Models for Logistics andTransportation Planning

Teodor Gabriel Crainic

NSERC Industrial Research Chair in Logistics ManagementManagement and Technology, ESG, UQAM

andCentre for Research on Transportation

Montreal, Canadatheo@crt.umontreal.ca

Molde, 2005

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Logistics and Transportation

Central and vital role for the economy and the society in general

The logistics industry ≈700 billion/year (U.S.A.)Logistics costs ≈30% of final sale cost of product (U.S.A.)Transportation activities ≈13% GNP (2000 U.S.A.)(Was at 20% in the 1980s)Similar in West Europe and CanadaHigher in less service-oriented economiesTransportation costs ≈11%-13% of sale cost (CND)

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Logistics and Transportation (2)

No transport = No society as we know itNo logistics = No modern economiesLogistics encompasses transportation activitiesFreight transportation responds to the needs of shippers and, thus, to needs identified during the logistics processesFreight transportation firms face their own challenges and issues regarding planning, management, and control of operations

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Value Chain

Supply / logistics / distribution chainFlows of

Materials and productsInformation (including orders)ServicesMoney

moved by various transportation modes and services, from producers of raw materials, through transformation, fabrication, and assembly facilities, passing through (and waiting in) warehouses, depots, and distribution points, to be delivered to the final user.

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Decisions with Operations Research

Transportation and logistics systemsComplex organizationsMany components, stakeholdersDiverse, often contradictory objectives

Production and service paradigms “Just-in-Time” and GlobalizationCustomer-orientedE-Everything

Need for planning and management methods and tools for systems and operations = Operations Research

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Goals of Course

A general view of freight transportation and logisticsFor a few issues and challenges

The “problem”Modelling itAlgorithmic issues(Some) playExchanges and discussions

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Logistics

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Logistics

First there were the military: Selection, procurement, transportation, maintenance of material (equipment, facilities, …), personnel, and suppliesProcess of planning, implementing, controlling the efficient operation of the value chain to profitably fulfill customer requirements and expectations(modified definition, U.S. Council of Supply Chain Management Professionals)

Deliver the right product to the right place at the right time for the right priceManagement of the details of an operation

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A Simple Production-Distribution System

Production,and storage,one product

Warehouses:Inventories

Customerdemand

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Many Complex Issues

Where to locate plants and warehouses?How large each facility should be?How is each customer served? Direct? From a warehouse? Which one?How much to produce at each period?Level of inventories at plants and warehouses?When to replenish inventories at warehouses?When to ship to each customer?How to ship?….

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A More “Complete” System

Data, PlansOrders,Money

SuppliesTransportation

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Actual Systems Are Even More Complex

Several products, different patterns of demandSeveral types of supplies, different patterns of availabilitySeveral layers of productionraw materials → transformation → assembly of more complex parts → assembly of finished productEach unit may process a subset of supplies and produce some of the products at different yields and costsEach unit with different capacities and costs

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Actual Systems Are Even More Complex (2)

Several layers of distributionplant → regional depot → local warehouse → retail outlet → customerEach unit with different capacities and costsWarehousing facilities may offer assembly facilitiesDistribution may be consolidated and products may be assembled without warehousing (“merge-in-transit”)

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Actual Systems Are Even More Complex (3)

Several customers with specific (known or forecast) requirements in terms of quantity, quality, customization, …Products have to be made up / distributed just-in-timeGlobalization of procurement, production, warehousing, customer baseSpecialized firms offer services – e.g., warehousing and distribution – to permit focusing on core competence

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Actual Systems – Transportation

Proprietary fleetFleet management issues

Using common carriersDedicated (customized, “door-to-door”)“Scheduled” services with consolidation: rail, less-than-truckload, navigation lines, …Multimodal / Intermodal

Outsourcing the whole distribution…

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A Few Major Challenges

The system and its components must be studied, planned, managed, and controlled for optimum performance for the firm and its customersModels and methods must be developed for

The systemComponentsAt all levels of planning and operations management – including “real-time”

Integration of planning and management activitiesIntegration with partners, suppliers, customers: the E-Economy (E-logistics)

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A Few Major Issues

Design of the logistic systemCoordination of procurement, production, warehousing, distributionForecastingProduction planningDistribution managementReal-time responseIntegration …

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A Few Major Issues

Design of the logistic systemCoordination of procurement, production, warehousing, distributionForecastingProduction planningDistribution managementReal-time responseIntegration …

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The Environment

Dominating industrial production paradigmsJust-in-time production and low inventoriesCustomer-driven production

“Pull” rather than “push”CustomizationQuality at “just” (low !!) price

Globalization: production, supply sources, marketsProduction specialization Outsourcing

Increased and fierce global / local competition

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The Environment (2)

Customer expectationsCustomized, on time, reliable serviceLow-cost, high quality product“The company will react as rapidly as I can electronically access its system and communicate my requirements”

Technology (hard and soft)Rapid evolution = Internet, E-business, …Not necessarily easy to comprehend and integrateUneven distribution and penetration

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The Environment (3)

Broader economic spacesProtectionist tendencies The civil society

People have access to the “same” electronic infrastructure and tools: a “civil” watch-dog (opposition)Aspirations towards a “better” world-wide societyGovernments are taking notice (!!)Individuals directly involved in business processes

It does not make planning and management any easier

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The Environment (4)

⇒ More complex production planning and logistics activities

⇒ More automation⇒ Need for more integrated and forward-looking planning⇒ Need for rapid (“real-time”) reaction and adjustment of

plans and schedules⇒ Need for efficient operations⇒ Need for “control” of the logistic chain⇒ More sophisticated analysis and decision support

models, methods, and tools

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A Few Major Enabling Factors

Information Technologies (supply chain management, enterprise resource planning, …)Novel data analysis methodsArtificial Intelligence methods (e.g., knowledge-based inference systems) for unstructured issuesDecision technologies for optimization and simulation of plans and operations = Operations ResearchE-business

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Transportation

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Transportation

Production, Consumptionof Goods and Services

DEMAND

Movements of people, goods, vehicles = TrafficCosts/profits, delays, energy, emissions, …

Economic and legal environment

Physical (Conceptual) Infrastructure and Services

SUPPLY

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Transportation (2)

SupplyInfrastructureTerminalsVehicles and convoysModal and intermodal servicesRoutes, frequencies, schedulesCosts and tariffs

DemandPoint(s) to point(s)Economic and quality criteriaPersonal and contract preferencesPartnershipsLogistic decisionsLaws and regulations

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Transportation Classification

Passenger versus FreightUser/shipper versus CarrierUrban versus Interurban / RegionalModal versus Multi/Inter-modalIntegration?Intelligent Transportation Systems (ITS)

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Passenger Transportation

Customized (door-to-door) servicesPrivate: cars, walking, bicycles, etc.Public: taxi

Consolidation transportationPublic transport: Buses, trains, subways, planes, public taxis, etc.

Intelligent Transportation Systems

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Passenger Transportation Planning

Short planning horizons (hours) Planning dependent upon time-of-day, day-of-week, week-of-year, …Long history, sustained research and development, established practice

Cities and urban areas (sometimes regions)Trend toward multimodality and integration of private and public transportationAim: mobility, accessibility, safety, management of infrastructure and fleets

“Authorities plan, users decide”

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Passenger Transportation Planning (2)

Transit companiesManage the companyDesign the service network

Physical: subway lines, etc.Service: routes, frequencies, schedules

Manage the fleet and services in real-time (ITS)Crew scheduling

Non-uniform demandHuman nature and personnel requests: a “normal” working schedule = Collective agreements

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Crew Scheduling Dilemma

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Freight Transportation

Regional / National PlanningUrban Planning – City LogisticsCarrier Planning

Long haulShort distancesRouting (distribution)

More players and issues than in passenger transportation planning

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National Planning

Integrated planning of a region, country, continent, …Rather recent and limited effortsUntil recently

Freight transportation is a “private” businessModes treated separatelyMacro-economic approaches

Less knowledge and tools compared to passenger transportation

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National Planning (2)

Increased interestScandinavia leads the wayEUThe “others”

Planning horizons and time units are “long” (years, seasons, weeks, days)Several modes, several productsIntermodal terminalsSeveral services on the same infrastructure

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City Freight Planning

City logisticsAim: Decrease the presence of freight vehicles in urban areas (downtown), and their unpleasant consequences, without penalizing the city activities and developmentMeans: Carrier coordination and consolidation of freightVery recent. Almost everything has to be doneBut, several small/medium-sized cities are aggressively moving forward

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Freight Carriers

OwnershipPrivate fleets: Producers who own and operate their own fleets (and infrastructure, eventually)For-hire carriers

Distance and timeLong-haul (intercity): Relatively long distances, few points visited(Local) Distribution: pickup and delivery routes serving several customers, within the day

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Freight Carriers – Service Type

Customized (“door-to-door”)The vehicle (convoy, multimodal service) is dedicated to the demand of one customerFull-truck motor carriers, for-hire ships, …Container, postal, and express courier services: customer perspective

Consolidation transportationThe loads of several customers are grouped, consolidated, into the same shipment and move together on the same vehicle (convoy, …)

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Main routeFeeder routePick up and delivery route

Hub

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Consolidation Transportation

RailwaysLess-Than-Truckload (LTL) motor carriersShipping linesContainer transportationPostal and express couriers: Service (firm) planning perspectiveRegulatory agencies (in some countries)

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Consolidation Transportation (2)

The same vehicle (convoy) serves the demand of several customersRegular services ⇒Routes, frequencies, schedulesTerminals: Major and central role

Sort freight and consolidate it into vehiclesSort vehicles and group them into convoysMake-up/modify convoys

Many types of services, equipment, and terminalsMany tradeoffs among operations and among performance measures

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Consolidation Transportation (3)

Reduces costs for customersReduces costs for carrier (if correctly planned and performed)Reduces the flexibility for customersAdditional operations and delays (in terminals) ⇒Reduced reliability (and costs)Operation efficiency ⇔ Carrier profitabilityService quality (delays, reliability, …) ⇔ Customer satisfactionNeed for methods to plan and manage operations

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Planning Levels

StrategicLong-termDesigns the system structure (acquisitions)

TacticMedium-termDesigns the service structure (plans)

OperationalTime-dependent Makes happen: dynamic management and control of resources, routes, schedules, ...

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Decision TechnologiesOperations Research

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“A Rose by Any Other Name …”

Quantitative methodsManagement ScienceOperations ResearchDecision Technologies

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“A Rose by Any Other Name …”

Quantitative methodsManagement ScienceOperations ResearchDecision Technologies

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Problem solving – Decision Making

Structure the problemIdentify and describe the problemIdentify set of alternatives / strategiesIdentify criteria to measure / evaluate strategies

Problem analysisEvaluate alternativesSelect an (“the best”) alternative

ImplementationImplement the strategy and evaluate impacts

DecisionTechnologies

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Operations Research

Problem representation – the model – and alternative selection – the solution method – through quantitative approachesScientific approach to management and decision making at all levels of planning and operations for the production of goods and servicesTransform information into decisions through models

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Methodology

Implementation

Observation

Problem Definition

Model Building

Resolution and analysesFeed-back Information

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Methodology (2)

Controllable Data(Decision Variables)

Controllable DataControllable Data(Decision Variables)(Decision Variables)

Non Controllable Data(System Description)

Non Controllable DataNon Controllable Data(System Description)(System Description)

ModelModelModel

Solution MethodSolution MethodSolution Method

Output:Numerical results

Decision Variables Values

Output:Output:Numerical resultsNumerical results

Decision Variables ValuesDecision Variables Values

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Methodology (3)

The model is the core of the methodologyRepresentation of the system and decision processLinks the elements assumed known (fixed or not) and the decisions to be taken (i.e., the elements that may be modified by these decisions)Trade-offs among detail, precision, complexity, etc.A mathematical object

Solution methods find numerical values to the elements of the model that represent decisions, and allow manipulations of data and solution for analyses

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Optimization Models and Methods

Static versus Dynamic (Time-dependent)Deterministic versus stochasticContinuous versus Integer / Mixed IntegerLinear versus NonlinearNetwork structure or not

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Solution Approaches

Exact: Identifies the exact solution to the mathematical formulation of the modelHeuristic (approximate): Finds a “good” solution within a “reasonable” time/computing effort

When problem instances are either too large or too difficult or both

SimulationParallel computationSoftware

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OR and IT

Operations Research models and methods are transferred to practice through software and decision support systems (DSS) linked to the firm and the world networks through Information Technologies hardware and software systems

Data exchanges, validation, handlingIntegration issuesData banksModel banksWWW and grid computing…