Logistics & Supply Chain Management

What is logistics?

• studies activities determining the flow of materials in a company from their origin at the supplier to delivery of the finished products to the customer & post-sales service

• ensures delivery of the right good in the right quantity in the right condition at the right time on the right place with the highest possible economic efficiency

• DMAIC: define, measure, analyze, improve, control

What is the hierarchy of supply chain management?

What aspects does logistics deal with?

• location of facilities

• transportation modes & routes

• supplier selection, strategy & coordination

• inventory management

• urban logistics, last-mile deliveries

• humanitarian logistics

What are the goals of urban logistics?

• determine which parcels should be delivered on which route and in which order → route planning

• forecast delivery time → synchronization

• how parcels are packed in a vehicle

• what happens if delivery is unsuccessful

• time windows of customers

• unattended delivery (e.x. packaging stations, mobile delivery boxes)

• drove delivery

• robot delivery

• crowd-logistics (e.x. car sharing, Amazon logistics)

What is sustainable supply chain management?

• include all sustainability criteria

• ensure responsibility of suppliers

• lower emissions in transportation & production

• recycling

What are the 3 levels of logistics?

• micro-logistics

  • business logistics

    • procurement, production, distribution, reverse, spare parts

    • supply chain management

    • production management

  • transportation logistics

• macro-logistics

  • macroeconomic aspects: infastructure & traffic (e.x. roads, harbor capacity, bridges)

  • modes of transport (air, rail, ship, trict)

• meta-logictics

  • cooperations

What are the 3 main logistics strategies?

• cost leadership: economies of scale

  • fix cost degression, technology choice

  • learning curve

  • centralization

• product differentiation: economies of scope

  • service orientation

  • diversity (color, design)

  • decentralization

• mass-customization: combination, postponement

What are the common costs of logistics?

• control & system costs: design, planning & monitoring of the material flow

• inventory costs: cost of capital, insurance, devaluation

• storage costs: holding & operating warehouse capacity

• transportation costs: internal, external, inbound, outbound

• handling costs: packaging, transshipment, picking

What is the function of cost trade-offs?

What do nodes and edges represent in a logistics problem?

• nodes: warehouse, hub, container terminal, airport, seaport

• edges: transport routes (symmetric, asymmetric)

• evaluation

  • distances (linear, real)

  • travel times (depending on daytime)

  • costs

  • capacities (e.x. pipeline, truck size)

What is the transportation optimization model?

Data

• n sources with capacity a_i

• m sinks with demand b_j

Transportation costs c_ij per unit from source i to sink j

Decision variables

• Transportation quantity x_ij from source i to sink j

Constraints

• Ensure capacities

• Satisfy demands

Objective

• Minimizing total transportation costs

Solution methods

• Simplex

• Heuristics: NWCR, matrix minimum

What are the applications of the transport optimization model?

• supply network planning

  • decentralized production planning

  • supplier selection

  • selection of modes of transportation

• production smoothing (average out volume and mix of items manufactured over time → eliminate peaks)

• cross-docking and transshipment

• container logistics (redistribution of empty containers → rebalancing problem)

• shared mobility (bike & car repositioning)

What are the applications of the travelling salesman problem?

• delivery of goods

  • sequence of delivery/pickup

  • sub-problem of vehicle routing

• order picking in warehouses

• vehicle deployment problems

  • avoidance of idle times

• production control

  • sequence dependent set-up costs

• cutting stock problems

How is the optimization of the travelling salesman problem expressed mathematically?

What is the difference between the nearest neighbor and successive insertion heuristics?

Construction procedures

• Nearest neighbor

  • Start at an arbitrary node

  • Go from the current node to the closest node, which has not yet been visited

• Successive insertion

  • Insert any node, which has not yet been visited, in the best possible way into the so far constructed tour

What is the 2-opt procedure?

• Improvement of a tour through removing two edges and replacing these with two different edges

• Iteration, until no further improvement is possible

What is the difference between the travelling salesman and the vehicle routing problem?

• TSP: find one tour containing all locations

• VRP: assign location to tours and then determine optimal order

What are the traits of the vehicle routing problem?

• depot: start & end of delivery trips

• tour: set of all customers who are supplied by one vehicle in one tour

• route: sequence of customers of one tour

• standard problem

  • one depot

  • single planning period

  • no time windows

• methods

  • route first, cluster second

    • determine giant tour without capacity constraints (TSP) → go back to depot if next customer cannot be visited with given capacity

  • cluster first, route second → sweep method

  • parallel clustering & routing → savings method

    • s_ij = d_0i + d_0j - d_ij

How is the vehicle routing problem expressed mathematically?

• One depot (without loss of generality) with index 0

• n customers (i=1,2,...,n) with demand bi

  • Complete deliveries in one tour (no split deliveries)

• Distances between customers or depot and customers dij, i=0,1,...,n; j=0,1,...,n (for simplification: symmetric)

• K identical vehicles

  • Capacity Q (volume, customers)

  • Time restriction T

What are the packaging levels?

• good (loose goods, fluids, mass product)

• article (package, bag, can)

• outer packaging (pallet, carton, box)

• delivery (parcel, pallet, container)

• load (freight)

• transport (truck, ship, wagon)

What are the packaging tasks?

• package design

  • volume, weight, bulkiness, fragility

  • legal conditions

  • packaging type, packaging material

• packaging process

  • automation

• closed-loop economy processes

  • returns

  • disposal

How do you model the cutting stock problem?

Data

• Order data

• Technology, specification of cutting patterns

• Storage capacity

Decision: Choice of cutting pattern and the respective quantity

Objective: Minimization of waste

Constraints

• Fulfillment of orders

• Compliance with technology

• Storage capacity

What is the Knapsack problem?

What is the bin-packaging problem?

Problem definition

• Allocation of N objects to M bins, whose number shall be minimized

Binary optimization problem

• Allocation problem

• Capacity constraint

Objective

• Minimizing the number of required bins

Constraint

• All objects included

• Capacity K of the container, objects require a_j units of capacity

What is the goal of inventory management?

Providing the required quantities of intermediate products, assemblies, and purchased parts on time for the production of the end-products.end products

• stochastic inventory control → replenishment policies (e.x. AI inventory management, take out & refill)

• material requirements planning (forecast, replenish what is expected to be sold)

What are the key performance indicators of inventory control?

Total costs

• Costs per order

• Inventory holding costs

  • Costs of capital commitment (opportunity costs)

  • Inventory costs inducing payments (insurance, service providers)

• Shortage penalty costs (e.x. shipping goods to customers, penalty, long-term losing customers)

Service level (in percent)

• Non-stockout probability: Number of periods without shortages/Number of total periods (α) → doesn’t tell how many of the products are missing

• Fill-rate: Fraction of (total) demand immediately satisfied from stock (β)

What is ABC and XYZ analysis?

• ABC analysis: high, middle & low consumption value (importance)

• XYZ analysis: categorization with regard to regularity of demand (regular, irregular, erratic)

How is net inventory and inventory position calculated?

• Net inventory = physical inventory - backlog

• Inventory position = Net inventory + outstanding orders

What are the 3 inventory control policies?

• (R,S): Base-stock policy

  • When: all R periods

  • Quantity: Order-up-to level S minus inventory position

• (s,Q): Reorder point - order quantity policy

  • When: Inventory position reaching / falling below reorder point s

  • Quantity : Lot size Q

• (s,S): Reorder point – order-up-to policy

  • When: Inventory position reaching / falling below reorder point s

  • Quantity : Order-up-to level S minus inventory position

What are the objectives of the planning problem?

• how to set inventory control parameters

• minimize costs

  • ordering cost

  • inventory holding cost

  • stockout penalty cost

• constraints

  • service levels

What are the set parameters for the inventory control policies?

• (R,S)

  • R fix (periodic order R=1)

  • R = classic order interval (EOI)

  • Base-stock level S = expected demand during replenishment lead time (including review period) plus safety stock

• (s,Q)

  • Q = Economic order quantity (EOQ)

  • Reorder point s = expected demand during replenishment lead time (including review period) plus safety stock

• (s,S)

  • S-s = Economic order quantity (EOQ)

  • Reorder point s = expected demand during replenishment lead time (including review period) plus safety stock

What is the lot size?

• quantity which

  • produced without interruption in exactly one production order

  • produced in one common replenishment order

  • transported together

What are the trade-offs of fixed costs per order?

• order handling, transportation costs

• setup costs (e.x. change of tools, opportunity cost for capacity loss)

• costs of storage/retrieval

• impact: few orders with high quantity

• consequence: high inventory holding costs

What are the trade-offs of inventory holding costs?

• opportunity costs of capital commitment

• payment inducing cost of warehouse rent, insurance

• impact: procurement synchronous with demand (just in time)

• consequence: many orders

What are the assumptions for the economic order quantity model?

• Continuous time, infinite planning horizon

• Constant demand rate d (units per time unit)

• Procurement of material in lots of size Q (units)

  • No lead time, i.e. immediately affecting inventory

  • Fixed ordering costs per order A

  • Constant procurement costs c per unit (purchase price, production costs per unit)

• No shortage permitted (non-negative net inventory)

• Storage

  • Unlimited storage capacity

  • Inventory holding costs h for inventory (per unit and time unit)

What are the interpretations of the EOQ model?

What is the newsvendor model?

• Safety stock : expected inventory before the next delivery arrives

• Goal of holding inventory: Safety motive

• Sources of uncertainty

  • Demand

    • Time, Quantity

  • Delivery

    • Time, Quantity, Quality/Yield

• Inventory control rules

  • When is inventory ordered?

  • How much is ordered?

• Demand model

  • Random variable, probability distribution f(d)=P(D=d),
    F(d) = P(D≤d)

  • e.x. binomial distribution

• Order quantity: y

• Costs

  • underage costs: c_u = p - c (selling-purchase price)

  • overage costs: c_o = c - s (purchase price-salvage value)

• Equilibrium condition

  • increase the order quantity up to the point where the reduction of underage costs is smaller than the rise in overage costs

What are the applications of the newsvendor problem?

• Products with short lifetime

  • No transfer through storage, e.g. newspaper, seasonal products

  • Trade-offs

    • Excess inventory: Destruction, clearance sale

    • Lost profits: lost customers, additional costs through express deliveries

• Capacity planning

  • Holding / standby costs, no transfer possibility

  • External procurement of additional capacity

  • Opportunities of alternative usage

What is KANBAN?

• Production on demand (just-in-time), pull approach, decentralized control, supermarket approach

• Application

  • Limited fluctuation of demand, short transport distance

  • Mass and large-scale production

• Procedure

  • Specification of the production plan for end-products

  • Removal of a full container from the storage

  • Kanban (Card) is removed from the container and put in a box; this represents the source of a production order

  • Produced parts are put in the container and Kanban is attached; the storage is filled with the full container.

• Structure of the total process in single loops

  • Source (producing node) → buffer stock → sink (consuming node)

What are the elements of a supply chain?

• Value chain

  • Integration of business activities (Porter)

  • Interface view

  • Business process management

• Internal Supply Chain

  • Procurement– Production – Distribution – Disposal

• External Supply Chain

  • External partners: suppliers, customer

• Flows

  • Information, material, payments

What are the instruments of supply chain management?

• Cooperation

  • Alliances, networks

• Centralization, decentralization, integration (e.x. how you pack a Euro pallet)

• Standardization (e.x. tailoring phones to your needs, customized goods, mass customization → cars)

  • Modularization, postponement

• Customer orientation

  • Service, incentives, contracts

• Optimization

→ Vertical integration

What decisions have to be made in the supply chain management process?

• delivery: central warehouse, regional warehouse, direct delivery

• planning problems

  • distribution steps

  • centralization, decentralization

• sizing & distribution of safety stocks (have to consider shelf life)

• part production & assembly

  • standardization (e.x. languages of manual)

  • spare part strategy

• warehousing: on site, central, regional

  • international locations

  • diversity, postponement

  • purchased parts → assemble at location?

• order strategies

  • information flow

  • materials flow: standard/express transportation

  • transshipment: intermediate delivery, avoidance of inability of delivery

    • high frequency product → store everywhere, scarce sales → specific location or uniform and sell later at discount

• manufacturer: price planning, contracts

• recycling economy

  • reuse of old products

  • remanufacturing, refurbishing

  • material recycling

• organization

  • in-house production, external service

  • integrated system, decentralized system

What are the 5 supply chain structures?

• serial

  • supplier-purchaser reelationship

• convergent

  • assembly production

• divergent

  • distribution systems (warehouse, distribution center, store)

  • standardization

• general

  • network, link of assembly and distribution aspects

• closed loop

  • recycling, bidirectional material flow

What is reverse logistics?

„The process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal“

Reverse activities

• Product acquisition

• Transportation

• Testing, sorting

Returning of products

• Commercial returns

• Warranties

• Repairs

• End-of-use (EOU)

• End-of-life (EOL)

What are the stages of supply chain planning?

What are the hierarchies of planning?

What is the difference between a functional and an innovative product?

What is the difference between a physically efficient and a market-responsive process?

Which product and supply chain fits are possible?

What are the possible weaknesses of the supply chain process?

• inaccurate knowledge

• insufficient information systems

• neglect of uncertainty

• insufficient coordination

• wrong evaluation of stocks

• separation of production & supply chain decisions

What is the SCOR model?

Objectives: ideal-typical, cross-sector reference models

• Definition and visualization of processes, key performance indicator (KPI)

• Benchmarking, Best-Practice

Standardized process description, configurability

Hierarchical structure

• Top-level, configuration level, process level, implementation level

What are the stages of planning?

What is the bullwhip-effect?

• Increasing variability of demand / orders when moving upstream the supply chain

• reasons

  • forecasting

  • delivery time: errors during replenishment time

  • lot sizing: accumulation of demands

  • fluctuating prices

  • anticipation of shortages

What are the possible countermeasures against the bullwhip-effect?

• reduction of uncertainty → ERP-systems

• reduction of variability

  • permanent low prices

  • reduction of lot sizes

• reduction of lead times

• strategic alliances → vendor-managed inventories

• collaborative planning, forecasting & replenishment

What are the possible decoupling points of production?

What are the 4 possible scenarios for outsourcing?

What are the 4 components of transaction costs?

• Components

  • Search and information costs

    • Research about potential transaction partners

• Bargaining costs

  • Negotiations, contract formulation

• Enforcement costs

  • Compliance of target dates, quality, quantities and prices

• Adjustment costs

  • Adjustment of agreements during the runtime

In which cases is outsourcing vs. insourcing better (specificity, strategic importance, uncertainty, frequency)?

How do you conduct a break-even analysis?

What is green supply chain management?

“integrating environmental thinking into supply chain management, including product design, material sourcing and selection, manufacturing processes, delivery of the final product to the consumers as well as end-of-life management of the product after its useful life.”

How are learning curves expressed mathematically?

What is the scoring method?

What are the benefits of single sourcing?

• Bargaining power of supplier

• Quantity discounts

• Economies of scale

• Shared research and development

• Advantages of a long-term partnership

• Reduction of complexity through joint process optimization

• Incentivize sustainability through regular audits and investments in supplier development

What are the benefits of multi-sourcing?

Sourcing the same product / material from different suppliers

Supplier competition leads to decreasing cost

Risk diversification

• Lead time

• Reliability of shipments

• Flexibility

• Capacity constraints

• Local-content-regulations

What is resilience?

“... supply chain resilience aims to help companies cope with different types of disruptions in a rapid way, enabling operations to be restored to the previous performance level or even to a new and better one”

What are the 4 possible procurement portfolios?

What is the difference between vertical and horizontal distribution system design?

• Vertical: Number of distribution stages (plant warehouse, central warehouse, regional warehouse, fulfillment center (FC))

• Horizontal: Number of warehouses per stage

What are the 6 criteria for location decisions?

• Quantitative

  • Transportation cost

  • Capacity cost

    • Property

    • Buildings

    • Workers

    • Energy

  • Taxes, subsidies

• Qualitative

  • Infrastructure

    • Property

    • Transportation

    • Human resources

  • Political stability

  • Economic stability

What is the location theory of Weber?

• Sales market for product A

• 2 materials with sourcing locations B1 and B2

• Case 1: both materials are ubiquities → Production near sales market

• Case 2: two net weight materials → Production near sales market

• Case 3: two weight loss materials → Tendency to the sourcing locations

• Case 4: one ubiquity, one weight loss material B2 → Line between A and B2

What is the Steiner-Weber model?

• Continuous location planning

  • Single location, no consideration of investment costs (only transportation costs)

  • Distance measurement: Euclidean or Manhattan

  • Decision: Location (coordinates) that minimizes transportation costs

• Customer data

  • j=1,2,...,n customers

  • Locations (xj, yj)

  • Customer demand per time unit: bj

• Transportation costs

  • c per quantity and distance unit

• Model properties

  • Exclusively considering transportation costs

  • All locations are feasible, no cost differences in the investment or operation of the location

  • Fixed customer locations

  • Linear transportation costs

  • Static approach: single facility, one-time snapshot

How is the warehouse location problem modeled mathematically?

What is the add heuristic?

• Start solution

  • Find the (one) location which minimizes the sum of investment and transportation costs (to all customers) and open it

• Improvement (iteration)

  • For each undecided location:

    • Calculate the improvement in transportation costs (compared to the current solution) if opening this location

  • Compare to required investment costs

    • Open the location with the highest positive saving

    • Forbid all locations with negative savings

  • Repeat improvement until all potential locations are either opened or forbidden

What is the goal of time-focused models?

Problem setting:

• Customers who should be delivered within a certain time window (24, 48h)

• Location configuration, so that x% of the customers can be delivered within time t

Competition:

• Time competition instead of cost competition

Center problems:

• Network, plane

What is the set covering problem?

• Problem 1

  • Minimize the number of required locations

  • Constraint: all customers can only be delivered within a given time window (alternative: maximal distance)

• Problem 2

  • Maximize the number of customers that can be attracted with a given number of locations

What are the 3 Hub-Spoke systems?

How is the Hub-Spoke system expressed mathematically?

What is cross docking?

(Almost) no inventories

Only reallocation of incoming and outgoing goods

Objectives

• Transport consolidation or service improvement by more frequent deliveries

• Effective sorting

• Lowering inventory at certain nodes in the supply chain

• Shorter lead time for products

What is postponement?

What is the difference between dedicated capacity and shared capacity storage?

• dedicated capacity: need to split warehouse space → on average warehouse is only 50% full

• shared capacity: stagger orders → maximum capacity needed is reduced → utilization is around 66% (more orders lead to more utilization)

What are the 4 possible picking sequences?