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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
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· 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
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· 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
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· 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
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Transport Fundamentals
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When the Chinese write the word “crisis,” they do so in two characters—one meaning danger, the other opportunity.
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Transport Fundamentals in Planning Triangle
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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
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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
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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
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Transport System Defined
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· 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
