MTT045 Lecture 5: Terminals and Facility

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1 International Physical Distribution: The Red Thread of the Course Vehicle routing MTT045 Lecture 5: Terminals and Facility Location Shipment size & modal choice Operations Network design & planning Fredrik Eng Larsson Road Rail Modes Air Sea Performance objectives Security/risk issues Sustainability challenges International trade issues Humanitarian aid distribution consignees Logistics service providers Intermodality Terminals Infrastructure consignors Markets Lund University / Department of Industrial Management and Logistics 1 Lund University / Department of Industrial Management and Logistics 2 Beställde nu en ny MBP och den har skickats med TNT! Är ju helt värdelöst, kommer aldrig få min dator, sist jag beställde nått o fick det via TNT behövde jag åka till deras utlämningscentral mitt ute i ingenstans, för de kunde verkligen inte lämna av sakerna vid vettiga tider. Derox , 07:19 Skall idag få min leverans av Apple. Och det går genom TNT. Ringde dom igår och frågade om de kanske kunde ringa innan för att försäkra sig om att jag verkligen är hemma. Men det var ju omöjligt givetvis. Om jag inte hade ringt TNT igår och frågat vart mitt paket var, så hade jag inte haft en aning om att den skulle komma idag. GÖR OM GÖR RÄTT!!!! Chalmeristen , 10:23 Det är fan ta mig inte sant. Jag råkade vara på toaletten och han inte svara i porttelefonen innan idioten körde iväg igen. Ringde direkt till TNT och frågade om bilens nummer. Men NEJ, det går inte. Så nu gör dom ett nytt försök imorgon. Alternativt att jag hämtar det själv på utlämningsstället inne i stan tidigast imorgon klockan 12. Fyfan sicket skit. Börjar bli löjligt less på detta. Chalmeristen , 11:26 Ett annat tips. Se till att inte ha ett arbete ni går till varje dag om ni ska beställa Appleprodukter levererade av TNT. Bejje , 21:45 Lund University / Department of Industrial Management and Logistics 3 Source: Lund University / Department of Industrial Management and Logistics 4

2 The reply pyfrom TNT: TNT skickar egentligen endast företag till företag, men Apple har valt att anlita TNT i alla fall [detta] innebär leverans under dagtid 09-17:00, ingen föravisering på telefon och ingen möjlighet att specificera en leveranstid. Det är denna tjänst som Apple har köpt av TNT. Dessa villkor står visserligen när man beställer från Apple men det är finstilt. För en "normal" kund så finns det ibland möjlighet för TNT att då fixa en "extrabil", dvs vi betalar någon åkare för att specifikt komma och köra ut detta paket till kunden. Men detta har TNT inte tillstånd tå att göra från Apple eftersom att det är Apple som är fraktbetalare och är de som i så fall blir extra debiterade för detta och dessutom ingår inte detta i avtalet mot kund som de godkänner vid köpet av sin produkt. Learning objectives The difference between long-haul and short-haul transportation How warehouses and terminals create value in a distribution network Understand d how the number of warehouses affect performance How to denote and apply the Gravity location model How to denote and apply the Capacitated plant model Apple has chosen to distribute the MacBook from a Warehouse in The Netherlands. Why? Lund University / Department of Industrial Management and Logistics 5 Lund University / Department of Industrial Management and Logistics 6 Content There is a big different in long-haul l and shorthaul transportation Terminals and intermediaries Evaluating number of terminals Facility localization Long-haul (truckload, TL) Full truckloads Longer deliveries Direct deliveries or between terminals (hubs) Short-haul haul (less-than-truckload, truckload LTL) Pallets/cartons/pieces/etc. Last-mile deliveries Between terminals (hubs) and producers/consumers Lund University / Department of Industrial Management and Logistics 7 Lund University / Department of Industrial Management and Logistics 8

3 Some terminology to describe distribution ib i systems Relation Corridor Hub Line Network Three types of physical distribution networks 1 Direct deliveries Fast transports Resource demanding No time restrictions 2 Terminal system Consolidating transports Less resources Requires scheduling 3 Hub-and-spoke network No difference between producers and consumers Lund University / Department of Industrial Management and Logistics 9 Lund University / Department of Industrial Management and Logistics Beehive A terminal or intermediary my have several different roles Discuss what factors to consider when choosing type of distribution system Groups of 2 2 minutes Prepare to give an answer Three common roles Large quantity Infrequent DC Small quantity DC Frequent DC Aggregation role Distribution role Consolidation role Lund University / Department of Industrial Management and Logistics 11 Lund University / Department of Industrial Management and Logistics 12

4 An intermediary reduces the number of relations Distribution ib i channels, intermediaries i and distribution mix Without DC With DC DC From direct delivery Wholesaler to terminal system Mail-order Retailer Retailer Number of relations without a DC: SxC = 3x3=9 relations Number of relations with a DC: S+C = 3+3=6 relations Lund University / Department of Industrial Management and Logistics 13 Lund University / Department of Industrial Management and Logistics 14 A terminal has several functions Case: Coca Cola Sverige AB The functions of a terminal Consolidation Transshipment Coordination Sorting Kitting Sequencing Commercialization Storing Terminal Before cross-docking: 1 production facility 4 regional DC (Umea, Orebro, Falkenberg, Stockholm) After implementation: i 1 production facility 1 central DC (Stockholm) 14 terminals using cross-docking Results: Less tied capital in inventory Less handling and sorting Source: Lund Lumsden University (2009), / Department p of Industrial Management and Logistics 15 Lund University / Department of Industrial Management and Logistics 16 Source: Jonsson& Mattson (2005), p.277

5 Content The number of facilities i affect customer service levels Terminals and intermediaries Evaluating number of terminals Facility localization Response time vs number of facilities 48 hours response time 24 hours response time Lund University / Department of Industrial Management and Logistics 17 Lund University / Department of Industrial Management and Logistics 18 Polotical l changes in Europe has lead to a wave of centralization Case: ITT W&WW Total cost vs number of facilities Total cost ITTW&W s warehouse centralization Centralized their European warehouses Improved service and decreased costs Reduced emissions by appr. 30% Inventory costs Facility costs Transportation costs Service costs No of facilities Lund University / Department of Industrial Management and Logistics 19 Lund University / Department of Industrial Management and Logistics 20

6 Content Terminals and intermediaries Evaluating number of terminals Facility localization Lund University / Department of Industrial Management and Logistics 21 Lund University / Department of Industrial Management and Logistics 22 There are two major models for determining i optimal location Let us help a computer company to locate a warehouse in Sweden (Point of) Gravity location No constraints on location Non-linear optimization Computationally heavy E.g. tofind what regions to locate in Capacitated plant location Underlying network is given Mixed integer optimization Computationally fast E.g. tofind what site to locate at s in three cities: Stockholm, 800 units Gothenburg, 600 units Malmö, 500 units (x 2,y 2 ) d 2 ;c 2 (x 3,y 3 ) (x 1,y 1 ) d 1 ;c 1 (y- y 1 ) (x,y) d 3 ;c 3 (x- x 1 ) Transportation cost proportional to distance May locate one warehouse anywhere in Sweden? Which model you use depend on the objective! Objective: minimize transportation costs Lund University / Department of Industrial Management and Logistics Lund University / Department of Industrial Management and Logistics 24

7 Gravity Location-analysis Formulation of problem Parameters: I, set of n possible customer locations (x i,y i ) = coordinate of customer i c i, transportation cost per unit flow and distance d i, distance from center of gravity to i w j, demand from customer j Decision variables: x, coordinate y, coordinate y (x 1,y 1 ) (x 2,y 2 ) d 1 ;c 1 (y- y1 ) d 2 ;c 2 (x,y)? d 3 ;c 3 (x- x 1 ) (x 3,y 3 ) x (x 1,y 1 ) (x 2,y 2 ) d 1 ;c 1 (y- y1 ) d 2 ;c 2 (x,y) d 3 ;c 3 (x- x 1 ) (x 3,y 3 ) x Lund University / Department of Industrial Management and Logistics 25 Lund University / Department of Industrial Management and Logistics 26 The capacitated plant location model can be used once we have potential locations Denotation required to model the problem Description Locating k-number of warehouses to serve a given number of retailers Underlying network is given Assumes no transshipments Each node has a given weight (usually demand) Warehouse capacity limits the supply area A retailer receives shipments from only one warehouse Retailer must by within reasonable deliver time Example: Underlying network Parameters: I, set of n possible locations J, set of m retailers c ij, transportation cost per unit flow f i i,, fixed warehouse localization cost at location i w j, demand from retailer j K i, warehouse capacity at location i Decision variables: y i, 1 if a warehouse is located at location i, 0 otherwise x ij, amount of goods sent from warehouse at location i to retailer j Lund University / Department of Industrial Management and Logistics 27 Lund University / Department of Industrial Management and Logistics 28

8 Formulation of problem Example: Warehouse localization problem A company faces a warehouse localization problem. In their current operations, they have three production sites. Currently, none of the sites have a warehouse. We know that it costs 100 to locate an uncapacitated warehouse at one of the facilities and that the transportation costs between the facilities are as follows: From location 1 to 2: 20 From location 1 to 3: 15 From location 2 to 3: 25 Each production site produces the same quantity of units. All units have the same distance to the next echelon. Lund University / Department of Industrial Management and Logistics 29 Lund University / Department of Industrial Management and Logistics 30 Beehive Example 2: Warehouse localization problem Please help them locate their new warehouse and motivate your answer using available costs! Groups of 2 5 minutes Prepare to give an answer A company faces a warehouse localization problem. In their current operations, they have four production sites, each with a demand of 8 units. Currently, none of the sites have a warehouse. We know that it costs 100 to locate a warehouse with a capacity of 40 units at one of the facilities and that the transportation costs between the facilities are as follows: From\to At which plant should the warehouse be located? Lund University / Department of Industrial Management and Logistics 31 Lund University / Department of Industrial Management and Logistics 32

9 So why Holland? Learning objectives revisited The difference between long-haul and short-haul transportation How warehouses and terminals create value in a distribution network Understand d how the number of warehouses affect performance How to denote and apply the Gravity location model How to denote and apply the Capacitated plant model Lund University / Department of Industrial Management and Logistics 33 Lund University / Department of Industrial Management and Logistics 34 Thank you for today! Example: Warehouse localization problem Box 118, SE LUND, Sweden Visiting address Ole Römers väg 1, Lund Phone Fax fredrik.eng_larsson@tlog.lth.se Given data: I = {1,2,3} J = {1,2,3} c 12 = 20,c 13 = 15,c 23 = 25 w 1 = w 2 = w 3 (disregard demand) f i = 100, K i = inf (disregard capacity) 1 2 Fredrik Eng Larsson PhD Candidate Department of Industrial Management and Logistics Decision variables: y 1 = 1, C = = 135 y 2 = 1, C = = 145 y 3 = 1, C = = Result: Locate facility at location 1 Lund University / Department of Industrial Management and Logistics 35 Lund University / Department of Industrial Management and Logistics 36

10 Extra: Characteristics of cross-docking The role of network design Receiving Sorting Fast flow of goods No storage Requires good information Less cost for tied capital (sometimes more operating costs) No value-adding activities Complex planning and coordination Facility role Facility location Capacity allocation Market and supply allocation Shipping Lund University / Department of Industrial Management and Logistics 37 Source: Lumsden (2009), p Lund University / Department of Industrial Management and Logistics 38