Introduction to Logistics Systems Planning and Control This textbook grew out of a number of undergraduate and graduate courses on logistics and supply chain management that we have taught to engineering, computer science, andmanagement science students.The goal of these courses is to give students a solid understanding of the analytical tools available to reduce costs and improve service levels in logistics systems. For several years, the lack of a suitable textbook forced us tomake use of a number ofmonographs and scientific paperswhich tended to be beyond the level ofmost students.We therefore committed ourselves to developing a quantitative textbook, written at a more accessible level.
TLFeBOOK Introduction to Logistics Systems Planning and Control TLFeBOOK WILEY-INTERSCIENCE SERIES IN SYSTEMS AND OPTIMIZATION Advisory Editors Sheldon Ross Department of Industrial Engineering and Operations Research, University of California, Berkeley, CA 94720, USA Richard Weber Statistical Laboratory, Centre for Mathematical Sciences, Cambridge University, Wilberforce Road, Cambridge CB3 0WB BATHER – Decision Theory: An Introduction to Dynamic Programming and Sequential Decisions CHAO/MIYAZAWA/PINEDO – Queueing Networks: Customers, Signals and Product Form Solutions COURCOUBETIS/WEBER – Pricing Communication Networks: Economics, Technology and Modelling DEB – Multi-Objective Optimization using Evolutionary Algorithms GERMAN – Performance Analysis of Communication Systems: Modeling with Non-Markovian Stochastic Petri Nets GHIANI/LAPORTE/MUSMANNO – Introduction to Logistics Systems Planning and Control KALL/WALLACE – Stochastic Programming KAMP/HASLER – Recursive Neural Networks for Associative Memory KIBZUN/KAN – Stochastic Programming Problems with Probability and Quantile Functions RUSTEM – Algorithms for Nonlinear Programming and Multiple-Objective Decisions WHITTLE – Optimal Control: Basics and Beyond WHITTLE – Neural Nets and Chaotic Carriers The concept of a system as an entity in its own right has emerged with increasing force in the past few decades in, for example, the areas of electrical and control engineering, economics, ecology, urban structures, automation theory, operational research and industry. The more definite concept of a large-scale system is implicit in these applications, but is particularly evident in such fields as the study of communication networks, computer networks, and neural networks. The Wiley-Interscience Series in Systems and Optimization has been established to serve the needs of researchers in these rapidly developing fields. It is intended for works concerned with the developments in quantitative systems theory, applications of such theory in areas of interest, or associated methodology. TLFeBOOK Introduction to Logistics Systems Planning and Control Gianpaolo Ghiani Department of Innovation Engineering, University of Lecce, Italy Gilbert Laporte Canada Research Chair in Distribution Management, HEC Montr´eal, Canada Roberto Musmanno Department of Electronics, Informatics and Systems, University of Calabria, Italy TLFeBOOK Copyright © 2004 John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex PO19 8SQ, England Phone (+44) 1243 779777 Email (for orders and customer service enquiries): cs-books@wiley.co.uk Visit our Home Page on www.wileyeurope.com or www.wiley.com All Rights Reserved. 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Introduction to logistics systems planning and control / Gianpaolo Ghiani, Gilbert Laporte, Roberto Musmanno. p. cm. – (Wiley-Interscience series in systems and optimization) Includes bibliographical references and index. ISBN 0-470-84916-9 (alk. paper) – ISBN 0-470-84917-7 (pbk.: alk. paper) 1. Materials management. 2. Materials handling. I. Laporte, Gilbert. II. Musmanno, Roberto. III. Title. IV. Series. TS161.G47 2003 658.7–dc22 2003057594 British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN 0-470-84916-9 (Cloth) 0-470-84917-7 (Paper) Produced from L A T E X files supplied by the authors, typeset by T & T Productions Ltd, London. Printed and bound in Great Britain by TJ International, Padstow, Cornwall. This book is printed on acid-free paper responsibly manufactured from sustainable forestry in which at least two trees are planted for each one used for paper production. TLFeBOOK To Laura To Ann and Cathy To Maria Carmela, Francesco and Andrea TLFeBOOK TLFeBOOK Contents Foreword xiii Preface xv Abbreviations xvi Problems and Website xix Acknowledgements xxi About the Authors xxiii 1 Introducing Logistics Systems 1 1.1 Introduction 1 1.2 How Logistics Systems Work 6 1.2.1 Order processing 6 1.2.2 Inventory management 6 1.2.3 Freight transportation 9 1.3 Logistics Managerial Issues 14 1.4 Emerging Trends in Logistics 16 1.5 Logistics Decisions 18 1.5.1 Decision support methods 18 1.5.2 Outline of the book 20 1.6 Questions and Problems 20 1.7 Annotated Bibliography 22 2 Forecasting Logistics Requirements 25 2.1 Introduction 25 2.2 Demand Forecasting Methods 28 2.2.1 Qualitative methods 28 2.2.2 Quantitative methods 29 TLFeBOOK viii CONTENTS 2.2.3 Notation 30 2.3 Causal Methods 30 2.4 Time Series Extrapolation 33 2.4.1 Time series decomposition method 34 2.5 Further Time Series Extrapolation Methods: the Constant Trend Case 41 2.5.1 Elementary technique 42 2.5.2 Moving average method 44 2.5.3 Exponential smoothing method 48 2.5.4 Choice of the smoothing constant 49 2.5.5 The demand forecasts for the subsequent time periods 49 2.6 Further Time Series Extrapolation Methods: the Linear Trend Case 50 2.6.1 Elementary technique 50 2.6.2 Linear regression method 51 2.6.3 Double moving average method 52 2.6.4 The Holt method 53 2.7 Further Time Series Extrapolation Methods: the Seasonal Effect Case 54 2.7.1 Elementary technique 55 2.7.2 Revised exponential smoothing method 56 2.7.3 The Winters method 58 2.8 Advanced Forecasting Methods 61 2.9 Selection and Control of Forecasting Methods 64 2.9.1 Accuracy measures 64 2.9.2 Forecast control 65 2.10 Questions and Problems 67 2.11 Annotated Bibliography 72 3 Designing the Logistics Network 73 3.1 Introduction 73 3.2 Classification of Location Problems 74 3.3 Single-Echelon Single-Commodity Location Models 77 3.3.1 Linear transportation costs and facility fixed costs 79 3.3.2 Linear transportation costs and concave piecewise linear facility operating costs 90 3.4 Two-Echelon Multicommodity Location Models 95 3.5 Logistics Facility Location in the Public Sector 107 3.5.1 p-centre models 108 3.5.2 The location-covering model 111 3.6 Data Aggregation 115 3.7 Questions and Problems 118 3.8 Annotated Bibliography 119 TLFeBOOK CONTENTS ix 4 Solving Inventory Management Problems 121 4.1 Introduction 121 4.2 Relevant Costs 121 4.3 Classification of Inventory Management Models 123 4.4 Single Stocking Point: Single-Commodity Inventory Models under Constant Demand Rate 123 4.4.1 Noninstantaneous resupply 124 4.4.2 Instantaneous resupply 128 4.4.3 Reorder point 130 4.5 Single Stocking Point: Single-Commodity Inventory Models under Deterministic Time-Varying Demand Rate 130 4.6 Models with Discounts 132 4.6.1 Quantity-discounts-on-all-units 132 4.6.2 Incremental quantity discounts 134 4.7 Single Stocking Point: Multicommodity Inventory Models 136 4.7.1 Models with capacity constraints 136 4.7.2 Models with joint costs 138 4.8 Stochastic Models 141 4.8.1 The Newsboy Problem 141 4.8.2 The (s, S) policy for single period problems 142 4.8.3 The reorder point policy 143 4.8.4 The periodic review policy 145 4.8.5 The (s, S) policy 146 4.8.6 The two-bin policy 147 4.9 Selecting an Inventory Policy 148 4.10 Multiple Stocking Point Models 149 4.11 Slow-Moving Item Models 152 4.12 Policy Robustness 153 4.13 Questions and Problems 154 4.14 Annotated Bibliography 155 5 Designing and Operating a Warehouse 157 5.1 Introduction 157 5.1.1 Internal warehouse structure and operations 159 5.1.2 Storage media 160 5.1.3 Storage/retrieval transport mechanisms and policies 161 5.1.4 Decisions support methodologies 165 5.2 Warehouse Design 165 5.2.1 Selecting the storage medium and the storage/retrieval transport mechanism 166 5.2.2 Sizing the receiving and shipment subsystems 166 5.2.3 Sizing the storage subsystems 166 5.3 Tactical Decisions 174 TLFeBOOK [...]... money involved and the increased operational requirements, the planning and control of logistics systems has gained widespread attention from practitioners and academic researchers alike To maximize the value in a logistics system, a large variety of planning decisions has to be made, ranging from the simple warehouse-floor choice of which item to pick next to fulfil a customer order to the corporate-level... real-world planning and control problems in logistics, the book will provide a valuable resource to graduate and senior undergraduate students and practitioners who are trying to improve logistics operations and satisfy their customers Marc Goetschalckx Georgia Institute of Technology Atlanta, May 2003 TLFeBOOK Preface Logistics is key to the modern economy From the steel factories of Pennsylvania to the... been a growth in vendor-managed systems, in which vendors monitor customer sales (or consumption) and inventories through electronic data interchange (EDI), and decide when and how to replenish their customers Vendors are thus able to achieve cost savings through a better coordination of customer deliveries while customers do not need to allocate costly resources to inventory management Vendormanaged... corporate-level decision to build a new manufacturing plant Logistics planning supports the full range of those decisions related to the design and operation of logistics systems TLFeBOOK xiv FOREWORD There exists a vast amount of literature, software packages, decision support tools and design algorithms that focus on isolated components of the logistics system or isolated planning in the logistics systems In the... features, manufacturing process characteristics, as well as demand volume and variability MTO systems are more suitable whenever lead times are short, products are costly, and demand is low and highly variable In some cases, a mixed approach can be used TLFeBOOK INTRODUCING LOGISTICS SYSTEMS 5 For example, in make -to- assembly (MTA) systems components and semi-finished products are manufactured in a push-based... hand, 3PL causes the company to lose control of distribution and may possibly generate higher logistics costs Retailer-managed versus vendor-managed resupply Traditionally, customers (both retailers or final consumers) have been in charge of monitoring their inventory TLFeBOOK 6 INTRODUCING LOGISTICS SYSTEMS levels and place purchase orders to vendors (retailer-managed systems) In recent years, there... that we have taught to engineering, computer science, and management science students The goal of these courses is to give students a solid understanding of the analytical tools available to reduce costs and improve service levels in logistics systems For several years, the lack of a suitable textbook forced us to make use of a number of monographs and scientific papers which tended to be beyond the level... allows retailers to rapidly identify the required products and update inventory level records Laptop computers and modems allow salespeople to check in real time whether a product is available in stock and to enter orders instantaneously EDI allows companies to enter orders for industrial goods directly in the seller’s computer without any paperwork 1.2.2 Inventory management Inventory management is... manufacturing and assembly plants Strictly speaking, topics like aggregate production planning and machine scheduling are beyond the scope of logistics and are not examined in this textbook The core logistics issues described in this book are the design and operations of DCs and transportation terminals Push versus pull supply chains Supply chains are often classified as push or pull systems In a pull (or make -to- order... original ERP systems have been extended with advanced planning systems (APSs) The main function of APSs is for the first time the planning of enterprisewide resources and actions This implies a coordination of the plans among several organizations and geographically dispersed locations So, while logistics planning and control requires an integrated, holistic approach, their treatment in courses and textbooks . TLFeBOOK Introduction to Logistics Systems Planning and Control TLFeBOOK WILEY-INTERSCIENCE SERIES IN SYSTEMS AND OPTIMIZATION Advisory Editors Sheldon. with Non-Markovian Stochastic Petri Nets GHIANI/LAPORTE/MUSMANNO – Introduction to Logistics Systems Planning and Control KALL/WALLACE – Stochastic Programming