Inventory costs, transportation

If transition efforts can be expressed in terms of costs, the total costs for pipeline transport can be used as the planning objective. In this context, total costs comprise transition costs, transport costs, and inventory costs. Transport costs account for operational pipeline costs, such as the energy costs for pumping. These costs are affected by the pipeline s pump rate which needs to be explicitly controlled and planned when the transported materials differ in viscosity or other physical properties. Inventory costs are... 

Manufacturer code Finished goods code Production capability Inventory capability Setup cost Variable production cost Inventory cost Transportation capability... 

Machuca, J.A.D. and Barajas, R.R 2004. The impact of electronic data interchange on reducing bullwhip effect and supply chain inventory costs. Transportation Research Part E Logistics and Transportation Review, 40, 209-228. 

Raw-materials, intermediate, and finished-product inventories Cost of handling and transportation of materials to and from stores Cost of inventory control, warehouse, associated insurance, security arrangements, etc. 

Relaxation of hard boundaries enables to find a solution by adding continuous relaxation variables A 11 and A to the hard constraints measuring the deviation to the minimum and maximum boundaries respectively. Relaxation for sales, inventory and transportation constraints is used, where minimum and maximum quantities have to be met. Relaxation, however, should only be possible, if no feasible solution exists. Therefore, relaxation will be penalized with very high costs in the objective function. 

Distribution is the management of inventory to achieve customer satisfaction. Today, many companies have realized that distribution is a major frontier for both customer satisfaction enhancement emd cost reduction. It is important to remember that a good strategic distribution network plan is a requirement of success and that it should not be composed simply of ideas, thoughts, or possibilities whose validity has not been researched. The distribution network plan is based upon a set of premises concerning future sales volumes, inventory levels, transportation cost, and warehouse cost. Requirements should be defined, analyzed, and evaluated and should result in the development of a specific set of strategic requirements. A good distribution network plan is action oriented and time phased and keeps the ultimate customer s requirements at the forefront at aU times. 

These planning tools determine the appropriate production, transportation, and inventory policies for a set of manufacturing plants, warehouses and retailers. Specifically, given manufacturing, warehouse and retailer locations, production, inventory and transportation costs and capacities, and demand forecasts for each retail outlet, the objective is to determine policies that achieve high levels of customer service with minimal cost. 

As mentioned before, management wanted to decrease total logistics costs by reducing warehouses. A consolidated network would reduce inventory levels and other associated costs. Transportation costs could increase since it was estimated that there would be a trade-off in this case between less critical next-day tiir shipments and stock transfer shipments but more direct and smaller customer shipments. 

To be precise, the inventory costs dominate transport costs such that network flow primarily determines the total costs. 

Product availability is likelihood of having a product in stock when a customer order arrives. As the number of facilities increase, the amounts of inventories increase as well. That may result in product availability while increasing the inventory costs. We can say that transportation costs decrease to some extent when number of facilities increase. 

Strategy column of the table has MTO, make-to-order strategy. ATO is assembly-to-order strategy that means manufacturing components and assembling them based on customer order. MTP is make-to-plan. Total manufacturing cost includes manufacturing, inventory, and transportation costs. The relationship... 

Transportation network design decisions are affected by the cost of opening new facilities, holding inventory costs, inbound, outbound logistic costs among others. 

For shippers and transportation providers, an important metric is the total supply chain cost of transportation transactions. This total supply chain cost includes the effect on both transport costs and associated inventory costs. In addition, measures of performance include delivery lead time, percent on-time delivery or delivery within time windows, and schedule flexibility to accommodate shipment reschedules. Given the large volume of shipments that occur on dedicated contract trucking, there is scope for use of information, coordination agreements, and associated capadty commitments to improve performance across a supply chain. Competing carriers sell bundled routes to minimize shipper costs. 

Perhaps it would help to view the decision from the perspective of the shipper. The shipper had to contend with the transport costs, inventory costs, other incidental costs as a total supply chain cost effect. Would it help if ABC enabled customers to evaluate the total supply chain cost of alternatives If salespeople for ABC Rail could get an idea of competitive total supply chain cost by customer route, then ABC could identify how to adjust schedules and decide the number of wagons to wait for in order to beat the competition. Such an approach, repeated over and over across customers, would generate a customer-responsive train freight schedule. ABC had heard of an initiative by Burlington Northern called ShipSmart, which offered a similar service to shippers. Should ABC Rail use such an approach ... 

For supply chains, transportation flows enable products or components to change location, thus enabling them to be used at their demand points. The timing of these transportation flows in turn interacts with transport capacity and chain structure to impact supply chain performance. Given this interaction, the total supply chain impact of a choice of transportation flows has to include transport costs, cycle stock costs, safety-stock costs, and in-transit inventory costs. For each possible transport mode, there are... 

Figure 2.2 shows seven possible solutions for the problem. The routes examined included direct shipments from component plants to assembly plants, shipments through the warehouse, peddling (whereby trucks, originating from component plants, would make deliveries across various assembly plants), and combinations of such strategies. For each route, the shipment size could be full truckloads or the optimal shipment size. Figure 2.2 also shows the composition of transport and inventory costs in each of the seven possible logistics systems. 

Intransit inventory costs When inventory is shipped from the supply point, we assume that title for the goods passes to the buyer, who then arranges all transport. Thus the buyer is responsible for the inventory of goods in transit between supply and demand points. What is the level of inventory in transit from the supply to demand points ... 

Given a holding cost per unit per unit time, the associated in transit inventory cost is hLD. Note that the average in transit inventory is independent of the shipment size Q but only depends on the transport lead time and the demand rate. 

Industry estimates suggest that these volume surges create added costs in the form of premium transport costs, increased plant and warehouse capacity, and associated inventory costs. A 1992 study by Information Resources, Inc. (IRI), an industry analysis company, su ests that these costs can be as high as about 5% of sales or an industry-wide cost of 18 billion [1]. 

IBM s Optimizer [14] is a system for optimizing spare parts required by installed population of IBM products that exceeds tens of millions. The system tracks 200,000 part numbers and 15 million SKUs. It is used by over 15,000 customer engineers (CEs) that call in part requests. The parts may be delivered to the customer site before or after the CE arrives, the CE may use parts stored on the customer premise, or the CEs may carry a limited number of parts. The system was intended to minimize the overall inventory and transport cost while maintaining the part availability level (PAL) as specified by the service contracts. 

Network configuration The goal is to choose a set of facility locations and capacities, to determine production levels for each product at each plant, and to set transportation flows between facilities, either from plant to warehouse or warehouse to retailer, in such a way that total production, inventory, and transportation costs are minimized and various service level requirements are satisfied. 

The calculation of border prices for traded goods usually includes afi adjustment to take account of domestic transportation to a project or to the project s primary market. For exports, the f.o.b. price is the total cost expended to produce, transport to the border, and prepare for transportation outside the country of origin. For imports, the c.i.f. price is the landed cost of an import including insurance but net of any additional domestic tariffs or other taxes and fees. It should also be adjusted for internal transport costs or savings from the port of entry to the market if these costs are significantly different from domestic factory-to-market costs, and it may also be adjusted for additional inventory cost required to cover delays or lumpiness in supply compared to domestic shipments ... 

Blumenfield, D.E, L.D. Bums, J.D. Diltz, and C.F. Deganzo, Analyzing Tradeoffs Between Transportation, Production And Inventory Costs On Freight Networks, Transportation Research, 19b (1985), 361-380. 

We first describe a basic model which will be used in this section as a reference point when we review results in this problem class. Most problems studied in this area have a similar structure and share many assumptions made in this basic model. A manufacturer produces one product on a single production line at a constant rate for a customer with a constant demand rate for the product which must be satisfied without backlog. At the manufacturer s end, there is a fixed setup cost for each production run, and a linear inventory holding cost. At the customer s end, there is a linear inventory holding cost. Between the manufacturer and the customer, there is a fixed delivery cost per order delivered from the manufacturer to the customer, regardless of the order size. The problem is to find a joint cyclic production and delivery schedule such that the total cost per unit time, including production setup costs, inventory costs at both the manufacturer and the customer, and transportation costs, is minimized over an infinite planning horizon. 

The problem is to determine in each time period how much to produce at the manufacturer, how much to keep in inventory at the manufacturer and at each customer, and how much to ship from the manufacturer to each customer, so that the total cost including production setup, inventory, and transportation, is minimized. 

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