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Logistics Management > Distribution network > Flashcards

Distribution network Flashcards

1
Q

Logistic network is the combination of

A

Supply network
Distribution network

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2
Q

From Suppliers to Manufacturers

Tipically convergent

A

Supply network

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3
Q

From Manufacturers to Customers

tipically divergent

A

Distribution network

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4
Q

Design principles can be apply same way for Supply than for Distribution networks

A

yes

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5
Q

What are the design principles for a DN

A
  1. problem setting
  2. decision framework
  3. distribution problem profile
  4. typologies of distribution networks
  5. Design principles
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6
Q

Decisions Variables od a DN

A

number of echelons
type
number of nodes
location

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7
Q

Contextal variables f a DN

A

Sourcing Strategy
Sales channel
Product Feature
Objective function

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8
Q

How do I select the best alternative out of the many posibilities of a DN

Best DN at target SL & min Cost

A

You filter by strategic design (Qualitative cost models) selecting the most promising to apply quantitative models

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9
Q

What is a distribution system

A

all resources and structures involved in transportation of goods

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10
Q

Main decision variables

Strategic vs operational

Network:
number of echelons, number of WH & location, automation level, MVB

Transport:
Mode
MVB

Inventories:
Inventory management
SS allocation
Centralized/Decentralized

A

Strategic Level

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11
Q

Main decision variables

Strategic vs operational

Network:
product allocation, storage hanling systems, order making, connections

Transport:
Delivery lots sdimensioning
local distribution management

Inventories
Order making
time btwn orders
demand forecasting
back order management

A

Operational

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12
Q

Product range
Density
Value Density
Obsolescence

A

Product features

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13
Q

min(logistic cost), Service Level constrain

max(service level), logistic cost constrain

min(logistics costs + poor-service cost)

A

Objective function

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14
Q

poor service cost

A

Stock out
Bad quality
missed delivery

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15
Q

Distribution cost

A
  • Transportation cost
    Primary
    Secondary
  • Inventory
    Cycle stock
    Safty Stock
    In-transit stock
  • Handling cost
  • Other
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16
Q

Distribution Cost

Transport

from suppliers to the central warehouses and from the central warehouses to the regional warehouses/transit points

A

Primary Transport

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17
Q

Distribution Cost

Transport

Local distribution (usually from the distribution network nodes to the end customers)

A

Secondary transport

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18
Q

Distribution cost

Inventory

these inventories deal with the different operative rhythm of two following stages in the supply chain

A

Cycle stock

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19
Q

Distribution cost

Inventory

these inventories deal with the uncertainty of both the demand and the replenishment lead times

A

Safty Stock

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20
Q

Distribution cost

Inventories

these inventories are in transit between stocking or production points (mainly inside the vehicles)

A

In transit

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21
Q

Distribution cost

due to the handling activities in the warehouses and the transit points of the distribution network (loading/unloading, picking, etc.)

A

Handling

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22
Q

Distribution cost

order management, packaging, reverse logistics

A

Other

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23
Q

Distribution costs

What the cost categories should consider?

A

How these costs vary with the main features of the distribution network.

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24
Q

Distribution cost main driver

Primary transportation

A

Saturation
Distance

Flow related to shipment

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25
Q

Distribution cost main driver

Secondary transportation

A

Points Saturation
Tour avg distance

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26
Q

Distribution cost main driver

Safty Stock

A

Demand and lead time uncertainties, average lead time

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27
Q

Distribution cost main driver

Cycle Stocks

A

Re-order frequency between nodes along the distribution network

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28
Q

Distribution cost main driver

In transit stock

A

Flow and total in transit

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29
Q

Distribution cost main driver

Handling

A

Flow

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30
Q

Customer service

Time elapsed between the order issue and the delivery of goods

A

Order Cycle Time OCT

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31
Q

Customer service

To deliver the order in the time window (ΔT) that has been arranged with the customer

A

Delivery puncltuality

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32
Q

Customer service

All the goods included in the order are delivered in a single delivery

A

Delivery completness

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33
Q

Customer service

To satisfy urgent/unexpected needs of the customer

A

Delivery flexibility

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34
Q

Customer service

A
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35
Q

Customer service

Number of deliveries scheduled in the reference time window (day, week,…)

A

Delivery frequency

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36
Q

Potential roles of central warehouses in a 1-
echelon network

A

reduction of the order cycle time
product mixing
optimization of transport (N+M)
Centralize SS

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37
Q

Distribution problem to tacle with a 1 echelon

A

POO far from markets
OCT stringent
Specialized POO & many
Completeness important KPI
Many connections (POO POD)
High incidence in transport cost

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38
Q

Role of 1 level network

A

↓ Order Cycle Time
↑ Order Completeness
↓ Transportation cost

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39
Q

How do we decreade the incidence in transportation cost with 1 level network?

A

By decreasing amount of connections, saturation of the trucks and slighly increase of distance

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40
Q

Design Principles

____ should be considered as a baseline solution when no one of the 3 potential functions of L1 are very important

A

Direct delivery

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41
Q

Design principles

____ of the network has 3 main potential functions – reducing the OCT, increasing order completeness, reducing (primary) transportation costs. If at least one of these 3 functions is very important, then level 1 should be considered as the baseline solution.

A

Level 1

42
Q

Width of L1/ Number of nodes at L1

The number of warehouses at L1 depends on:

A
  • OCT: the shorter the more we need
  • Transportation and inventory cost trade off
43
Q

Design principles

The ____ depends on a trade-off between inventory-related costs and transportation costs subject to service level constraints

A

number of nodes at L1

44
Q

What are the drivers behind a different number of WHS at the first level of the network?

A

Logistic cost:
Inventory
Transport cost

OCT
Service level

45
Q

Descrive the Logistics cost graph for a level 1

A

Logistics cost is conformed by Inventory related and transportation relted. Inventory rise when WH increase, and primary transportation cost decreases when WH increases.

The optimarl N of WH is the intersection of this two curves setting a minimum in the LC.

46
Q

I will need few WH when:

A

High value density
High risk of obsolescence
High product range

47
Q

I will need many WH when

A

Low value density
low risk of obsolescence
low product range

48
Q

Descrive the OCT graph for a L1

A

The OCT decreases when the SL increases and so number of WH

49
Q

Even though the intersection of inventory qnd hqndling gives the optimal value, the SL for that WH number is not the one we need…

What should we do?

A

We should define the Min OCT to relate it to the number of WH.

So that we get the Number that minimaze and gives us the SL we need.

50
Q

They aim to optimize transports to the end customers (local distributio) by accepting a longer cycle time (+ 1 or 2 days on average)

operative models:
only sorting of Transport Units which have been completely picked upstream

receipt of a massive delivery (= aggregation of different customer orders), picking and consolidation of Transport Units for each customer

A

Transit Points

51
Q

Why would I choose a WH instead of a TP in a L1

A

Because decreasing the OCT is the main important thing

52
Q

Design principle

Nodes at L1 should be WHS if reducing the OCT is a very important function of L1, otherwise consider TPs.

Just a reminder

A

Types of nodes

53
Q

The second tier of warehouses in a 2-echelon distribution network provides the following supplementary functions:

A
  1. **Higher service level **in terms of both cycle time and punctuality
    (thanks to the inventory in the regional warehouses)
  2. Optimization of transport to the end customers (local distribution)
54
Q

Role of level 2 (L2 vs L1) What is the “role” (value, potential) of the second level in a distribution network?

A

↓ ↓ Order Cycle Time
↓ Secondary Transport cost (from L1 customers)

55
Q

Distribution problem Profile for a L2

A

We need veeery short deliveries, short OCT day-hrs

We have many points of delivery ordering small quantities frequently

56
Q

The number of nodes at L2 depends on the trade-off between

A

Inventory-related costs and secondary transport cost, subject to service-level constraints.

In this case we will take the # WH that place us in a range to reach the pints in <1hr this is hhow we consider the service level in this example

57
Q

If both functions of L2 are very important, than consider L2 with WHS.

Otherwise, if the important function is to reduce … consider TP

A

Secondary Transportation cost

58
Q

What can we do if we want to increase network flexibility

A

Implement a mixed network deliveries to all levels possible

59
Q

… are a solution to distribution problems having more than one distribution problem profile at the same time

A

Mixed networks

60
Q

true or false

Level 3 of the distribution network should be considered only when there are very challenging requirements in terms of order time reduction and/or transportation costs optimisation

A

True

61
Q

Potential Value of outsourcing Logistics

A

Less investment
More focus in core activities
Increases Economies of scale
Increases Innovation knoledge
increases Flexibility

62
Q

Potential Risk and Cost of outsourcing Logistics

A

Less control
Less competence
Coordinating cost
Switching cost

63
Q

How can I get from L0 to best alternative of a Distribution Network

A

By strategic Design first filter “Qualitative Cost Models” then from those options I apply Mathematical models and select Best alternative

Best solution at needed SL and min Cost

64
Q

What do we mean by strategic design filter when definin DN

A

Qualitative Models Design Principles

Qualitative Cost Models

65
Q

What are the mathematical models to choose a DN

A

Quantitative Cost Model
Center of Gravity
Linear programming
Mixed Integer Proframming

66
Q

They aim at analyzing the relationships between the main costs and a specific parameter of the Distribution Network (e.g. number of warehouses, number of echelons, etc.) by identifying the cost curves (i.e. curves that show how the costs vary by varying the parameter).

A

Qualitative Cost Models

67
Q

They aim at calculating the costs of one (or a limited number of) specific Distribution Network configuration in order to assess the most convenient alternative. They require a huge amount of data and can be used only after the most promising alternative selection.

A

Quantitative Cost Models

68
Q

Is a function of distance between Central WH and Regional WH and the saturation (flow/shipment size)

A

Primary Transportation

69
Q

Full transport truck load will hold steady until which point?

A

Untill the number of regional WH impact in a decrease of saturation of the Trucks.

Increasing: fare, frequencies

70
Q

What happens if the number of regional warehouses increases?

A

Distance RWH area will decrease
Delivery area inncreases by truck

This process will keep until the distances between regional warehouses and delivery areas will be irrelevant compared to the distances traveled in the delivery area (dA).
= having a local distibutor

71
Q

If the replenishment frequency does not vary (i.e. time lapse between two consecutive orders does not change), the ____ will not change by varying the number of regional warehouses.

(If the replenishment frequency changes, the overall ____ in the system will vary – it is proportional to the time between consecutive orders –)

A

Cycle Stock

CS=0.5xDemandxT

T: Timelapse between two consecutive Orders

72
Q

If RWH increases Cycle Stocks:

A

Remains the same they depend on demand and time between two consecutive orders

73
Q

If Demand changes, CS:

A

Changes as well

74
Q

The overall amount of the ____ only depends on the replenishment lead time and the demand. Neither the lead time nor the demand depend on the number of warehouses.

A

In transit stocks

ITS= LT x D

LT: time from order to inboud

75
Q

____ in the system depend on different factors: * service level
* demand seen by each warehouse and its standard deviation
* geographical correlation of the demand
* replenishment LT and its standard deviation
* inventory policy

____ deal with the unpredictability of both demand and LT. The more the demand is split among warehouses, the more the ____ in the system.

A

Safty Stocks

Reorder point model:
K factor times the Square root of the sum of the product between ELTxD2sd and ED2xLT2sd

Periodic rivew model:
ELT + T….

76
Q

Due to economies of scales which inventories coul be affected (slighly increasing from range to range of RWH)

In terms of cost to store one unit

A

Cycle stock
Safty Stock

77
Q

The ____ (the cost of loading/unloading the vehicles, handling, picking, etc.) is subject to economies of scale (for instance automated warehouses only for high flows).

A

The handling cost per unit

78
Q

How Handling cost is affected if same technology among WH and how if different

A

Remains constant

Increases by tech

79
Q

Location

A

To find the exact position
Site selection

80
Q

Allocation

A

designate the flow to be allocated to each warehouse (i.e. the quantities on the “arcs” of the network)

the customer allocation to the warehouses

81
Q

This process is based on
* the determination of the geographical position of the warehouse
* the review of the results stemming from the quantitative techniques by taking into account more specific factors

A

the location process

82
Q

Quantitative techniques fot WH location

A
  1. Single WH
    Center of Gravity
  2. Multi-WH
    Heuristic models
    Linear programming (simple - mixedi nteger)
    Simulation
83
Q

Choice factors for the location problem

A
  • Proximity to suppliers/plants
  • Proximity to customers
  • Presence of transport infrastructures
  • Cost of the area and of the public utilities
  • Costs of in/outbound transports
  • Cost and reliability of labor
  • ** Ta x** r e l i e v e s / r e s t r i c t i o n s
  • Proximity to other companies
  • Meteorological conditions / quality of life
84
Q

Single WH location, isue and relevant cost:

A

The only issue is where to locate one warehouse. The most relevant costs are
transportation costs

85
Q

Multi WH location, problem and issues:

A

It’s a problem of both location and allocation (location-allocation problem).

A multi-warehouse location model has to deal with the following issues:

Multi-warehouse location
Product and production capacity allocation to both plants and warehouses
Customer allocation to the warehouses

86
Q

Explain the Model classification matrix

A

(Location,Transportation Cost)=Center of gravity

(Allocation, Transportation+Handling+Inventory cost)= Linear programming

Location+allocation, Transportation+Handling+Inventory+…+Customer service)= Mixed - integer programming

87
Q

Center of Gravity:
Application field
Main Managerial issue
Model Parameters

A

Application field
location of a single warehouse

Main managerial issue
(X,Y) = coordinates of the center of gravity

Model parameters
(X i,Yi) = coordinates of both the points of origin and destination
Fi = inbound (for the point of destination) and outbound (for the point of origin) flows
Ri = transportation rate per unit [€/(km*t)] (it depends on the weight and the distance)

88
Q

Center of Gravity
Objective function

A

Minimization of the transportation costs by finding the coordinates of the center of gravity.

Transportation costs linearly depend on the distance and the transported quantity

min( Total Cost) = minSum[FxRxd(x,y)]

sum of all POO and POD trated the same way

F: Flow
R: Rate
d:distance

89
Q

First step of Center of Gravity’s process

A

I will randomly choose a first rough (x,y) and calculate:
x* = SFi x Sxi / SFi

y* = SFi x Syi / SFi

I get (x, y) the centroid

all in sums!!!
Normally I should include the Rate but is ok

90
Q

Once you calculated the first Centroid what can we do:

A

As distances can be calculated we have: Flows, distances and by ende fares. We calculate TC and then we proceed for a second iteration.

91
Q

How is the second iteration after the calculation of the first centroid done:

A

We can re calculate the position by:
x* * = (S(Fi x Ri x xi) / di) / (S(Fi x Ri) / di)
y* * = (S(Fi x Ri x yi) / di) / (S(Fi x Ri) / di)

By now we. recalculate TC= S(FixRiXdi)

we iterate until the TC doesnt change much

92
Q

How can we find the distances di for the center of Gravity

A

By Euclidean distances (sqrroot of the sum of squres od difference of x and y). Outside cities

Reclilinear distances (sum of absolutes of diferences of x,y). Cities

93
Q

Center of gravity key messages

A
  • The result does not depend on the origin (0,0)
  • In the first step, it is strongly recommended to use a constant Ri (e.g. Ri=1 ∀i)
  • It is a very useful method to find a rough location (even though it doesn’t include some costs e.g. handling costs, storage costs, etc.)
  • It can be used also to find isocost curves in order to assess the trade off with the other costs
94
Q

Linear programming
Application field
Model Variables
Models parameters

A

**Application field **
Allocation of the plant flows to the warehouses and/or allocation of the customers to the warehouses

**Model variables **
xij = quantity to be delivered from the plant i to the warehouse j
yjk = quantity to be delivered from the warehouse j to the customer k

**Model parameters **
Rij = Transportation fare per unit from the plant i to the warehouse j [€/unit]
Rjk = Transportation fare per unit from the warehouse j to the customer k [€/unit]
Qi = production capacity of the plant i
Qj = operative capacity of the warehouse j
Qk = demanded quantity by the customer k

95
Q

Linear programming Objective function and constrains

A

Minimize the transportation costs by determining the optimal flows from the plants to the warehouses and from the warehouses to the customers

Constraints less or equal than real!
* production capacity of the plants (Qi)
* operative capacity of the warehouses (Qj)
* demand of each customer (Qk)

96
Q

How does the clustering method works

A

by alocating one wh for customer assesing cost. reduce wh by one and apply center of gravity. continue until the cost does not increase or you have just one WH.

97
Q

MIP Mixed Integer Programming
aims to reduce:

A
  • production cost
  • fixed WH cost
  • Variable WH cost
  • Primary and Secondary transportation

The objective is to minimize total costs, which is the sum of:
Fixed costs for opening warehouses at certain locations.
Variable costs for transporting products from warehouses to customers.
So, we want a solution that keeps both these costs as low as possible.

98
Q

Constrains of MIP

A

Capacity Constraints: Each warehouse can only hold a certain amount of product.

Demand Constraints: Each customer needs a specific quantity of product.

Warehouse Status Constraints: Products can only flow from a warehouse if it’s open.

99
Q

How MIP Solves It

A

MIP algorithms (like branch-and-bound) try various combinations of warehouse locations and allocations, keeping track of those that meet all constraints and cost less.

The best (lowest-cost) solution that meets all requirements is the optimal solution, where we know where to open warehouses and how to allocate products efficiently.

100
Q

MIP variables

A

Binary variables that indicate if a warehouse is open at a certain location (1 = open, 0 = closed).
Integer variables that show how much product flows from each warehouse to each customer (usually non-negative integers).

Logistics Management (6 decks)

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