BL 2 LogisticsStrategies

Business Logistics
Issue 2: Logistics Strategies

2. Logistics Strategy 2.1 Strategic decisions about transportation, warehousing and location 2.2 Network Design of logistics Reading and References Ballou R.H., Business Logistics/ Supply Chain Management, Prentice Hall, 2004. (Chapter 2, 13 & 14) Bowersox D.J., D.J. Closs, M. B. Cooper Supply Chain Logistics Management, McGraw-Hill, 2013. (Chapter 12) Chopra S. & Meindl P., Supply Chain Management: strategy, planning, and operation, Pearson Education, 2004. (Chapter 3, 4 & 5) Software ExcelOM2 (Heizer & Rendel 2001`s CD) TS155.H452001 Seminar 1 Exercises on logistics strategies and network design
Intellectual Property You may not use this material without a written authorization by owners: Helena Ramalhinho (UPF), and Cristina De Stefano (UPF). In this case, you have to indicate clearly its origin and authors.
Business Logistics Topic 2. Logistics Strategies
Topic 2: Logistics Strategies
Business Logistics
Logistics Strategies
Topic 2
Business Logistics
Distribucin Comercial
Logistics
Strategies
Inventory Transportation Localization

Design
of logistics network
Methods to design networks
Business Logistics
Objectives
To be able to identify and plan basic logistics business activities, such as supply, demand management, inventory management, warehouse management and transportation management. To be able to use the basic analytical tools and methodologies to plan plan, design and manage in the logistics area.
Business Logistics
Main
decisions
Demand management and customer service Inventory decisions and policies Transportation decisions Localization strategies
Facilitator: Information Communication Technology (ICT).
Business Logistics
Information technology gy
Inventory strategy CLIENT

Demand and service level
Transportation strategy
Localization strategy
Business Logistics
Customer
strategy
Demand management Service level

* Marketing * Purchasing * Logistics
Issue 3 and 4
Business Logistics
Inventory
strategies
Which companies in the network have to maintain inventory? What volume of inventory should be maintained? Management of the inventory Control methods
Issues 5 and 6
7
Business Logistics
Transportation
strategy
Shipment size Mode of transportation Inhouse or outsourcing Transportation planning

* Routing
Issue 7
8
Business Logistics
Localization
strategy
Impact on transportation and customer service Number, size and facility location Assignment of sale points to the warehouses or distribution centers Demand assignment Logistics network design
Fuente: http://www.mecalux.es
Business Logistics
Efficient supply chain Economical production runs Finished goods inventories Economical buy quantities Large shipment sizes Batch order processing
Supplyto-stock
Responsive supply chain
Supplyto-order
10 Fuente: Ballou (2004)
Excess capacity Quick changeovers Short lead times Flexible processing Premium transportation Single order processing
Business Logistics
Product Characteristic Supply Chain Design Type Supply-to-Stock/ Efficient Supply-to-Order/ Responsive Predictable/ Mature Tomato Soup If product is here Unpredictable/ Introductory If product is here Personal Computer Models
11
Fuente: Ballou (2004)
Business Logistics
High
number of warehouses
High fixed costs Low transportation costs for distribution High supplying transportation costs Improved customer service High inventory costs
12
Business Logistics
Low
number of warehouses
Low fixed costs High transportation costs for distribution Low supplying transportation costs Low inventory costs Customer service
13
Business Logistics
Design of logistics network

Where
to locate?
Factories Warehouses Sale points/stores

With
the objective to
Maximize sales Minimize costs Maximize service quality

14
Business Logistics

Project
of logistics network design

Current network
Data
Start
Objectives
Methodological system
Model
Logistics network
Team
Solutions
15
Business Logistics

Example: Structure
Carrier - Technological Group
16 warehouses People: 86
Service
w w w w Fw wFw w
High lead time Lost sales

High
costs
w w Fw w w w w
16
Business Logistics

Example: Structure
Carrier - Technological Group
4 owned stores several shared

Costs
Low internal transportation s w s s High external transportation s Fw Fw Low inventory

Higher
17
service
Fw s s
Business Logistics

Localization
decisions
Tend to be long-term decisions Difficult to revoke Affect both fixed and variable costs
* Transportation costs
They can be the 25% of product price
* Other costs: taxations, salaries, etc.
Objective:
to maximize companies profit
18
Business Logistics

Decision
Country
sequence
Region/community
Location
1995 Corel Corp. 1995 Corel Corp.
19
1995 Corel Corp.
Business Logistics

Factors
that affect a country
Government Economy and culture Market localization Availability, productivity and attitudes of the workforce Infrastructure cost Exchange rate
20
10
Business Logistics

Regional
decisions
Corporate strategies Attraction Labor costs Government incentives Proximity to customers and suppliers Land and construction costs
21
Business Logistics

Local
factors
Place size Cost Access to transportation Proximity of services Environmental impact
22
11
Business Logistics

Methods
to evaluate the localization
Weighted factor method Center of gravity method Operations research models

* Transportation model * Advanced Localization model
Transport
rate estimation
Privately Owned Transport For-Hire Transport

23
Business Logistics

Weighted
factor method
It is the most used technique It is useful as much for service as for manufacturing companies Weights the locations using factors
* Intangible (Qualitative)
Example: education quality, employ qualification
* Tangible (Quantitative)
Example: short and long run costs
24
12
Business Logistics

Weighted
factor method
Make a list of factors Give a weight in terms of importance to each factor Develop a scale for each factor (0-1, so.) Assign a score to each location using scale factors Multiply scores by the weights for each factor Select the location with the highest total score
25
Business Logistics

Labor costs Labor availability Proximity to materials and suppliers Proximity to markets Fiscal policies
Environmental regulation Services Land costs Transportation availability Quality of Life Exchange rate Government Quality
26
13
Business Logistics

Purchasing power of consumers in the area Service and image compatible with the consumer of the area Competition in the area Q lit Management Quality M t Company operations policies
Competitor grade Special features of the locations of the company and competitors Physical quality of facilities and neighboring i hb i b businesses i
27
Business Logistics

Weighted
factor method
Example:
* A company must decide among three places to locate its new plant. * The company has selected five relevant factors and given a weight between 1 and 5. * The following g table shows these factors and evaluation that management has made for each factor and place. * Based on the data provided in the following table, which is the best place?
28
14
Business Logistics

Solution:
LOCATION FACTORS Proximity to freeways Availability of energy sources Close suppliers Attitude and cost of labor Local grants Total Average weight Weight 5 3 3 4 2
Neighbo rhood A Neighbo rhood B Neighbo rhood C
100 70 20 10 90 990 58.2
100 60 70 40 70 1190 70
80 50 30 60 10 900 52.9
29
Business Logistics

Gravity
Center Methods
Find the location of a single distribution center serving several clients It is used primarily in the service sector Consider:
* The location of the current destinations * Volume to be delivered * Distance or transportation costs
30
15
Business Logistics

Gravity y center method
Gravity center
The weight is proportional to the number of people in the city
C I T I E S
31
Business Logistics

Gravity
center method
Represent graphically through coordinates, the current locations (the grille)

* The bar has a scale and an origin * Maintains relative distances
Calculate X and Y coordinates of the gravity center

* Give the location of a distribution center * Minimizes the transportation cost
32
16
Business Logistics

Coordinate X
Cx
d W W
ix i i i
dix = Coordinate x of the location i Wi = Volume of goods to deliver (or bring) to or from i diy = Coordinate y of the location i
Coordinate Y
Cy
33
d iy Wi
i
Wi
i
Business Logistics

Gravity
center method
Example (1/4) * The company Sabri has hired 5 distribution centers, and plans to open a new store to serve these centers, using the center of gravity method. * The volume and the center coordinates of each distribution are given in the following table. * What are the coordinates of the new store?
34
17
Business Logistics

Gravity
center method
Example (2/4)
Centro de Distribucin Distribution Center 1 2 3 4 5
Volumen Volume 3500 500 800 1050 1150
X 300 195 375 200 400
Y 100 400 375 125 110
35
Business Logistics

Gravity
center method
Data Location 1 Location 2 Location 3 Location 4 L Location ti 5 Weight X coord Y coord 3500 300 100 500 195 400 800 375 375 1050 200 125 1150 400 110
Example (3/4)
Results Sum 7000 Average Weighted Average

36
1470 294 302.5
1110 222 158.25
18
Business Logistics

Gravity
450 400 350 300 250 200 150 100 50 0 0 100 200 300 400 500 200 4 300 1 400 5 195 2 375 3
center method
Example (4/4)
Distribution Center
Serie1 Serie2
37
Business Logistics

Transportation
model
Model of operations research Determines the best pattern of deliveries from different points of supply to various demand points.
* Objective: minimize total transportation costs. * Restrictions: R t i ti
Production capacity (factory capacity). Demand of sale points.
38
19
Business Logistics

Transportation
* * * * *
model
Data to take into account:

m = number of warehouses (origins) n = number of point of sales (destinations) ai = number of units available at the origin i bj = number of units demanded from the destination j cij = transportation costs of a unit from the origin i to the destination j
* xij = number of units to deliver from the origin i to the sale point j (?)
39
Business Logistics

Transportation
model
How do we distribute products minimizing the total n transportation costs? m 1 1 c 2 Distribution center
a
2 3 4
?
x
3 4 5
Sale points
b
40
20
Business Logistics

Transportation
model:
Formulation in linear programming:
41
Business Logistics

Transportation
model
Data
* Unit transportation cost between each warehouse and each sale point. * Sale points demand * Available stores
Costs Warehouse 1 Warehouse 2 Warehouse 3 Warehouse 4
42
Sale Point 1 3 4 5 3 50
Sale Point 2 6 8 15 3 150
Sale Point 3 2 1 5 2 80
Sale Point 4 8 12 10 5 120
Sale Point 5 9 12 3 15 60
Sale Point 6 2 5 4 3 40
Stock 100 200 150 50 500
Demand
21
Business Logistics

Transportation
* Excel Solver
model
How to solve the optimization problem
43
Business Logistics

Solution
* Total transportation cost 2570
Sale Point 1 3 4 5 3 50 Sale Point 2 6 8 15 3 150 Sale Point 3 2 1 5 2 80 Sale Point 4 8 12 10 5 120 Sale Point 5 9 12 3 15 60 Sale Point 6 2 5 4 3 40
Costs Warehouse 1 Warehouse 2 Warehouse 3 Warehouse 4 Demand
Stock 100 200 150 50 500
44
22
Business Logistics

Modelo de transportes Solution: Total transportation cost 2570
50 1 Distribution center 2 3 50 4
45
1 2
30 70 80 70 50 60 40
3 Sale points 4 5 6
Business Logistics

Transportation
model
Resolution:
* Informatics programs for linear programming models
Example, SOLVER (EXCEL)
* ExcelOM (Heizer & Render 2001)

TS155 .H45 2001
* Computer programs that already incorporate a transport method.
46
23
Business Logistics

Localization
decisions
Design of network Operation research models

* Advanced Localization models * p-median models * Exact methods, heuristics, simulation
47
Business Logistics

Commercial
Software
ILOG Supply Chain Applications

* ILOG LogicNet Plus XE * http://www.ilog.com/products/supplychain/
JDA
* Network Design and Optimization * http://www.jda.com/solutions/network-inventoryhtt // jd / l ti / t ki t optimization-overview.html
INFOR
* Infor SCM (Supply Chain Management) > Strategic Network Design * http://www.infor.com/solutions/scm/strategicnetworkdesign/
48
24
Business Logistics

ILOG
Supply Chain Applications
BuyPC.com Case Study: Optimal Network
2003 Simchi-Levi, Kaminsky, Simchi-Levi 49 McGraw-Hill/Irwin
Business Logistics

New
distribution channel
The client can be far from the store ... but the product has to be delivered at the customers house
Sell by Internet:
* Presents a new perspective in the localization problems.
* * * *
50
The design of the network has different characteristics. Logistics operator It is important the lead time. Example: Dell, Amazon.
25
Business Logistics
Transport Rate Estimation: Privately owned

Data Category Weekly mileage Weekly hours on duty Trips per week Driver wages Benefits Fuel cost @ 10 mpg Truck depreciation Maintenance Insurance Tolls, food, and lodging Contingency Total Fact 2700 miles 66 hrs./wk. 3 trips/wk. $ 12.00/hr. 18.75% of wages $ 1.10/gal $316 50/wk $316.50/wk. $ 45.00/wk. $ 51.00/wk. $ 97.50/trip $ 30.00/trip Weekly Cost
$792.00 148.50 297.00 316 50 316.50 45.00 51.00 292.50 90.00 $2,032.50
51
Cost per mile is $2,032.50/2,700 = $0.75
Business Logistics

Transport
30 25
Rate Estimation: For-Hire
Ra ate, $/cwt.
20 15 10 5 0
Rate = 6.38 + 0.008456D R2 = 0.93
52
500
1000
1500
2000
2500
Miles from Chicago, D
26
Business Logistics
Conclusions
The design of logistics network is a companys company s strategic decision

Direct effects on customer service. Direct effects on logistics cost.
In the logistics network, the transportation strategy and the inventory has to be
* Flexible * Efficient
Give a quick response to a dynamic and customized market
53
27

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Business Logistics

Issue 2: Logistics Strategies

Business Logistics Topic 2. Logistics Strategies

Topic 2: Logistics Strategies

Topic 2: Logistics Strategies

Inventory Transportation Localization

Methods to design networks

Business Logistics Topic 2. Logistics Strategies

Topic 2: Logistics Strategies

Topic 2: Logistics Strategies

Facilitator: Information Communication Technology (ICT).

Business Logistics Topic 2. Logistics Strategies

Topic 2: Logistics Strategies

Inventory strategy CLIENT

Topic 2: Logistics Strategies

Demand management Service level

Business Logistics Topic 2. Logistics Strategies

Topic 2: Logistics Strategies

Topic 2: Logistics Strategies

Shipment size Mode of transportation Inhouse or outsourcing Transportation planning

Business Logistics Topic 2. Logistics Strategies

Topic 2: Logistics Strategies

Topic 2: Logistics Strategies

Business Logistics Topic 2. Logistics Strategies

Topic 2: Logistics Strategies

Fuente: Ballou (2004)

Topic 2: Logistics Strategies

Business Logistics Topic 2. Logistics Strategies

Topic 2: Logistics Strategies

Topic 2: Logistics Strategies

Design of logistics network

Factories Warehouses Sale points/stores

Maximize sales Minimize costs Maximize service quality

Business Logistics Topic 2. Logistics Strategies

Topic 2: Logistics Strategies

Design of logistics network

of logistics network design

Topic 2: Logistics Strategies

Design of logistics network

Carrier - Technological Group

High lead time Lost sales

Business Logistics Topic 2. Logistics Strategies

Topic 2: Logistics Strategies

Design of logistics network

Carrier - Technological Group

4 owned stores several shared

Low internal transportation s w s s High external transportation s Fw Fw Low inventory

Topic 2: Logistics Strategies

Design of logistics network

* Other costs: taxations, salaries, etc.

to maximize companies profit

Business Logistics Topic 2. Logistics Strategies

Topic 2: Logistics Strategies

Design of logistics network

1995 Corel Corp.

Topic 2: Logistics Strategies

Design of logistics network

that affect a country

Business Logistics Topic 2. Logistics Strategies

Topic 2: Logistics Strategies

Design of logistics network

Topic 2: Logistics Strategies

Design of logistics network

Place size Cost Access to transportation Proximity of services Environmental impact