Postgraduate Certificate in Logistics & Supply Chain Management

(PGCLSCM) Logistics – Operational Planning

October 7th, 2012

Disclaimer: These are opinions of the presenter. They are not associated or affiliated to any company. Some of the material in this presentation are procured from the Internet and may contain Copyrights. These are used here for Education purposes only. This material is not intended for distribution or reproduction. This material is not intended for use in any commercial manner.

On a lighter note…

Agenda • Global Transportation Examples

• Transportation Planning

– Inbound, Outbound, Return/Reverse Logistics

– Modes

– Points

– Routing

– Strategic Decisions

– Operational Decisions

– Execution Planning

– IT Enablement Must Read: http://www.mwpvl.com/MWPVL_International_-_Supply_Chain_Strategy_-_What_Are_the_Leaders_Doing.pdf http://www.sap.com/campaigns/2012_02_mining-metals/assets/SAP_MiningMetals_Forum_2012_A7_SAP_Transportation_Management_Customer_Case.pdf

Curious concepts

• Bin Packing

• Milk run

• Airline/Crew Scheduling

• Revenue per Available Seat Mile (R/ASM)

• Bulk Distribution - From Dipstick reading to Telemetry

http://download.intel.com/newsroom/kits/22nm/pdfs/Global-Intel-Manufacturing_FactSheet.pdf

Walmart Distribution – 533 DC’s

http://www.mwpvl.com/html/grocery_distribution_network.html

Wal-Mart Logistics – Snapshot(As at Nov. 2008 Source: Wal-Mart)

• Wal-Mart Logistics in the U.S. :

– 88,000 associates

– 533 distribution centers (280 Million Sqft), 49,890 stores

– 7,200 tractors

– 53,000 trailers

– 8 Million in/out loads/year;

– 50% Moved by Private Fleet

– 8,135 drivers who log 115,000 miles annually

– 850 million miles per year

Amazon Fulfillment – Optimized to Tax Laws

http://www.mwpvl.com/html/amazon_com.html

Key Concepts

Logistics areas

• Procurement Logistics - market research, requirements planning, make or buy decisions, supplier management, ordering, and order controlling

• Production Logistics - layout planning, production planning, and control

• Distribution Logistics - order processing, warehousing, and transportation of the finished products to the customer

• After sales Logistics – Service and Parts • Disposal Logistics - disposal of waste produced during the

operation of a business • Reverse Logistics - management and the sale of surplus as

well as returned items of products.

Transportation involves…

• Order – Item(s) that needs to be transported from Origin to Destination, either directly or through other via-points using one or more transportation modes

• Direction - Inbound, Outbound, Return/Reverse • Mode – Truckload, Less-than-Truckload, Express (Air),

Parcel/Package, Shipping/Marine, Rail, Multi-Modal • Points - Origin, Destination, Crossdocks, Distributors

(DC), Zone Skip, Transshipment, Warehouse, Truck stop • Routing – Lanes, Shipping Schedules, Intermodal, In-

Transit Planning, Milk runs, Grocery Store Model, Travelling Salesperson, Minimal Spanning Tree, Shortest Path

Inbound, Outbound, Backhaul

• Inbound logistics concentrates on purchasing and arranging inbound movement of materials, parts and/or finished inventory from suppliers to manufacturing or assembly plants, warehouses or retail stores.

• Multiple Pickups, single delivery (milk runs) • Ex: Automotive, Chip/IC Manufacturing,

Discrete/Process Manufacturing Industries

• Outbound logistics is related to the storage and movement of the final product and the related information flows from the end of the production line to the end user.

• Single pickup, multiple delivery (grocery store) • Ex: Retail, FMCG sectors

• Backhaul includes hauling some cargo back instead

of driving empty

Reverse/After Sales Logistics

Ex: Spares Parts, Bottling Companies Reverse logistics This involves the flow of surplus or unwanted material or equipment back through the supply chain after meeting customer demand. Returns logistics Includes returns process for unwanted or damaged goods. These goods will be reused or disposed of on behalf of customers. Repairs/RMA Receipt and repair of products or parts. Once repaired, the parts will return to the stock, to be reused at some point. Scrapping Services Reverse flows to ensure that the surplus or unwanted material is handled in an environmentally responsible way.

Transportation Modes

• TruckLoad

• Less than-TruckLoad

• Express, Parcel/Package (Ground, Air)

• Marine, barge

• Air

• Rail, RoRo

• Multi-Modal

Cross-docks

Distributor and Zone-Skip

L T L

Distributor Zone-Skip (Parcels)

Truckload

Customer

Customer

Customer

P A R C E L

TL/LTL

Customer

Customer

Customer

In-Zone

Multi-stage Transshipment

Vendor

Airport Airport

Rail Hub

Plant

Multi-Leg, Multi-Modal Shipments Intermodal (Air, Rail, Ship) Schedules drive drayage legs planning In-transit Optimization - Consolidation, Deconsolidation at transshipment points Documentation, Import/Export regulations constrain optimization options

Strategic Decision Making

Strategic Decisions

• Network – Location of Plant based on raw-material and vendors, location of outbound (customers, ports, rail etc)

• Production Capacity, Equipment, Machinery • Raw materials procurement, Finished goods distribution • Rate Negotiations and Contracts, Auctions • Information Technology and Vendor Selection • Employee Training Programs • Overall Value Chain, Outsourcing, Growth and Profitability

• Ex: Spinning Mill

Logistics Outsourcing • 1PL are the shippers or

the consignee.

• 2PL are actual carriers such as Air France, Fedex.

• 3PL includes freight forwarders, courier companies, as well as other companies integrating & offering subcontracted logistics and transportation services

• 4PL are consulting firms such as Deloitte, and Accenture.

Strategic Fleet/Asset Planning

• What lanes are being operated on? • What is the min/max/avg flow on each lane? • What is the hourly, daily, weekly, monthly pattern? • How many Trucks and what capacity is required when? • What will be the utilization (capacity, distance and

time) of the asset? • How many trucks and what capacity should be:

– Purchased – Leased

Ex: Merger of Tyson Foods and IBP

Rate and Contract Negotiations Discounts on Published rates Auction for Lanes – Package Bidding Percentage Commitment on Volume, Monthly Minimum and Maximum commitments

Operational Decision Making

Operational Decisions

Given a set of orders (to be moved from origin to destination), determine the lowest cost option • Select the right Consolidation options • Select the right Transportation modes • Select the right Route and Schedule • Select the right Carriers, Vehicles, Drivers and

Equipment's Subject to • Order Windows, Location/Service Time-Windows, • Capacity and Equipment availability and constraints, • Route/Vehicle/Driver constraints

Routing Heuristics and Optimization

• Vehicle Routing Problem – Complicated and comprises of numerous practical constraints

• Involves Order Consolidation, Mode Selection, Routing/Transshipments, Scheduling, Location windows and constraints, Carrier/Lane/Rate choices, Vehicle/Driver assignment, DOT regulations, Compatibilities, Execution Adaptability

• “heuristics refers to experience-based techniques for problem solving. Heuristic methods are used to identify an optimal solution as rapidly as possible. Examples of this method include using a "rule of thumb", an educated guess, an intuitive judgment, or common sense.”

http://en.wikipedia.org/wiki/Approximation_algorithms

Consolidation-Centered Heuristic

Bundle Orders

•Orders from the same origin and to the same destination can be combined to one Trip/Shipment. Mode selection is made.

Consolidate by Mode

•Create Multi-Stop trips/shipments by consolidating within mode [Courier, TruckLoad, LTL, Rail etc]

•Assign Best Carrier, Rate

•Solve Vehicle Assignment problem for Truckload and LTL

Disband Underutilized

•Disband under-utilized trips/shipment and evaluate alternate options to route them or consolidate with other pre-existing trips

•Assign Best Carrier Rate. Solve Vehicle Assignment problem

Vehicle-Centric Routing

Pack orders into vehicles

• Pick each vehicle at its domicile location and start packing them up with “similar” groups of orders

• Assign Drivers

Solve Remnants

• Pick Orders that remain unscheduled and schedule them on existing trucks. If necessary swap out lower-value orders for higher priority order scheduling

• Arrange Spot Carriers for remaining orders

• Arrange LTL, Parcel Modes

Algorithms - Shortest Path

• Pick Lowest Cost traversal between two nodes • Dijkstra (From single source to all other nodes) • Floyd-Warshall (Single execution finds shortest

path for all node pairs in the graph) • Travelling Salesman (Travel to every node exactly

once and return to the start node) • Canadian Traveler Problem (Graph unknown,

changes over time, is probabilistic) • Applications – Driving directions (google),

Plant/Warehouse layouts, robotics/VLSI

Math Modeling – Location Constraints • Problem Statement – A small Warehouse location

has the following constraints – The location is open 10:00 AM - 5:00 PM Mon – It can accommodate only 2 Trucks every hour – It can only serve 2000 KG of material each hour

• Given: – 10 Trips picking up goods from the warehouse, each

with different potential start times and corresponding costs. Each trip carriers 500 KG

• Objective: – Date/Time Schedule the 10 trips with the lowest

overall cost such that all location constraints are honored

Objective Function • Minimize total cost of solution

Minimize obj:

1000 x1 + 1234 x2 + 1343 x3 ….+ 2123 x10 + …. [Cost of unique Trip and Start Time combination]

[All variables are made linear: 0 ≤ xi ≤ 1. Fractional results are converted to its closest integer{0,1}. This makes the problem easier to solve. This is called Linear Programming (LP) Relaxation.]

• Add Above (50,000 - Soft) and Below (3,000 - Soft) Target Penalty variables

3000 x221 + 50000 x222 + 3000 x223 + 50000 x224 +……

* Integer programs are complicated to solve. Linear programs can be solved in polynomial time

Trip Constraints

• A trip can only start at one of its possible start times

Subject To

C1: x1 + x21 + x33 + x112 = 1 [x1, x21, x33 and x112 represent

4 different times trip can pickup at the location]

C2: x2 + x22 + x34 + x 113 = 1

…

…

Capacity Constraints

• Location can server two trips in each hour bucket • Location can serve trips totaling 2000 KG in each hour bucket

C101: x2 + x26 + x32 + x64 + x76 =2 [Each constraint corresponds to a specific 1-hour bucket. Each of the variables correspond to a trip at a

particular pickup time that falls in that one hour bucket. If that trip is selected, it contributes a trip count of 1 to the Bucket Capacity of 2 trips]

C102: 500x1 + 500x13 + 500x55 + 500x84 + 500x96 =2000 [Each constraint corresponds to a specific 1-hour bucket. Each of the variables correspond to a trip at a

particular pickup time that falls in that one hour bucket. If that trip is selected, it contributes 500 KG to the Bucket Capacity of 2000 KGS]

… … * Concept of Slack variables to accommodate lesser quantity than capacity

Balancing Constraints

• To create a balanced workload and prevent peaks. Helps ramp-up and ramp-down labor resources

C201: x187 – x188 – x189 + x190 >=0 [The difference between adjacent time bucket assignments should be kept low].

Creates a pattern such as this ….

0

0.5

1

1.5

2

2.5

9 10 11 12 1 2 3 4 5

Series1

Execution Management

Execution Management

• “Connectivity, communication and collaboration are the key ingredients for successful transport execution management.” – Automating Communication – Managing Processes – Improving Service Levels – Controlling Costs

• “The income of US workers and consumers will fall by $4.7

billion during 2002 due to the likely effects of the West Coast port shutdown, according to a detailed, ten-page analysis released today by the consulting firm of Anderson Economic Group”

Execution Management areas • Visibility and Event Management

• Yard Appointment Scheduling

• Tendering and Booking

• Documentation

• Freight Audit and Payment

• RFID/GPS tracking, Carrier Management

• In-Transit Scheduling, Real-time, Adaptive Planning

Information Technology Enablers

IT Enablement • ERP, SCP/SCM, Decision Support Systems,

Transportation Strategy, Auctions, Rate selections, Operational Planning, Routing, OR Algorithms, Execution, Warehouse Management Company 2011 Revenue 2011 Market

Share (%) 2010 Revenue 2010 Market

Share (%) 2010-2011

Growth (%) SAP 1,542 19.9 1,310 19.0 17.8 Oracle 1,306 16.9 1,210 17.6 7.9 JDA Software 390 5.0 362 5.2 7.7 Ariba 367 4.7 250 3.6 46.5 Manhattan Associates

142 1.8 136 2.0 3.7

Others 3,995 51.7 3,625 52.6 Total 7,742 100.0 6,893 100.0 12.3

http://www.gartner.com/it/page.jsp?id=2016915

SAP

Oracle Transportation Management

JDA Contract Manufacturing »

Ensure sustainable product quality and delivery performance Customer Engagement Cloud »

Maximize inventory productivity with a real-time view of global orders Demand Management »

Improve sales and profitability by developing accurate forecasts and demand plans Enterprise Architecture »

Leverage world-class development platform and data integration capabilities Factory Planning & Scheduling »

Synchronize production schedules with material and factory constraints Inventory Management »

Eliminate excess inventory while maintaining customer service levels Merchandise Operations »

Integrate merchandise management processes for greater visibility and inventory control Merchandise Planning & Assortment Management »

Develop merchandise plans that reflect localized consumer demand Network Design & Optimization »

Improve supply chain performance by optimizing network configurations Planning on Demand »

Optimize demand-supply planning via hosted solution Price & Promotion Management »

Determine optimal retail price and promotion strategies

Pricing & Revenue Management »

Enable price sensitive revenue management to ensure best ROI

Replenishment & Fulfillment »

Orchestrate optimum inventory levels across the supply chain with

time-phased planning

Sales & Operations Planning »

Facilitate enterprise-wide planning and execution for more

informed decision making Shelf-Connected Cloud »

Link business planning and shelf execution to deliver value. Space & Category Management »

Drive profitability with demand-based category and assortment strategies

Store Operations »

Execute corporate strategies at the store level while driving service,

sales and profits

Supplier Relationship Management »

Align design and supply for increased profitability and

performance

Supply Chain Now™ »

Increase profits and cash flow for midsized companies

Supply Chain Planning »

Enable the adaptive supply chain with fast and responsive

planning Transportation & Logistics Management »

Synchronize transportation and distribution across multiple modes, enterprises and borders

Visibility, Collaboration & Performance Management »

Strategically connect all stakeholders within the extended

enterprise

Ariba

Manhattan Associates

Work Hard AND Think Smarter