Summary of First Section: Deterministic Analysis

1
Summary of First SectionDeterministic Analysis

• John H. Vande Vate
• Spring, 2007

2
Where Weve Been

• Introduction to modes and transportation rates
• There are economies of scale in transportation
  costs
• Consolidation helps us capitalize on these
  economies of scale

3
Where Weve Been

• Introduction to Finance SCM
• Economic Profit
• Focus on Working Capital
• Days of Inventory
• Days Sales Outstanding
• Days Purchases Outstanding
• Cost of Holding Inventory
• Capital charge
• Non-capital charge

4
Where Weve Been

• Transportation Deterministic Inventory
• Pipeline Inventory
• Cycle Inventory
• Simple Example to illustrate
• How to estimate, transportation inventory costs
• The magic of consolidation
• The EOQ Balancing Transport Inventory costs
• Network Models
• Quick review of network flows
• Adding reality
• Weight Cube
• Concave costs
• Some aspects of Time

5
Where Weve Been

• Consolidation
• Consolidating LTL shipments
• Costs
• Basic model
• Integrality? Should assignments of customers to
  consolidation points be binary?
• Integrality?
• In Favor Simplicity.
• Against Reality

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Reality

• Our assumption
• Annual demand is evenly spread across the year
  (No seasonality, No variability)
• The Reality
• Individual customer demands vary widely from
  day-to-day, week-to-week, month-to-month
• The Impact
• We plan to run full trucks
• In reality sometimes they are not full, other
  times theres more than they can carry.
• Our model ignores this
• we do incorporate a load (fudge) factor

7
Where Weve Been

• Multi-Stop Routes

XD
Fixed cost 156 trucks
Plant
8
Where Weve Been

• Multi-Stop Routes
• Use Column Generation to find a small set of good
  multi-stop routes
• Two Complications
• A Route entails several variables
• RouteVolume how much volume we carry on this
  route for a given consolidation point
• MultiStopTrucks how many trucks we run on this
  route
• What columns do we generate?
• The constraints in the Master problem that relate
  MultiStopTrucks to RouteVolumes
• Normally in Column Generation we dont add
  constraints as we add columns.
• Case 1 Constraint is not relevant
• Case 2 Constraint is tight

9
Where Weve Been

• Load-Driven Consolidation
• When we are concerned about cost of
  transportation first, then level of service
• Low value, thin margins, high volume
• Consolidate to improve service
• Full truck load to each store is
• Impractical (small format stores)
• Creates too much (cycle) inventory
• Forces us to forecast demand at the store level
  far in advance

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Where Weve Been

• Objective is transport costs
• Line haul to pools
• Delivery from pools to stores
• Service as a constraint
• Trailer Fill Max Time to Fill Trailer
• Example OTD lt 6 days
• Order processing 1 day
• Batching Picking 1 day
• Line Haul 3 days
• Trailer Fill

2 days
1 day
2 days
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Where Were Going

• Location
• We assumed the choices for potential
  consolidation were given
• How do we identify good choices?
• Stochastic Analysis
• Introduction to Stochastic Variability
• Retail Pricing Markdowns as a of Sales have
  risen steadily to over 30
• Sport Obermeyer
• The relationship between forecasting, sourcing,
  and markdowns
• Managing Inventory Replenishment
• Postponement Push vs Pull
• Applications
• BMW and the Bullwhip Effect
• Your projects

12
The Exam

• Laptops not permitted
• 4-5 questions
• Did you understand?
• Can you interpret for the business?
• Some modeling

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Models

• Define your variables and parameters clearly,
  give units. Use clear mnemonics
• Brief description of what each constraint
  accomplishes
• Clear and unambiguous indexing
• Pseudo AMPL is fine
• Expect to need to read (but not produce) AMPL
  models