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ISEN 601 Location Logistics

ISEN 601 Location Logistics. Dr. Gary M. Gaukler Fall 2011. Facility Location and SCM. Goal of supply chain management: Produce and distribute the right quantities to the right locations at the right time

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ISEN 601 Location Logistics

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  1. ISEN 601Location Logistics Dr. Gary M. Gaukler Fall 2011

  2. Facility Location and SCM • Goal of supply chain management: Produce and distribute • the right quantities • to the right locations • at the right time while minimizing system wide costs and satisfying customer service level requirements

  3. Facility Location and SCM • SCM encompasses: • Financial transactions • Physical storage & transportation • Information management • Supply chain flows: • We are mostly concerned with the physical flows in this course

  4. Facility Location and SCM • Generic sample supply chain:

  5. Facility Location and SCM • In this course: Facility location = Location of distribution facilities • e.g.: where to place a new DC in continental US? • Hence we will talk about demand at a facility, and the facility’s distance to the customer etc.

  6. Facility Location and SCM • Facility Location plays an important role in designing the supply chain: • Where to place plants, warehouses, etc. • Supply chain designs change: • New markets • Changes in customer demand • New technologies • Facility location is an important and recurring activity!

  7. ProLogis: Industrial Real Estate

  8. Aside: ProLogis

  9. Facility Location • What metrics do we use? How do we decide whether one location is better than another? • Hard Soft

  10. Facility Location • In our mathematical analyses, we will disregard the soft factors • Use soft factors ahead of time to pare down the candidate set, or • Use soft factors to decide among multiple solutions • It’s important to understand that our mathematical methods are just onetool that should be used to do facility location • Our methods do not provide the answer • Examples: • Google server farm location • Toyota truck assembly plant location

  11. Facility Location • So why bother with quantitative models at all?

  12. Facility Location - Tradeoffs • Number of facilities vs. response time

  13. Facility Location - Tradeoffs • Number of facilities vs. inventory cost

  14. Facility Location - Tradeoffs • Number of facilities vs. transportation cost

  15. Setup of a Facility Location Problem • Locate new facilities • Considering: • Interaction with existing facilities • Customer demands • Customer locations • Potential locations of new facilities • Capacity considerations • Focus on “where to put the new facility”

  16. Classes of Facility Location Problems • Continuous Location Models • Customers anywhere on plane • New facilities anywhere on plane • Demand point = aggregated area demand • Distance calculations important • Euclidean distance • Rectilinear distance • In general, “quick and dirty” models

  17. Classes of Facility Location Problems • Continuous Location Models • Single Facility Minisum • Minimize sum of weighted distances from NF to customers • Single Facility Minimax • Minimize maximum weighted distance from NF to customers

  18. Classes of Facility Location Problems • Continuous Location Models • Multi-facility Minisum • Like SFMS, but place more than one NF • Location-Allocation • Like MFMS, but also determine optimal interaction between NFs

  19. Classes of Facility Location Problems • Network Location Models • Customers are on network nodes • NFs located on network nodes • Distances implicitly given by network • Network = tree or general network • Types of models: • Covering (“each customer is within 2 hours of a warehouse”) • Center (~ minimax principle) • Median (~ minisum principle)

  20. Classes of Facility Location Problems • Discrete Location Models • Uncapacitated / capacitated warehouse location models • Candidate NF locations • Facilities can split demand • Cost of opening warehouse vs. service coverage

  21. Single Facility Minisum • Ex: locating a machine in a shop, locating a warehouse in a sales region • Objective: minimize total cost • Total cost depends on location of NF • Notation: • m existing facilities, with facility j located at Pj = (aj, bj) • X location of NF, X = (x,y)

  22. Single Facility Minisum • Notation: • tj = number trips per month between j and NF • vj = avg velocity between j and NF • cj = cost of transportation per unit time • d(X,Pj) = distance between j and NF • So, monthly cost of moving material between j and NF is:

  23. Single Facility Minisum • Define: • Weight wj = cost of interaction per unit distance • So, total cost is: • Goal:

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