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Cost Optimization A
Cost Optimization A
Cost Optimization A
BY
OCTOBER, 2016
i
CERTIFICATION
This is to certify that the Research project titled “Analysis of Cost Optimization of
Port Operations in Nigeria: A Linear Programming Approach was carried out by
Chibuzo Jonathan Onwuamadike, with Registration Number 20111785566 in
partial fulfilment of the requirements for the award of Bachelor of Technology (B.
Tech.) Degree in Maritime Management Technology, Marine Technology Option.
__________ __________
Dr. I. C. Nze Date
(Supervisor)
____________ ___________
Dr. C. Onyemaechi Date
(H.O.D MMT)
_____________ ____________
Prof. C. C. Ibe Date
(Dean of SMAT)
______________ ____________
Prof. S.B Arokoyu
(External Supervisor) Date
ii
DEDICATION
This project work is dedicated to God Almighty for his knowledge and wisdom
while working on this research.
iii
ACKNOWLEDGEMENTS
I am indebted to my supervisor, Dr. I.C. NZE for his diligence, kindness and
painstaking supervision over this research work. He actually went out of his way,
sacrificed his time and effort to see to it that this work piece meets required
standard. May God bless him and replenish his efforts. A huge appreciation goes to
my wonderful lecturers, Prof. K. U. Nnadi, Dr. Chinedum Onyemaechi, Dr I.O.
Nwokoro, Dr G.C. Emeghara, Dr. Obed Ndikom, Dr. Donatus Onwuegbuchulam,
my course adviser Mr Okechukwu Okeke and Mr Theophilus Nwokedi who jointly
embedded the present skills and knowledge acquired so far by me, especially in
contribution to this research work and also there moral and academic advice. I
most especially express my gratitude to my Mum, Mrs. Emilia Onwuamadike and
siblings who through their love, advice and support made my stay in the University
a meaningful one.
Above all, I am grateful to God Almighty for all He has endowed me with, which
has enabled me to achieve this research.
iv
ABSTRACT
This research study is determined to optimize the cost of port operations in Nigeria
with a view to critically analyse it from a linear programming perspective. The
quantitative estimates used here were concerned with the activities associated
with the operations of Nigerian ports, the costs and the benefits derived by users
of these ports. A linear Programming Model was formulated from the cost
components associated with the vessels-port relationships. With the aid of excel
solver for windows software, an optimal solution is obtained. The results provided
indicates the minimum cost of port operations – N137,346 (million) as well as the
optimal time estimate for the decision variables of port operations – Marine
services=12.56hrs, Port dues=87.4hrs, Cargo dues=0hrs, Terminal handling
Charges=1.086hrs, Bunkers=16.1hrs, Gov. Requirements=0hrs, Supplies=0hrs,
Loading and discharge=0hrs, Storage=0hrs, the optimal cargo flow and reduced
terminal cost – N101.046 (millions) and improved terminal and port performance
to achieve optimum operational efficiency. These provide a basis for future
projections so as to determine the range of values of the constraints and decision
variables for which the Nigerian port operations could be at minimal cost.
v
Table of Contents
TITLE
CERTIFICATION................................................................................i
DEDICATION....................................................................................ii
ACKNOWLEDGEMENT...................................................................iii
ABSTRACT........................................................................................iv
TABLE OF CONTENTS.....................................................................v
LIST OF TABLES.............................................................................vi
CHAPTER ONE
INTRODUCTION..............................................................................................1
CHAPTER TWO
LITERATURE REVIEW.................................................................................................8
vi
2.1.7 Need for cost optimization strategy..............................................................14
2.1.8 Steps in cost optimization...........................................................................…15
2.1.8.1 Build consensus and commitment on goals and scope..............................16
2.1.8.2 Select the right methodologies...................................................................18
2.1.8.3 Determine how efficient and effective the organization is and set targets
for change...............................................................................................................19
2.1.8.4 Develop a plan to hit the target..................................................................19
2.1.8.5 Drive implementation of the changes........................................................20
2.1.8.6 Make the Change sustainable.....................................................................21
2.1.9 Historical origin of Linear programming.......................................................22
2.2 Theoretical Review...........................................................................................24
2.2.1 Implementation of cost optimization............................................................24
2.2.2 Classification of shipping cost........................................................................25
2.2.2.1 Cargo or direct costs...................................................................................25
2.2.2.2 Port charges and dues................................................................................26
2.2.2.3 General port dues...................................................................................... 26
2.2.2.4 Specific port tariffs......................................................................................27
2.3 Empirical Review...............................................................................................28
2.3.1 Economics of scale in ship design and port cost control...............................28
2.3.2 Cargo handling rates and port delays............................................................30
2.3.3 Problems militating against operational efficiency.......................................32
2.3.4 Port reforms/concessions as a tool to improve port efficiency.....................37
2.3.5 Optimization of costs of port operations in Nigeria: A Scenario for emerging
river ports...............................................................................................................40
2.4 Summary of Reviewed Literature.....................................................................41
CHAPTER THREE
RESEARCH METHODOLOGY....................................................................................42
3.1 Research methodology.....................................................................................42
3.2 Reinstatement of hypothesis............................................................................42
3.3 Research approach...........................................................................................42
3.4 Study area.........................................................................................................43
3.5 Data collection..................................................................................................43
vii
3.6 Method of data analysis...................................................................................43
3.6.1 The linear programming model.....................................................................43
3.6.2 Basic requirements for the use of a linear programming technique.............45
3.6.2.1 Objective Function......................................................................................45
3.6.2.2 Decision Variables.......................................................................................46
3.6.2.3 Structural Constraints.................................................................................46
3.6.2.4 Parameters.................................................................................................46
3.6.3 Definition of the variables for objective functions........................................46
3.6.4 Definition of variables for the constraints equation......................................48
CHAPTER FOUR
CHAPTER FIVE
REFERENCE
viii
LIST OF TABLES
ix