Iteratoal Joural of Iformato Techology ad Kowledge Maagemet July-December 200, Volume 2, No. 2, pp. 3-35 LATERAL TRANSHIPMENT-A TECHNIQUE FOR INVENTORY CONTROL IN MULTI RETAILER SUPPLY CHAIN SYSTEM Dharamvr Magal & Paka Chada 2 Utlzg emergecy lateral trasshpmets betwee retalers to meet customer demad ca be a effectve meas for compaes to mprove servce levels ad/or reduce costs a supply cha. I ths work, wth the help of a model developed we exame the cost effects of lateral trasshpmet approaches a supply cha etwork, wth a sgle supply source ad multple retal locatos. The retalers, who possbly dffer ther lead tme ad demad parameters, may be coordated through emergecy lateral trasshpmets, that s, movemet of a product amog the locatos at the same echelo level due to shortage of materal. I geeral, f a demad occurs at a locato ad there s o stock o had, the demad s assumed to be backordered or lost. However, ths work, lateral trasshpmets serve as a emergecy supply case of stock out. The trasshpmet rule s to always trasshp whe there s a shortage at oe locato ad stock o had at the other. A mportat fdg s that lateral trasshpmet approach s cosderably superor to a polcy of o such trasshpmets terms of cost reducto albet at the expese of creased trasportato actvty. Furthermore, wth the help of model developed ad by solvg the example problem, fally we observed the beefts of lateral trasshpmet terms of mprovemet customer servce level ad overcomg the ucertaty of demad ad lead-tme. Keywords: Supply Cha Maagemet; Ivetory Maagemet; Lateral Trasshpmet.. INTRODUCTION The creasg compettve pressures the global marketplace have brought supply cha to the forefrot of the busess practces. Supply cha maagemet has creasgly become a evtable challege to most compaes to be cotuously survved ad prospered the global cha-based compettve evromet. Supply cha maagemet s cocered wth the coordato ad tegrato of key busess actvtes udertake by a eterprse, from the procuremet of raw materals to the dstrbuto of the fal products to the customers. It s a set of approaches utlzed to effcetly tegrate supplers, maufacturers, warehouses, ad stores, so that merchadse s produced ad dstrbuted as the rght quattes, to the rght locatos, ad at the rght tme, order to mmze system wde costs whle satsfyg servce level requremets. Supply cha maagemet covers the products ad formato flow betwee the supply cha members. These products are becomg more complex, have a greater varety of optos ad must be talored to a greater umber of shrkg market ches. May quattatve models have bee costructed to prove decso Assstat Professor, Mechacal Egeerg Departmet, The Techologcal Isttute Of Textle Ad Sceces, Bhwa, Haryaa, Ida 2 Assocate Professor, Mechacal Egeerg Departmet, Natoal Isttute Of Techology, Kurukshetra, Haryaa, Ida Emal: magaldharamvr@redffmal.com, pchada08@gmal.com 2 support for the maagemet of materals supply chas ad a excellet revew of these models s gve by []. Oe of the maor ssues a supply cha s maagemet of vetory. Supply cha vetory maagemet s a tegrated approach to the plag ad cotrol of vetory, throughout the etre etwork of cooperatg orgazatos from the source of supply to the ed user. Ivetory usually represets from 20% to 60% of the total assets of a frm. Therefore, vetory maagemet polces prove crtcal determg the proft of such frms. For the success of supply cha, flow of materal (vetory) ad formato should be maaged properly. Besdes these two, oe more factor that s equally mportat s relatoshps amog supply cha members. Ths relatoshp affects all areas of the supply cha ad has a dramatc mpact o ts performace. Moreover, the sgle most mportat gredet for successful supply cha maagemet may well be a trustg relatoshp betwee parters the supply cha, where each party the cha has mutual cofdece the other members capabltes ad actos. Relatoshp amog supply cha members ca be mproved by usg lateral trasshpmet techque. Lateral trasshpmet s a motored movemet of materal betwee locatos at the same echelo; provde a effectve mechasm for correctg dscrepaces betwee the locatos observed demad ad ther avalable vetory. Lateral trasshpmet s defed as the redstrbuto of stock from retalers wth stock o had to retalers that caot meet customer demads or to retalers that expect sgfcat losses due to hgh rsk [2]. Lateral trasshpmet s a very effectve tool to measure ad mprove servce level of the etre supply
32 DHARAMVIR MANGAL & PANKAJ CHANDNA cha or of a dvdual retaler [3]. Lateral trasshpmet ca be dvded to Emergecy Lateral Trasshpmet (ELT) ad Prevetve Lateral Trasshpmet (PLT). ELT madates emergecy redstrbuto from a retaler wth ample stock to a retaler that has reached stockout [4]. PLT reduces rsk by redstrbutg stock betwee retalers that atcpate stockout before the realzato of customer demads. I short, ELT respods to stockout whle PLT reduces the rsk of future stockout. Oe ca thk of at least sx mportat features that should be take to accout whe tryg to preset exstg work systematcally: () the umber of locatos the poolg group, () the repleshmet lead tme from the cetral warehouse, () the demad process, (v) the tmg (before or after demad s observed) ad cosequet purpose of trasshpmet (prevetve or emergecy), (v) the reparablty of stocked tems, ad (v) the measure of performace (cost or servce level) [2]. However, sce the etwork of facltes that costtute the etre supply cha s typcally too complex to aalyze ad optmze globally, t s ofte desrable to cocetrate o smaller parts of the system so as to ga a full uderstadg of ts characterstcs, performace ad tradeoffs volved. Oe such part that s attractg growg atteto s the local dstrbuto etwork, cosstg of multple retal outlets (stockg locatos), whch are suppled by a cetral warehouse or dstrbuto ceter [2, 5, 6, 7]. A better dstrbuto of avalable vetory amog the stockg locatos ca be acheved by prevetve trasshpmet that takes place before realzato of the etre orderg cycle s demad [8, 9, 0]. [6] resorted to smulato order to study the two-retaler vetory system wth o-eglgble repleshmet lead tmes ad uequal cost parameters. Ther ma fdg s that complete poolg s stll superor to partal poolg,.e. trasshpmet polces usg target ad\or reserves stock levels. They also provded approxmatos for the expected o-had vetores, backorders ad trasshpmets, as well as a heurstc algorthm for determato of ear-optmal order-up-to quattes complete poolg. The earlest cotrbuto to the emergecy lateral trasshpmet problem whch the optmal order-up-to quattes assumg that the repleshmet lead-tme s zero ad all costs at each locato are detcal s derved [4,, 2, 3]. Earler lot of work has bee reported o PLT ad ow ths work ELT s used for the purpose of vetory cotrol ad for cost savg. Although ot uversal to all dustres, there has bee a geeral shft of power from maufacturers to retalers over the last two decades, whch has resulted from a combato of factors [5]. I ths work a model has bee formulated cosderg oe cetral warehouse caterg to retalers. Model allows complete poolg betwee retalers. Itally mea demad, mea lead tme ad revew perod are take as puts to the software developed ad the resultg outputs are maxmum vetory level, reorder level, demad ad lead tme varato. The by troducg the demad ad lead tme whch are radomly geerated for retalers for umber of days the software we are able to get had vetory, surplus quattes, ordered quattes, trast vetory ad vetory reached at a partcular day for all the retalers ad for all perods.e. for complete umber of days. Holdg cost ad backorder cost are calculated for the case whe there s o trasshpmet ad trasshpmet cost s added whe there s emergecy lateral trasshpmet of -had stock amogst the retalers for the calculato of total cost assocated wth retalers. The a comparso s doe for dfferet aspects of vetory cotrol usg lateral trasshpmet. By usg example problem fally ths paper t has bee foud that by corporatg lateral trasshpmet trasportato cost s creased, yet t s a better techque tha a polcy of o trasshpmets. Lateral trasshpmet s a vable approach for reducg total cost assocated wth all retalers ad also the total vetory avalable, surplus vetory ad stock out quattes for all retalers s less case of lateral trashpmet as compared to wthout trasshpmet as well as servce levels are also mproved. 2. THE MODEL FORMULATION AND METHODOLOGY A model has bee formulated for study ad to solve the exstg problem of mmzg vetory ad also the total assocated cost wth retalers served by a cetral warehouse. The model cosders a supply cha vetory system havg oe cetral warehouse or dstrbuto cetre wth a very large capacty, ad umbers of retalers. Each retaler faces ormally dstrbuted radom demad patter, demad at every retal outlet s depedet of other s demad. Lead-tme s also ormally dstrbuted ad depedet of other retaler s lead-tme. All retalers are followg perodc revew polcy. Cetral warehouse supples a fxed quatty of uts to the retalers ad ot allow trasshppg more quatty, case of stock-out a partcular perod. If surplus quatty s remaed after fulfllg the demad, retaler wll hold t. I case of shortage at oe retaler ad avalablty of product at ay other retaler, lateral trashpmet occurs betwee them. Demad ot satsfed after trasshpmet s cosdered as shortage. Model allows complete poolg betwee retal outlets. The three retalers have detcal ut costs of shortage per perod, holdg ad ut trasshpmet cost betwee ay two retalers. Ut lateral trasshpmet cost amog retaler s beg very low as compared to orderg from cetral warehouse. Relatoshps of dfferet costs ad, dfferet vetory polces are gve as per followg descrpto. Relatoshps for servce level are also dscussed to measure the performace.
LATERAL TRANSHIPMENT-A TECHNIQUE FOR INVENTORY CONTROL IN MULTI RETAILER SUPPLY CHAIN SYSTEM 33 I ths work perodc revew vetory polcy s cosdered. Ivetory s checked at the ed of every sgle perod ad f vetory s less tha or equal to reorder level quatty the a order s placed. Maxmum level of vetory s gve as M = (Revew Perod + Mea Lead Tme)*Mea Demad or M = (R + l m ). Reorder level s amout of vetores such that, f vetory level touches t or fall below ths a order s placed. Recorder level of vetory s gve as per followg relato. Rl = Mea Lead Tme*Mea Demad or Rl = l m D m. Whe vetory reaches at reorder level or below ths level, a order s placed. Here trast vetory s also cluded, to calculate the ordered quatty by retaler. It s the vetory, whch has, bee ordered but yet could reach to retaler. Hece ordered quatty ca be calculated as per followg relato, Q = Maxmum Level of Ivetory (I trast Ivetory + Surplus Ivetory) or Q = M (Q t + H ). Surplus quatty of prevous day s held by retaler. Thus total vetory for sale partcular perod s gve as, T = Surplus vetory of prevous day + Ivetory reached that day to retaler or T = S + Q r. It s assumed that all retalers have maxmum level of vetory at the start, for both the cases wth trasshpmet ad wthout trasshpmet. Here expected cost s adopted, to measure the performace of the system. I geeral total cost cosst of the trasportato cost from the cetral warehouse, vetory holdg cost, shortage cost ad cost of emergecy lateral trasshpmet. But trasportato cost log ru, wll ot vary wth demaded quatty ad ordered quatty. Hece we take trasportato cost costat for overall system. Ths wll be depedet of base stock ad trasshpmet polcy, ad ca be dsregarded. Thus applcable cost fucto clude oly holdg, shortage ad lateral trasshpmet cost terms, so expected cost for holdg s gve as, E() CH = Ut holdg cost * surplus quatty of retaler or E() CH = C H () Expected cost of shortage s gve as E() CO pealty cost * Stock out quatty of retaler or h = Ut E() CO = CpO (2) ad expected cost of lateral trasshpmet s gve bye () CT =, = =, =, Ut trasshpmet cost*trasshpmet =, = quatty from retaler to or E() CT = Ct X (3), =, Now expected cost per perod, wth trasshpmet, wll be sum of expected holdg cost, expected shortage cost, expected lateral trasshpmet cost. It ca be gve by followg relatoshp. E (C) = Expected Holdg Cost + Expected Shortage Cost + Expected Lateral Trasshpmet Cost or E (C) = E(CH) + E(CO) + E(CT) or =, = E () C = C H + C O + C X (4) h p t, =, I case of, wthout trasshpmet expected cost wll be sum of expected holdg cost ad expected stock out cost. It ca be wrtte as followg. E 2 (C) = Expected Holdg Cost + Expected Stock-Out Cost or E 2 (C) = E(CH) + E(CO) E2 () C = ChH + CpO (5) The performace of system s measured by expected cost ad servce level. Servce level ca be show two ways. These are, demad servce level ad perod servce level. Demad servce level ( SL ) gves better dea of satsfed customer. But whe prevous day s usatsfed customer demad, does ot affect ext day s demad, the Perod servce level ( SL 2 ) ca be used to measure the performace. as: Demad servce level ca be mathematcally wrtte SL = Total stock out quatty/total demad or SL = O D Perod servce level ca be wrtte as follows: SL 2 = Total No of Stock out Perods / Total No of Perods or SL 2 = N O /N T (7) Oe of the above relatos ca be used to measure the servce level of system. Usg these equatos software has bee developed to mmze those perods whch the supplers are ot posto to serve products to customers ad t ca be acheved by corporatg lateral trasshpmet the model as well as the software. The model s ow mplemeted o a example problem as explaed secto 3. 3. EXAMPLE PROBLEM The software developed s applcato oreted ad ru o oe example problem. The problem cosders three retal outlets, wth oe cetral warehouse. Warehouse s far away from retal outlets, but retal outlets are very ear to each other. There s varable lead tme, whch s accordg to (6)
34 DHARAMVIR MANGAL & PANKAJ CHANDNA ormal dstrbuto curve, t s cosdered that delay may be due to dfferet reasos such as accdets, road blocks etc. Sce retal outlets have varable demad ad lead tme, whch are radomly geerated, they face shortage or surplus. Whe there s o trasshpmet amog retalers, the retalers have to pay for surplus or shortage. However wth lateral trasshpmet both holdg ad shortage quatty decreases smultaeously shortage or surplus at oe retal outlet s decreased or removed thereby reducg the total expected cost. If the retal outlets do ot cosder for lateral trasshpmet, they have to pay holdg cost for surplus vetory that remas after the dvdual demad s satsfed ad have to pay for shortage cost, f stock-out take place at some outlets. Here three outlets are cosdered to form a complete poolg group. Complete poolg meas that outlet wth surplus wll trasshp, ts etre surplus to fulfll the shortage at the other outlets f the surplus s less tha or equal to the shortage. For each retaler costat holdg cost, shortage cost ad trasshpmet cost are assumed. The demad for the three retalers s radomly geerated for 60 demad perods of 20 each (retal outlet) cost parameters for all the retalers are assumed to be same for the etre group. Holdg cost for each surplus ut s Rs. 4 per ut. Shortage at each retaler s charged wth Rs. 3 per ut, ad trasshpmet cost of the group s take as Rs. 2 per ut. Mea demad s take as 5 uts ad ts stadard devato s 3, ad mea of lead-tme s take 2 ad ts stadard devato s take as. Example problem s solved for lateral trasshpmet as well as wthout lateral trasshpmet. Servce level ad total cost assocated wth all the retalers both cases of trasshpmet ad wthout trasshpmet are calculated. Now we have complete data wth us ad the soluto s as per followg steps. 4. RESULTS AND DISCUSSIONS Emergecy lateral trasshpmet mult retaler system has bee studed. Dfferet aspects for two cases, wth trasshpmet ad wthout trasshpmet have bee compared. The comparso s made for dfferet aspects of vetory, such as Total Ivetory Avalable (Fg. ), Customer Demad, Surplus Ivetory, Total Cost (Fg. 2) ad Stock out Quatty. To measure the performace of system as well as performace of dvdual retaler, the servce level has also bee covered. Total vetory of all the 3 retalers for 20 days wthout trasshpmet s 278 ad wth trasshpmet s 23. Therefore by usg lateral trasshpmet reducto vetory s 47 peces as show fg.. Whle comparg cost t has bee foud that total cost wthout trasshpmet whch s the sum of holdg ad shortage cost s Rs. 277, ad wth trasshpmet that eve clude trasshpmet cost s Rs. 2489 as show fg. 2. Fg. : Comparso of Ivetory Avalable Per Day. It clearly dcates that wth lateral trasshpmet moey saved wth 20 days s Rs. 282. It has bee foud that stock out quattes wth trasshpmet are 30 os. less as compared to wthout trasshpmet that meas 30 more customers were beeftted whle adoptg lateral trasshpmet supply cha maagemet. Shortage of tems covered wth trasshpmet 20 days s 58 otherwse t would be 88 f there were o trasshpmet betwee three retalers. Further t has bee observed that surplus quattes wth trasshpmet are 77os. less otherwse case of o trasshpmet we ve to pay holdg cost for these surplus quattes. Fg. 2: Comparso of Total Cost (Holdg + Shortage + Trasshpmet Cost) Demad servce level has bee foud 0.87 for wthout trasshpmet ad 0.9 for wth trasshpmet ad perod servce level s 0.55 the case of wthout trasshpmet ad 0.8 wth trasshpmet. So t s very much clear that lateral trasshpmet trasportato cost s creased, yet t s a better approach tha a polcy of o trasshpmets because total cost assocated s less. 5. CONCLUSIONS I ths paper a model has bee formulated for oe cetral warehouse servg to retalers. Emergecy lateral trasshpmet techque s used for cotrollg vetores ad assocated costs for all the retalers ad fally t s cocluded that surplus quattes ad stock-out quattes are less case of lateral trasshpmet, so holdg cost ad back order cost are decreased. The total expected cost s less, case of lateral trasshpmet tha wthout trasshpmet. It s true for dvdual retaler, as well as
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