The Logistics Network

2021-05-17 11:06:16
3 pages
750 words
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Logistic networks comprise of the following components: First we have the vendors, the manufacturing companies, the distribution (warehouses) channels, the customers who receive the goods, raw materials and finally the finished products which are consumed.

Decision Classifications

1.Tactical Planning: This entails the allocation of resources used for manufacturing and distribution over a period of time. Decisions to be made here include; Inventory policies, means of transportation are chosen, the work force size is decided and distribution channels are selected

2.Strategic Planning: In Strategic Planning, the managers make decisions which mostly involve capital intensive investments and their effect is long lasting. Some of these decisions include: Determining the number of the new plants, their sizes and locations, the centers that will be used for distribution purposes and the warehouses. It also entails acquiring production equipment which are new, designing how the centers are going to work within each plant and finally the coming up of transportation facilities, data processing means and communications equipment.

3.Operational Control These entail operational decisions made on daily basis. Here, the following takes place. Customer orders are assigned to individual machines, there is scheduling of vehicles , processing and dispatch of orders takes place.

Network Design: Key Issues

In Network Design, some very important factors have to be put into consideration and they include;Deciding the number ,location and size of warehouses

Deciding the products to be produced by each vendor

Deciding the channels of distribution

Coming up with the sourcing strategy which is optimal

Deciding the warehouse which will serve various customers.

Strategic Planning, Tactical Planning and Operational Control help in balancing all the service level that are subject to the following;

The costs of production

The costs incurred in carrying out inventory costs

Costs incurred in transportation of goods

Costs incurred in handling the goods.


The More Warehouse, the more ..Improvement in service level

inventory costs due to increased safety stock

overhead and setup costs

reduction in outbound transportation costs (from warehouses to customers)

inbound transportation costs (from plants to warehouses)



The Impact of Increasing the Number of Warehouses

Improve service level due to reduction of average service time to customers

Increase inventory costs due to a larger safety stock

Increase overhead and set-up costs

Reduce transportation costs in a certain range

Reduce outbound transportation costs

Increase inbound transportation costs

Industry Benchmarks:Number of Distribution Centers

Potential Warehouse Location

1. Geographical and infrastructure conditions

2. Natural resources and labor availability

3. Local industry and tax regulations

4. Public interest

As a result, there is only a limited number of locations that would meet all the requirements. These are the potential location sites for the new facilities.

Service Level Requirement

Two types:

delivery time

specifying a maximum distance between customers and warehouse

Warehouse Costs

Fixed costs: proportional to the warehouse capacity in a nonlinear way

Handling costs: labor costs, utility costs, proportional to annual flow through the warehouse

Storage costs: proportional to the average inventory level

Inventory turnover ratio

annual sales (flow)

1828800800100 =

average inventory level

Data Collection for Network Design

This is achieved through the following; Listing all products that are produced, locating customers, determining the transportation rates, the warehousing costs, having information on demand for each product by customer location, how customers are buying goods in terms of size, season and the content and finally customer service goals.

Aggregating Customers

Customers located in close proximity are aggregated using a grid network or

clustering techniques.

Impact of Aggregating Customers

Aggregating customers leads to the following:

It balances what we call the consumer balance .The downside of it is that it can lead to needless complexities which may arise and loss of accuracy.

Product Grouping

Companies may have hundreds to thousands of individual items in their production line

1. Variations in product models and style

2. Same products are packaged in many sizes

Collecting all data and analyzing it is impractical for so many product groups

In practice, items are aggregated into a reasonable number of product groups, based on

1. Distribution pattern

2. Product type

3. Shipment size

4. Transport class of merchandise

It is common to use no more than 20 product groups.

Why Aggregate?

The cost of obtaining and processing data

The form in which data is available

The size of the resulting location model

The accuracy of forecast demand

Demand Forecast

The three principles of all forecasting techniques:

Forecasting is always wrong

The longer the forecast horizon the worst is the forecast

Aggregate forecasts are more accurate

The variability faced by the aggregated customer is smaller than the combined variabilitys faced by the two existing customers

Recommended Approach

Aggregate demand points for 150 to 200 zones.

Make sure each zone has an equal amount of total demand

Place the aggregated point at the center of the zone

Aggregate the product into 20 to 50 product groups

In this case, the error is typically no more than 1%


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