1-1 Logistics Management LSM 730 Dr. Khurrum S. Mughal Lecture 15

1-1

Logistics ManagementLSM 730

Dr. Khurrum S. Mughal

Lecture 15

Cost-Profit-Volume Analysis

Cost-Profit-Volume Analysis

Cost-Profit-Volume Analysis

Since Bowling Green has the lowest Total Cost at the volume being produced, it will be chosen as the site of new facility

13-5CR (2004) Prentice Hall, Inc.

· A more complex problem that most firms have. · It involves trading off the following costs:

- Transportation inbound to and outbound from the facilities - Storage and handling costs- Inventory carrying costs- Production/purchase costs- Facility fixed costs

· Subject to:- Customer service constraints- Facility capacity restrictions

· Mathematical methods are popular for this type of problemthat:

- Search for the best combination of facilities to minimizecosts

- Do so within a reasonable computational time- Do not require enormous amounts of data for the analysis

Multiple Location Methods

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Location Cost Trade-Offs(Heuristic)

Number of warehouses

Cos

t

Production/purchaseand order processing

Inventory carryingand warehousing

Warehousefixed

Inbound andoutboundtransportation

Total cost

00

CR (2004) Prentice Hall, Inc.

13-7CR (2004) Prentice Hall, Inc.

· Location of truck maintenance terminals

· Location of public facilities such as offices, and police and fire stations

· Location of medical facilities

· Location of most any facility where transportation cost (rather than inventory carrying cost and

facility fixed cost) is the driving factor in location

· As a suggestor of sites for further evaluation

Examples of Practical COG Model Use

13-8CR (2004) Prentice Hall, Inc.

· A method used commercially- Has good problem scope- Can be implemented on a PC- Running times may be long and memory requirements substantial- Handles fixed costs well- Nonlinear inventory costs are not well

handled

Mixed Integer Programming

6-9

Transport Fundamentals

CR (2004) Prentice Hall, Inc.

When the Chinese write the word “crisis,” they do so in two characters—one meaning danger, the other opportunity.

6-10

Transport Fundamentals in Planning Triangle

PL

AN

NIN

G

OR

GA

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CO

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RO

LL

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Transport Strategy• Transport fundamentals• Transport decisions

Customer service goals

• The product• Logistics service• Ord. proc. & info. sys.

Inventory Strategy• Forecasting• Inventory decisions• Purchasing and supply

scheduling decisions• Storage fundamentals• Storage decisions

Location Strategy• Location decisions• The network planning process

PL

AN

NIN

G

OR

GA

NIZ

ING

CO

NT

RO

LL

ING

Transport Strategy• Transport fundamentals• Transport decisions

Customer service goals

• The product• Logistics service• Ord. proc. & info. sys.

Inventory Strategy• Forecasting• Inventory decisions• Purchasing and supply

scheduling decisions• Storage fundamentals• Storage decisions

Location Strategy• Location decisions• The network planning process

CR (2004) Prentice Hall, Inc.

Importance of Effective Transportation System

• Comparison of developing Vs developed countries

• Increased Competition and access– Perishable Items

• Economies of Scale– Auto Parts

• Reduced Prices– Oil and Middle East

13-11CR (2004) Prentice Hall, Inc.

6-12

Transport System Defined

CR (2004) Prentice Hall, Inc.

· Performance - Average transit time - Transit time variability - Loss and damage - Other factors including availability, capability,

frequency of movement, and various less tangible services

· Cost - Line haul - Terminal/local - Accessorial or special charges