Supply Chain Management (SCM) 101: Transportation Management - Routing and Scheduling, Vehicle Routing Problem Milk Runs Hub-and-Spoke

What This Is

Routing and Scheduling is a critical supply chain management concept that involves determining the most efficient routes for vehicles, such as trucks or drones, to travel between locations, while also scheduling their departure and arrival times. This concept is essential in supply chain management as it directly impacts transportation costs, lead times, and customer satisfaction. For example, Amazon uses advanced routing algorithms to optimize its delivery routes, reducing costs and increasing on-time delivery rates.

Key Frameworks & Formulas

• Vehicle Routing Problem (VRP): A mathematical problem that aims to find the shortest possible route for a fleet of vehicles to visit a set of locations, while satisfying constraints such as time windows and capacity limits.
• Milk Run: A logistics strategy where a single vehicle visits multiple locations to collect or deliver goods, reducing the number of vehicles on the road and increasing efficiency.
• Hub-and-Spoke: A distribution network design where goods are transported from a central hub to multiple spokes, reducing transportation costs and increasing flexibility.
• EOQ (Economic Order Quantity): A formula for determining the optimal order quantity, given by EOQ = ?(2DS/H), where D is demand, S is setup cost, and H is holding cost.
• Safety Stock: A buffer stock to protect against stockouts, calculated as Safety Stock = Z ×-× ?L, where Z is the Z-score,-is standard deviation, and L is lead time.
• Fisher's Model: A framework for classifying products into three categories: service, product, and inventory, based on their characteristics and requirements.
• SCOR (Supply Chain Operations Reference): A framework for measuring and improving supply chain performance, covering five processes: plan, source, make, deliver, and return.
• Traveling Salesman Problem (TSP): A mathematical problem that aims to find the shortest possible route for a salesman to visit a set of locations and return to the starting point.
• Capacity Utilization: A measure of how efficiently a vehicle or a fleet is being used, calculated as Capacity Utilization = (Total Distance / Available Capacity).
• Lead Time: The time it takes for a vehicle to travel from one location to another, including loading and unloading times.

Step-by-Step Application

1. Define the problem: Identify the locations to be visited, the capacity of the vehicles, and the time windows for each location.
2. Develop a routing algorithm: Use a mathematical algorithm, such as the VRP or TSP, to determine the most efficient routes for the vehicles.
3. Schedule the vehicles: Assign departure and arrival times to each vehicle, taking into account the time windows and capacity constraints.
4. Monitor and adjust: Continuously monitor the performance of the routing and scheduling system and make adjustments as needed to optimize efficiency and reduce costs.
5. Consider alternative modes: Evaluate the use of alternative modes of transportation, such as drones or electric vehicles, to reduce costs and increase efficiency.
6. Implement a milk run: Consider implementing a milk run strategy to reduce the number of vehicles on the road and increase efficiency.

Common Mistakes

• Mistake: Assuming that the VRP is a simple problem that can be solved using a basic algorithm.
• Correction: The VRP is a complex problem that requires advanced algorithms and heuristics to solve efficiently.
• Mistake: Failing to consider the time windows and capacity constraints when developing a routing algorithm.
• Correction: Time windows and capacity constraints are critical factors that must be taken into account when developing a routing algorithm.
• Mistake: Not monitoring and adjusting the routing and scheduling system regularly.
• Correction: Regular monitoring and adjustment are essential to optimize efficiency and reduce costs.

Exam / Certification Tips

• Be prepared to solve complex problems: The VRP and TSP are complex problems that require advanced mathematical skills to solve.
• Understand the importance of time windows and capacity constraints: These factors are critical in determining the efficiency of a routing algorithm.
• Know the different types of routing algorithms: Be familiar with the different types of routing algorithms, including the VRP, TSP, and milk run.
• Understand the concept of capacity utilization: This measure is essential in evaluating the efficiency of a vehicle or a fleet.

Quick Practice Problem

A logistics company has a fleet of 10 trucks that need to visit 20 locations. The lead time for each location is 2 hours, and the capacity of each truck is 100 units. What is the reorder point for each location?

Answer: The reorder point is 50 units, calculated as Reorder Point = (Capacity / 2) × (Lead Time / 2).

Last-Minute Cram Sheet

• VRP: A mathematical problem that aims to find the shortest possible route for a fleet of vehicles to visit a set of locations.
• Milk Run: A logistics strategy where a single vehicle visits multiple locations to collect or deliver goods.
• Hub-and-Spoke: A distribution network design where goods are transported from a central hub to multiple spokes.
• EOQ: A formula for determining the optimal order quantity, given by EOQ = ?(2DS/H).
• Safety Stock: A buffer stock to protect against stockouts, calculated as Safety Stock = Z ×-× ?L.
• Fisher's Model: A framework for classifying products into three categories: service, product, and inventory.
• SCOR: A framework for measuring and improving supply chain performance, covering five processes: plan, source, make, deliver, and return.
• TSP: A mathematical problem that aims to find the shortest possible route for a salesman to visit a set of locations and return to the starting point.
• Capacity Utilization: A measure of how efficiently a vehicle or a fleet is being used, calculated as Capacity Utilization = (Total Distance / Available Capacity).
• Lead Time: The time it takes for a vehicle to travel from one location to another, including loading and unloading times.
• Postponement delays final configuration, not production – it’s a push-pull boundary strategy.