Operation Research & LSCM in decision making
Operation Research & LSCM in decision making
Introduction to operation research
Operations Research is the application of analytical methods designed to help the decision makers choose between various courses of action available to accomplish specified objectives.
Definition of operation research
Operations means the activities carried out in an organization. Research means the process of observation and testing characterized by the scientific method. Situation, problem statement, model construction, validation, experimentation, candidate solutions.
Operations Research is a quantitative approach to decision making based on the scientific method of problem solving.
Operation research in Logistics Supply Chain Management decision making
Every industrial organization faces multifaceted problems to identify best possible solution to their problems. OR aims to help the executives to obtain optimal solution with the use of OR techniques. It also helps the decision maker to improve his creative and judicious capabilities, analyze and understand the problem situation leading to better control, better co-ordination, better systems and finally better decisions.
Logistics and supply chain management is more concerned with the following decision parameters: Optimal location and arrangement of fixed storage facilities such as the warehouse depots or supply centers so as to provide the customers with desired products, number of depots/supply centers?, How should different customers be supplied from the different depots/supply centers?, Inventory control system and policies in these depots and Optimal management of the transport/shipment of the products. Besides the above factors, there are some other factors such as:
What packaging to use in order to prevent damage? What is to be the frequency? Which routes to be chosen for shipment? What quantity and the mix of the above? Railway/truck /air/water
The LSCM decisions have a direct impact upon the distribution cost and the customer service. The total cost of distribution system may be identified as follows as by taking the total of fixed cost of transportation (TFC), Variable Cost of transportation (TVC), Fixed Cost of supply chain (TFC), variable Cost of Service centers (SVC), Inventory Related Cost (IC) and Packaging Cost (PC).
Optimal warehouse location
Optimal warehouse location selection is a processing of selecting allocation centre in economic region where there are some supply stations and the certain demand point.
Two ways to service customers:
Each customer requires a full-load supply and, therefore, the optimal location of the DC is equal to the point O. A single vehicle can service all points and hence the facility can be located at any point of the triangle ABC perimeter.
Methods of location analysis
The methods of location analysis depend on location factor rating, Centre-of-gravity, load distance and Break Even Analysis.
Location Factor Rating
The process of selecting a new facility location involves a series of following steps:
Identify the important location factors, Rate each factor according to its relative importance, Assign each location according to the merits of the location for each factor, Calculate the rating for each location by multiplying factor assigned to each location with basic factors considered, Find the sum of product calculated for each factor and select best location having highest total score.
Center of Gravity
Centre of gravity is based primarily on cost considerations. This method can be used to assist managers in balancing cost and service objects. The centre of gravity method takes into account the locations of plans and markets, the volume of goods moved, and transportation costs in arriving at the best location for a single intermediate warehouse.
Load Distance technique
The load distance method is a mathematical model used to evaluate locations based on proximity factors the objectives is to select a location that minimizes the total weighed loads moving into and out of the facility. The distance between two points is expressed by assigning the points to grid coordinates on a map.
Break Even Point (BEP) Analysis
Break even analysis implies that at some point in the operations, total revenue equals total cost. Break even analysis is concerned with finding the point at which revenues and costs agree exactly. It is called ‘Break-even Point’. Break Even Point is the volume of output at which neither a profit is made nor a loss is incurred. The Break Even Point (BEP) in units can be calculated by using the relation: