Notes Lesson 4.6 - Routing and Scheduling Learning Object After reading this lesson you should be able to: > Understand the processes of transportation network > Explain the tenets of direct shipment network > Describe the intricacies of Direct Shipments via Distribution Centre Introduction In most of the cases, transportation cost is generally a major component of total logistical cost ranging between one-third and two- third, That is why, it is a major concern to logistics managers to improve its efficiency through the maximization of transportation resources and system. The transit time of goods determines the number of shipments that can be made with a vehicle within a given period of time as well as total transportation costs for the shipment. The reduction of transportation costs and improvement of customer service depend upon the quality of routing and scheduling of transportation vehicle which comes under the preview of the design of transportation network. In other words, the design. of a transportation network affects the performance of a supply chain by establishing the infrastructure within which operational transportation decisions regarding scheduling and routing are made. A well-designed transportation network allows its supply chain to achieve the desired degree of responsiveness at a low cost (Chopra and Meindl, 2001). Transportation Network ‘The designs of transportation network vary from industry to industry, company to company and product to product due to diversity in the requirements of industry, company as well as the product. For a better understanding about design options for transportation networks, 224an example of a company has been taken which has many production plants, products and destination points (stockiest/customers) Direct Shipment Network In this transportation network design, all shipments come directly from different plants of the supplier to stockiest or customers as shown, in Fig. In this design option, the routing of each shipment is specified and the logistics and supply chain managers have to decide the quantity to be shipped and mode of transport preferred so as to bring a trade-off between transportation and inventory costs One of the major advantages of this transportation network design is the elimination of warehousing infrastructural facilities. The operation of this network design is very simple as well as necessitating high degree of coordination due to the direct interface between suppliers and customers. On the other hand, the major setback of direct shipment network design is the high cost when the quantity to be shipped is not equal to the load capacity of the vehicle. It is also not suitable to ensure better customer service in the case of replenishment lot sizes. This network design is widely used by cement, fertilizer and petroleum companies for those customers who are near to their production plants. — Plant 3 Customer © Plant @ Customer D Direct Shipping with Milk Runs 225 NotesNotes Direct Shipping with Milk Runs In a milk-run transportation network design, a truck collects goods from various plants of the shipper/supplier and delivers them to a customer or collects goods from one plant and delivers them to many customers a shown in Fig. In the milk-run transportation network, a logistics and supply chain manager has to decide on the routing of each milk run so as to meet the requirement of the customer service. This network design overcomes the problem of first design relating to small replenishment lot size as they are accumulated to fill the load capacity of the vehicle/truck, resulting into lower transportation costs and better customer service, also eliminating warehousing infrastructural facilities. But the major limitation of this design is in its scope, ie. this design is only suitable in the case of cluster of customers/plants. For instance this system is widely used by MUL in India whose most of the component suppliers are within the 50 km radius of the manufacturing plant at Gurgaon, supporting the JIT manufacturing system. This network needs a high degree of coordination among all the concerns. => Destination Point Direct Shipments via Distribution Centre 226Direct Shipments via Distribution Centre This transportation network is the modification of direct shipment network, in which goods are delivered to customers via a central distribution centre, In other words, first goods from various plants of the supplier are consolidated at a central distribution centre/warehouse and then delivered to individual customer individually as shown in Fig For instance, Mahindra & Mahindra Ltd., ships its tractors from Mumbai and Nasik plants to various stock-yards all over the country by railways normally and from the stock-yards to dealers directly by road to achieve economies of scale in transportation costs Plant 1 +} Distribution Customer 8 vam Customer ¢ Plant 3 Direct Shipment via Distribution Centre The main advantage of this design is lower plant-to-warehouse transportation cost by bulk transportation and consolidation as well as ensures better customer service by lowering inventory requirement at customer's end resulting into better return to them, On the other hand, it also results into higher logistical costs due to increased inventory cost and warehousing infrastructure and facility costs to the company. Shipping via Distribution Centre Using Milk Runs As the name itself says, this transportation network design is the extension of direct shipping with milk runs, where there is inclusion of a distribution centre in between supplier and customer as shown in Fig. For instance, Pepsi and Coca-Cola distribute their soft drinks as per this, network design NotesNotes —> Destination Point Plant 1 Customer A + Plant 2 Distribution centre _[¥--~ © Plant 3 . Customer v Shipping via Distribution Centre Using Milk Runs, This design ensures lower plant-to-warehouse as well as warehouse to-customer transportation costs for small lots suiting small customers, whereas there are increases in inventory and warehousing costs along with complexity of coordination. Summary Apart from economic and non-economic benefits, transportation is the main artery of logistics and supply chain management for the move ment of goods from the point of inception to the point of consumption, At the advent of growing awareness about the overwhelming contribution of logistics and supply chain management, transportation services have be- come more imperative for speeder and timely delivery goods, economies in operation, minimum in-route handling and documentation to mini- mize transportation costs which include tariff of transport mode, transit time cost, obsolescence cost, protective packaging cost, transit insurance cost, ete, There are five basic modes of transportation, namely; airways, seaways, roadways and pipeline having contradictory characteristics Earlier, these modes were competing with each other. But after realizing their own strengths and weaknesses followed by scope coordination for better prospects, nowadays, they are coordinating with each other, which 228Notes has given impetus to the concept of multi-modal transportation in the form of piggyback, fishy back, trans-ship, and air truck. ‘The current transport infrastructure of India is major bottleneck in the achievement of logistical objectives, mainly due to poor government policy, networks, road/rail track conditions, vehicle quantity, and coordination between various agencies and transport organizations The determination of transport rate and prices are normally based. ‘on economic, shipper and carrier factors, followed by alternative pricing strategies. The design of the transportation network refers to routing and scheduling of transportation vehicles for the purpose of minimization of transportation cost and maximization of customer service which vary from industry to industry, company, and product to product due to diversity of requirements of industry, company as well as product. Self Assessment Questions 10. W 12. 13. What do you mean by EOQ? What are the assumptions of EOQ? Why £0Q is important in inventory management? Explain Reorder Point Models. Write down the advantages of Reorder Point Models. Reorder Point Models are cost effective. How? Explain Multichannel Inventory system. What do you mean by Integer Replacement Policy? Explain the concept of Multi-Echelon Distribution Supply Chain. What do you mean by Facility Layout? Discuss the criteria for layout decision Based on the insight learned through your course in respect of types of layout, outline the relevant types, applicability, merits and demerits of each for the following products > Automobile Aircraft > Air Conditioners For each of the following, determine whether the layout would be 229