14-1 the network planning process chapter 14 cr (2004) prentice hall, inc. two stonecutters were...

14-1

The Network Planning Process

Chapter 14CR (2004) Prentice Hall, Inc.

Two stonecutters were working on the reconstruction of St. Paul's in London when Sir Christopher Wren asked each what he was doing. The first replied, "I am cutting stone." The second answered, "I am building a cathedral."

Christopher Wren

14-2

Network Planning in Location Strategy

CR (2004) Prentice Hall, Inc.

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

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

14-3CR (2004) Prentice Hall, Inc.

The Planning ProblemConfigure the facilities of the supply chain from source points to customers

Consider all major logistical costs, namely transportation, inventory, and facility

Consider practical restrictions, such as capacity and customer service

Position the analysis toward top management, strategic concerns

Typical data itemsCommon data sourcesConverting data to useful planning information

Data for Planning


Sources:plantsvendorsports

Regionalwarehouses,stockingpoints

Fieldwarehouses,stockingpoints

Customers,demandcenters

Demand

Supply

Supply

Production/purchasecosts

Inventory &warehousingcosts

Inventory &warehousingcosts

Transportationcosts Transportation

costs

A Generalized Product Flow Network

14-4


Warehousing

Warehousing

Transportation

Transportation

Vendors/plants/portsTransportation

Factory

Transportation Customers

Informationflows

The Supply Channel

These facilities need to be positioned and sized

14-5


Geocoding Data

•Linear grid•Latitude-Longitude•Other coding schemes

Madrid

Milan

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23Horizontal coordinates, X

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

Ver

tica

l coo

rdin

ates

, Y

X

Plant

Warehouse

Linear grid


Estimating Transport CostsFor private trucking for accounting records for fleet

Data Category Fact Weekly CostWeekly mileage 2700 milesWeekly hours on duty 66 hrs./wk.Trips per week 3 trips/wk.Driver wages $ 12.00/hr. $792.00

Benefits 18.75% of wages 148.50Fuel cost @ 10 mpg $ 1.10/gal 297.00Truck depreciation $316.50/wk. 316.50Maintenance $ 45.00/wk. 45.00Insurance $ 51.00/wk. 51.00Tolls, food, and

lodging $ 97.50/trip 292.50Contingency $ 30.00/trip 90.00

Total $2,032.50

Example

Cost per mile is $2,032.50/2,700 = $0.75


Estimating Transport Rates

0

5

10

15

20

25

30

0 500 1000 1500 2000 2500

Rat

e, $

/cw

t.

Miles from Chicago, D

Rate = 6.38 + 0.008456DR2 = 0.93

For less than truckload movements


Shipment ProfilesExample


Mileage EstimatingBy linear coordinates

22ABABBA YYXXKD

where DA-B = distance between points XA,YA = coordinates for point A XB,YB = coordinates for point B K = scale factor to convert the coordinate

measure to a distance measure


Mileage EstimatingBy latitude-longitude coordinates (Great circle distance)

DA-B = 3959{arccos[sin(LATA) sin(LATB) + cos(LATA) cos(LATB) cos|LONGB - LONGA|]} where DA-B = great circle distance between points A

and B (statute miles) LATA= latitude of point A (radians)

LONGA = longitude of point A (radians)

LATB = latitude of point B (radians)

LONGB= longitude of point B (radians)

Corrects for

earth’s curvature

14-12

Mileage EstimatingExample The coordinates for Madrid, Spain are LONGA = 3.41 W, LATA = 40.24 N and for Milan the coordinates are LONGB = 9.12 E, LATB = 45.28 N. Divide degrees by 57.3 to convert to radians. Hence, in radians LONGA = 0.0595, LATA = 0.7023 and LONGB = -0.1592, LATB = 0.7902. The distance is?

DA-B = 3959{arccos[sin(0.7023) sin(0.7902) + cos(0.7023) cos(0.7902) cos|-0.1592 0.0595|]} = 724 miles, or 1.61724 = 1166 kilometersArccos, sin, and cos are found in trigonometric tables

Note Multiply straight-line distance by a circuity factor to convert to approximate actual road distance.

Note Multiply straight-line distance by a circuity factor to convert to approximate actual road distance.

Solution



Tools for AnalysisAd hoc techniques

Chart/Compass/Ruler methodsSpreadsheets

Simulation modelsMany general-purpose models are available

Heuristic modelsUsed in conjunction with optimization models

Optimization modelsInteger programming is popular, but usually not

used aloneAI/Expert system models

No known models for this problem class


Conducting the Network AnalysisKey questions

How many facilities should there be?Where should they be located?What size should they be?

Auditing customer service levelsBenchmarking the current designImproving on the benchmarkSeeking good designs

Intuitive choicesCOG searchingPractical considerations

Maximum opportunity designImplementable design


Channel Design

Key questionsBest transport service to use?Best inventory levels to maintain?

Use channel simulators

Network and Channel Design

Planning can be a hierarchical problem


Channel SimulatorsWhat they do•Replicate over time the flow of product through a supply channel on an order-by-order basis

•Answer time-related questions of an operating nature, e.g., inventory levels

The Simulated Channel of SCSIM


Illustrating the “Bull Whip” Effect with a Channel Simulator

0 5 10 15

200

150

50

100

De

ma

nd

un

its

Simulated months

FactoryWarehouse

Distributor

Retailer

0 5 10 15

200

150

50

100

Simulated months

FactoryWarehouse

Distributor

Retailer

14-18

Hie

rarc

hic

al N

etw

ork

Su

pp

ly C

hai

n

Pla

nn

ing

Data Base

Current plansCurrent statusPast performanceMaster files

Networkdesign

Aggregateplanning and

allocation

Transactionprocessing

Short-termscheduling

Daily

Daily

Monthly/weekly

Quarterly/monthly

Annually

PlanningFrequency

LogisticsActivity

Flow planning andmaster production

scheduling

Model Run Typea Cost Type

Benchmark

Improved Benchmarkb

Max. Savings Networkc

Implementable Networkd

Inventory and warehousing Capital $103,110 $87,008 $87,626 $100,737 Tax and insurance 38,756 47,957 19,037 34,002

Order processing 284,366 223,820 198,210 262,413 Storage 165,788 138,412 119,749 119,293 Handling 299,863 265,252 329,385 253,479 Subtotal $891,883 $762,449 $754,007 $769,944 Transportation Plant to warehouse $261,853 $213,567 $0 $206,542 Warehouse to customer 1,041,661 1,113,978 1,453,812 925,043 Subtotal $1,303,514 $1,327,545 $1,453,812 $1,131,585 Production @Atlanta $3,861,765 $3,906,037 $832,112 $3,404,139 @Indianapolis 607,057 593,876 770,427 906,619 @Houston 587,140 498,835 2,408,764 692,441 Subtotal $5,115,962 $4,998,748 $4,001,303 $5,003,198 Total $7,311,359 $7,088,742 $6,219,122 $6,904,727 Customer Service Percentage of demand < 300 miles 65% 63% 30% 68% < 500 miles 85% 82% 45% 98% No. of warehouses 9 9 3 10 Savings vs. benchmark 0 $222,617 $1,092,237 $406,632e

At current capacities


No servicerestriction

a Costs are totals for three product groups.

b Plant capacity restrictions are at current levels but with no service restrictions. The result is direct shipments from plants.

c No plant capacity or customer service restrictions. The result is direct shipments from plants.

d Current plant capacities are in effect and the desired service level is set at 500 miles.

e Essentially no investment in plant or warehousing is required to realize these savings.

No capacityrestrictions

Des

ign

Alt

ern

ativ

es

Closely matched

14-19

Alternative warehouse numbers,locations, and sizes

Direction of improved service, no change in cost

Direction of decreasedcost, no changein service

High

Low

Totalcost

Customer serviceCurrent or suboptimal network design

High Low

Network Design Curve

14-20


Network Design Case Study

Background on Aqua-Chem

Designing the study

Collecting and manipulating data

Conducting the analysis

Implementing the findings


Study Plan

Definecurrentsystem

Defineobjectives

Start

Organizeprojectteam

Selectproject

approach

Defineapproachto product

Defineapproachto demandgeography

Defineapproachto material

flow

Defineapproach

to costelements

Endphase 1


Typical Data Items•Products in the product line

•Locations of customers, warehouses, and plants

•Demand for each customer by location and product

•Transportation rates

•Transit times

•Warehousing costs (fixed, storage, and handling)

•Purchase/production costs

•Shipment sizes by product

•Inventory levels by location, by product, and control policies

•Shipment profiles

•Order processing cost

•Capital cost

•Customer service goals

•Available and potential facilities with capacities

•Distribution patterns for current product flows

14-24

Purchase cost of raw materials+

Freight to producing plant+

Production labor cost+

Variable overhead

Store at warehouse Store at plant Ship direct

Freight to warehouse+

Storage cost+

Handling cost+

Order processing cost+

Inventory cost+

Personal property tax+

Freight to customer

Storage cost+

Handling cost+


Inventory cost+

Personal property tax+

Freight to customer


Freight to customer

Small orders Large orders

Customer

Alt

ern

ativ

e D

istr

ibu

tio

n

Ch

ann

els

for

Aq

ua-

Ch

em


Cost typeBench-mark

Improvedbench-mark

3 plants9,000 mi.a

3 plants900 mi.b

3 plants700 mi.c

2 plants900 mi.d

Inventory: Carrying cost $77,974 $121,196 $95,549 NCe $120,406 NCe

Order processing 188,863 136,050 168,990 NC 165,770 NC Storage 6,294 6,176 4,240 NC 6,574 NC Handling 17,241 25,319 20,450 NC 29,534 NC Tax 12,545 40,532 24,066 NC 24,934 NC Subtotal $302,917 $330,273 $313,295 $341,830 $347,218 $355,331

Transportation: Plant to warehouse $40,212 $123,517 $212,014 $297,457 $331,658 $386,587 Warehouse to customer 1,109,026 1,101,988 1,137,232 1,059,713 1,041,467 1,064,781 Subtotal $1,149,238 $1,225,505 $1,349,246 $1,357,170 $1,373,125 $1,451,368

Production: @Akron $1,965,740 $2,969,211 $1,470,728 $1,470,728 $1,470,728 $2,232,639 @Asheville 898,941 302,464 1,460,730 1,460,730 1,460,730 0 @Dallas 534,117 693,787 1,529,343 1,529,343 1,529,343 2,220,233 @Phoenix 714,377 277,043 0 0 0 0 @Portland 335,989 376,769 0 0 0 0 @Minneapolis 446,860 63,458 0 0 0 0 Subtotal $4,896,024 $4,682,732 $4,460,801 $4,460,801 $4,460,801 $4,452,872 Total $6,348,179 $6,238,510 $6,123,342 $6,159,801 $6,181,144 $6,259,571

Customer Service Percent of demand < 300 miles 63% 67% 61% 63% 65% 71% < 500 miles 88 82 79 85 88 83

Savings vs.benchmark 0 $109,669 $224,837 $188,378 $167,035 $88,608

Aq

ua-

Ch

em N

etw

ork

Des

ign

R

esu

lts

CR (2004) Prentice Hall, Inc.14-25

14-1 the network planning process chapter 14 cr (2004) prentice hall, inc. two stonecutters were...

Documents