LOGISTICS PLANNING

Dr M MATHIRAJAN
Department of Management Studies
Indian Institute of Science
Bangalore

The Increased Importance of Logistics

A Reduction in Economic Regulation

Recognition by Prominent Non-Logisticians
Technological Advances
The Growing Power of Retailers
Globalization of Trade

Three objectives of logistics strategy:

Cost reduction (variable costs)
Capital reduction (investment, fixed costs)
Service Improvement (may be at odds with
the above two objectives).

Components of
logistics management :

Management actions
Planning

Implementation

Outputs of
logistics

Control

Inputs into logistics

Natural resources
(land, facilities,
and equipments)

Human resources

Financial resources

Information
resources

Logistics management
Suppliers

Raw
In-process
materials inventory

Finished
goods

Customers

Logistics Activities
Customer Service
Demand forecasting
Distribution
communications
Inventory control
Material handling
Order Processing
Parts and service
support

Plant and warehouse

site selection
Procurement
Packaging
Return goods handling
Salvage and scrap
disposal
Traffic and
transportation
Warehousing and
storage

Marketing
orientation
(competitive
advantage)
Time and
place utility
Efficient
movement to
customer

Proprietary
asset

To gain a better grasp of the fundamental

trade-offs in logistics, I will divide logistics
activities into three categories:

Production
Storage
Transportation
The term Resource applies to all of the
factors of production, including
materials (e.g., Iron, fabric, parts),
equipment (e.g., machines or vehicles),
energy (e.g., oil, coal, electricity) and
labor.

PRODUCTION: Fundamental logistics questions are: (1) when should a

resource be produced; and (2) where should a resource be
produced.
The when question includes the topics of aggregate resource
planning, and production scheduling.
The where question includes the topics of facility location and
production allocation.
Some of the important production questions are:
(a) What outside source should be used to supply a part?

(b) Where should a new facility be built?

(c) When should a facility produce different items, taking into account:

Seasonal demand patterns?

Demand uncertainty?

Cost of operating single, double, triple shifts?

Labor costs?

(d) When should a firm use two or more sources for a part?

INVENTORY: Fundamental logistics questions are (1) when should a

resource (material, machine or labor) be put in inventory and taken
out of inventory; and (2) where should a resource be stored.
The when question includes the general topics of economic-orderquantity models, safety stock models and seasonal models, and
specialized topics of fleet management, and personnel planning.
The where questions includes the topic of inventory echelons.
Some of the important inventory questions are:
(a) How much does it cost to store resources in inventory?
(b) How much safety stock should be carried in inventory to prevent
against running out of a resource?
(c) How much inventory should be carried in order to smooth out
seasonal variations in demand?
(d) Where should replacement parts be stored in multi-echelon
inventory system?

TRANSPORTATION: Fundamental logistics are: (1) where should

resources be moved to, and by what mode and route; (2) when
should resources be moved.

The where question includes the topics of terminal location,

vehicle routing, and shortest path methods and network flow
allocation.
The when question includes the topic of distribution rules.
Some of the important questions are:
(a) When should shipment be sent through terminals, and when
should shipment be sent direct?
(b) Which, and how many, terminals should shipments be sent
through?
(c) What are the best vehicle routes?
(d) When should a vehicle be dispatched over a route?

Logistics - Science of managing (controlling) the movement and

storage of goods (or people) from acquisition to consumption.
Goods: Raw Materials Final products, and everything in between.
Logistics for services & people similar to goods logistics.
Ex. Police, fire, ambulance, passenger airlines, taxi cabs, etc.
Movement
Storage

= Transportation (between locations).

= Inventory, Warehousing (at locations).

Difference between acquisition and consumption is a matter of space

and time.
Focus: Best way to overcome space and time that separates acquisition
and consumption.
NOTE: Logistics does not deal with Technology of Production, such
as the design of machines and vehicles and the design of finished
products.

1998 CLM DEFINITION OF LOGISTICS

.is that part of the supply chain process that
plans, implements, and controls the efficient,
effective flow and storage of goods, services,
and related information from the point-oforigin to the point-of-consumption in order to
meet customers' requirements.
Council of Logistics Management, 1998;
www.CLM1.org

Five Business Systems - Tightly Interconnected

Within The Organization
Management
Systems
Strategic
Decisions

Product
Design
Decisions

Measurement
Decisions

Reward
Decisions

Process
Design
Decisions

Product
Decisions
Price
Decisions

Engineering
Systems

Promotion
Decisions
Place (How,
where, how
much)

Logistics
Systems

Copyright 2000 - All Rights Reserved

Inventory
Decisions

Production
Capacity
Decisions

Transportation
Decisions

Production
Scheduling
Decisions

Sourcing
Decisions

Shop Floor
Decisions

Marketing
Systems

Manufacturing
Systems

Logistics Mission [A Bill of Rights]

Logistics embodies the effort to deliver:

the right product

in the right quantity
in the right condition
to the right place
at the right time
for the right customer
at the right cost

Activities and Logistics Decisions

Transportation
rate and contract negotiation
mode and service selection
routing and scheduling

Inventories
finished goods policies
supply scheduling
short term forecasting

Warehousing
private vs. public
space determination
warehouse configuration
Stock layout and dock design
stock placement
Cross-docking

Facility Location
determining location, number
and size of facilities
allocating demand to facilities

Customer Service
determining customer wants
determining customer response
to service changes

Materials Handling
equipment selection
equipment replacement
order picking procedures

Packaging design
Order Processing
order procedure determination

Production Scheduling
aggregate production quantities
sequencing and timing of
production runs

Logistics Planning
Decide what, when, how in three levels:
Strategic long range > 1 year
Tactical - < 1 year horizon
Operational frequently on hourly or daily basis
Examples of Decisions
Type

Strategic

Tactical

Operational

Location

#Facilities, size,
location

Inventory
positioning

Routing

Transportation

Mode

Seasonal Service
Mix

Replenishment Qty
and timing

Order Processing
(CS)

Selecting order
entry system

Priority rules for

customers

Expediting orders

The Logistics (Strategic) Planning Triangle

Strategy/Control
system?
How much?
Where?

Which mode?
Which carrier?
Which route?
Shipment size and
frequency?

Where?, How
many? What size?
Allocation?

Transport Fundamentals
Most important component of logistics cost.
Usually 1/3 - 2/3 of total cost.

Transport involves
equipment (trucks, planes, trains, boats, pipeline),
people (drivers, loaders & un-loaders), and
decisions (routing, timing, quantities, equipment size,
transport mode).
When deciding the transport mode for a given product
there are several things to consider:
Mode price
Transit time and variability (reliability)
Potential for loss or damage.
NOTE: In developing countries we often find it necessary to
locate production close to both markets and resources,
while in countries with developed distribution systems people
can live in places far from production and resources.

let us guess

Routes of Goods
Air
terminal

air

Goods at
shippers
sea

Freight
forwarder
warehouse

Container
terminal

vessel

bulk goods

sea

pier

mid-stream

barge

land
land

plane

railway
truck

May
change
transportation
modes

Freight
forwarder
warehouse

Goods at
consignees

Single-mode Service Choices and Issues

Air
Rapidly growing segment of transportation industry
Lightweight, small items [Products: Perishable and time
sensitive goods: Flowers, produce, electronics, mail, emergency
shipments, documents, etc.]
Quick, reliable, expensive
Often combined with trucking operations
Rail
Low cost, high-volume [Products: Heavy industry, minerals,
chemicals, agricultural products, autos, etc.]
Improving flexibility
intermodal service
Truck
Most used mode
Flexible, small loads [Products: Medium and light
manufacturing, food, clothing, all retail goods]
Trucks can go door-to-door as opposed to planes and trains.

Single-mode Service Choices and Issues (Contd.)

Water
One of oldest means of transport
Low-cost, high-volume, slow
Bulky, heavy and/or large items (Products: Nonperishable
bulk cargo - Liquids, minerals, grain, petroleum, lumber,
etc )]
Standardized shipping containers improve service
Combined with trucking & rail for complete systems
International trade
Pipeline
Primarily for oil & refined oil products
Slurry lines carry coal or kaolin
High capital investment
Low operating costs
Can cross difficult terrain
Highly reliable; Low product losses

Transport Cost Characteristics

Fixed costs:
Terminal facilities
Transport equipment
Carrier administration
Roadway acquisition and maintenance
[Infrastructure (road, rail, pipeline,
navigation, etc.)]
Variable costs:
Fuel
Labor
Equipment maintenance
Handling, pickup & delivery, taxes
NOTE: Cost structure varies by mode

Transport Cost Characteristics

Rail
High fixed costs, low variable costs
High volumes result in lower per unit (variable) costs
Highway
Lower fixed costs (dont need to own or maintain roads)
Higher unit costs than rail due to lower capacity per truck
Terminal expenses and line-haul expenses
Water
High terminal (port) costs and high equipment costs (both fixed)
Very low unit costs
Air
Substantial fixed costs
Variable costs depend highly on distance traveled
Pipeline
Highest proportion of fixed cost of any mode due to pipeline
ownership and maintenance and extremely low variable costs

Vehicle Routing:
- Separate single origin and destination:
Once we have selected a transport mode and have
goods that need to go from point A to point B, we
must decide how to route a vehicle (or vehicles)
from point A to point B.
Given a map of all of our route choices between A and
B we can create a network representing these
choices The problem then reduces to the problem of
finding the shortest path in the network from point
A to B.
This is a well solved problem that can use Dijkstras
Algorithm for quick solution of small to medium
(several thousand nodes) sized problems.

Vehicle Routing:
- Multiple Origin and Destination Points
Suppose we have multiple sources and multiple
destinations, that each destination requires some integer
number of truckloads, and that none of the sources have
capacity restrictions [No Capacity Restriction].

In this case we can simply apply the transportation method

of linear programming to determine the assignment of
sources to destinations.
Sources

Destinations

Vehicle Routing:
- Coincident Origin and Destination: The TSP
If a vehicle must deliver to more than two customers, we
must decide the order in which we will visit those customers
so as to minimize the total cost of making the delivery.
We first suppose that any time that we make a delivery to
customers we are able to make use of only a single vehicle,
i.e., that vehicle capacity of our only truck is never an issue.
In this case, we need to dispatch a single vehicle from our
depot to n - 1 customers, with the vehicle returning to the
depot following its final delivery.
This is the well-known Traveling Salesman Problem (TSP).
The TSP has been well studied and solved for problem
instances involving thousands of nodes. We can formulate the
TSP as follows:

TSP Formulation
Minimize

c x

ij ij

i I j J

Subject to: xij 1, i I

j J

ij

i I

1, j J

ij
( i , j ) E (U )

U 1, U N

xij {0,1}, i I , j J

In the TSP formulation if we remove the third constraint set we

have the simple assignment problem, which can be easily
solved.
The addition of the third constraint set, commonly called subtour elimination constraints, makes this a very difficult problem
to solve.

Questions about the TSP

Given a problem with n nodes, how many distinct
feasible tours exist?
How many arcs will the network have?
How many xij variables will we have?
How could we quantify the number of subtour
elimination constraints?
The complexity of the TSP has led to several heuristic
or approximate methods for finding good feasible
solutions. The simplest solution we might think of is
that of the nearest neighbor.

Vehicle Routing: TSP, inventory routing, and vehicle routing

Traveling Salesman Problem (TSP): salesman visits n cities at

minimum cost
vehicle routing problem (VRP): m vehicles with capacity to
deliver to n customers who have volume requirement, time
windows, etc.
Inventory Routing: m vehicle to delivery to n customer with
time windows, vehicle and storage capacity constraints, and unspecificed amount to be delivered.
Heuristics
1. Load points closest together on the same truck
2. Build routes starting with points farther from depot first
3. Fill the largest vehicle to capacity first
4. Routes should not cross
5. Form teardrop pattern routes.
6. Plan pickups during deliveries, not after all deliveries have
been made.

Illustration of VRP
123

44

50

29
112

58

90

76

88
Depot

77
57

59

39

176

89
65

124
115

98

(Outlier)
125

Truck Capacity = 250

What is the minimum # of trucks we would need? Maximum?

Vehicle Routing
Find best vehicle route(s) to serve a set of orders
from customers.
Best route may be
minimum cost,
minimum distance, or
minimum travel time.
Orders may be
Delivery from depot to customer.
Pickup at customer and return to depot.
Pickup at one place and deliver to another
place.

Complications
Pure Pickup or Delivery Problems.
Mixed Pickups and Deliveries.
Pickup-Delivery Problems.
Backhauls

Multiple vehicle types.

Multiple vehicle capacities.
Weight, Cubic feet, Floor space, Value.

Many Costs:

Fixed charge.
Variable costs per loaded mile & per empty mile.
Waiting time; Layover time.
Cost per stop (handling).
Loading and unloading cost.

Priorities for customers or orders.

More Complications
Time windows for pickup and delivery.
Hard vs. soft
Compatibility
Vehicles and customers.
Vehicles and orders.
Order types.
Drivers and vehicles.
Driver rules (DOT)
Max drive duration = 10 hrs. before 8 hr. break.
Max work duration = 15 hrs. before 8 hr break.
Max trip duration = 144 hrs.

Simple Models
Homogeneous vehicles.
One capacity (weight or volume).
Minimize distance.
No time windows or one time window per
customer.

No compatibility constraints.
No DOT rules.

VRP Solutions
Heuristics
Construction: build a feasible route.
Improvement: improve a feasible route.
Not necessarily optimal, but fast.
Performance depends on problem.
Worst case performance may be very poor.

Exact algorithms
Integer programming.
Branch and bound.
Optimal, but usually slow and applicable for small size
problem
Difficult to include complications.

APPLICATIONS OF VRP
The VRP is applicable in many practical situations directly related to
the physical delivery of goods such as
distribution of petroleum products,
distribution of industrial gases,
newspaper deliveries,
delivery of goods to retail store,
garbage collection and disposal,
package pick-up and delivery,

milk pick-up and delivery, etc.

the non-movement of goods such as
picking up of students by school buses,

routing of salesmen,
reading of electric meters,
preventive maintenance inspection tours,
employee pick-up and drop-off , etc.

COVERS- COMPUTERIZED VEHICLE ROUTING SYSTEM

A DSS
Employee Bus Routing
Commodity Distribution

In COVERS
Efficient

Heuristic Procedures
NNH
MNNH
MSCWH

Simulation Features
Manipulate the System Generated Routes
Completely User Generated Routes

COVERS Handles
Multi-Depot VRP
Heterogeneous VRP

EMPLOYEE PICKUP VEHICLE ROUTING PROBLEM (EPVRP)

BANGALORE, KARNATAKA, INDIA

Indian Telephone Industries [ITI] Limited

Bharat Electronics Limited [BEL]

Hindustan Machine Tools [HMT]

Hindustan Aeronautics Limited [HAL]

Indian Space Research Organization [ISRO]

National Aeronautical Laboratory [NAL]

Central Machine Tools of India [CMTI]

AS A PROBLEM IN OR, A SIMPLIFIED EPVRP CAN BE DESCRIBED AS FOLLOWS:

GIVEN

A set (fixed number) of pick-up or delivery points,

The demand at every pick-up or delivery points (deterministic),
A set (fixed number) of vehicles (homogeneous) and
All relevant distance information across pick-up points.

IT IS REQUIRED TO FIND AN EFFECTIVE/EFFICIENT SOLUTION FOR

Assigning pick-up points to vehicles and

Sequencing pick-up points on the route of each vehicle
SO AS TO ACHIEVE THE OBJECTIVE OF

Minimizing the total distance traveled by the vehicles and/or the number of vehicles
used.
UNDER THE CONSTRAINTS THAT

Every route originates and terminates at the depot

The capacity of vehicle is restricted
The maximum distance (time) allowed for a vehicle on any route is within a prespecified limit
Each pick-up point is visited once only
Etc.,

AN ILP FORMULATION - EPVRP

Source : WATERS (1998)

ASSUMPTIONS

Vehicle capacity is known and constant (homogenous)

The number of vehicles available is known (at least the minimum

number of vehicles required is known)

The demand at every pick-up point is known (deterministic)

Maximum distance to be traveled by each vehicle is known and

constant for all vehicles

Demand at every pick-up point is less than or equal to vehicle

capacity

Every pick-up point is served by only one vehicle

Further, keeping in line with Waters formulation, the model formulation is

oriented towards routing during drop-back rather than pick-up. It is assumed
that the reverse logic holds good for pick-up.

Expanding the Scope of Linear Programming Solutions for Vehicle

Scheduling Problems. OMEGA, 16(6), 577-583

COMPUTATIONAL COMPLEXITY - OPTIMAL SOLUTION

#
PUP

Tot
Quantities
(Units)

# Variables
Including (0, 1)
Variables

# (0, 1)
Variables

#
Constraints

Optimal
Distance
(Km.)

# Routes

# Iterations
(LINDO)

CPU Time
(AT 486)

61

48

16

60

13.2

45

71

75

25

85

26.4

330

79

108

36

114

28.6

353

106

147

49

147

31.0

2780

23

117

192

64

187

31.0

70724

80

132

243

81

225

37.4

43021

667
(11 Mts)

10

137

300

100

270

47.8

4963340

100800
(28 Hrs.)

Sutcliffe and Board (1990) estimated that a simple extrapolation of Waters (1988) ILP approach using
the SCICONIC software might take nearly 1,20,000 years of CPU time on a VAX 8600 machine to solve a
VRP with 38 pick-up points!
Optimal

Solution of VRP: Transporting Mentally Handicapped Adults to an Adult Training Center. JORS, 41(1), 61-67.

HEURISTIC ALGORITHMS

Nearest Insertion Heuristic

(NIH)

Cheapest Insertion Heuristic

(CIH)

Parallel Version of Clarke & Wright Heuristic

(PCWH)

Sequential Version of Clarke & Wright Heuristic

(SCWH)

Convex Hull Heuristic

(CHH)

Nearest Neighbour Heuristic

(NHH)

Modified NNH

(MNNH)

Modified SCWH 1

(MSCWH-1)

Modified SCWH 2

(MSCWH-2)

CASE STUDY : DETAILS OF ROUTES, DISTANCES & SEAT UTILIZATION

Shift

Timings

#
Commuters

# Pickup
Points

#
Routes

Total Distance
per Trip (Km.)

Seat
Utilization (%)

06.15 02.15 PM

3659

303

64

1977.0

89.0

FG

07.30 04.15 PM

3999

313

66

2163.0

94.3

AG

08.45 05.30 PM

3042

286

53

1808.3

90.0

02.15 10.15 PM

975

242

30

1056.7

54.0

10.15 06.15 AM

40

----

----

----

----

11715

410

213+
(426)

7005.0
(14010)

----

Total

Ignored in our study

Each Bus Route (Trip) Repeated; Two Trips a day, Once for Pick-up and once for Drop-off.

Distinct Pick-up Points

COMPARATIVE PERFORMANCE (CASE STUDY) TOTAL DISTANCE

Procedures

Shift 1
A

Shift 2
FG

Shift 3
AG

Shift 4
B

Total Distance
(Km.)

Savings
(in %)

CPU Time
PC/AT 486
@ 33 MHz
(Minutes)

----

Existing
Practice
(Manual)

1977.0

2163.0

1808.3

1056.7

7005.0

-----

NIH

1875.8

2047.7

1734.1

890.3

6547.9

6.5

12

CIH

2155.2

2322.3

1914.2

1020.7

7412.4

- 5.8

52

PCWH

1803.5

2026.1

1761.1

1080.9

6671.6

4.76

19

SCWH

2139.2

2306.6

1889.2

1014.5

7349.5

- 4.9

18

CHH

1903.8

2047.7

1749.2

964.7

6665.4

4.85

55

NNH

1822.9

2063.2

1708.0

900.0

6494.1

7.29

MNNH

1817.7

2040.8

1740.7

858.9

6458.1

7.81

MSCWH-1

1796.2

2066.4

1687.5

910.2

6460.3

7.78

MSCWH-2

1799.4

2047.0

1688.5

908.5

6443.4

8.02

(Figures in Table represent travel distance in Km. For Pick-up only)

COMPARATIVE PERFORMANCE (CASE STUDY) TOTAL NUMBER ROUTES

Procedures

Shift 1
A

Shift 2
FG

Shift 3
AG

Shift 4
B

Total Routes

Reduction in
Trips (%)

Existing
Practice
(Manual)

64

66

53

30

213

NIH

60

63

51

23

197

7.51

CIH

65

69

52

27

213

PCWH

63

68

56

36

223

- 4.7

SCWH

65

70

55

28

218

- 2.3

CHH

60

62

51

25

198

7.04

NNH

57

64

50

24

195

8.45

MNNH

57

63

51

23

194

8.92

MSCWH-1

58

63

49

24

195

8.45

MSCWH-2

58

63

49

24

194

8.92

Figures in Table represent number of trips for Pick-up only

-----

HEURISTIC ALGORITHMS - DSS IMPLEMENTATION

Nearest Neighbour Heuristic

(NHH)

Modified NNH

(MNNH)

Modified SCWH-2

(MSCWH-2)

A Schematic Diagram of COVERS

DATA MANAGEMENT MODULE
General file
Depot Data File
Vehicle Data File
Pickup point Demand Data File
Inter-Stop Distance Data File

MODEL MANAGEMENT MODULE

Heuristic Procedures
Simulation Model

REPORT MANAGEMENT MODULE

Details of Route Sequence

Summary of Routes
Overall Summary of Routes
Depot wise Route Allocation
Vehicle Type wise Route Allocation

CONTROL MODULE
COMPUTER SYSTEM

USER