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3rd + 10th Aug'2024 Lecture

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0% found this document useful (0 votes)
29 views14 pages

3rd + 10th Aug'2024 Lecture

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2022hb21315
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© © All Rights Reserved
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Six drivers (Efficient vs Responsive)

 Inventory (High ITR=> higher possibility of stockouts, lower


ability to serve a vareity)
 Transportation (cheaper modes of transport=> slower
deliveries; pooling of transportation=> lesser
responsiveness towards customer)
 Price
 Procurement (cheaper vendors => less reliable, less
flexible to sudden changes in requirement, lower quality)
 Information (Reduction of IT cost=> information
asymmetry)
 Facilities (lesser number of facilities => delivery times or
response times increase)
Bulk market in China Overbulkprocurement cost per pichkari= 80
(opportunity cost)
Landed CP of a pichkari= INR 80
Lead time of 45 days Underbulkprocurement cost per pichkari= 120-80
= 40 (opportunity cost)

(Spot Market) Local importer in India


CP of a pichkari = INR 120 We should go for underbulk proc => qty of
pichkaris bulk proc < mean demand (1 mn)
Lead time of 1 day How much less than 1mn will depend on:
a) Ratio of overbulk to underbulk cost-> Higher
ratio, means greater delta from 1mn
Demand of pichkaris is generally around 1 million every Holi
festival, but has a std devn of 0.2 million.
b) Std dev of demand-> higher std dev means
higher risk -> greater delta from 1mn
Distributors add a place value to the product

To maximise the Supply chain surplus = What the


consumer is paying – (sum of costs of all the activities
involved in making or delivering the product)

How we allocate that supply chain surplus among different


entities
BITS Pilani
Pilani|Dubai|Goa|Hyderabad

Case: Establishing warehouses for a


supermarket chain
4
A large supermarket chain in the UK needs to build warehouses for a set of supermarkets it is opening in
Northern England. The locations of the supermarkets have been identified, but the locations of the
warehouses have yet to be determined. Several good candidate locations for the warehouses have
been identified, but decisions must be made regarding how many warehouses to open and at which
candidate locations to build them. Opening many warehouses would be advantageous as this would
reduce the average distance a truck has to drive from the warehouse to the supermarket, and hence
reduce the delivery cost. However, opening a warehouse has a fixed cost associated with it. In this
example, our goal is to find the optimal tradeoff between delivery costs and the costs of building new
facilities. This example considers two supermarkets and nine warehouse candidates. The coordinates
of each supermarket are provided in the following table. All the coordinates are in tens of miles
Coordinates Demand
Supermarket

Supermarket 1 (0,1.5) 4000


Supermarket 2 (2.5,1.2) 5000

5
Problem Statement (2)
The following table shows the coordinates of the candidate warehouse sites and the fixed cost of
building the warehouse in millions of $. The logistics cost per mile per unit is 5 $.
Warehouse coordinates fixed cost in mn $ Supply cap
Warehouse 1 (0,0) 3 2000
Warehouse 2 (0,1) 2 3000
Warehouse 3 (0,2) 3 2000
Warehouse 4 (1,0) 1 1000
Warehouse 5 (1,1) 3 4000
Warehouse 6 (1,2) 3 2000
Warehouse 7 (2,0) 4 3000
Warehouse 8 (2,1) 3 2000
Warehouse 9 (2,2) 2 1000

a) Which warehouses will you establish and what will be your distribution strategy to supermarkets for the overall minimum cost?
b) If a warehouse is built at location 2, it cannot be built at location 5. What will be your strategy?
c) If a warehouse is built at location 2 and location 5, it cannot be built at location 8. What will be your strategy?
d) If a warehouse is built at location 2 and location 5, it must be built at location 7. What will be your strategy?
e) The warehouse 2 can be constructed only if warehouse 1 is constructed. What will be your strategy?
f) If a ware house is built at location 1, then it must be built at location 6 and location 9

6
Formulation for part a
Let the 9 candidate warehouse locations be denoted by i=1 to 9

Let the 2 supermarkets be denoted by j= 1,2

Decision Variables: Let xij be the amount of units delivered from warehouse i to supermarket j (18 of them

Let yi be the binary decision variable which is 1 if the warehouse is established at location i, else 0 (9 of them

Parameters: If fi is the annual fixed cost for ith warehouse, and the delivery cost per unit per mile is c, the

distance between ith warehouse and jth supermarket is d ij, demand of jth supermarket us Demand j, and

supply capacity of ith warehouse is Supply_Cap i

Min total cost = delivery cost + annual fixed cost = sum of x ij.dij.c (for i=1,9 and j=1 to 2) + sum of fi.yi (for i=1

to 9)

Subject to the constraints

Sum of xij (for i= 1 to 9) >= Demandj for each supermarket j=1,2

Sum of xij (for j=1 to 2) <= yi*Supply_capi for for each warehouse i= 1 to 9
7
All xij >=0, and all yi are binary variables
Part b

Y2 + y5 <=1
Part c

If y2 + y5 =2, then y8 must be zero


However, if y2 + y5 = 0 or 1, then y8 can take any value 0 or 1

y8 <= 2 – (y2 + y5)


Part d

d) If a warehouse is built at location 2 and location 5, it


must be built at location 7. What will be your strategy?

If y2+y5=2 , y7 must be = 1
If y2+y5=0 or 1, y7 can be either 0 or 1

y7 >= y2 + y5 -1
Part e

The warehouse 2 can be constructed only if warehouse 1 is


constructed. What will be your strategy?
When y1=0, y2 must be 0
When y1=1, y2 can be 0 or 1

y2<= y1
Part f

If the warehouse 1 is constructed, then warehouse 6 and 9


must be constructed. What will be your strategy?
When y1=1, y6+y9 must be 2
When y1=0, y6+y9 can be 0 or 1 or 2

Y6+y9 >= 2*y1


Transportation Problem a
Given the following cost matrix of transportation which captures per unit cost of transportation
from 5 sources to 5 destinations, what would be the transportation schedule if the demand of all
destinations needs to be met at minimum cost?
D1 D2 D3 D4 D5 Capacity
S1 10 12 8 13 6 150
S2 20 17 19 22 15 140
S3 16 13 18 14 10 100
S4 21 19 23 17 25 80
S5 12 20 22 15 18 130
Demand 110 140 70 130 150

Solution:
Let there be m sources denoted by i=1 to m, and n destinations denoted by j=1 to n
Let xij be the amount of material transported from ith source to jth destination
Let aij be the variable cost of transport per unit quantity from ith source to jth destination
Objective is to minimise the total transportation cost = summation of xij.aij
St. for each of the sources i=1 to m, summation of xij for j = 1 to n <= Cap i
for each of the destinations j= 1 to n, summation of xij for i=1 to m >= Demand j
All xij >= 0
Transportation Problem b
Given the following cost matrix of transportation which captures per unit cost of transportation from 5
sources to 5 destinations, what would be the transportation schedule if the demand of all destinations
needs to be met at minimum cost? Assume a fixed cost of INR 5000 for each route
D1 D2 D3 D4 D5 Capacity
S1 10 12 8 13 6 150
S2 20 17 19 22 15 140
S3 16 13 18 14 10 100
S4 21 19 23 17 25 80
S5 12 20 22 15 18 130
Demand 110 140 70 130 150

Solution:
Let there be m sources denoted by i=1 to m, and n destinations denoted by j=1 to n
Let xij be the amount of material transported from ith source to jth destination
Let aij be the variable cost of transport per unit quantity from ith source to jth destination
Let yij be the binary variable whether I am using the route from ith source to jth destination
Objective is to minimise the total transportation cost = summation of xij.aij + yij.fij
St. for each of the sources i=1 to m, summation of xij for j = 1 to n <= Cap i
for each of the destinations j= 1 to n, summation of xij for i=1 to m >= Demand j
For all values of i and j, xij <= M * yij
All xij >= 0

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