1 1 Milk Runs and Variability John H. Vande Vate Fall, 2002

2 2 What are Milkruns? Daily routes Visit several suppliers Allow frequent visits by sharing vehicle capacity Reduce inventory without increasing transport Same route every day

3 3 Milkruns & Consolidation

4 4 Building Milkruns Filter out any full truckload Decide the number of routes (may take several passes) Using our Location/Allocation heuristic –Treat the facilities as route “anchors” –The customers assigned to the “anchor” are on the same milk run –Treat the sum of distances to the anchors as a surrogate for the route length

5 5 Example Assembly Plant Route Anchor

6 6 The Impact of Variability Plan for variability by allowing routes to use only, say, 80% of vehicle capacity on average When daily volume exceeds vehicle capacity, pay premium freight to expedite excess

7 7 Total Cost Build routes that minimize Total Cost Cost of planned transportation Cost of unplanned (expedited) transportation

8 8 Approximation Daily Volume from supplier is normally distributed Mean  Variance  2 Covariances  ij Mean on the route  r = sum of Means Variance on the route  r 2 = sum of variances + 2*sum of covariances

9 9 Probability of Expediting Depends on –how full we plan to load the vehicle –What the variance of demand on the route is Probability we have to expedite –1 - N((c-  r )/  r ) (Cumulative Std Normal) Doesn’t address the possibility of requiring more than one truck!

10 Expediting If we plan to fill the truck, 50% chance we expedite, regardless of the variance C 

11 Expediting The less we plan to fill the truck the less likely we are to expedite C 

12 Expediting The greater the variance the less we should plan to fill the truck C 

13 Tuesday Aaron Marshall Distribution Engineer Peach State Integrated Technologies Translating these kind of location models into practice – case studies, challenges.