OPSM 301 Operations Management Class 21: Logistic Drivers: Facilities and Transportation Koç University Zeynep Aksin

Drivers of Supply Chain Performance Efficiency Responsiveness InventoryTransportationFacilitiesInformation Supply chain structure Drivers

The Logistics Network The Logistics Network consists of:  Facilities: Vendors, Manufacturing Centers, Warehouse/ Distribution Centers, and Customers  Raw materials and finished products that flow between the facilities.

4 Example: Efes Distribution Network

5 Costs Total cost Inventory transportation Fixed costs Number of distribution centers costs ($ mil ion )

6 Comparison between industries Sources: CLM 1999, Herbert W. Davis & Co; LogicTools Avg. Number Of Depots Pharmaceutical GroceryChemicals - Service is not important(or shipping is easy) - Inventory is more expensive than transportation - Service is very important -Outbound transportation is -expensive

Transportation in the Supply Chain  Throughout the supply chain SUPPLIERS CUSTOMERS WAREHOUSE PRODUCTION WAREHOUSE Transport.

Transportation Problem DesMoines (100 unit capacity) Fort Lauderdale (300 units capacity) Cleveland (200 units required) Evansville (300 units capacity) Albuquerque (300 units required) Boston (200 units required)

 How much should be shipped from several sources to several destinations –Sources: Factories, warehouses, etc. –Destinations: Warehouses, stores, etc.  Transportation models –Find lowest cost shipping arrangement –Used primarily for existing distribution systems Transportation Problem

The Transportation Problem D (demand) D (demand) D (demand) D (demand) S (supply) S (supply) S (supply)

Requirements for Transportation Model  List of origins and each one’s capacity  List of destinations and each one’s demand  Unit cost of shipping

The transportation problem  The setting –n factory (supply) locations –supplying m markets (demand points) –Cost of shipping one unit from factory i to market j is c ij –K i is the capacity of factory i –D j is the demand in market j  Formulate as an LP

Transportation Model  Which market is served by which plant?  Which supply sources are used by a plant? x ij = Quantity shipped from plant site i to customer j 5-13

A Transportation Problem: Tropicsun Distances (in miles) Capacity Supply 275, , , , , ,000 Mt. Dora 1 Eustis 2 Clermont 3 Groves Ocala 4 Orlando 5 Leesburg 6 Processing Plants

Defining the Decision Variables X ij = # of bushels shipped from node i to node j Specifically, the nine decision variables are: X 14 = # of bushels shipped from Mt. Dora (node 1) to Ocala (node 4) X 15 = # of bushels shipped from Mt. Dora (node 1) to Orlando (node 5) X 16 = # of bushels shipped from Mt. Dora (node 1) to Leesburg (node 6) X 24 = # of bushels shipped from Eustis (node 2) to Ocala (node 4) X 25 = # of bushels shipped from Eustis (node 2) to Orlando (node 5) X 26 = # of bushels shipped from Eustis (node 2) to Leesburg (node 6) X 34 = # of bushels shipped from Clermont (node 3) to Ocala (node 4) X 35 = # of bushels shipped from Clermont (node 3) to Orlando (node 5) X 36 = # of bushels shipped from Clermont (node 3) to Leesburg (node 6)

Defining the Objective Function Minimize the total number of bushel-miles. MIN:21X X X X X X X X X 36

Defining the Constraints  Capacity constraints X 14 + X 24 + X 34 <= 200,000} Ocala X 15 + X 25 + X 35 <= 600,000} Orlando X 16 + X 26 + X 36 <= 225,000} Leesburg  Supply constraints X 14 + X 15 + X 16 = 275,000} Mt. Dora X 24 + X 25 + X 26 = 400,000} Eustis X 34 + X 35 + X 36 = 300,000} Clermont  Nonnegativity conditions X ij >= 0 for all i and j

Implementing the Model