14-1 The Network Planning Process Chapter 14 CR (2004) Prentice Hall, Inc. Two stonecutters were working on the reconstruction of St. Paul's in London when Sir Christopher Wren asked each what he was doing. The first replied, "I am cutting stone." The second answered, "I am building a cathedral." Christopher Wren

14-2 Network Planning in Location Strategy CR (2004) Prentice Hall, Inc. PLANNING ORGANIZING CONTROLLING Transport Strategy Transport fundamentals Transport decisions Customer service goals The product Logistics service Ord. proc. & info. sys. Inventory Strategy Forecasting Inventory decisions Purchasing and supply scheduling decisions Storage fundamentals Storage decisions Location Strategy Location decisions The network planning process PLANNING ORGANIZING CONTROLLING Transport Strategy Transport fundamentals Transport decisions Customer service goals The product Logistics service Ord. proc. & info. sys. Inventory Strategy Forecasting Inventory decisions Purchasing and supply scheduling decisions Storage fundamentals Storage decisions Location Strategy Location decisions The network planning process

14-3 CR (2004) Prentice Hall, Inc. The Planning Problem  Configure the facilities of the supply chain from source points to customers  Consider all major logistical costs, namely transportation, inventory, and facility  Consider practical restrictions, such as capacity and customer service  Position the analysis toward top management, strategic concerns  Typical data items  Common data sources  Converting data to useful planning information Data for Planning

CR (2004) Prentice Hall, Inc. Sources: plants vendors ports Regional warehouses, stocking points Field warehouses, stocking points Customers, demand centers Demand Supply Production/ purchase costs Inventory & warehousing costs Inventory & warehousing costs Transportation costs Transportation costs A Generalized Product Flow Network 14-4

CR (2004) Prentice Hall, Inc. Warehousing Transportation Vendors/plants/ports Transportation Factory Transportation Customers Information flows The Supply Channel These facilities need to be positioned and sized 14-5

14-6 CR (2004) Prentice Hall, Inc. Geocoding Data Linear grid Latitude-Longitude Other coding schemes Linear grid

14-7 CR (2004) Prentice Hall, Inc. Estimating Transport Costs For private trucking for accounting records for fleet Data Category Fact Weekly Cost Weekly mileage 2700 miles Weekly hours on duty 66 hrs./wk. Trips per week 3 trips/wk. Driver wages $ 12.00/hr. $ Benefits 18.75% of wages Fuel 10 mpg $ 1.10/gal Truck depreciation $316.50/wk Maintenance $ 45.00/wk Insurance $ 51.00/wk Tolls, food, and lodging $ 97.50/trip Contingency $ 30.00/trip Total $2, Example Cost per mile is $2,032.50/2,700 = $0.75

14-8 CR (2004) Prentice Hall, Inc. Estimating Transport Rates For less than truckload movements

14-9 CR (2004) Prentice Hall, Inc. Shipment Profiles Example

14-10 CR (2004) Prentice Hall, Inc. Mileage Estimating By linear coordinates where D A-B = distance between points X A,Y A = coordinates for point A X B,Y B = coordinates for point B K = scale factor to convert the coordinate measure to a distance measure

14-11 CR (2004) Prentice Hall, Inc. Mileage Estimating By latitude-longitude coordinates (Great circle distance) D A-B = 3959{arccos[sin(LAT A )  sin(LAT B ) + cos(LAT A )  cos(LAT B )  cos|LONG B - LONG A |]} where D A-B = great circle distance between points A and B (statute miles) LAT A = latitude of point A (radians) LONG A = longitude of point A (radians) LAT B = latitude of point B (radians) LONG B = longitude of point B (radians) Corrects for earth’s curvature

14-12 Mileage Estimating Example The coordinates for Madrid, Spain are LONG A = 3.41  W, LAT A =  N and for Milan the coordinates are LONG B = 9.12  E, LAT B =  N. Divide degrees by 57.3 to convert to radians. Hence, in radians LONG A = , LAT A = and LONG B = , LAT B = The distance is? D A-B = 3959{arccos[sin(0.7023)  sin(0.7902) + cos(0.7023)  cos(0.7902)  cos|  |]} = 724 miles, or 1.61  724 = 1166 kilometers Arccos, sin, and cos are found in trigonometric tables Note Multiply straight-line distance by a circuity factor to convert to approximate actual road distance. Solution CR (2004) Prentice Hall, Inc.

14-13 CR (2004) Prentice Hall, Inc. Tools for Analysis  Ad hoc techniques  Chart/Compass/Ruler methods  Spreadsheets  Simulation models  Many general-purpose models are available  Heuristic models  Used in conjunction with optimization models  Optimization models  Integer programming is popular, but usually not used alone  AI/Expert system models  No known models for this problem class

14-14 CR (2004) Prentice Hall, Inc. Conducting the Network Analysis  Key questions  How many facilities should there be?  Where should they be located?  What size should they be?  Auditing customer service levels  Benchmarking the current design  Improving on the benchmark  Seeking good designs  Intuitive choices  COG searching  Practical considerations  Maximum opportunity design  Implementable design

14-15 CR (2004) Prentice Hall, Inc. Channel Design  Key questions  Best transport service to use?  Best inventory levels to maintain?  Use channel simulators Network and Channel Design Planning can be a hierarchical problem

14-16 CR (2004) Prentice Hall, Inc. Channel Simulators What they do Replicate over time the flow of product through a supply channel on an order-by-order basis Answer time-related questions of an operating nature, e.g., inventory levels The Simulated Channel of SCSIM

14-17 CR (2004) Prentice Hall, Inc. Illustrating the “Bull Whip” Effect with a Channel Simulator Demand units Simulated months Factory Warehouse Distributor Retailer Simulated months Factory Warehouse Distributor Retailer

14-18 Hierarchical Network Supply Chain Planning Data Base Current plans Current status Past performance Master files Network design Aggregate planning and allocation Transaction processing Short-term scheduling Daily Monthly/ weekly Quarterly/ monthly Annually Planning Frequency Logistics Activity Flow planning and master production scheduling

At current capacities CR (2004) Prentice Hall, Inc. No service restriction a Costs are totals for three product groups. b Plant capacity restrictions are at current levels but with no service restrictions. The result is direct shipments from plants. c No plant capacity or customer service restrictions. The result is direct shipments from plants. d Current plant capacities are in effect and the desired service level is set at 500 miles. e Essentially no investment in plant or warehousing is required to realize these savings. No capacity restrictions Design Alternatives Closely matched 14-19

Alternative warehouse numbers, locations, and sizes Direction of improved service, no change in cost Direction of decreased cost, no change in service High Low Total cost Customer service Current or suboptimal network design High Low Network Design Curve 14-20

14-21 CR (2004) Prentice Hall, Inc. Network Design Case Study  Background on Aqua-Chem  Designing the study  Collecting and manipulating data  Conducting the analysis  Implementing the findings

14-22 CR (2004) Prentice Hall, Inc. Study Plan Define current system Define objectives Start Organize project team Select project approach Define approach to product Define approach to demand geography Define approach to material flow Define approach to cost elements End phase 1

14-23 CR (2004) Prentice Hall, Inc. Typical Data Items Products in the product line Locations of customers, warehouses, and plants Demand for each customer by location and product Transportation rates Transit times Warehousing costs (fixed, storage, and handling) Purchase/production costs Shipment sizes by product Inventory levels by location, by product, and control policies Shipment profiles Order processing cost Capital cost Customer service goals Available and potential facilities with capacities Distribution patterns for current product flows

14-24 Purchase cost of raw materials + Freight to producing plant + Production labor cost + Variable overhead Store at warehouse Store at plantShip direct Freight to warehouse + Storage cost + Handling cost + Order processing cost + Inventory cost + Personal property tax + Freight to customer Storage cost + Handling cost + Order processing cost + Inventory cost + Personal property tax + Freight to customer Order processing cost + Freight to customer Small orders Large orders Customer Alternative Distribution Channels for Aqua-Chem CR (2004) Prentice Hall, Inc.

Aqua-Chem Network Design Results CR (2004) Prentice Hall, Inc