Logistics Management : Logistics Management Dr. Jagathy Raj V. P.
School of Management Studies
Cochin University of Science and Technology
Kochi - 22 Every company dreams of achieving the Seven R’s : Every company dreams of achieving the Seven R’s Delivering
The right product, in
The right quantity, and
The right condition, at
The right place, at
The right time, for
The right customer, at
The right cost The turbulent business environment : The turbulent business environment High Uncertainty
The demand for better quality products at lower cost at a shorter supply lead time
Short product life cycle
Globalization of markets
Formation of trade blocks
Shifting of Manufacturing bases to lower labour cost areas
Global sourcing supplies Logistics Management : Logistics Management Effective logistics Management alone can make this possible Logistics : Logistics In recent years, Logistics has received increased management attention.
Corporations are using logistics as a competitive weapon to meet the challenges of global competition and turbulent business environment. The focus of modern business : The focus of modern business Maximizing the ROI with service-cost performance as good as (or perhaps better than) the competitor’s is the primary objective of any company manufacturing and selling goods to meet customer needs
Satisfying the needs of the customer at least cost
Maximize the ROI Introduction : Introduction Previously we have to wait for long time for getting premium goods
Twentieth Century – Due to Metamorphic environmental transformation in the business world which results
Lot of growth opportunities as well more complicated business problems threatening even survival on the other.
Ex: Numerous cars, two wheelers etc Introduction : Introduction Reasons- this is the outcome of
Rapid innovation in the field of Science and Technology followed by their easy transfer
Globalization of world market Introduction : Introduction As a result consumers are becoming very selective and conscious about their purchase decisions, especially value for money and convenience.
Distributors/retailers are also very conscious about their ROI due to the availability of huge attractive trade opportunities Introduction : Introduction So in the competitive environment, it is important for every firm to generate the highest level of customer satisfaction while delivering the highest value to the shareholders.
So in such an erratic market place, firms need to put their best effort towards formulating market oriented and customer focused strategies Introduction : Introduction They are increasing their product portfolio
Quick information sharing
Prominent display, read and intact delivery
24 hours on-the-spot after sales service,
Eagerness to sort out problems and complaints
in order to satisfy their consumers with a difference than competitors. Introduction : Introduction Additionally to generate the highest value to shareholders, firms need to have cost-effective best market offering
For this they need to have an improvement of productivity and profitability by means of optimum utilization of resources, avoiding idle time for any of them Introduction : Introduction To attain all of the above goals, firms have to offer best quality product at a reasonably least price as and when required, avoiding a stock-out situation which has given impetus to the concept of Logistics Management
It has ability to ensure a consistency in the quality, tremendous cost saving potential and making goods at the place of requirements in time Logistics : Logistics US Air force Technical report(1981) defines this term as the science of planning and carrying out the movement and maintenance of forces – deals with
Design and development, acquisition, storage, movement, distribution, maintenance, evacuation and disposition of materials
Movement, evacuation and hospitalization of personnel.
Acquisition or contruction, maintenance, operation, disposition of facilities,
Acquisition or furnishing of services
Act as a supportive system which reflects the practical art of moving armies and materials engaged in combat to achieve the desires results Logistics : Logistics In the Industrial and commercial world. Logistics has a acquired wider meaning
It covers activities for the material flow from the source to the processing facilities, and subsequent distribution of finished goods from there to the ultimate users. Logistics : Logistics A survey conducted by Fawcett and Clinton shows that more than 80.2 percent of the leading edge firms and
More than 75.8 percent of the other firms include logistics in their strategic planning process. Independent Business Function : Independent Business Function Manufacturing Sales Distribution Procurement Inventory
Control Out Come
of Profit by
Sales volume Limited Integrated Business : Limited Integrated Business Manufacturing
Price – based
Cost Control Internal Integrated Business Function (Logistics Management : Internal Integrated Business Function (Logistics Management Manufacturing
Management Marketing and
Market Shares Objective
of profitable Sales
Cost Reduction External Integrated Business Function (SCM) : External Integrated Business Function (SCM) C
Competency Logistics : Logistics Logistics is responsible for managing the acquisition, movement and storage of materials, parts and finished goods (together with related information flows) through an organization and its marketing channels to meet customer expectations and the company’s profit objective. Logistics : Logistics Logistics has been recognized not only as a group of important functions, but as function that have important strategic impacts as well
In the United States, annual expenditure on non-military logistics are estimated as 11 percent of the Gross National Product.
With logistics cost of 30 percent of goods sold, not uncommon for US manufacturing firms potential saving in logistics coordination cannot be ignored.
Logistics strategy must be integrated with corporate strategy because corporate strategy Logistics Management : Logistics Management The Council of Logistics Management defines
Logistics Management as:
The process of planning, implementing and controlling the efficient, cost – effective flow and storage of raw materials, in-process inventory, finished goods and related information from point of origin to point of consumption for the purpose of conforming to customer requirements Slide 24: A Process view of Logistics Management Flows in a Logistics System : Flows in a Logistics System Flow of Materials
Information flow Logistics Management : Logistics Management Logistics Management is an integrating function which coordinates and optimizes all logistics as well as integrates logistics activities with other functions including marketing, sales, manufacturing, finance and IT
It Includes the design and administration of system to control the flow of materials, work-in-process and finished inventory to support business unit strategy Slide 27: Visual Representation of Integrated Logistics Management Components : Components Inbound Logistics
Outbound Logistics Inbound Logistics : Inbound Logistics Sourcing and vendor selection for supply of raw materials and manufacturing parts
Inbound transportation and procurement planning
Raw materials warehousing including consolidation warehousing
Management of Inventory
Information system for effective support strategic alliances with the supplies and transporters Internal Logistics : Internal Logistics Capacity Planning Operational planning Production planning
Materials Requirement planning
Shop floor control
Management of in-process inventory
Supporting material handling facilities planning and their deployment etc Out bound Logistics : Out bound Logistics Outbound logistics system is concerned with the flow of finished products from factory warehouse to the customers through a distribution network comprising:
The inventory at all levels
Sales order processing
Sales return processing
Accounts receivable realization and
Counter flow of information from the customers to the factory Logistics Management : Logistics Management Logistics is the process of strategically managing the procurement, Movement and storage of materials, parts and finished inventory (and the related information) through the organization and its marketing channels in such a way that current ans future profitability are maximized through the cost – effective fulfillment of order. Logistics Management : Logistics Management Logistics Management refers to designing, developing, producing and operating an integrated system which is responds to customer expectations by making available the required quantity of required quality products as and when required to offer best customer service at the least costs Logistics Management : Logistics Management For Service Industry
Defined as the process of coordinating non martial activities necessary to the fulfillment of the service in a cost and customer service effective manner
It is an internal integration of interrelated managerial function to ensure a smoth flow of raw materials from the point of inception to the first product point, semi-finished goods within production process and finished goods from the last point the point of consumption Integrated Logistics Management : Integrated Logistics Management Defined as the process of anticipating customer needs and wants acquiring the capital, material, people. Technologies and information necessary to meet those needs and wants, optimizing the goods-or services, producing network to fulfill customer requirements; and utilizing the network request in a timely way The Value Chain (Porter) : The Value Chain (Porter) Major features of For Logistics Management : Major features of For Logistics Management Smooth flow of all types of goods such as raw mareials, work-in-process and finished goods
Meeting customer expectations about product and related information requirements
Real time flow of information about products’ demand and availability
Delivery of quality product in required quantity without excessive safety stock
Best possible customer service at the least possible cost
Integration of various managerial functions for optimization of resources
Movement and storage of goods in appropriate quantity
Enhancement of productivity and profitability Integrated Logistics Management : Integrated Logistics Management Integrated Logistics is viewed as a method to create a sustainable competitive advantage over the company's competition
Logistics strategy must be integarted with corporate strategy because corporate strategy sets the basic requirement to the Logistics system of a strategy Integrated Logistics Management : Integrated Logistics Management The logics process is becoming more demanding and complex, so is the business environment in which the logistics has to operate
Highlights seven critical factors including that are contributing to the complexity of logistics system operations
Escalating customer demand
Cycle time reduction
Supply Chain Partnerships
Productivity pressures and
Environmental awareness Integrated Logistics Management : Integrated Logistics Management Revolution in Communication and Information Technologies have opened new avenues for integrating raw material supply, Manufacturing support and Physical distribution of logistics Relative Importance Depends on : Relative Importance Depends on Raw materials Sources and Volume
Distribution Volume and Territory Competitiveness depends on : Competitiveness depends on Reducing raw materials input costs through sourcing and inbound logistics optimization
Increasing throughput from the plant
Choice of cost – effective Technology
Reducing outbound Logistics cost The following objectives are realized : The following objectives are realized Increased velocity of flow
JIT Distribution Need for integration : Need for integration Through effective Management
People Gaining Competitive Advantage through Logistics : Gaining Competitive Advantage through Logistics Important Logistics Activities and Their Relations to Key Business Goals : Important Logistics Activities and Their Relations to Key Business Goals Logistics has been recognized not only as a group of important functions, but as functions that have important strategic impacts as well Strategic Logistics Planning : Strategic Logistics Planning Strategic logistics planning is essentially concerned with the deployment and management of logistics resources to met the desired cost effective service performance of the system
This may involve, number and location of warehouses, mode and carrier selection, Inventory positioning, inventory planning, sub contracting of services, sourcing, equipment and facilities planning, order management and Infromation systems planning etc Strategic Logistics Planning : Strategic Logistics Planning This is also includes such decisions as location and capacities of company owned plants and warehouses, acqusition or long term hiring of carriers like ships barges, trucks etc, acquisition of matrial handling system and facilities, balancing facilities to maximize throughput and flexibility and introduction of system to help, reductions in response time and in process inventory
Choice of supply, transport mode, strategic alliance with both suppliers and customers also form parts of these strategic logistics planning process. Strategic Logistics Planning : Strategic Logistics Planning The process of strategically managing the acquisition, movement and storage of materials, parts, finished goods inventory, and related information flows through the organization and its marketing channel in such a way that current and future profitability is maximized through the cost-effective fulfillment of orders. Main objectives of logistics planning are: : Main objectives of logistics planning are: Cost reduction: - This strategy is directed towards minimizing the variable costs associated with the movement and storage. The best strategy is to evaluate the alternative courses of action and select the optimum one keeping profit maximization as the prime goal in mind.
Capital reduction: - This strategy is directed towards minimizing the level of investment in the logistics system.
Service improvements: - This strategy recognizes that the revenue is a function of the logistics service provided and develops an effective service strategy that is different from the one provided by competitors.
Logistics has significant impact on these important corporate performance objectives Strategic Logistics Planning : Strategic Logistics Planning Maximizing the ROI with service-cost performance as good as(or perhaps better than) the competitor’s is the primary objective of any company manufacturing and selling goods to meet customer needs The logistics planning is particularly crucial to those industries : The logistics planning is particularly crucial to those industries Volume of raw materials and finished goods handled is very high and freight including handling cost constitutes a significant portion of the sales price.
Capital intensive manufacturing technology that requires high capacity utilization to spread capital cost over larger volume
Asset deployment in raw materials procurement and finished goods distribution is considerable. Logistics planning includes : Logistics planning includes Supply Chain Planning
Transport System Planning
Vehicle Routing and Scheduling
Warehousing A sound strategic logistics plan for a manufacturing company must aim at: : A sound strategic logistics plan for a manufacturing company must aim at: Minimizing the landed cost of inputs through strategic sourcing, consolidation warehousing and carrier selection
Minimizing the procurement lead time and raw materials inventory through better information and procurement systems.
Increasing the productivity of the manufacturing unit through appropriate choice of technology, balancing of facilities and optimization of internal logistics support including material handling facilities
Contd…… A sound strategic logistics plan for a manufacturing company must aim at: : A sound strategic logistics plan for a manufacturing company must aim at: Decreasing the finished goods inventory through reduced manufacturing response time.
Minimizing the assets including inventory deployed in the distribution channel
Minimizing the delivery lead-time through efficient customer response, quick response logistics and customer specific support services. Logistics Management Decisions : Logistics Management Decisions The level of investment and the periods over which the benefits from an investment in logistics system is realized
Strategic logistics decisions
Tactical logistics decision
Operational logistics decisions Logistics Management Decisions : Logistics Management Decisions Strategic Supply chain design
Broad scope, highly aggregated data
Long-term planning horizons(1year+1) Tactical Operational Production/distribution planning
Medium-term planning horizons (monthly, quarterly) Shipment routing and scheduling
Resource routing and scheduling
Narrow scope, detailed data
Short-term planning horizons (daily, real-time) Logistics Application Areas by Modeling Views : Logistics Application Areas by Modeling Views Logistics Modeling : Logistics Modeling Logistics Models : Logistics Models Analytical Models
Distribution network Optimization Venroy
Berth Planning at Naval station Brown et. al 
Transportation Speranza and Vkovich
Supply chain of fine chemicals Voudouris
Facility location formulation Camm et. al 
Distribution and Materials Management Mentzer and Schuster 
Material Flow on a site-by-site basis Lee and Billington
Modeling buyer-supplier relation Christy and Grout Logistics Models : Logistics Models Simulation
Production distribution analysis Dorairaj
Assembly line operations Sayer
Marketing logistics Horrington et. al 
Complex rail network Dessosky and Leachman
Selection of location Copacino and Rosenfield
Throughput from transportation system Allen et. al
Ship Cargo Operation Horne and Irony
Intermodal container Operation Gambardella Limitations of Available Models : Limitations of Available Models Analytical Models
Linear or Integer Programming Models
Too complex to establish and solve
Optimality not ensured
Distribution Focus Limitations of Available Models : Limitations of Available Models Simulation
Do not ensure Optimality
No focus on Technology Option Selection
No focus on Parameter Optimization Limitations - Optimization Models : Limitations - Optimization Models Many optimization models assume that relationships in the system are linear.
Although it is possible to incorporate feedback in optimization models, yet optimization model, ignore most of the feedback effects to minimize complexity.
Many optimization models are static.
From the viewpoint of the model user, the optimization models are large, cumbersome and complex.
Most of the optimization models have single objective function. In real life, management is faced with a vector of objectives.
Many optimization problems require use of integer or mixed integer programming models that are difficult to use for large problems. Limitations - Econometric Models : Limitations - Econometric Models Econometric models assume availability of perfect information and equilibrium in the market economy. They ignore such complexities of real world as: dynamic processes, disequilibrium and the physical delays between action and results.
Models use the historical data to find the parameter values. Such estimation techniques reveal only the degree of past correlation between the variables. Such correlation cannot accurately represent the dynamic future.
Econometric models ignore soft variables and immeasurable quantities. At best, these variables are handled with proxy variables.
Causal relationships between model variables and feedback are not considered. The feedback relationships between environmental, social demographic factors are usually as important as economic influences. Limitations - Simulation Models : Limitations - Simulation Models The major weakness in the simulation models, as opposed to optimization model, is that they do not ensure optimality.
It takes considerable time and effort to generate and to evaluate large number of alternatives.
It is generally not easy to modify the model to allow the inclusion of a new phenomenon without completely restructuring the model.
In general, rigid structural requirements of the simulation models prove to be restrictive in the analysis of real-life systems. Slide 67: The Major Elements of Logistics Composite Modeling Analysis Characteristics of a Complex system : Characteristics of a Complex system Presence of several manufacturing stages in series and parallel
Manufacturing stages having variable (probabilistic) operation times
Breakdown and repairs for different stages
The operating parameter of each stage affecting the output of that stage and other stages linked with it
Linking of different manufacturing stages by material handling equipment
Absence of buffers in process
Presence of common facilities used by more than one process having their own operation cycle failure and maintenance. The Logistics Models must consider: : The Logistics Models must consider: The temporal dimensions must be included. Information, inventories, and customer service are time-dependent, as are the mode performance and demand rates in a logistics system.
The model should have capability to explicitly incorporate spatial dimensions of logistics.
The model should have a multiple product capability;
Multiple echelons should be included;
The model should have the ability to incorporate linear and nonlinear relationship amongst the variables;
Contd…. The Logistics Models must consider: : The Logistics Models must consider: The model should explicitly consider production, transport mode, warehouse, materials handling equipment capacities etc.
The model should have the ability to incorporate the stochastic nature of logistics activities.
Linkage between stages
Breakdown of stages
Dynamic effects of weather and handling capacities Logistics decisions for complex systems : Logistics decisions for complex systems Logistics decisions for complex systems, require temporal integration that covers planning horizons of several years to a day and spatial integration that covers the entire supply chain from suppliers to the ultimate customers Characteristics of Complex systems : Characteristics of Complex systems Presence of several manufacturing stages in series and parallel
Manufacturing stages having variable probabilistic) operation times
Breakdown and repairs for different stages
The operating parameter of each stage affecting the output of that stage and other stages linked with it
Linking of different manufacturing stages by matrial handing equipment
Absence of buffers in process
Presence of common facilities used by more that one process having their own operation more than one process having their own operation cycle failure and maintenanace Steel Plant Logistics Planning : Steel Plant Logistics Planning First, the inbound and the outbound logistics cost in a steel plant is significant and it accounts for 15 to 25 percent of the sales price per ton.
Second, steel plants are capital intensive. Fixed capital cost accounts for 20 to 25 percent of the cost per ton of saleable steel.
Third, it involves global sourcing of about 2.5 tons of raw materials for the production of a ton of finished steel.
Fourth, small improvements in logistics result in large savings due to high volume of materials handled in steel plants.
Contd…… Steel Plant Logistics Planning : Steel Plant Logistics Planning Fifth, the system involves temporal integration over a time range of one shift to several years.
Sixth, the system involves spatial integration that covers the entire supply chain from suppliers to the ultimate customers.
Seven, the performance of logistics (specially the internal logistics) system significantly influences the energy requirements and utilization of costly and coupled manufacturing stages, therefore, the cost of a ton of steel produced Modeling of Steel Plant Logistics : Modeling of Steel Plant Logistics An integrated steel plant is a closely coupled system of many units (plants)/stages in series and parallel, each with its own stochastic processing times and breakdown/repair patterns.
These units (plants) are installed by different agencies and most of them are available in a few different capacities step only.
The operating parameter of each stage affecting the output of that stage and other stages linked with it.
The stages are linked by specialized material handling system which may have its own stochastic loading, unloading, travel, failure and repair times.
There may be finite or zero buffers between the stages.
Contd…. Modeling of Steel Plant Logistics : Modeling of Steel Plant Logistics Presence of common facilities used by more than one process having their own operation, failure and maintenance cycles.
There are better methods for evaluating individual pieces of equipment. These methods use deterministic values of processing time, product quality, associated rejects, failure rates etc.
Models for analyzing and evaluating the performance of complex system with variability are difficult to formulate using exact mathematical procedures.
A plant can be theoretically viewed as a complex queuing network whose analytical solution is difficult.
Experimenting with a large real system is a difficult and expensive proposition.
Conducting experiments with different combinations of many parameters leads to combinatorial explosion. Modeling Approaches : Modeling Approaches The modeling Focus: Composite
Simulation Approach for internal Logistics and Throughput Optimization
Design of Experiment for Parameters, Routings and Product mix Optimization
Mathematical Programming for Tactical Procurement Planning
Economic Evaluation for Facilities hiring Slide 78: Area Showing the Plant Site, Waterways and Lightering and HRC loading Points The Problem : The Problem Making the different types of raw materials available in the right quality and right quantity, and in the right time at the least possible cost to the Integrated Steel Plant and ensuring the back-to-back supply of the finished products through sea route for export is the logistics problem of the plant that we have taken for study. Problem : Problem Optimization of Raw Materials Logistics and “Back- to-Back” Supply of Finished Goods for a Coastal Integrated Steel Plant.
The important objective of the study is to optimize the raw materials procurements and HR Coil export considering two alternative options:
Independent barge-mixes for the raw materials lightering and export of HR coils and
Use of same barge-mix for lightering of raw materials and loading of export HR coils through “back-to-back” integration. More specifically, the problem deals with: : More specifically, the problem deals with: Deciding capacity mix of ships to use for transportation of raw materials from different sources,
Making an optimum procurement plan for raw materials, source-wise and material-wise.
Deciding the barge mix to hire for the lightering and HRC loading operations,
Scheduling the ships from each Load Port for a given month,
Finding the economy and feasibility of back-to-back supply of HRC for export, and
Preparing a daily schedule for the barges used for lightering and export of HRC. The important constraints are: : The important constraints are: Availability of ships of different category at Load Ports.
Scheduled maintenance of barges and other equipment in use, therefore, their unavailability at certain periods.
Restrictions on movement of 1000 ton and 700 ton barges to BFL. Only 2800 ton and 2000 ton barges are allowed for lightering and HRC loading at BFL. 700 ton barges are not operated during monsoon season for lightering.
Anchorage location depend on such variables as capacity of ship that can be handled, availability of anchorage, lighterage and HRC loading dues payable to port etc;
Tide dependent water level in the creek that constraints the smooth movement of barges in the creek.
Contd…. The important constraints are: : The important constraints are: The poor condition of sea during the monsoon season and consequential ship movement, availability of anchorages, ship unloading, barge movement and unloading restrictions.
Crossing and parallel barge movement restrictions in the creek due to sharp turnings.
Movement restrictions of barges through the creek during night.
Pilot requirement for barges and their availability.
Use of only 2800 ton and 2000 ton barges for the HRC export due to safety requirements.
Long term leasing of barges. The Objectives : The Objectives The methodology for solving hierarchical decision making problems is applied to solve the following strategic, tactical and operational logistics problems. Strategic Problems : Strategic Problems To analyze the impact of dredging the river to different depths on the average annual lighterage and HRC loading cost per ton. [Once in few years].
To analyze the impact of locating the plant jetty at different distance from the sea on average annual lighterage HRC loading cost per ton[One time decision].
To choose the best strategy for lightering and HRC loading, from amongst available options. The options including use of only 2800 ton barges or both 2800 and 2000 ton barges for export and import. [Once in few years]
To evaluate the economics of the following options [Once in few years]:
Having a floating crane at BFL,
Having a Floating crane at BFL with a Storage Vessel,
Saving in cost per ton with dredging of the creek, and
Having a dedicated anchorage at JNPT. Tactical Problems : Tactical Problems To decide the optimum (minimum annual total cost) quantity of raw materials to bring to the plant in each month of the year taking into account the production requirement, inventory levels at the site, price of raw materials, handling cost, carrying cost and handling constraints in monsoon and fair weather.[Decision once a year]
To decide the optimum barge mix to hire for lightering and HRC loading operations with or without back-to-back supply of raw material and finished goods. These barges have to be hired for long term (one year for larger (2880 ton, and 2000 ton) barges and eight months for smaller barges of 700 ton and 1000 ton). [Decision once a year]
To decide the best ship size to hire from each of the load ports that minimizes the total relevant cost.[Decision once a month as hire charges of ships change]
Contd…. Tactical Problems : Tactical Problems To generate a schedule for movement of the material from a load port to the destination anchorage by ships of the most economic size, for known monthly supply of raw materials from the load port. [Monthly decision]
Develop a model to evaluate each set of ship hiring alternatives for the month and their laycan schedules to help select the best set of ships for the month taking care of the possible shortage of ships of most economic size from a load port.[Monthly decision]. Operational Problems : Operational Problems To optimally schedule the barges for lightering of ships at sea and loading of HRC to export ships. [Daily activity]. Important Hierarchical Decisions Problems of Inbound Raw Material Logistics : Important Hierarchical Decisions Problems of Inbound Raw Material Logistics Important Hierarchical Decisions Problems of Inbound Raw Material Logistics : Important Hierarchical Decisions Problems of Inbound Raw Material Logistics The composite modeling approach (CMA) : The composite modeling approach (CMA) Study the problem at hand in detail and decompose into different sub-problems.
Identify the decision variables involved in each sub problems. Specially, examine the spatial and temporal dimensions of the sub problems.
Study each of these decision variables; find out the frequency at which decision regarding them have to be taken, and who is responsible of taking the decision at which place.
Group the decisions. Decisions with identical frequency, place and decision maker are grouped into one.
Take the longest-range (lowest frequency) decision problem first, study the decision variables involved. Develop and validate an appropriate model or a set of models to support decisions on that problem.
Repeat step (e) with the next lowest range decision problem for developing model(s) or decision support. Additional available information and the constraints imposed by the long-range decisions are explicitly considered in model (or DSS) development.
The models may be connected (integrated) by input/output amongst themselves and by input/output from the environment. Methodology : Methodology Conduct a detailed study of the present and proposed system to understand all the details about different subsystems, operations, movements, and constraints.
Decompose into appropriate sub-problems. Identify decision variables and its spatial and temporal dimensions peculiar to each of the sub problems.
Collect relevant data from the existing SIP and modify them suitably to suit to the Proposed Integrated Steel Plant.
Develop two a simulation models one for the ship lightering and the other for finished goods loading operations. The models simulate unloading of raw materials from the ships and loading of HR Coils into export ships, transport through barges of raw materials from ships to jetty and HR coils from HR jetty to ships, and loading and unloading of barges. The models specifically takes the random variations in ships lightering and HRC loading, barge movement, barge unloading and loading times and draft restrictions into consideration. Develop a third model to simulate the unloading of raw materials from incoming ships, their transport to plant jetty, unloading of materials from barges to cross country conveyors and back-to-back integrated supply of HRC for export. Methodology : Methodology Develop a LP model to determine the quantity of raw material to bring to the plant in each of the 12 months to minimize the annual cost of procurement, handling and storage. Such an approach is essential as the handling capacity is season dependent (less in monsoon) where as the plant requirements are independent of the season.
Develop a Spread sheet based economic model to find the best ship sizes to hire from different load ports.
Develop simulation based optimization models to evaluate the different operational strategies of using barges for both import of raw materials and export of HRC. The model considers the options of with and without back-to-back integration. The model for the best option obtained above is used to find the optimum barge mix to be hired for the year.
For known ship arrival schedules, develop a barge mix optimization model. For a given barge mix ship lightering and HRC loading simulation model is used to estimate the expected annual lighterage and HRC export volume and lightering and HRC loading cost per ton. From amongst the feasible barge mixes, the one that gives lowest cost per ton is selected. The annual lighterage and HRC export volume includes the total raw materials and finished goods handled by the barges. Methodology : Methodology Develop a model for evaluation of multiple ship schedules obtained by the shipping manager for hiring of ships from load ports for movement of raw material, to help select the best schedule for every month. This software tries to schedule the minimum cost ship from each port. It takes into consideration the number of ships that have to come from a load port and spreads their arrival at BFL/BPT/JNPT as evenly as possible during the period to avoid bunching and consequential detention charges. It also takes into account the barge mix available for lightering and HRC loading during the period and the tide restrictions. The result from this software is a schedule showing when a ship should report at the load port and when it would reach Bombay and when it is expected to leave Bombay after lightering with or without HRC for export.
Develop a scheduling model to generate the daily schedule for movement of barges for lightering of raw materials and loading of HRC ships from and into available at different anchorage for unloading/loading. The model explicitly takes into account the draft restrictions in the creek, night navigation restrictions, available loading gears in the ship, unloading facilities available at the ships and at the jetty etc. The model generates the schedule for each of the barges. The schedule for export loading of HR Coils is also generated.
Use the simulation model to evaluate the lighterage and HRC loading cost advantage in going for dredging the creek up to various depths.
Use the simulation model to find the effect of various jetty locations on the average lightering and HRC loading cost per ton. Slide 95: Models used for Raw Material and Finished Goods Logistics System Slide 96: Least Cost Ship Size from each Load Port
Optimum ship sizes for different load ports The LP Model for Making the Annual Procurement Plan : The LP Model for Making the Annual Procurement Plan The model gives the following the optimum results
Optimum monthly procurement/arrival of each raw material source-wise and quantity,
Total Raw material by each route
Stock of each materials at the end of each month,
Total cost of SIP raw materials,
Total cost of BF raw materials,
Total cost of SMS raw materials, and
Total cost of all raw materials. Interpretations- LP model : Interpretations- LP model lesser amount of material can be brought in during the monsoon, it is necessary to build up the stock for various raw materials much before the monsoon for consumption during the period.
In order to reduce the carrying cost on such inventory build up, it is best to build up the inventories of the less costly raw materials first.
The unloading capacity during monsoon could then be used for bringing in more of the expensive raw materials thus decreasing the total inventory carrying cost.
For example, lumps inventory is to be built up during the period from January to April to cater to the needs during monsoon.
The unloading capacity during the monsoon could then be utilized for unloading more of pellets and coke.
This will decrease the total carrying cost since pellets and coke are more costly compared to lumps and therefore carrying it for a shorter duration decreases carrying cost. The ship Lightering Simulation Model : The ship Lightering Simulation Model The optimum barge mix selection model - assumptions: : The optimum barge mix selection model - assumptions: There are two barge unloaders and one barge loader/unloader available. The unloaders can only unload cargo, using grabs from barges bringing in raw materials. The loader/unloader cannot only unload imported raw materials from barges, it can also load HRC for export into barges. The grabs have to be changed for this purpose and this takes four hours.
Three barges can be berthed at the jetty for loading/ unloading at any given time.
Only the MBCs (Mini Bulk Carrier) that is 2800 ton and 2000 ton barges are allowed to be used for export of HRC.
700 ton and 1000 ton barges are not allowed to BFL for lightering.
All barges except the 700 ton barges are hired for whole year. 700 ton barges are hired for only eight months of fair weather season.
Enough HRC for export is available at the jetty whenever it is wanted.
The export requirement of HRC is 75,000 ton per month in both fair weather and in monsoon. Optimum barge mix selection model : Optimum barge mix selection model Without back-to-back Integration (Independent Barges for Import and Export)
Option I: All the 2800 ton barges available in the fleet will be used exclusively for export of HRC whenever export ships are available. At times when no ships for export are waiting the 2800 ton MBCs are used for lightering ships with raw materials.
Option II: Some of the 2800 ton barges will be exclusively used for export of HRC whenever export ships are available. During these times a loader will be exclusively used for loading HRC for export. At times when no ships for export are waiting the 2800 ton MBCs are used for lightering ships with raw Optimum barge mix selection model : Optimum barge mix selection model Option III: All the 2800 ton and 2000 ton barges available in the fleet will be used exclusively for export of HRC whenever export ships are available. At times when no ships for export are waiting the 2800 ton MBCs and 2000 ton ISVs are used for lightering ships with raw materials.
Option IV: Some of the 2800 ton and 2000 ton barges will be exclusively used for export of HRC whenever export ships are available. At times when no ships for export are waiting the 2800 ton MBCs and 2000 ton ISVs are used for lightering ships with raw materials. The rest of the barges will be used only for lightering of raw materials. Slide 103: With Back-to-Back Integration
Option V: All the 2800 ton barges available in the fleet are used for both export and import. The barges will carry HRC for export when sailing out from the jetty, they will reach the export ship, have the HRC unloaded and proceed to the ships with import cargo waiting to be lightered. It will bring back to the jetty raw material lightered from the import ship. Thus the forward and return trips made will both be loaded.
Option VI: Some of the 2800 ton barges available in the fleet will be used for both export and import. These barges will carry HRC for export when sailing out from the jetty. They will reach the export ship, have the HRC unloaded and proceed to the ships with import cargo waiting to be lightered. They will bring back to the jetty raw material lightered from the import ship. Thus the forward and return trips of these two barges will be fully loaded. The rest of the barges will be engaged in lightering of raw materials. Optimum barge mix selection model : Optimum barge mix selection model Option VII: All the 2800 ton and 2000 ton barges available in the fleet will be used for both export and import at all times. The barges will carry HRC for export when sailing out from the jetty. They will reach the export ship, have the HRC unloaded and proceed to the ships with import cargo waiting to be lightered. They will bring back to the jetty raw material lightered from the import ship. Thus the forward and return trips made will both be loaded for these barges.
Option VIII: Some of the 2800 ton and 2000 ton barges available in the fleet will be used for both export and import at all times. The barges will carry HRC for export when sailing out from the jetty, they will reach the export ship, have the HRC unloaded and proceed to the ships with import cargo waiting to be lightered. It will bring back to the jetty raw material lightered from the import ship. Thus the forward and return trips made will both be loaded. The total cost for lightering and HRC loading : The total cost for lightering and HRC loading Ship hire cost for unloading days for the raw material ships.
Ship hire cost for the HRC export ship for loading days.
Port charges payable to the Port for the volume of cargo loaded or unloaded.
The daily hire charges to be paid to all the barges.
The charges for fuel etc payable per trip to barges.
Warfage and Stevedoring charges payable for the day. The Results of Experiments on Barge Mix Optimization Model for Lightering and HRC loading Operations with Various OptionsB1 –2800, B2 – 2000, B3 – 1000, and B4 – 700 ton Barges : The Results of Experiments on Barge Mix Optimization Model for Lightering and HRC loading Operations with Various OptionsB1 –2800, B2 – 2000, B3 – 1000, and B4 – 700 ton Barges Sensitivity Analysis : Sensitivity Analysis Lighterage and HRC Loading Cost/ton when using
Various Combination of 2800 and 2000 ton Barges
(B1 –2800, B2 – 2000, B3 – 1000, and B4 – 700 ton Barges) Assumptions : Assumptions Two of the 2800ton barges available in the fleet will be used only for export of HRC whenever export ships are available.
All the 2800 ton barges available in the fleet will be used for both export and import at all times.
Two of the 2800 ton barges available in the fleet will be used for both export and import at all times.
Two of the 2800-ton and two of the 2000-ton barges available in the fleet will be used only for export of HRC whenever export ships are available.
All the 2800 ton and 2000 ton barges available in the fleet will be used for both export and import at all times.
Two of the 2800-ton and two of the 2000 ton barges available in the fleet will be used for both export and import at all times
All the2800 ton barges available in the fleet will be used exclusively for export of HRC whenever export ships are available.
All the2800 ton and 2000 ton barges available in the fleet will be used exclusively for export of HRC whenever export ships are available. Results from Model with two barges each of 2800 ton and 2000 ton in export and import circuit. : Results from Model with two barges each of 2800 ton and 2000 ton in export and import circuit. The results from experiments of barge-lightering model with various options(B1 –2800t, B2 – 2000t, B3 – 1000t, and B4 – 700t Barges , Values in ‘( )’ gives the Monsoon weather value) : The results from experiments of barge-lightering model with various options(B1 –2800t, B2 – 2000t, B3 – 1000t, and B4 – 700t Barges , Values in ‘( )’ gives the Monsoon weather value) Effect of Locating the Plant Jetty at Different Distances from the Sea : Effect of Locating the Plant Jetty at Different Distances from the Sea Effect of Locating the Plant Jetty at Different Distances from the Sea : Effect of Locating the Plant Jetty at Different Distances from the Sea If the savings due to reduced annual lighterage cost is more than the annual cost of transportation of materials from the new location to the plant, the new location of the jetty may be seriously considered. An alternative to the location may be imperative, particularly when the congestion in the river increases due to higher movement of bulk materials for the proposed integrated steel plant of the company and other industrial units that are coming up in the area. Effect of Dredging the Creek on Lighterage Cost : Effect of Dredging the Creek on Lighterage Cost The movement of the barges in the river is tide constrained.
The tide height in the creek varies from a high of 5 meters to a low of 0.6 meters above the Chart Datum at the highest of the high tides and at the lowest of low tides respectively.
The actual ground level in the creek varies from 0.8 to 9 Meters below the Chart Datum.
The draft requirement for the loaded barges varies from 3.8 meters to 2.0 meters.
The draft required for empty barges varies from 2.2 meters to 0.8 meters.
A safety clearance of 0.5 meters from the ground is also required in addition to the minimum draft essential for sailing.
One way of making barge movement less restrictive is to dredge the creek.
Dredging increases the depth of the channel below the chart datum and makes additional draft available for sailing of the barges at any given time
This is expected to bring down the lightering time of ships as the navigation will be less dependent on tides. Effect of Dredging the Creek on Lighterage Cost : Effect of Dredging the Creek on Lighterage Cost (B1 –2800t, B2 – 2000t, B3 – 1000t, and B4 – 700t Barges) Observations : Observations The maximum reduction in lighterage cost/ton for two meters of dredging is about rupees four per ton.
This could result in savings averaging around rupees twenty millions per annum.
This information will have to be used by the management to find the payback period of any investment in dredging and take an appropriate decision in the matter.
Another factor to be noted is that with about 0.5 meter of dredging more than three rupees of savings in lighterage cost is achieved.
Therefore deciding the most economical depth of dredging is also of great importance, for which the information in Table 6.7 can be used.
Since, cost of dredging is very high compared to the saving in lightering cost, the company alone can’t do the dredging at present.
It may be, however, considered later when the traffic volume in the creek increases due to the integrated steel plant and other units that are coming up along the banks of the Dharmatar river.
At that time by forming a confederation of creek user industries, one can seriously consider dredging option. The Monthly Ship Scheduling Model : The Monthly Ship Scheduling Model This is the plan for hiring ships for a month Daily Barge Scheduling ModelThe schedule for a Barge by the name : Mastya Rani : Daily Barge Scheduling ModelThe schedule for a Barge by the name : Mastya Rani Results from Model where only 2800 ton and 2000 ton Barges are allowed to BFL(B1 –2800, B2 – 2000, B3 – 1000, and B4 – 700 ton Barges) : Results from Model where only 2800 ton and 2000 ton Barges are allowed to BFL(B1 –2800, B2 – 2000, B3 – 1000, and B4 – 700 ton Barges) Results from Model where only 2800 ton Barges are allowed to BFL(B1- 2800 , B2 – 2000, B3 – 1000, B4 – 700 ton Barges) : Results from Model where only 2800 ton Barges are allowed to BFL(B1- 2800 , B2 – 2000, B3 – 1000, B4 – 700 ton Barges) Results from Model with Floating Crane and 100 percent Lightering in fair weather at BFL (B1 –2800 , B2 – 2000, B3 – 1000, and B4 – 700 ton Barges) : Results from Model with Floating Crane and 100 percent Lightering in fair weather at BFL (B1 –2800 , B2 – 2000, B3 – 1000, and B4 – 700 ton Barges) Results from Model with Floating Crane and Storage Vessel of 1,50,000 ton Capacity and 100 percent Lightering in fair weather at BFL(B1 – 2800 , B2 – 2000, B3 – 1000 and B4 – 700 ton barges, FC =Fixed charge) : Results from Model with Floating Crane and Storage Vessel of 1,50,000 ton Capacity and 100 percent Lightering in fair weather at BFL(B1 – 2800 , B2 – 2000, B3 – 1000 and B4 – 700 ton barges, FC =Fixed charge) Conclusions : Conclusions We have used a combination of mathematical, cost, and simulation models to optimize the raw material logistics system of the integrated steel plant.
solving such strategic problems as choice of source for each material, ideal ship size from each load port and the desirability of dredging the waterways
solving such tactical problems as annual procurement and inventory planning, and barge mix optimization and optimal ship size determination, and
solving such operational problems as ship scheduling, alternate ship schedule evaluation and daily barge scheduling. Conclusions : Conclusions The models described in this paper offer a complete package for the solution of the inbound raw material and ‘back –to back’ finished goods logistics problem of the integrated steel plant.
The approach of breaking complex logistics problems into sub-problems and using separate models to solve each sub-problem proved to be an effective problem solving strategy in this case.
Involvement of the operating personnel and managers in development of models, in collection of relevant data, explicit enumeration of operating logic and in validation of models proved very useful for the acceptance and implementation of the system.