UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 [email protected].
-
date post
21-Dec-2015 -
Category
Documents
-
view
215 -
download
0
Transcript of UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 [email protected].
![Page 2: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/2.jpg)
Integrated Logistics
Introduction to Insight
![Page 3: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/3.jpg)
INSIGHT – Who We Are
> INSIGHT Started 1978> Extensive Supply Chain Design Experience> Professional Staff
• 35 employees• Average tenure – over 17 years experience
> Various Honors and Awards• CLM Distinguished Service Award
> US Offices• Manassas, VA• Bend, OR
> Emphasis on Research and Application
![Page 4: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/4.jpg)
Supply Chain Software
> Supply Chain Design• SAILS
> Tactical Modules• Transportation Planning – SHIPCONS II• International Trade – GSCM
> Components• Labor Scheduling, Master Production Planning,
Supply Planning, Service Resource Scheduling, Dynamic Sourcing
![Page 5: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/5.jpg)
Abbott Laboratories
Allegiance Healthcare
Bristol-Myers Squibb
Exxon Mobil (5 continents)
Exxon Mobil Chemical
Pfizer
Johnson & Johnson
Ross Laboratories
Monsanto (Flexsys NV)
BP Amoco
Cytec
BASF
Pennzoil
PPG Industries
Ipiranga
IMC Agrico
McKesson HBOC
Solutia
Oil/Chemical/Medical
Mars
Pepsi-Cola
Pepsi-Cola Int’l
Pepsi Bottling
Ralston Purina
Avon Products
Nabisco
Clorox
Unilever
Kraft Foods
Dean Foods
Ameriserv, Inc.
CSI
Frito Lay
Frito Lay Int’l
Colgate
Perrier
Dr. Pepper - 7Up
Procter & Gamble
ConAgra
Walker Gillette
Borden Foods
Food & Beverage/CPG
Ferguson Enterprises
Toyota Motor Sales
Toyota Parts
Goodyear Tire & Rubber Co
Case New Holland
Case Parts
Georgia Pacific
Sears
Ingram Books
Purolator
Potlatch
R.R. Donnelly
Toyo Engineering
GE Service Parts
GE Appliances
Manufacturing/Parts Distribution
Consultants/3PL’s
Accenture
KPMG Peat Marwick
Frigoscandia
Norfolk Southern
Pricewaterhouse Coopers
Defense Logistics Agency
APL
CSC
Mark VII
SABRE
Technology
Compaq IBM Global Services Motorola
![Page 6: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/6.jpg)
Integrated Logistics
The Concept
![Page 7: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/7.jpg)
CLM Definition 1995
Logistics is the process of planning, implementing,and controlling the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements.
![Page 8: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/8.jpg)
FW1
FW2
FW3
FW4
FW5
P1
P2
P3
Integrated Logistics System Design ModelIntegrated Logistics System Design Model
Raw MaterialsRaw Materials Finished ProductsFinished Products
ReplenishmentReplenishment OutboundOutboundInboundInbound
PW1
PW2
PW3
S1
S2
TransferTransfer
CZ1
CZ5
CZ6
CZ2
CZ3
CZ4
Potential Network SchematicPotential Network Schematic
![Page 9: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/9.jpg)
Evolution of Thought and Practice
• Individual Dispersed Functions
![Page 10: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/10.jpg)
Conflictingobjectiveswithin thelogisticsfunction
TRANSPORTATION
WAREHOUSING INVENTORY
![Page 11: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/11.jpg)
Evolution of Thought and Practice
• Individual Dispersed Functions
• Integration Within Distribution
![Page 12: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/12.jpg)
Conflictingobjectiveswithin thefirm
Logistics
Manufacturing Purchasing
![Page 13: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/13.jpg)
Evolution of Thought and Practice
• Individual Dispersed Functions
• Integration Within Distribution
• Integration Across Corporate Functions
![Page 14: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/14.jpg)
Evolution of Thought and Practice
• Individual Dispersed Functions
• Integration Within Distribution
• Integration Across Corporate Functions
• Integration Across Supply Chain, finding win-wins with Suppliers and Customers
![Page 15: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/15.jpg)
Network Redesign Business Questions> How many distribution centers (D.C.s) should we have? > Where should the D.C.s be located? > Which customers should be served by each D.C.? > How do you best balance inventories against customer service needs
and distribution costs?> Should we contract for warehousing services or operate our own D.C.s?> Should pool points be used and where should they be located? > What do you gain by plant direct shipping? > Should all D.C.s carry all products or should they be specialized by
product line?> Where should my plants be located?> Which product lines should be produced at each plant and how much? > Which suppliers should be used?
![Page 16: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/16.jpg)
Do you need a Network Redesign?
> You would like answers to some of the 11 “business questions”
> You have never redesigned your network(s) or it has been many years since the last redesign was completed
> Multiple divisions exist within the parent company and you are not leveraging Warehousing and/or Transportation.
> You are acquiring a company
![Page 17: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/17.jpg)
Integrated Logistics
Process to Redesign Supply Chains
![Page 18: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/18.jpg)
Introduction
> Redesigning a Supply Chain is a PROCESS
> The SAILS software is a TOOL used in this process
> When you’re redesigning a Supply Chain, a good process is beneficial.
> This is the process that I’ve used many times, with good results, to redesign Supply Chains.
![Page 19: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/19.jpg)
The Process
> Establish Project Management
> Define Objectives and Scope
> Design Model
> Data Collection
> Model Validation
> Optimization
> “What If” and Sensitivity Analysis
> Recommendation
> Implementation
> Post-Implementation Review
![Page 20: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/20.jpg)
Project Management
> Establish Project Sponsor
• Best experiences with CFO or CEO
> Why has the project been initiated?
• What is the “compelling event”?
• What needs improving?
- Too much Inventory
- Customer Service lead times need tightened
- Logistics Costs too high
![Page 21: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/21.jpg)
Project Management
> Executive ("Steering") Committee required?
• Establish cross-functional team (MIS, Logistics, Sales, Manufacturing, Customer Service, Purchasing, R&D, Finance, etc.), usually VP or Director level:
- Break down organization "silos"
- Create a better solution
- Improve the probability that the solution will be accepted by the entire organization
• Meet every 6 - 8 weeks
![Page 22: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/22.jpg)
Project Management
> Establish full-time Project Manager > Establish Working Committee
• Establish team, usually Manager level, with "hands on" responsibility to spend 25 to 50 percent working on this project
• Meet "formally" every 2 - 3 weeks> Utilize Steering Committee to create “Task Forces”:
• Customer Service• Product Compatibility and R&D Requirements
(temperature, etc.)• Inventory Carrying Cost Methodology• Accounting Issues, such as Fixed vs. Variable
Warehousing Costs
![Page 23: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/23.jpg)
Objectives and Scope
> Objectives (and Goals)• Why has the project been initiated? (What needs
improving)?• What business question(s) do you need answered?• Define as many "What If" and Sensitivity Analysis questions
to be answered, as possible • STAY STRATEGIC
> Scope• Which Business Units included?• Due to product incompatibilities, do multiple Supply Chains
need to be designed? How many?• Outbound (and Inbound(?))?• U.S. (and Canada(?) and Mexico(?))?• Include/exclude import/export (port)?
![Page 24: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/24.jpg)
Model Design
> To design the model correctly, the objectives, the scope, and as many "What If" and Sensitivity Analysis questions, as possible, should be defined. Failure to do this, will increase the risk that the model will not be designed correctly, requiring extensive efforts to redesign the model later in the project.
> First step, sketch the current flows of the existing supply chain(s), defining all the “links”. Discuss what future flows should be allowed
> How many supply chains need to be designed? Sketch them.
![Page 25: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/25.jpg)
Model Design
> For each supply chain (model):• How many echelons? • Current and candidate D.C.s, cross-docks, etc.• How do you ship products (Small Package, LTL, TL,
Pool, Pick-up, Rail, etc.)• D.C., cross-dock, etc. missions• Customer Service guidelines, current, proposed
and “what if”• Etc., etc.
> Roles and responsibilities of each member of the Working Committee. Assign tasks and due dates.
![Page 26: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/26.jpg)
Data Collection> Collect:
• Network Description- Locations (Customers, D.C.s, Plants, Suppliers)
• Transportation Costs- Inbound, Replenishment, Transfer, Outbound
• Demand Data- Every Line Item from Every Order for a year
• Facility Data (Suppliers, Plant and D.C.)- Fixed & Variable Costs- Capacities
• Eligibility- D.C.s- Product Master with Production Source(s) Identified - Suppliers
> VERIFY all data to ensure that it is valid
![Page 27: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/27.jpg)
Model Validation
> First, replicate flows (volumes)
• MY GOAL --- 99.75+% accurate
> Second, replicate costs. (This is an iterative process, until the variance between actual and the model reach an acceptable level).
• MY GOAL:
- Nationally, within 1 to 2 percent of “unexplained” variance.
- By facility, within 5 percent of “unexplained” variance.
![Page 28: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/28.jpg)
Model Validation
> (If the “unexplained” variance is at the 5 - 10 percent range, no confidence exists when an optimization run shows a 10 percent cost reduction. It is not until the “unexplained” variance is in the 1 to 2 percent range that an optimization run showing a 10 percent cost reduction can be believed).
> Develop spreadsheet, starting with the model (validation) costs, adjusting for known (“explained”) variances, and comparing to actual costs
![Page 29: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/29.jpg)
Model Validation
> “Explained” Variances (examples):• Transportation Costs
- Returns/Product Recall- Damaged- Accessorial (Fuel, Delay, Lumpers, etc.)- Expedited Transportation- Accounting Anomalies
• Warehousing Costs- Different Inventory Turns- Overflow Warehousing- Accessorial (Special Services, extra shifts, overtime,
etc).- Accounting Anomalies
• Plant Costs
![Page 30: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/30.jpg)
Optimization
> Optimize the Supply Chain, meeting the customer service Requirements.
(This should occur very quickly, a
majority of the analysis should be "What If" and Sensitivity analysis).
![Page 31: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/31.jpg)
“What If” and Sensitivity Analysis
> Most common Analysis:
• Sensitivity Analysis:
- Distribution cost vs. number of D.C.s- Distribution cost vs. Customer Service
– Cost for improved service
– As service is improved, are current D.C.s still being utilized
![Page 32: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/32.jpg)
“What If” and Sensitivity Analysis
> Most Common Analysis (continued)• “What If” Analysis:
- Impact of inflation (D.C. vs transportation costs)- Growth Analysis (can handle forecasted growth)- Impact of plant capacity expansion (new plants)- Impact of new product introduction
– Which plant– 1 vs. 2 plants
- D.C. capacity expansion- Alternative echelon networks
– Plant direct– Cross-Docks / UPS Zone Skipping
- Implementation priority analysis
![Page 33: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/33.jpg)
Recommendation
> A recommendation should be made, including:
• Supply Chain ("flow" and costs), AS IS
• Supply Chain ("flow" and costs), TO BE
• Expected benefits
• What was analyzed but didn't produce benefits
• Implementation plan, including
- Priorities- Technology
• Organizational impact
![Page 34: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/34.jpg)
Implementation
> Additional time should be planned for further "What If" and Sensitivity Analysis to assist the implementation team.
(For example, the model recommends a D.C. in Omaha. The implementation team can not find the space in Omaha at a reasonable price. What is the additional transportation cost if the D.C. were in Kansas City or Des Moines)?
> Now is the time to support the implementation with tactical analysis.
![Page 35: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/35.jpg)
Post-Implementation Review
> I’m a strong believer that 6 to 12 months after the implementation, the project should be evaluated and the actual benefits quantified.
> Most of my recommendations have reduced the number of D.C.s, so more volume was going through fewer locations. Due to increased leverage (transportation and warehousing), the actual benefits usually exceed what the software predicted.
• All projects 5 to 15 percent Logistics savings• Majority in 8 to 12 percent range
![Page 36: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/36.jpg)
Integrated Logistics
The Optimizer
![Page 37: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/37.jpg)
Too often users don’t ask enough questions about what the solver does and how. They seem to assume that if a program can make pretty pictures, it must also be able to get good answers.
In short, THEY BUY THE PICTURES, NOT THE SOLUTIONS!
![Page 38: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/38.jpg)
CZ1
CZ2
CZ3
DC1DC1
DC2DC2
PLANT 1PLANT 1
PLANT 2PLANT 2
00
55
44
22
33
33
44
22
00
11
50,00050,000
100,000100,000
50,00050,000
SAMPLE PROBLEM
Capacity: 60,000Capacity: 60,000
Capacity: Capacity:
![Page 39: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/39.jpg)
CZ1
CZ2
CZ3
DC1DC1
DC2DC2
PLANT 1PLANT 1
PLANT 2PLANT 2
00
55
44
22
33
33
44
22
00
11
50,00050,000
100,000100,000
50,00050,000
HEURISTIC SOLUTION 1HEURISTIC SOLUTION 1
““LEAST OUTBOUND COST”LEAST OUTBOUND COST”
140,000140,000
60,00060,000
Inbound costInbound cost $820,000$820,000
Outbound costOutbound cost $150,000$150,000
TotalTotal $970,000$970,000
![Page 40: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/40.jpg)
CZ1
CZ2
CZ3
DC1DC1
DC2DC2
PLANT 1PLANT 1
PLANT 2PLANT 2
00
55
4422
33
33
44
22
00
11
50,00050,000
100,000100,000
50,00050,000
HEURISTIC SOLUTION 2HEURISTIC SOLUTION 2
““LEAST TOTAL FLOW COST”LEAST TOTAL FLOW COST”
50,00050,000
60,00060,000
Inbound costInbound cost $570,000$570,000
Outbound costOutbound cost $200,000$200,000
TotalTotal $770,000$770,000
90,00090,000
![Page 41: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/41.jpg)
The key to good analysis is the range and quality of alternatives generated for evaluation.
![Page 42: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/42.jpg)
Solver Technology: Heuristics
Characteristics• common sense consideration of limited alternatives• not guaranteed to find best solution• solution dependent upon quality of decision rules• run-to-run comparisons unreliable
Applications
– crew scheduling– vehicle routing– shipment planning
![Page 43: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/43.jpg)
Solver Technology: Simulation
Characteristics• imitates sequence of events/conditions over time• no attempt to find best solution• limited to process evaluation• difficult to validate• expensive to develop, maintain, and run• run-to-run comparisons very difficult
ApplicationsApplications
– queuing problemsqueuing problems– inventory controlinventory control– plant/DC operationsplant/DC operations
![Page 44: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/44.jpg)
OPTIMIZATION generates and considers all alternatives in a given scenario --
with heuristics and expert systems alone, many alternatives are never envisioned, much less evaluated!
![Page 45: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/45.jpg)
Solver Technology: Optimization
Characteristics• evaluates all possible alternatives• guaranteed to find best solution• run-to-run comparisons reliable• not widely available
ApplicationsApplications– network designnetwork design– production planningproduction planning– cash flow planningcash flow planning
![Page 46: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/46.jpg)
SOLVER TECHNOLOGY
USING MIXED INTEGER LINEAR PROGRAMMING
*SAILS is TRUE OPTIMIZATION
(*RESEARCH PUBLISHED IN REFEREED ACADEMIC JOURNALS)
![Page 47: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/47.jpg)
CZ1
CZ2
CZ3
DC1DC1
DC2DC2
PLANT 1PLANT 1
PLANT 2PLANT 2
00
55
4422
33
33
44
22
00
11
50,00050,000
100,000100,000
50,00050,000
OPTIMAL SOLUTION
“TRUE LEAST COST”
140,000140,000
60,00060,000
Inbound costInbound cost $120,000$120,000
Outbound costOutbound cost $470,000$470,000
TotalTotal $590,000$590,000
40,00040,000
60,00060,000
![Page 48: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/48.jpg)
Good models are like bright lights
focused on dark corners.
Conventional wisdom is frequently wrong -- Management Science has shown this time and time again.
![Page 49: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/49.jpg)
Integrated Logistics
SAILS Model
![Page 50: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/50.jpg)
Multiple Stages of Manufacture
STAGE 1STAGE 1 STAGE 2STAGE 2
RawRaw
materials materials
inin
FinishedFinished
productsproducts
outout
Line 1Line 1 Line 1Line 1
Line 2Line 2
Line 3Line 3
Line 2Line 2
Line 3Line 3
RawRaw
materialsmaterials
IntermediateIntermediate
productsproducts
FinishedFinished
productsproducts
![Page 51: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/51.jpg)
Important Model Features
Multiple stages of manufacture (conversions)Multiple stages of manufacture (conversions) Multiple processing lines per stageMultiple processing lines per stage N-echelons of distribution centersN-echelons of distribution centers Multiple cost functions per facilityMultiple cost functions per facility Sole source optionSole source option Facility status: fix/float optionsFacility status: fix/float options Multi-Time PeriodsMulti-Time Periods
![Page 52: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/52.jpg)
PRODUCT AGGREGATION
Stock CodesStock Codes Product GroupsProduct Groups
TR 968-14TR 968-14
TR 472-10TR 472-10
TR 784-16TR 784-16
TR 968-14TR 968-14
TR 472-10TR 472-10
TR 784-16TR 784-16
EL 497-23EL 497-23
TR 968-14TR 968-14
TR 472-10TR 472-10
TR 784-16TR 784-16
CQ 491-79CQ 491-79
1. Tires1. Tires
3. Mechanical3. Mechanical
2. Electronics 2. Electronics
![Page 53: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/53.jpg)
Product Groups1 2 3 4 5 . . . . . . . ICustomer
zones 1
2
3
4
5...
L
XX
Annual demand
DEMAND DATA: TARGET
![Page 54: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/54.jpg)
Destinations1 2 3 4 5 . . . . . . . N
Origins11
22
33
44
55......
MM
XX
Average cost/cwtAverage cost/cwt
TRANSPORTATION DATA: TARGET
![Page 55: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/55.jpg)
998888 6666
55
77 332222
1100
4444
GEOGRAPHIC AGGREGATION
1-DIGIT ZIP ZONE
![Page 56: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/56.jpg)
UNITUNITVARIABLEVARIABLE
COSTCOST
VOLUMEVOLUME
TRADITIONAL CAPACITY LIMITSTRADITIONAL CAPACITY LIMITS
CapacityCapacityLimitLimit
![Page 57: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/57.jpg)
UNITUNITVARIABLEVARIABLE
COSTCOST
VOLUMEVOLUME
“ELASTIC” CAPACITY LIMITS
CapacityCapacityLimitLimit
}
PenaltyPenalty
![Page 58: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/58.jpg)
Integrated Logistics
Case Study
![Page 59: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/59.jpg)
ADF, Inc.
> Manufacturer of consumer goods > Founded in 1927> Sales in 1980: $460mil> 12 major categories of product > 2 production technologies> 11,000 customers> 100,000 orders per year> 98% fill rate with 7 day order cycle> 5 plants and 17 distribution centers
![Page 60: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/60.jpg)
Historical Situation - 1930
PlantDistribution centerMarket area
![Page 61: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/61.jpg)
$
ADF DISTRIBUTIONCOST RELATIONSHIPS
1930 (est.)Transportationto Customers
InventoryCarrying Costs
Warehousing
Transportationto Warehouse
![Page 62: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/62.jpg)
HISTORICAL SITUATION - 1940
PlantDistribution centerMarket area
P1P1
![Page 63: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/63.jpg)
HISTORICAL SITUATION - 1950
PlantDistribution centerMarket area
P1P1, P2 P2
![Page 64: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/64.jpg)
HISTORICAL SITUATION - 1960
PlantDistribution centerMarket areaLocal overflow warehouse
P1P1, P2 P2
![Page 65: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/65.jpg)
HISTORICAL SITUATION - 1970
PlantDistribution centerMarket area
P1P1, P2 P2
P1P2
![Page 66: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/66.jpg)
AT TIME OF STUDY
PlantDistribution centerMarket area
P1, P2 P2
P1
P2
P1
![Page 67: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/67.jpg)
$
CURRENT ADF DISTRIBUTION COSTS
Transportationto Customers
InventoryCarrying Costs
Warehousing
Transportationto Warehouse
![Page 68: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/68.jpg)
study1960 1970
PD/Percentof COGS
_
_
_
_
_2
10
8
6
4
6.5%
Actual8.2%
11.4%
DISTRIBUTION COSTS GROWINGFASTER THAN MANUFACTURING COSTS
_ _
![Page 69: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/69.jpg)
DISTRIBUTION COSTSGROWING FASTER THAN SALES
Sales
Distribution
19701970 studystudy
P.D. CostsPercent of Sales
1970 - 5.8%study - 8.0%
$8 MM
$138 MM
$37 MM
$463 MM
![Page 70: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/70.jpg)
INVENTORY TURNOVER DECLINING
Cost of Goods Sold
Finished Goods Inventory
1970 study
Inventory Turns1970 - 7.5study - 6.0
$13 MM
$97 MM
$54 MM
$324 MM
![Page 71: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/71.jpg)
MANAGEMENT’S RESPONSES HAVE BEENINCREMENTAL AND SUBOPTIMAL
Impact on functional area
Arbitraryinventory cuts
Additionalwarehouses
Mode mix changes
Plant warehousespace usurped
Manufacturingcosts
Transportationcosts
Warehousingcosts
Inventorycosts
Customerservice/sales
![Page 72: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/72.jpg)
MANAGEMENT OBJECTIVE
Fundamental question askedby management . . .
What production-distribution networkwill yield greatest return on assets,given all trade-offs in the system?
![Page 73: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/73.jpg)
Specific Issues
> What are the appropriate customer service goals to pursue?
> How should inventory be stratified and positioned in the various levels of the production - distribution system?
> How many distribution centers should there be, where should they be, and what service areas should be assigned to each?
> Should new plant locations be opened and should the production mix among plants be changed?
> Which plants should provide which products to each warehouse and what mix of transportation modes should be used?
![Page 74: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/74.jpg)
RECONFIGURED SYSTEM
PlantDist. center
P1, P2 P2
P1P2
P1
P1, P2
Change in:
Distribution Centers 17 9
Distribution Center Replenishment Flows 22 6
Plants 5 6
![Page 75: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/75.jpg)
Financial Results
> Actual• Reduction in Distribution Costs of 20%
- Fewer DCs- Less Plant to DC freight- Less inventory
• Increase in ROA of 8% over an already favorable 12.5%
> Expected• Improvement in customer service/satisfaction• More streamlined network• Improved inventory deployment
![Page 76: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/76.jpg)
If
• TL increases disproportionately vs. LTL
• LTL increases disproportionately vs. TL
• Service level (order cycle time) relaxed
• Unit production cost estimates at new plant low by >10%
• Cost of money under 10%
Outcome of Specific Contingency Analyses
Then
• West Coast plant more advantageous
• 3 more warehouses feasible
• 1 less warehouse feasible
• Logistics benefits of new plant negated
• 4 additional warehouses feasible
![Page 77: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/77.jpg)
Network Evaluation Process
Plan & Launch Project
Generate Baseline
Optimizationof existingnetwork
Alternatescenario
definition
Alternatescenario
optimization
ManagementAnalysis
Financialgoals
Raw materialavailability
Manufacturingtechnology
Corporatepolicies/
strategiesServicegoals
Marketinggoals
analysis
Futuretransportation
costs
![Page 78: UMSL Presentation February 19, 2002 by: Allen Paschke (636) 405-0375 AJPaschke@aol.com.](https://reader031.fdocuments.net/reader031/viewer/2022032521/56649d5d5503460f94a3c4d3/html5/thumbnails/78.jpg)
Integrated Logistics
Summary