Logistics Systems Design

Logistics Systems Design: Supply Chain Systems March 7, 2003

Copyright © 1994-2003, Marc Goetschalckx, All rights reserved. 6·1

7-Mar-03 Logistics Systems Design Marc Goetschalckx

1. Introduction

Logistics Systems Design:Supply Chain Systems

3. Transportation Systems4. Transportation Models

2. Forecasting

5. Inventory Systems6. Supply Chain Systems


Supply Chain Networks

CustomerDistribution Center

FactorySupplier


Common Logistics QuestionsWhere to purchase ?Where to produce ?Where to assemble ?Where to hold in inventory ?How to transport ?How to deliver ?How to expand or retreat ?How to recycle ?


Supply Chains Are Globaland Ever Changing




Duty Relieves

4.9% duty avoided in Europe


Taxes

34%17%

12%

40% or more


Supply Chains DesignsIntegrated and Comprehensive

Products

Facilities

Channels

Customers Countries

Time Periods

Inventory

Objectives

Vendors


Traditional Design Stages

Service Goals

Material Deployment Strategy

Network Design

Transportation




Modern Design Stages

Service Goals

Material Deployment Strategy

Network Design

Transportation&

&


Objectives for Given Demand

Cost minimizationSt. Service constraints

Return on investment maximizationSt. Service constraints

Reliability


Objectives for Variable Demand

Profit maximizationSt. Budget constraints

Service maximizationSt. Budget constraints

ResponsivenessFlexibility


Total System CostTotal cost of achieving a mission• Mission = set of customer service goals

for a particular productTraditional accounting insufficient• Arbitrary allocation of overhead costs• Functional areas based rather than

output basedBased on activity based costing (ABC)Reduced to a common time frame




Cost Categories

Controllable vs. Non-controllable• Avoided if the mission were

discontinued• Transportation vs. Pension liabilities

Fixed vs. Variable• Fixed are incurred when an activity is

executed• Variable change with the intensity of the

activity7-Mar-03 Logistics Systems Design Marc Goetschalckx

Total System Cost Components

Raw material costsProduction costsLinehaul transportation costsLocal delivery costsFacility costsStorage and handling costsSystem inventory costs


Costs Schematic

DC Fixed Location CostsDC Variable Storage & Handling CostsSafety Stock CostCycle Inventory Cost

Linehaul Transportation CostPipeline Inventory Cost

Delivery CostFixed Opening/Closing CostProduction CostCycle Inventory CostProduction Capability CostSupplies Cost


Depot Technology or Size Costs

Cost

Throughput Quantity

Manual

Mechanized

Automated




Direct Shipping Cost Tradeoff

Plant Customer

Warehouse

Expensive Delivery

Cheap Linehaul


Cross Docking Material Handling Tradeoff

Storage

Receiving Shipping


Supply Chain and Warehousing Trends

TransactionsTransportation

Information

InventoryFacilitiesHandling


Data Sources

Business operating documentsSales orders, customer data, freight bills

Business documentsAnnual report, accounting (activity-based-costing)

Logistics research dataPublished reference data

Trade magazines, census data, press




Data Encoding

Group technology and codingProduct coding

Bar codes, radio frequency tags, smart cards

GeocodingZip codesCity and state names


GeocodingConverts alphanumeric location data into geographical data

From zip codes and city, stateTo longitude-latitude or rectangular coordinates

Grid overlay, spreadsheets, or reference databasesUser interface and displayNumerical computations


DEC Incinerator Data


DEC Incineration Geographical Schematic with Excel




DEC Incineration Geographical Schematic with Visio Maps


Geocoding Example: Customer Demand History Database


Geocoding Example: Customer Locations


Geocoding Example: Demand Summed by State

Below - 500,000.00500,000.00 - 1,000,000.001,000,000.00 - 2,000,000.002,000,000.00 - 3,000,000.003,000,000.00 - 5,000,000.00Above - 5,000,000.00




Geocoding Example: Average Customer Demand by State

Below - 1,250.001,250.00 - 2,500.002,500.00 - 5,000.005,000.00 - 10,000.0010,000.00 - 20,000.00Above - 20,000.00


Constraints

Conservation of flowCapacity and demandConsistency or linkageElastic or soft constraints with penalty cost


Units of Analysis

Units of material flow and storageMonetary unitsUnits of time (major and minor)Information units


Model Characteristics

Multi-countryMulticommodityMulti-echelonMulti-periodCapacitated facilitiesCapacitated channelsDeterministic or stochastic




Logistics Objects

Products - commoditiesIn transformationIn transportationIn storage

CountriesPeriodsResources


Logistics Objects Continued

FacilitiesSources = suppliersSinks = customersIntermediate = transformers (manufacturing and distribution)

Transportation channels


Period Characteristics

Major periodStrategic planningYear, seasonOrdered sequence

Minor periodDemand processDay, week

Consistency


Period Edit Window




Country Characteristics

Differs from other countries byCurrency (exchange rate)Tax rateDutiesMinimum profitLocal content lawsDuty relief

Limited number


Country Edit Window


Country-Period Edit Window(Input)


Country-Period Edit Window(Output)



7-Mar-03 Marc Goetschalckx

Product Types

Convenience and commoditiesMultiple sales pointsFood items, office supplies

Comparison shoppingFewer sales pointsCars, fork lift trucks

Specialty productsVery limited distributionArt, specialized machines


Product Life Cycle Graph

Time

Sales

Maturity

Decline

Growth

Introduction


Product Life Cycle Characteristics

IntroductionLimited availabilityFew sales points and channelsCentralize distribution

GrowthExpanding channels and sales pointsFlow quantity more important than cost


Product Life Cycle Characteristics (2)

MaturityStable sales volumeMany sales points and channelsOptimization opportunity

DeclineDeclining sales volumeDecreasing sales points and channelsCentralized distribution




Product Characteristics

Differs from other products• Size• Weight• Value• Urgency• Risk characteristics• Obsolescence

Limited number, less than 12 to 20


Product Edit Window


Product-Country-PeriodEdit Window


Customer Types

Customer typesConsumer productsIndustrial products




Customer Characteristics

Ultimate sink for all materialsDiffers from other customers• Location• Product demand• Service level

Fixed location Demand for individual products• Customer-product matrix


Customer Characteristics (2)

Single sourcing restrictions• None• By product• All products combined (depot)

Service constraints• Maximum time• Maximum distance

No more than a few hundred


Customer Edit Window


Customer Demand Edit Window(Input)




Customer Demand Edit Window(Output)


Concentration / differentiation phenomenonAlso called 80-20, ABC, fast-medium-slow

Product Sales Pareto Analysis


Product Sales Pareto Curves With Benders Formula

0.000

0.100

0.200

0.300

0.400

0.500

0.600

0.700

0.800

0.900

1.000

0.000 0.100 0.200 0.300 0.400 0.500 0.600 0.700 0.800 0.900 1.000

SalesBenders


X=cumulative products,Y=cumulative sales,A=parameter

Benders

Power

Exponential

Pareto Curve Formulations

Y A XA X

= ++

( )1

Y X A=

Y e AX= − −1




Benders Pareto Formulation

Curve

Parameter

Y A XA X

= ++

( )1

A X YY X

= −−

( )1


Benders Least Squares Parameter Estimation

Minimize sum of squared deviations

Set partial derivative equal to zero

( )2

2 (1 )ˆ ii i i

i i i

A XMin SSE Y Y YA X

+= − = − + ∑ ∑

2 2 3

2 3

( ) (1 )( ) 0( ) ( )

N Ni i i i i

i ii i

dSSE Y X X A X XdA A X A X

− + −= − =+ +∑ ∑


Benders Pareto Curves for Different A Parameters

0.0000

0.1000

0.2000

0.3000

0.4000

0.5000

0.6000

0.7000

0.8000

0.9000

1.0000

0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00

1001010.10.010.001


Bender’s Pareto Curve Observations

More concentration / differentiationSmaller A parameterMore skewed curve

ABC classification and curve nameClass breakpoints based on slope

Data - information - knowledge example




Benders Pareto Curve Example: Data


Benders Pareto Curve Example: Curve Fitting


Benders Pareto Curve Example: Excel Solver


Benders Pareto Curve Example: Solver Options




Benders Pareto Curve Example: Excel Graph


Customer Service

Many componentsMany definitionsVery qualitative


Customer Service Stages

Pre-transactionDeclaring policies and procedures

TransactionInventory levels and locationTransportation channelsOrdering and billing systems

Post-transactionMaintenance and service (CALS)Warranties


Order Cycle Time

Time between order placement and product receiptWide range (instantaneous to 30 months)Components

Order processingProductionOrder assembly and order pickingTransportation




Sales-Service Curve

Service

Sales

Sales Revenue


Sales-Cost-Service Curves

Service

Sales

Sales Revenue

Logistics Costs

Maximum Profit


Service Constraints

Percentage of goods delivered out of stockPercentage of orders delivered within time limitMaximum time or distance from supply pointSingle sourcing


Supplier Characteristics

Initial source of all materialsDiffers from other supplier• Location• Fixed facility cost (opening or closing)• Total supply capacity• Supply parameters

Fixed location




Supply Characteristics cont.

Commodity Supply Parameters• Cost• Resource requirement


Supplier Edit Window


Edit Supplier-Period Window


Supplier-Period-Product Edit Window (Input)




Supplier-Period-Product Edit Window (Output)


Supplier-Period-ResourceEdit Window


Supplier-Period-Product-Resource Edit Window


Transformation Facilities

Transformation typesManufacturingDistribution

Intermediate facilitiesNo creation or destruction of flowChange of commodity

Moveable or fixed facilitiesDifferent possible types at a site




Transformation Facilities Characteristics

Fixed and variable costsThroughput and storage capacitiesResources

Resource costsResource consumption


Transformation FacilityEdit Window


Transformation Facility TypeEdit Window


Transformer-Type-PeriodEdit Window




Transformer-Type-Period-Product Edit Window (Input)


Transformer-Type-Period-Product Edit Window (Output)


Transformer-Type-Period-Resource Edit Window


Transformer-Type-Period-Product-Resource Edit Window




Importance of Transportation

Smaller, faster, more frequently, more on time shipments50 % of total logistics cost and rising


Transportation Performance Measures

AccessibilityCapacityCostSpeedDependabilityTradeoff with inventory for shipperTradeoff with flow volume for carrier


Transportation Modes

PipelineRailRoadWaterOceanAirSpace


Transportation Channel Edit Window (Input)




Transportation Channel Edit Window (Output)


Channel-Period Edit Window


Channel-Period-Product Edit Window


Channel-Period-ResourceEdit Window




Channel-Period-Product-Resource Edit Window


Supply Chain Strategies:Evaluation Criteria

Total Logistics CostsEconomies of scaleEconomies of scopeInventory and transportation costs

Simplicity of ControlResponsiveness to changesFlexibility and robustness


Supply Chain Systems Strategies: Suppliers

CentralizationRegionalizationConsolidationDispersion


Supply Chain Systems Strategies: Transformation

Manufacturing facilities strategyRegionalizationConsolidationProduct FocusProcess FocusDispersion




Supply Chain Systems Strategies: Transformation

Distribution network strategyConsolidationCustomer FocusCo-Location


Design Software Requirements

User FriendlyGeneration of Reports, Maps, & VisualsHigh Fidelity Economic RepresentationHigh Degree of Optimization of the Results

Ballou & Masters, “Commercial Software for Locating Warehouses and Other Facilities,” Journal of Business Logistics, Vol. 35, No. 2, 1993.


Design Decision Support System Components

System data and data baseDesign modelsSolution algorithmsReports, displays and interactive executive


CIMPEL

Cost Minimization St. Service ConstraintsNeutral Data BaseComprehensive Integrated ModelAlgorithm ToolkitStandard Interactive Color Graphics Interface




CIMPEL Illustration

7-Mar-03 Strategic Modeling of Logistics Systems Marc Goetschalckx

CIMPEL Structure


Enterprise Resource Planning (ERP) Software

Logistics Systems Status“Bookkeeping”

TransactionalData Warehouse

AdvantagesEnterprise StandardizationData IntegrationUp-To-Date DataMultinational


ERP Vendors

Growing ImportanceMajor Vendors

SAP (Financial), Baan (Manufacturing),PeopleSoft (Human Resources)...




Supply Chain Management (SCM) Software

Logistics Systems Configuration and Planning“Optimizing”

Operations ResearchConstraint Based Logic

Interface with ERP


SCM Vendors

Strong ConsolidationMajor Vendors

I2 - InterTransManugisticsChesapeake - SupplyChain


Logistics Software Reference

Andersen Consulting, “Logistics Software,” jointly with Council of Logistics Management, Oak Brook, IL, 1992 and yearly updates.


Logistics Planning Software Catalogue




Supply Chain Design Challenges

Integrated models are large and complex

More tactical effects (seasonal, inventory)Multi-objective performance measures

Cost/profit, flexibility, and responsiveness tradeoffs

Strategic design as a continuous effortModels, data, algorithms


Supply Chain Design Challenges Continued

Technology transfer to logistics professionals and students

Toy cases and black-box software


From a Multicommodity Case...


...and Configurationby a Current Design Tool




To Design Toolsfor the Next Century

Logistics Systems Design

Documents

Transcript of Logistics Systems Design