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Logistics Management LSM 730 Lecture 15 Dr. Khurrum S. Mughal 1-1 Cost-Profit-Volume Analysis Cost-Profit-Volume Analysis Cost-Profit-Volume Analysis Since Bowling Green has the lowest Total Cost at the volume being produced, it will be chosen as the site of new facility Multiple Location Methods · A more complex problem that most firms have. · It involves trading off the following costs: - Transportation inbound to and outbound from the facilities - Storage and handling costs - Inventory carrying costs - Production/purchase costs - Facility fixed costs · Subject to: - Customer service constraints - Facility capacity restrictions · Mathematical methods are popular for this type of problem that: - Search for the best combination of facilities to minimize costs - Do so within a reasonable computational time - Do not require enormous amounts of data for the analysis CR (2004) Prentice Hall, Inc. 13-5 Location Cost Trade-Offs (Heuristic) Cost Total cost Warehouse fixed Inventory carrying and warehousing Production/purchase and order processing 0 Inbound and outbound transportation 0 CR (2004) Prentice Hall, Inc. Number of warehouses 13-6 Examples of Practical COG Model Use · Location of truck maintenance terminals · Location of public facilities such as offices, and police and fire stations · Location of medical facilities · Location of most any facility where transportation cost (rather than inventory carrying cost and facility fixed cost) is the driving factor in location · As a suggestor of sites for further evaluation CR (2004) Prentice Hall, Inc. 13-7 Mixed Integer Programming · A method used commercially - Has good problem scope - Can be implemented on a PC - Running times may be long and memory requirements substantial - Handles fixed costs well - Nonlinear inventory costs are not well handled CR (2004) Prentice Hall, Inc. 13-8 Transport Fundamentals When the Chinese write the word “crisis,” they do so in two characters—one meaning danger, the other opportunity. CR (2004) Prentice Hall, Inc. 6-9 CONTROLLING Customer service goals • The product • Logistics service • Ord. proc. & info. sys. Transport Strategy • Transport fundamentals • Transport decisions PLANNING Inventory Strategy • Forecasting • Inventory decisions • Purchasing and supply scheduling decisions • Storage fundamentals • Storage decisions ORGANIZING Transport Fundamentals in Planning Triangle Location Strategy • Location decisions • The network planning process CR (2004) Prentice Hall, Inc. 6-10 Importance of Effective Transportation System • Comparison of developing Vs developed countries • Increased Competition and access – Perishable Items • Economies of Scale – Auto Parts • Reduced Prices – Oil and Middle East CR (2004) Prentice Hall, Inc. 13-11 Transport System Defined · Performance - Average transit time - Transit time variability - Loss and damage - Other factors including availability, capability, frequency of movement, and various less tangible services · Cost - Line haul - Terminal/local - Accessorial or special charges CR (2004) Prentice Hall, Inc. 6-12