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Transportation & Supply Chain Systems

John H. Vande VateSpring, 2001

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Who am I?

• John H. Vande Vate• Professor and EMIL Director• Office: 433 • Phone: (404) 894-3035• Office Hours:

– Tuesday, Thursday 11-12 or– By appointment

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Administrative Details

• Class Home Page:www.isye.gatech.edu/~jvandeva/Classes/6203/syllabus2001.htm

Keep up with information here! • Text: Logistic Systems Analysis by Daganzo • You may also want to read:

– Business Logistics Management by Ballou

44

Grading

• Exams: 60%– Mid-term: March 1, 2001– Final

• Projects: 30%– Groups of 3 or 4

• Class Participation: 10%– What you contribute to the class

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Objectives

• Issues and Tools for Design and Analysis of Logistics Systems– Daganzo: Analytical models based on

summary data– Class Discussions: Mathematical

Programming models incorporating more detailed data

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Motivation

• Analytic models: – Identify trade-offs– Communicate arguments– Ball park answers

• Numerical Models:– Consider the details– Manage the complexity– Refine solutions

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Algebraic Modeling Languages• AMPL

– www.ampl.com– AMPL A Modeling Language for Mathematical

Programming, Fourer, Gay and Kernighan– $– No full version generally available

• XPress-MP: – Academic version available for download at: www.isye.

gatech.edu/class/xpress/ – Full version available in the graduate and undergraduate labs.

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More Options

• AIMMS: – This application is supported in the Lab. – Student version??

• MPL or related tools: – Can be downloaded free from

www.maximal-usa.com/download/ – No full version available

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Good and Bad of EMIL

• Good: – Executive Master’s in International Logistics– CIO’s, VP’s, Directors and Managers from

• Agilent, Baxter, Fedex, Ford, GM, Hapag-Lloyd, Intel, Lucent, Milliken, Motorola, Ryder, UPS, …

– Meeting with Execs from • BMW, DaimlerChrysler, HP, Infineon, Quelle, …

– ...

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Good and Bad of EMIL

• Bad:– I will be out of the country

• January 19 to February 3– Possible trip to Asia in April

• Still wanted to do this class.

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Resolution

Weeks of• January 22• January 29No class. Your assignment is:• Get access to and master a modeling

language• Complete a small “case” to test your skill.

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Project 1: Due February 6• Build and solve a mathematical

programming model for determining the best strategy for shipping the goods in The example of Section 1.2 of Daganzo

• Comments:– Use the data given in the text and the distances

given on the class home page– Your model must be linear (integer).– The plants and warehouse stagger shipments.

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Comments Cont’d

– Shipments between plants and and from plants to the warehouse are full truck load.

– Each DC receives all supply of each part from one plant. (Different parts may come from different plants)

– If your model is too large for the student version of the solver, drop the last dcs until it fits.

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To Turn In

• Model – with clear but concise explanation

• Solution– Summarize intelligently

• Compare with an Analytic model – What are the key differences and why are

they there.

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Tentative ScheduleWeek of Topic9-Jan-01 Introduction16-Jan-01  Costs 23-Jan-01  No Class 30-Jan-01  No Class 6-Feb-01  Finance 13-Feb-01  The Continuous Approximation Approach 20-Feb-01  1-to-1 Distribution 27-Feb-01  Location and Mode Selection1-Mar-01  Exam 6-Mar-01  Spring Beak 13-Mar-01  Vehicle Routing 20-Mar-01  1-To-Many Distribution with Transshipments 27-Mar-01  1-to-Many Models: WebVan 3-Apr-01  Many-to-Many with Transhipments 10-Apr-01  Many-to-Many Models: Ford 17-Apr-01  Workload Balancing: UPS 24-Apr-01  TBA 

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Illustrative Example• Develop a distribution strategy to

minimize inventory and transportation costs

• Purpose: – Illustrate the analytical modeling approach– Outline issues covered in the course

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Overview

• Products:– Computers: CPU, Monitor, Keyboard– Televisions: TV and Console

• Distribution Centers– 100 across the US– Sell 10 TVs and 10 computers per day

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An Illustrative Example

F

F

F

Green Bay

Indianapolis Denver

Facts

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Strategies to Consider

• All direct shipments in full truckloads• All shipments via Indianapolis in full

truckloads• All direct shipments at the optimal

frequency• All shipments via Indianapolis at the

optimal frequency• ….

2020

Simplification • Shipments on the order of 1,000 miles

F

F

F

Green Bay

Indianapolis Denver

Facts

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Inventory

• At the DC’s?– 1/2 truckload or 500 Consoles at $100 each: $ 50,000– 1/2 truckload or 3,000 CPUs at $300 each: $900,000– 1/2 truckload or 1,500 Monitors at $400 each: $600,000

$1,550,000

Carrying cost: 15% of $1,550,000 or $232,500Total Carrying cost at the DCs: $23,250,000!

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Inventory at the Plants

• Two Extremes– Simultaneous shipments– Staggered shipments

• Reality?

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Simultaneous shipments– Green Bay ships once every 2.4 years

• Inventory is 1.2 years demand or 3,000 CPUs• Inventory value is $900,000• Inventory carrying cost is $135,000

– Denver ships 2.5 times per year• Inventory is 20% of annual demand or 500 Consoles• Inventory value is $50,000• Inventory carrying cost is $7,500

– Indianapolis ships 1.6 times per year• Inventory is 5,000/3.2 or about 1,500 items• Inventory value is $600,000• Inventory carrying cost is $90,000

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Staggered Shipments

• Each plant holds 1/2 a truck load• Total plant inventory like one more DC

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• Transportation Costs: $ 460,000• Inventory Costs at DCs: $ 23,250,000• Inventory Costs at Plants: $ 232,500

Total: $ 23,942,500!

The Next Step:Trade-off Inventory and Transportation

Total Cost

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Costs, Inventory and TransportWeek of Topic9-Jan-01 Introduction16-Jan-01  Costs 23-Jan-01  No Class 30-Jan-01  No Class 6-Feb-01  Finance 13-Feb-01  The Continuous Approximation Approach 20-Feb-01  1-to-1 Distribution 27-Feb-01  Location and Mode Selection1-Mar-01  Exam 6-Mar-01  Spring Beak 13-Mar-01  Vehicle Routing 20-Mar-01  1-To-Many Distribution with Transshipments 27-Mar-01  1-to-Many Models: WebVan 3-Apr-01  Many-to-Many with Transhipments 10-Apr-01  Many-to-Many Models: Ford 17-Apr-01  Workload Balancing: UPS 24-Apr-01  TBA 

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The Big Picture: FinanceWeek of Topic9-Jan-01 Introduction16-Jan-01  Costs 23-Jan-01  No Class 30-Jan-01  No Class 6-Feb-01  Finance 13-Feb-01  The Continuous Approximation Approach 20-Feb-01  1-to-1 Distribution 27-Feb-01  Location and Mode Selection1-Mar-01  Exam 6-Mar-01  Spring Beak 13-Mar-01  Vehicle Routing 20-Mar-01  1-To-Many Distribution with Transshipments 27-Mar-01  1-to-Many Models: WebVan 3-Apr-01  Many-to-Many with Transhipments 10-Apr-01  Many-to-Many Models: Ford 17-Apr-01  Workload Balancing: UPS 24-Apr-01  TBA 

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Extending the Analysis

Week of Topic9-Jan-01 Introduction16-Jan-01  Costs 23-Jan-01  No Class 30-Jan-01  No Class 6-Feb-01  Finance 13-Feb-01  The Continuous Approximation Approach 20-Feb-01  1-to-1 Distribution 27-Feb-01  Location and Mode Selection1-Mar-01  Exam 6-Mar-01  Spring Beak 13-Mar-01  Vehicle Routing 20-Mar-01  1-To-Many Distribution with Transshipments 27-Mar-01  1-to-Many Models: WebVan 3-Apr-01  Many-to-Many with Transhipments 10-Apr-01  Many-to-Many Models: Ford 17-Apr-01  Workload Balancing: UPS 24-Apr-01  TBA 

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Simple Location ModelsWeek of Topic9-Jan-01 Introduction16-Jan-01  Costs 23-Jan-01  No Class 30-Jan-01  No Class 6-Feb-01  Finance 13-Feb-01  The Continuous Approximation Approach 20-Feb-01  1-to-1 Distribution 27-Feb-01  Location and Mode Selection1-Mar-01  Exam 6-Mar-01  Spring Beak 13-Mar-01  Vehicle Routing 20-Mar-01  1-To-Many Distribution with Transshipments 27-Mar-01  1-to-Many Models: WebVan 3-Apr-01  Many-to-Many with Transhipments 10-Apr-01  Many-to-Many Models: Ford 17-Apr-01  Workload Balancing: UPS 24-Apr-01  TBA 

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Back to Our Example

• Using Transshipment to Reduce Inventory

• Strategy 2: Assemble Products in Indianapolis and distribute by truckload from there

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Via Indianapolis

F

F

F

Green Bay

Indianapolis Denver

Facts

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Inventory Effects

• Inventory at a DC:– Visited by truck 4.6 times per year – Same as before– So inventory costs at DC are the same as

before, right?

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Wrong!

Product Value Number per year

Number per shipment

Average Inventory

Average Value of Inventory

Inventory Carrying

CostTV 500.00$ 2,500 543 272 135,869.57$ 20,380.43$ Computer 700.00$ 2,500 543 272 190,217.39$ 28,532.61$

Total: 48,913.04$

• Total Inventory Carrying Cost at DCs: $4,891,300

compared with $23,250,000

under earlier strategy. Explain!

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The Difference

Product Value Number per year

Number per shipment

Average Inventory

Average Value of Inventory

Inventory Carrying

CostTV 500.00$ 2,500 543 272 135,869.57$ 20,380.43$ Computer 700.00$ 2,500 543 272 190,217.39$ 28,532.61$

Total: 48,913.04$

Part Value Number per year

Number per shipment

Average Inventory

Average Value of Inventory

Inventory Carrying Cost

CPU $300 2500 6,000 3,000 900,000.00$ 135,000.00$ Monitor/Keyboard $400 5000 3,000 1,500 600,000.00$ 90,000.00$ Console $100 2500 1,000 500 50,000.00$ 7,500.00$

Total: 232,500.00$

Other resolutions?

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Inventory at the Plants• Denver

– 1/2 truckload of Consoles– Same as before, right? $7,500

• Green Bay– 1/2 truckload of CPUs– Same as before: $135,000

• Indianapolis– 1/2 truckload of Consoles :$ 7,500– 1/2 truckload of CPUs :$135,000– 1/2 truckload of TVs and Computers:$ 48,900

$191,400

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With Transshipment– Transportation Costs: $ 751,800– Inventory Costs at DCs: $ 4,891,300– Inventory Costs at Plants: $ 333,900

Total: $ 5,977,000

Without Transshipment– Transportation Costs: $ 460,000– Inventory Costs at DCs: $ 23,250,000– Inventory Costs at Plants: $ 232,500

Total: $ 23,942,500!

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Other Advantages/Disadvantages

• Disadvantages– Capital Cost of Warehouse – Extra handling at Warehouse

• Advantages– Economies of Scale in Assembly– Reduced demands on DC labor

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1-Many Distribution with Transhipment

Week of Topic9-Jan-01 Introduction16-Jan-01  Costs 23-Jan-01  No Class 30-Jan-01  No Class 6-Feb-01  Finance 13-Feb-01  The Continuous Approximation Approach 20-Feb-01  1-to-1 Distribution 27-Feb-01  Location and Mode Selection1-Mar-01  Exam 6-Mar-01  Spring Beak 13-Mar-01  Vehicle Routing 20-Mar-01  1-To-Many Distribution with 27-Mar-01  1-to-Many Models: WebVan 3-Apr-01  Many-to-Many with Transhipments 10-Apr-01  Many-to-Many Models: Ford 17-Apr-01  Workload Balancing: UPS 24-Apr-01  TBA 

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1-Many Distribution

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Vehicle Routing

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Transshipment

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Vehicle Routing

Week of Topic9-Jan-01 Introduction16-Jan-01  Costs 23-Jan-01  No Class 30-Jan-01  No Class 6-Feb-01  Finance 13-Feb-01  The Continuous Approximation Approach 20-Feb-01  1-to-1 Distribution 27-Feb-01  Location and Mode Selection1-Mar-01  Exam 6-Mar-01  Spring Beak 13-Mar-01  Vehicle Routing 20-Mar-01  1-To-Many Distribution with 27-Mar-01  1-to-Many Models: WebVan 3-Apr-01  Many-to-Many with Transhipments 10-Apr-01  Many-to-Many Models: Ford 17-Apr-01  Workload Balancing: UPS 24-Apr-01  TBA 

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Many-to-Many Distribution

% Laurel

%

%

Orillia

Portland

% Benicia

% Mira Loma% El Mirage

% Belen

% Salt Lake% Denver%% b

Omaha

Kansas City St. Louis

% Oklahoma City%Amarillo

%%

Alliance

Houston

%Reisor

b

bAtlanta

bLouisville b

Norfolk

Ford Motor CompanyNorth American Vehicle Distribution

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Many-to-Many DistributionWeek of Topic9-Jan-01 Introduction16-Jan-01  Costs 23-Jan-01  No Class 30-Jan-01  No Class 6-Feb-01  Finance 13-Feb-01  The Continuous Approximation Approach 20-Feb-01  1-to-1 Distribution 27-Feb-01  Location and Mode Selection1-Mar-01  Exam 6-Mar-01  Spring Beak 13-Mar-01  Vehicle Routing 20-Mar-01  1-To-Many Distribution with Transshipments 27-Mar-01  1-to-Many Models: WebVan 3-Apr-01  Many-to-Many with Transhipments 10-Apr-01  Many-to-Many Models: Ford 17-Apr-01  Workload Balancing: UPS 24-Apr-01  TBA 

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Other Issues

• Workload balancing: UPS case• Combinatorial Bidding: Home Depot Case• Yield/Demand Management• ….

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