Chapter 7 Transportation. Content….. Drivers of transportation decisions Modes of transportations...
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Transcript of Chapter 7 Transportation. Content….. Drivers of transportation decisions Modes of transportations...
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Chapter 7
Transportation
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Content…..
• Drivers of transportation decisions• Modes of transportations• Devising a strategy for transportation• Vehicle scheduling• Transportation cost in e-retailing
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Key Transportation Decisions
• Selection of Transportation Strategy: – Transportation strategy would involve
designing the most effective way of reaching products to geographically dispersed markets from plants in a cost effective way.
• Choice of Transportation Mode: – Choosing the most effective mode of
transport from among several feasible options.
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C1
C2
C3
C4
C5
C6
VENDORS INBOUND TRANSPORTATION
PLANTS CUSTOMERS INTERFACILITY TRANSPORTATION
DISTRIBUTIONCENTERS
OUTBOUNDTRANSPORTATION
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Drivers of Transportation Decisions
• Transportation cost structure• Economies of distance & scale
– FTL versus LTL• Product and demand characteristics
– Value density– Demand characteristics – Customer requirements ( Delivery time)
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Truck Freight Rates (Rs/ tonne) for a Nine-tonne Shipment
Source: The Hindu Business Line, 06 November, 2006
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Transportation Modes
• Transportation modes– Air– Pipeline– Rail– Road– Water
• Mix mode services– Package carriers– Intermodal containers
• Impact on SCM performance measures
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Impact of Mode of Transportation on Supply Chain Performance Measures
• Freight cost:• Lot size: Differences in required shipment sizes
translate to differences in cycle stock related inventory.
• Delivery time: pipeline inventory and safety stock carried in supply chain is a function of lead-time in transport
• Delivery time variability: safety stock carried in a supply chain is function of the variability in lead time in transport,
• Losses and DamagesTotal cost = Fright cost + Cycle stock inventory carrying cost + Pipeline Inventory carrying cost + safety stock inventory costs + Cost of losses and damages
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*1 is most favourable & 5 is least favourable from shipper point of views* * Delivery time variability in absolute terms
Relative Ranking* of Transportation Mode by Performance Measures
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Choice of Mode of Transport: Illustration
Product : Printer
High End Standard Low endValue/unit ( Rs.) 20,000 15,000 10,000Inv. Carrying cost/unit/year 4,000 3000 2000Mean Demand/week (units) 100 100 100 SD of demand /week(Units) 30 30 30
Option Sea AirLot size (units) 400 100Fright/unit (Rs.) 90 360Led time(weeks) 4 1
Target service level: 98%
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Cost Comparisons for Different Modes of Transport Under Stable Demand*
Impact of Value DensityOptimal Decision : For high end :Air. For standard and low end : Sea* Assumption : SD of demand = 0 ( No demand uncertainty)
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Cost Comparisons in Situation of Demand Uncertainty
Impact of Value density and Demand UncertaintyOptimal Decision : For high end and standard: Air. For low-end: Sea
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Design of Distribution Network
– Direct shipment– Milk Run from each plant (Aggregate demand across
depots)– Shipment via Depot– Cross Docking– Hub- and spoke model– Different Strategy for different category of
products/customers
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Direct Shipping
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Shipping Using Milk Run
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Shipping via a Central Distribution Centre
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HLL Supply Chain
Supplier Factory100
Depot 80
Redistribution Stockists 10,000 +
Retailers1Mn +
Consumer
Supplier Factory100
Depot 80
Redistribution Stockists 10,000 +
HPC Business:More than 400 SKUs (110 brands in 950 packs)
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Restructuring of HLL Supply Chain
Redistribution Center (RDC)
Factory DepotRedistribution Stockiest (RS)
DRP
Daily Resource Planning (DRP) Continuous
Replenishment
Dispatches against order
High Volume Items
Low Volume Items
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Comparison of Distribution Network Design Options: Illustration
• Manufacturing firm has three plants (A, B &C), each manufacturing a different product line and serving a stable market through three depots ( X, Y &Z). Plant A is manufacturing menswear, plant B is manufacturing ladies wear and plant C is manufacturing children’s wear.
• Weekly demand = 100 units for each of the three types of garments at each of the three depots
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• Truck can carry 300 units of garments and the transport cost is Rs 2 per km. for TL shipments. To obtain economies of scale firm has decided to work with TL shipments.. Inventory carrying cost is at 20% per annum.
• All the products cost Rs 200 per unit, so inventory carrying cost is Rs 40 per unit per year. Facility cost of maintaining a DC is Rs 12,000 per year.
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Transportation Strategy: Linking Plants to Markets
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Comparison of the Three Transportation Strategies
How would network design change if demand at each depot is 300 units per week for each of the product?
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Vehicle Scheduling
• Basic Vehicle scheduling formulation• Heuristics
– Saving Matrix Method
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Typical Vehicle Scheduling Problem
Depot at location 0 serving 10 retailers
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Saving Algorithm• Construct distance matrix• Calculate savings for all the pairs of customer i
and j Sij = C1i - Cij + Cj1
• Order savings in descending order• Start at the top link, do following:
– If making a given link results in feasible route( feasibility constraints, can be used to extend one of the existing route or starting a new route), append this link to solution, if not reject the link
– Repeat above step until no more links are left
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Two Independent Routes Versus Merged Routes
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Saving Algorithm
Node i Node j
Depot(1)
Ci1 Cj1
C1jC1i
Savings if routes are merged = Ci1+Cj1-Cij
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Consider an instance of the VRP with the deport at vertex 1 andsix customers at vehicles 2, …., 7. The symmetric distance matrix is shown in table. There are two vehicles with capacities Q1=Q2=6. The customer demands are (q2,….q7) = (2,3,1,1,2,1).
Distance matrix for a VRP
1 2 3 4 5 6 71 -2 28 -3 21 47 -4 14 36 26 -5 17 25 37 15 -6 18 20 30 31 29 -7 22 35 20 34 39 16 -
-
Vehicle Scheduling Exercise
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2 3 4 5 63 2 4 6 9 5 20 1 16 6 26 9 1 6 7 15 23 2 0 24
Saving Matrix
Suggested routes based on Saving algorithm:Route1 : 1-5-2-6-7-1Route 2 : 1-3-4-1
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Spatial Representation of Depot and Dealers
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Cost Matrix
Distance and load related data
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Saving Matrix
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Final Routes Based on Saving Heurstics
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Example
Dealer 1 2 3 4 5 6 7 8 9 10Distance from depot
16 18 10 17 26 18 7 12 15 21
Avg. Demand (tons)
8 4 6 6 4 8 8 6 8 4
Design the vehicle route for a consumer goods company that has 10 dealers. The capacity of the vehicle is 25 units and other relevant data are as follows:
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Distance matrix in kilometers1 2 3 4 5 6 7 8 9 10
1
2 34
3 7 27
4 33 12 27
5 41 8 35 19
6 31 13 24 23 14
7 19 20 14 15 28 24
8 24 20 19 12 28 27 6
9 12 32 12 26 40 33 12 15
10 32 23 28 12 31 33 15 9 22
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Vehicle Route Planning:Extensions
• Vehicle can operate multiple routes• Time window for a customer• Business may involve both deliveries and
collections• Vehicles ( drivers) may have a time window• Time consuming activities other than travel:
– Loading & unloading– Queuing at loading and unloading
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Vehicle Routing: Strategic Decisions
• Fixed versus dynamic routes• Temporal consolidation
– Time based– Quantity based
• Nature of relationship with transport carrier– Short term versus long term contract
• Special vehicle versus standard vehicle– Load and volume optimization
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E-Retailing
• Provides the convenience of shopping from home• E-retailer can provide higher variety compared to
Brick and Mortar store and still mange higher inventory turns– Centralisation versus decentralisation of
inventory• Transportation cost is higher for e-retailer
– Small shipment size– Last-mile transportation
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• Product/market Characteristic– Value density, Nature of demand uncertainty,
Volume of demand• Cases
– Dell Computers, Amazon, Webvan• Grocery on net : Webvan Versus Tesco• Indian Experiences: firstandsecond.com, and
Rediff.com, Indiaplaza.com
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