR1 30 50 20
RR2 23 66 30
RR3 35 14 20
RR4 70 12 30
RR5 40 20 23
RR6 35 50 40
RR7 12 40 30
RR8 65 30 20
Table 17 Transportation cost is provided based on euros/ totes
Where here C= Centralized return center and RR= Regional return center/Retail store.
96
We will formulate an integer linear programming using the software AMPL which will do the
simulation and the following result is obtained for 1 scenario.
Figure 53 AMPL Result
4.4.1 Sensitivity analysis
We are now doing the sensitivity analysis by changing damaged goods percentage and potential
resold goods percentage to know its impact on the cost calculation. Where we can find the
transportation cost till it reaches the centralized return centers and then to the future demand
points.
97
Potential goods % 90% 80% 70% 60%
Unit cost for transportation per tote
19 20 22 20.8
Unit cost for Transportation For single tote in euros/tote
Fault products % Remaining potential goods after resale
15% 10% 5%
90% 11,415 11325 11291
80% 10524 11391 10319
70% 10353 10475 10047
60% 8770 8548 8512
Table 18 Transportation cost to centralized return center in euros
Where for unit cost per piece it cost around 3.5 to 4 euros/piece. This variation is widely due to
change in the % of potential goods.
Fault products % Remaining potential goods after resale
15% 10% 5%
90% 21641 21493 21393
80% 19782 19534 19341
70% 17923 17609 17311
60% 15389 15878 15892
Table 19 Total Transportation cost in euros
Based on the above data in table 18 and 19 we can now have a good idea on the impact of fault
goods and potential goods percentage on cost. While table 20 will give a detail idea about the
number of goods going to each centralized return center which will play a crucial idea in
opening the centralized return center. When we have potential goods of less than 70% then
there is no need of a three-centralized return centers. It is enough to have two centralized return
centers.
98
Fault products % Remaining potential goods after resale
15% 10% 5%
90% D1=229 D2=200 D3=149
D1=226 D2=200 D3=148
D1=226 D2=200 D3=145
80% D1=207 D2=200 D3=117
D1=204 D2=200 D3=113
D1=202 D2=200 D3=109
70% D1=257 D2=200 D3=13
D1=252 D2=200 D3=9
D1=248 D2=200 D3=4
60% D1=218 D2=144 D3=56
D1=210 D2=139 D3=61
D1=210 D2=134 D3=66
Table 20 Number of goods going to each centralized return center
4.5 Centralized Return Center Result
4.5.1 Layout design
Based on the Muther’s systematic layout procedure we are constructing the regional return
center based on considering there is empty space of 1400m^2 and a height of 5m in the existing
Central warehouse of (cd retailers) and we are planning the layout based on this information.
Code Activity Area m^2 Number of standard units
1 Receiving 50 1
2 Picking & sorting 300 6
3 Storage area 600 12
4 Packing & Rfid 150 3
6 System clearance 100 2
7 Shipping 50 1
Table 21 Centralized return center input details
99
Figure 54 Relationship diagram in CRC
By using the initial input data. We are constructing relationship activity diagram shown in
figure 54 and later we will select the final layout from the alternative layout.
Where here for the assessment the values are given as
A - Absolutely necessary wA = 20
E - Especially important wE = 10
I - Important wI = 5
O- Ordinary wO = 2
U - Unimportant wU = 0
X- Undesirable wX = -10
RELC Receiving (1)
Picking & sorting (2)
Storage area (3)
Packing & Rfid (4)
System clearance (5)
Shipping (6)
A E I O U X
2,6 - - 4,5 3 -
- 3 - 6 4,5 -
- 2,4 - 5 6,1 -
- 3 5 1 6,2 -
6 - 4 3,1 2 -
5,1 - - 2 4,3 -
100
Table 22 Relationship between each department in CRC
The final layout is constructed for the two possible scenarios Where the final layout is shown
in the figure
Figure 55 Final layout of CRC
4.5.2 Storage area design
We are considering here based on a single selective rack and constructing this storage system
based on the plastic tote which we formed in our model and bay design and module design are
calculated based on it. We don’t need any external trucks, considering height of 5m and 3m
which is easily reachable.
Storage medium is cases (unit load)
Case= 300*600*600 mm
Required storage area= 400 cases
Result:
No of levels case1 (3m) = allowed height/ height of each rack= 3/.65= 4 levels
No of levels case 2 (5m) = 5/.65 = 8 levels
101
Cases in module for case 1 = 6(case/bay) * 2 (sides) * NL = 48 cases/ module
Cases in module for case 2 = 6(case/bay) * 2 (sides) * NL = 96 cases/ module
For case 1:
Area utilization rate for configuration A: 48/6.6 = 7.3 cases/m^2
Area utilization rate for configuration B: 4.678 cases/m^2
For case 2:
Area utilization rate for configuration A: 96/6.6 = 14.5 cases/m^2
Area utilization rate for configuration B: 9.17 cases/m^2
By changing the required storage capacity, we will have different results as shown in table 23,
24. This value is calculated based on considering i/o location at the corner considering U=V.
Input storage
cases
2000 3000 4000 4500
Output obtained
case1:
Configuration A
AREA Required
in m^2 for
V
U
N.A
N.C
SC eff
U eff
V eff
Area eff
Configuration B
AREA Required
V
U
N.A
N.C
SC eff
U eff
V eff
Area eff
274 m^2
16.55 m
16.55 m
5
8
1920 cases
16.5 m
16 m
264 m^2
427 m^2
20.66 m
20.66 m
8
5
1920 cases
21.6 m
19 m
410.4 m^2
455 m^2
21.33 m
21.33 m
6
10
2880 cases
19.8 m
20 m
396 m^2
641 m^2
25.32 m
25.32 m
9
7
3024 cases
24.3 m
26.6 m
646.38 m^2
548 m^2
23.41 m
23.41 m
7
12
4032 cases
23.1 m
24 m
554.4 m^2
855 m^2
29.24 m
29.24 m
11
8
4224 cases
29.7 m
30.4 m
902.88 m^2
616 m^2
24.82 m
24.82 m
8
12
4608 cases
26.4 m
24 m
633.6 m^2
962 m^2
31 m
31 m
11
9
4752 cases
29.7 m
34.2 m
1015.74 m^2
Table 23 Warehouse Results in CRC for height 3m (U=V)
102
Input storage
cases
2000 3000 4000 4500
Output obtained
case1:
Configuration A
AREA Required
in m^2 for
V
U
N.A
N.C
SC eff
U eff
V eff
Area eff
P
Configuration B
AREA Required
V
U
N.A
N.C
SC eff
U eff
V eff
Area eff
P
138 m^2
11.74 m
11.74 m
4
5
1920 cases
13.2 m
10 m
132 m^2
13.6 m
218 m^2
14.77 m
14.77 m
5
4
1920 cases
13.5 m
15.2 m
205.2 m^2
16.35 m
207 m^2
14.39 m
14.39 m
4
8
3072 cases
13.2 m
16 m
211.2 m^2
16.6 m
327 m^2
18.08 m
18.08 m
7
4
2688 cases
18.9 m
15.2 m
287.28 m^2
19.05 m
276 m^2
16.61 m
16.61 m
5
8
3840 cases
16.5 m
16 m
264 m^2
18.25 m
436 m^2
20.88 m
20.88 m
8
5
3840 cases
21.6 m
19 m
410.4 m^2
22.3 m
310 m^2
17.61 m
17.61 m
5
9
4320 cases
16.5 m
18 m
297 m^2
19.25 m
491 m^2
22.16 m
22.16 m
8
6
4608 cases
21.6 m
22.8 m
492.48 m^2
24.2 m
Table 24 Warehouse Results in CRC for height 5m (U=V)
Thus, for calculating number of turret trucks needed we are giving the inputs as maximum
input throughput capacity 88 single command cycle/hr. thus where we get S total height
travelled is 4.5m. where the speed of turret truck will be 9m/s and vertical speed is 0.3m/s.
where access aisle width is 2m and we get the value for time needed for single command cycle
as an average of 27.81 scc/hr. So, the total truck required will be three and effective throughput
capacity is 83.4 scc/hr. If we use U=V configuration A is good for both the cases. If we use
case 1 there is no need of trucks but in case 2 we need to use the trucks.
Now we will check how the result will vary if we have a rectangle shape storage area and i/o
location at the center. Where U=2V.Where in the table U= Horizontal distance, V= Vertical
distance, SC eff – effective storage capacity, N.A – number of aisles, N.C – number of columns,
103
Area eff- effective area which can be used, P – Path followed by the trucks. Now we can see
the results in table 25, 26.
Input storage
cases
2000 3000 4000 4500
Output obtained
case1:
Configuration A
AREA Required
in m^2 for
V
U
N.A
N.C
SC eff
U eff
V eff
Area eff
Configuration B
AREA Required
V
U
N.A
N.C
SC eff
U eff
V eff
Area eff
274 m^2
11.70 m
23.41 m
7
6
2016 cases
23.1 m
12 m
277.2 m^2
427 m^2
14.61 m
29.22 m
11
4
2112 cases
29.7 m
15.2 m
451.44 m^2
455 m^2
15.08 m
30.17 m
9
7
3024 cases
29.7 m
14 m
415.8 m^2
641 m^2
17.90 m
35.81 m
13
5
3120 cases
35.1 m
19 m
666.9 m^2
548 m^2
16.55 m
33.11 m
10
8
3840 cases
33 m
16 m
528 m^2
855 m^2
20.68 m
41.35 m
15
6
4320 cases
40.5 m
22.8 m
930.24 m^2
616 m^2
17.55 m
35.10 m
11
9
4752 cases
36.3 m
18 m
653.4 m^2
962 m^2
21.93 m
43.86 m
16
6
4608 cases
43.2 m
22.8 m
984.96 m^2
Table 25 Warehouse Results in CRC for height 3m (U=2V)
104
Input storage
cases
2000 3000 4000 4500
Output obtained
case1:
Configuration A
AREA Required
in m^2 for
V
U
N.A
N.C
SC eff
U eff
V eff
Area eff
P
Configuration B
AREA Required
V
U
N.A
N.C
SC eff
U eff
V eff
Area eff
P
138 m^2
8.31 m
16.61 m
5
4
1920 cases
16.5 m
8 m
132 m^2
10.125 m
218 m^2
10.44 m
20.88 m
8
3
2304 cases
21.6 m
11.4 m
246.24 m^2
13.1 m
207 m^2
10.17 m
20.35 m
6
5
2880 cases
19.8 m
10 m
198 m^2
11.95 m
327 m^2
12.79 m
25.57 m
9
3
2592 cases
24.3 m
11.4 m
277.02 m^2
13.775 m
276 m^2
11.75 m
23.49 m
7
6
4032 cases
23.1 m
12 m
277.2 m^2
13.775 m
436 m^2
14.76 m
29.53 m
11
4
4224 cases
29.7 m
15.2 m
451.44 m^2
17.025 m
310 m^2
12.45 m
24.90 m
8
6
4608 cases
26.4 m
12 m
316.8 m^2
14.6 m
491 m^2
15.67 m
31.34 m
12
4
4608 cases
32.4 m
15.2 m
492.48 m^2
17.7 m
Table 26 Warehouse Results in CRC for height 5m (U=2V)
Even when we use this configuration of U=2V. We need three trucks for transport. Thus,
storage cost is 40 euros/UL. If we use the turret truck. Thus, based on the result case 1 has good
result on configuration A which is within allowed area of 600m^2. While in case both
configurations are feasible and they require less space. In case 1 we don’t need to have any
trucks. But if install case 2 we should use the order picker truck with flexible platform up to 3-
5m.
105
4.6 Summary
This chapter we have done a numerical case study for the steps involved in reverse logistics for
the model which we proposed. Where we used the predictive model for forecasting and using
that we selected our initial collection point and based on that we calculated the local distribution
using the cheapest insertion method. Later we built a facility layout design for empty space
within the existing facilities. We confirmed how much space required to carry on the operations
in a existing retail store. We designed the cheap storage system and evaluated the system
dynamics involved in the regional return center based on the significant change in the potential
goods and damaged goods. We studied the utilization rate involved and minimum number of
workers needed. We finalized the Configuration A is much better in the storage system. Later
we did sensitivity analysis of the regional distribution network based on our proposed model.
How the cost is varying based on the changes in the potential goods and damaged goods and
their effects on facility planning. Finally, we designed the centralized return center inside the
existing warehouse and proposed the storage system and found out that Configuration A (U=V)
system uses less space when compared to the other configurations. Thus, we numerically
solved all the steps involved in the reverse logistics and also had better view on the cost and
how it varies based on what and where we should focus more on the return management in
apparel sector for reducing the cost.
106
Conclusion
Where we started this paper with explaining the term what is return management and steps
involved in reverse logistics. We went through the model explained by many scholars and
design procedures involved in reverse logistics. We took the case of the apparel sector and
constructed the model. we have discussed about the return management problems in the apparel
market especially for a single channel retailer. We have proposed the best solution for handling
the returns for the single channel retailer. We have constructed the model for them. Later we
discussed the cost parameters involved and we developed the cost optimization technique
needed to be adopted by the multi-channel retailer who will be acting as the 3PL for the single
channel retailer. The conclusion which we obtained from the results of our numerical case
study is.
1. In the case of regional distribution when the percentage remaining potential goods after
resale is less than 70% we can operate our plant with two centralized return centers.
Thus, potential goods always have more impact on cost then the fault goods and they
determine whether to open or close the centralized return center. Where unit cost for
transport per tote decreases with increase in percentage of potential returned goods.
2. In the designing of storage system Configuration, A with (U=V) square shaped
longitudinal system always requires less space and have better space utilization rate
when compared to the other configurations.
3. In the case of system dynamics in Retail Store/ Regional return center. The changes in
the percentage of potential and damaged goods only had effect on the utilization rate.
But they don’t have any impact on the potential workers. So, there is was no effect on
saturation rate.
The proposed method will also give the best solution practices for handling the returns of even
the multi-channel retailer. They can adopt this model and use the step involved in constructing
the return logistics network.
If this work can be studied in detail even, we can give the solution for better cost optimization
practices involved in handling the returns of multi-channel retailer. How to construct our model
environmental friendly and for easiest way for recycling.
107
APPENDIX
set ps;
set ts;
set ds;
param MaxP {ps} >= 0;
param MaxT {ts} >= 0;
param MinD {ds} >= 0;
param incost{ps,ts} >=0;
param outcost {ts,ds} >=0;
var inflow {ps,ts} >= 0;
var outflow {ts,ds} >= 0;
minimize total_cost: sum {i in ps, j in ts} incost[i,j]*inflow[i,j] + sum {j in ts, k in ds} outcost[j,k]*outflow[j,k];
subject to cMaxP {i in ps}: sum {j in ts} inflow[i,j] = MaxP[i];
subject to cMinD {k in ds}: sum {j in ts} outflow[j,k] >= MinD[k];
subject to Nostock {j in ts}: sum {i in ps} inflow[i,j] > sum {k in ds} outflow[j,k];
subject to cTrans {j in ts}: sum {i in ps} inflow[i,j] <= MaxT[j];
set ps := p1 p2 p3 p4 p5 p6 p7 p8;
set ds := d1 d2 d3 d4;
set ts := t1 t2 t3 ;
param: MaxP :=
p1 200
p2 300
p3 100
p4 150
p5 300
p6 400
p7 500
p8 220 ;
param: MaxT :=
t1 450
108
t2 200
t3 300 ;
param: MinD :=
d1 150
d2 100
d3 120
d4 200 ;
param incost:
t1 t2 t3:=
p1 30 50 20
p2 23 66 30
p3 35 14 20
p4 70 12 30
p5 40 20 23
p6 35 50 40
p7 12 40 30
p8 65 30 20;
param outcost:
d1 d2 d3 d4 :=
t1 12 25 22 40
t2 65 22 23 12
t3 34 32 32 45;
reset;
model model3.mod;
data data3.dat;
option solver cplex;
solve;
display total cost;
display inflow;
display outflow;
display {j in ts} : sum {i in ps} inflow[i,j];
109
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