Varna – IPL Challenge

Team – Planners

Members

–Sunitha A
–Srikant Rajan

Institute – Institute for Financial management and

Research (IFMR)
 Agenda
• Supply Chain
– Influencing Factors
– What it means for LUMA?

• Network Design
– Influencing factors
– Interrelationship between factors

• Modeling the Solution

• Optimal Design

• Improving the Solution

• Final Observations
Supply Chain
• Seasonality of Demand
– High, assumed to be at peak before and during IPL season
• Range of quantity
– No huge variations in quantity across demand points
• Variety
– High , teams and players
• Channel for Product Sale
– Limited retail space such as specialty stores and merchandisers
(Assumed)
• Implied Demand Uncertainty
– Higher as compared to items such as salt, steel but lower than
technology intensive products such as palm tops
 LUMA – Supply Chain

Thus the supply chain should factor in both responsiveness and efficiency

LUMA
Highly Dell
efficient Apparel

Integrated Highly
Automotive
steel mill responsive
production
 Routing
• Demand Points
•Distance
•Density
• Product Demand &
Value

Network Design
Decision variables

Market & Supply Allocation Facility Location

• Transportation Costs • Manufacturing
• Service Level – • Storage/Warehousing *
Responsiveness Vs Efficiency •Where?
• Facility Costs •How Many?
• Fixed
• Variable
 Designing Distribution Network

• Factors Influencing Distribution Network Design

– Customer needs that are met
– Cost of meeting customer needs

Inventory
Number
of Cost Facility Transportation
Facilities

Response
Number of
Time
Facilities
 LUMA
• Customers are clustered and then assigned to warehouse
• Warehouse
– Store inventory
– Transfer point

Manufacturing Warehouses Demand Points

Unit
Milk Runs
 Modeling the Solution
Objective fn • Minimize (Facility costs + Transport costs)

Decision • Which warehouse

variables • Quantity to be transported
– Plant to Warehouse
–Warehouse to market
Constraints • Warehouse selection is binary
• Qty transported through a warehouse
–does not exceed qty received from plant
–does not exceed its capacity
• Qty transported
–to warehouse
–to markets is integer
• Total quantity supplied from all warehouses
to markets should cover the demand
 Optimum Design - LUMA
• Warehouse
– Locations
– Capacity
• Transportation Quantity
– From Manufacturing unit to warehouse
– Warehouse to demand Points
• Costs
– Warehouse Leasing Costs
– Transportation Costs
• From Manufacturing unit to warehouse
• Warehouse to demand Points
 Warehouses Small Large
Ahmedabad   X
Warehouse Locations & Capacity
Ludhiana    
Indore X X
Lucknow    
Vijayawada X  
Bhubaneswar    
Coimbatore    

Number of trucks from Plant   Ahmedabad Indore Vijayawada

to Warehouse Small   19 23
Note – Rounded to the next Large 48 46  
integer
 Number of Trucks – Warehouse To Markets

  Bangalore Chennai Delhi Jaipur Mohali Mumbai Hyd Kolkata

Ahmedabad 3 18 16 0 11 1 0 0

Indore (S) 0 1 0 2 9 5 0 4

Indore (L) 8 5 12 4 2 4 11 3

Vijayawada 0 5 0 7 0 6 0 7
 Costs

Facility costs 1600000

Transportation cost from plant to warehouse 783600
Transportation cost from warehouse to
market 2013900
Total Costs 4397500
 Vijayawada
Small WH

Ahmedabad
Large WH
Ahmedabad
Plant

Indore
Large WH

Indore
Small WH
 Kolkata

Vijayawada Jaipur
Small WH

Ahmedabad
Chennai
Large WH
Ahmedabad
Plant

Indore
Large WH
Mumbai

Indore
Small WH
 Vijayawada
Small WH

Ahmedabad
Chennai
Large WH
Ahmedabad
Plant
Bangalore
Indore
Large WH
Mumbai

Indore Mohali
Small WH

Delhi
 Kolkata

Vijayawada Jaipur
Small WH

Hyderabad

Ahmedabad
Chennai
Large WH
Ahmedabad
Plant
Bangalore
Indore
Large WH
Mumbai

Indore Mohali
Small WH

Delhi
 Kolkata

Vijayawada Jaipur
Small WH

Hyderabad

Ahmedabad
Chennai
Large WH
Ahmedabad
Plant

Indore
Large WH
Mumbai

Indore Mohali
Small WH
 Improving the Solution
• Milk Runs
– Availability of unused capacity in trucks used for transportation
– Combination of logistics chain in a single vehicle
• To increase vehicle capacity utilization
• Reduce transportation costs

• Modus Operandi
– Distance Matrix – Each warehouse to market
– Savings Matrix – Each Warehouse to market
– Rank Savings
– Identify unused capacity in outbound trucks
– Combine outbound trucks , based on priority of savings
 Saving Matrix - Indore

  Blore Chennai Delhi Jaipur Mohali Mumbai Hyd Kolkata

Bangalore 0 1980 25 5 10 695 1240 815

Chennai   0 70 15 45 435 1265 1080
Delhi     0 865 1290 -155 45 620
Jaipur       0 925 -195 10 330
Mohali         0 -155 25 640
Mumbai           0 520 -145
Hyd             0 690
Kolkata               0
 Warehouse to Markets
1. Indore (S)

  Required Actual Improved

Chennai .8 1 1
Jaipur 1.3 2 2
Mohali 8.4 9 8
Mumbai 5 5 5
Kolkata 3.2 4 3

Net Savings = 1 truck over 1080 km + 1 truck over 925 km @ 15/km

 Warehouse to Markets
2. Vijayawada

  Required Actual Improved

Chennai 4.1 5 5
Jaipur 6.6 7 6
Mumbai 5.4 6 6
Kolkata 6.8 7 6

Net Savings = 1 truck over 680 km + 1 truck over 1060 km @ 15/km

 Warehouse to Markets

3. Ahmadabad

  Required Actual Improved

Bangalore 2.7 3 3
Chennai 17.9 18 18
Delhi 15.3 16 16
Mohali 10.4 11 10
Mumbai 0.8 1 1

Net Savings = 1 truck over 230 km @ 15/km

 Warehouse to Markets
4. Indore (L)

  Required Actual Improved

Bangalore 7.7 8 8
Chennai 4.3 5 4
Delhi 11.7 12 12
Jaipur 3.5 4 4
Mohali 1.6 2 2
Mumbai 3.5 4 4
Hyderabad 10.8 11 11
Kolkata 2.7 3 3

Net Savings = 1 truck over 1980 km @ 15/km

 Net Savings

• Net Distance Saved = 5955 km

• Rate of distance travel = Rs15/km

• Net Cost savings = 89325

Reduction in transportation cost by milk runs = 4.4%

 Final Observations
• The optimal solution varies slightly based on initial values of decision
variables.

• Current warehouse capacity is capable of satisfying demand till 2012

• Incorporate additional warehouse based on latest forecasts (2013

onwards)

• Existence of unused warehouse capacity after 2010,

• If holding costs are known, warehouse planning may be better.

• Larger capacity trucks to transport to warehouses as

– Demand at warehouses is large
– Gain in per Km cost with volume
 Effect of new demand points

• Increase in net demand < Available slack( un - utilized capacity) with

warehouses

• Max slack available with Indore (Centrally located)

• Tradeoff between

– increased cost in having a new facility

– Saving transportation costs
– Service level
– Slack

• So we recommend to use existing network