INSTITUTO TECNOLÓGICO Y DE ESTUDIOS

SUPERIORES DE MONTERREY

CAMPUS ESTADO DE MÉXICO

HW#3: Transshipment Model

Design & Improvement of Logistics Systems

Professor: Dr. Luis Enrique Herrera

Classmate

Cesar Vazquez Arzate A01370849

Due Date: 05/02/2019

Introduction

Every supply chain could be divided in 5 different stages; customers, retailers,

wholesalers/distributors, manufacturers and suppliers. Between each stage there exist flows of
different kind of things, some of the most important flows are the ones related to the
transportation of raw materials, processed materials and finished products.

We normally solve transportation problems between 2 stages of the supply chain, solve them
are simple. But when we are trying to manage transportation problems between all the stages of
a supply chain, solve them are complex, this kind of problems are called transhipment
problems.

“The transhipment problems are a variation of the original transport model that adjusts to the
common possibility of transporting units through source nodes, destinations and transients,
while the traditional model only allows direct shipments from source nodes to destination
nodes.” [ CITATION ING19 \l 2058 ]

Body

This document will show how to solve a transhipment problem of a supply chain with the
following stages: SuppliersPlantsWHRetailers

Below it can be found the information of the problem to be solved:

Figure 1. Transportation & Production costs in each stage

For this problem it will be determined the location of the facilities as well as the quantities that
are sent between levels of the supply chain that minimize the total costs, meeting the following
requirements:
a) Except for the demand points (retailers) it is allowed to USE OR NOT USE facilities at
any level of the supply chain.
b) Sales management has agreed that the demand (at the retailer level) will be satisfied
100%.
To solve the problem, it will be used the software GAMS STUDIO.

Solution
Definition of each supply level:

m:¿ of suppliersi=1,2, … , m→ i={Baltimore ,Cheyenne , Salt−Lake }

n :¿ of plants j=1,2, … , n→ j={ Atlanta , Boston , Chicago , Denver }

o :¿ of WH k =1,2, … ,n → k={Kentucky , Nebraska , Arizona}

p: ¿ of WH l =1,2,… , n →l={LA , San− Antonio , Seattle, NY ,Oklahoma }

Figure 2. Setup of Suppliers, Plants, WH & Retailers

Potential capacity of each level of the supply chain (Supplier, Plant and WH):

Pcap (i ) : Potential capacity of supplier i

Qcap ( j ) : Potential capacity of plant j

Rcap ( k ) : Potential capacity of WH k

Figure 3. Capacity Parameters

Annual demand of the customers (retailers):

Dem ( l ) : Annual demand of retailer l

Figure 4. Demand Parameter

Shipping costs:

costSP(i , j) :Cost of shipping one unit ¿ supplier i¿ plant j

costPW ( j , k ) :Cost of shipping one unit ¿ plant j¿ WH k

costWR ( k , l ) :Cost of shipping one unit ¿ WH k ¿ retailer l

 Figure 5. Shipping costs

Fixed costs:

f ( i ) : ¿ cost for locating a supplier i

g ( j ) : ¿ cost for locating a plant j

h ( k ) :¿ cost for locating a WH k

Figure 6. Fixed costs

Variables:

z : Objective function( Totalcosts)

a ( i , j ) : Amount shipped ¿ supplier i ¿ plant j

b ( j , k ) : Amount shipped ¿ plant j ¿ WH k

c ( k ,l ) : Amount shipped ¿ WH k ¿ retailer l

w ( i ) , x ( j ) , y ( k ) → Decision variables wherei , j, k =1if locationsare opened ∧¿

i, j, k =0 if locations are closed

Figure 7. Fixed costs

Restrictions:
n
Suppliers capacity : ∑ aij ≤ Pcapi wi ∀ i
j=1

o
Plants capacity : ∑ b jk ≤ Qcap j x j ∀ j
k=1
 p
WH capacity : ∑ c kl ≤ Rcapk y k ∀ k
l=1

o
Meet Total Demand : ∑ c kl=De ml ∀ l
k=1

m o
Transhipment 1 : ∑ a ij−∑ b jk=0
i=1 k=1

n p
Transhipment 2 : ∑ b jk −∑ c kl =0
j=! l=1

Figure 8. Restrictions

Objective function:

Figure 9. Objective Function

Results
To solve the problem, it was used a model mip, which is used to solve linear problems that
include binary or discrete variables.
GAMS STUDIO threw the following results:

Figure 10. Final Solution

The solution demonstrates that all the locations must be opened, here it is explained the
relevant information between levels:

 SuppliersPlants
o Baltimore will supply raw materials to Boston and Chicago.
 o Cheyenne will supply Denver.
o Salt-Lake will supply Atlanta, Chicago and Denver.

 PlantsWH
o Atlanta will supply Kentucky and Nebraska.
o Boston will supply Nebraska.
o Chicago will supply Kentucky and Arizona.
o Denver will supply Arizona.

 WHRetailer
o Kentucky will supply NY and Oklahoma.
o Nebraska will supply Seattle and Oklahoma.
o Arizona will supply LA, San-Antonio and Oklahoma.

The minimum total costs to meet all the demand requirements are of $31,867,300.

Conclusions
Transhipment models are more complex than original transport models, but as transhipment
models are just a variation of original transport models, it is easiest to understand them once we
have already worked with the original transport models.
In the actuality there are many useful tools to solve this kind of problems, but without any doubt
I can say that these tools are useless if we don’t have any previous knowledge about the
subject and if we don’t understand the logistics models.

References
GAMS. (2019, January 03). GAMS Documentation. Retrieved from
https://www.gams.com/latest/docs/UG_MAIN.html#UG_Language_Environment
INGENIERIAINDUSTRIAL.COM. (2019, January 3). INGENIERIAINDUSTRIAL.COM. Retrieved
from INGENIERIAINDUSTRIAL.COM:
https://www.ingenieriaindustrialonline.com/herramientas-para-el-ingeniero-
industrial/investigaci%C3%B3n-de-operaciones/problema-de-transbordo/