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Seminar Report
Master of Technology
in
Industrial Engineering and Management
by
Dr. R. Sridharan
Faculty-in-Charge
(MEA692- Seminar)
Dept. of Mechanical Engineering
Dr. S. Jayaraj
Professor & Head
Dept. of Mechanical Engineering
I wish to express my sincere thanks to Dr. S. Jayaraj, Professor and Head, Department of
Mechanical Engineering, for providing the necessary facilities to carry out this work.
Last but not the least, I extend hearty thanks to all our teachers whose constant support
and encouragement helped me to complete this seminar in time.
1. Introduction 1
1.1. Introduction 1
1.2. Problem Definition 1
1.3. Outline of the Report 2
2. Literature Review 3
2.1. Literature Review 3
3. Modeling 4
3.1. Introduction 4
3.2. Assumptions in the Model 4
3.3. Annual Total Cost of the Manufacturer 6
3.4. Delivery Lot Size 7
3.5. JIT Cost Model Associated with the 3PL 8
3.6. Algorithm 9
4. Case Study 10
4.1. Case Study 10
5. Conclusion 12
5.1. Conclusion 12
References 13
LIST OF SYMBOLS
ii
CHAPTER 1
INTRODUCTION
1.1 INTRODUCTION
1
to outsource their global logistics activities strategically in order to obtain the
numerous benefits such as cost reduction and service improvement.
The 3PL, which involves a firm acting as a middleman not taking title to
the products, but to whom logistics activities are outsourced, has been playing a
very important role in the global distribution network. A 3PL firm is a
professional logistics company profiting by taking charge of a part or the total
logistics in the supply chain of a focal enterprise. 3PL also connects the suppliers,
manufacturers, and the distributors in supply chains and provide substance
movement and logistics information flow. The core competitive advantage of a
3PL firm comes from its ability to integrate services to help its customers
optimize their logistics management strategies, build up and operate their logistics
systems, and even manage their whole distribution systems.
The report starts with the literature review of various studies conducted in
this area. Then the model is explained starting with stating the assumptions, then
Annual Total cost, Delivery Lot Size, JIT Cost model and the model algorithm. A
case study is also explained to show how the model performs in real world.
2
CHAPTER 2
LITERATURE REVIEW
3
CHAPTER 3
MODELING
3.1 INTRODUCTION
Since the JIT system are more appropriately executed among those
companies that are close to each other, a collaborative 3PL connected the
upstream manufacture with the downstream assembler is necessary when the
products have to be delivered from the upstream manufacture to the downstream
assembler by sea transportation over a long distance. Here a JIT cost model is
proposed to obtain the optimal production lot size, the actual delivery lot size, the
most suitable transportation container type, and the exact number of shipments
from the manufacturer to the 3PL provider at the minimum total cost.
i. There is only one assembler and one manufacturer for each product.
ii. The production rate of manufacturer is uniform, finite and higher than
the demand rate of the assembler.
iii. There is no shortage in both raw materials and products.
iv. The demand for products that the assembler receives is fixed and is at
regular intervals.
v. Delivery lot size from manufacturer to 3PL provider is more than
assembler’s demand during that interval.
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vi. The space of the manufacturer’s warehouse is sufficient for keeping all
inventories of products that the manufacturer produces.
vii. Products are delivered to 3PL providers in large containers.
viii. The transportation rates from the manufacturer to the 3PL and from the
3PL to the assembler are computed by the number of shipments and
the product’s weight, respectively.
ix. Qj is much greater that demand at a regular interval, d (qj d. where
j=1, 2, 3….n).
In this study, the buyer’s average inventories can be divided into IL and
IA since the 3PL provider has been collaborated besides the manufacturer and the
assembler. In addition to IT; IA is a constant due to the constant demand rate.
I.e., the total of IM and IL , have to be a constant as well. Under the JIT system
focusing towards the assembler, the manufacturer’s inventories will be kept either
with the manufacturer himself or with the 3PL provider. In general, the
manufacturer usually delivers the necessary inventories of products to the 3PL
provider so as to cope with the down- stream assembler’s needs under the JIT
system. Based on the assumption (vi), the inventories of products will be kept
with the manufacturer and, therefore, all unnecessary inventories of products
should be kept with the manufacturer rather than with the 3PL provider to avoid
extra expenses. Since the delivery lot size is based on the downstream
assembler’s needs instead of the total capacity of the adopted transportation
container type, the method used to decide the delivery lot size and the
corresponding number of shipments from the manufacturer to the 3PL provider so
as to reduce the total cost under the JIT system will be demonstrated in this
study. In addition, the optimal production lot size of the manufacturer will also
be explored based on the delivery lot size so that production and transportation
can be synchronized.
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3.3 ANNUAL TOTAL COST OF THE MANUFACTURER
The Total cost includes Ordering Cost, Inventory Holding Cost of Raw
materials, Inventory Holding cost of Products, Transportation Costs from
Manufacturer to 3rd Party Logistics provider and Cost of 3rd Party Logistics
provider (including profit).
Accordingly, the annual total cost of the manufacturer, who adopts the jth
transportation container type to deliver the products to the 3PL provider, under the
JIT system can be determined as follows:
( )
Ij = ( )
Cj = E + DpB + Dpwf
In Eq. (3.1), ( )Hr, IjHp, ( )Fj and (1+i)Cj are the Holding cost,
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3.4 DELIVERY LOT SIZE
7
from the 3PL provider to the assembler at each interval, rj, is obtained as follows
so that these remaining inventories can be avoided.
The actual delivery lot size of the jth transportation container type, qj, is:
Assume all raw materials are converted into final product without any
wastage. Then the ratio between raw materials with ordering quantity of raw
materials and Annual demand rate of product with production lot size becomes
equal.
(3.7)
( )
TC(mj) = K+ mjqj Hr+ ( ) Hp+ Fj +
( )
=0 (3.10)
8
mj* = √ ( )
for j = 1, 2, 3...n (3.11)
3.6 ALGORITHM
The algorithm for investigating the optimal production lot size and delivery
lot size under the JIT system associated with the 3PL is:
i. Collect data such as Qj, d, Dp, P, Hr, Hp, K, Fj, I, E, B, w and f.
ii. Compute Actual Delivery lot size, qj.
iii. Find the Optimal number of shipments, mj*.
iv. Compute Annual Total cost, TC(⌊ ∗⌋), TC(⌈ ∗⌉).
9
CHAPTER 4
CASESTUDY
4.1 CASESTUDY
k1 = = = 10.32
10
Actual Delivery Lot Size, q1 = r1 x d = 10 x 465 = 4650
No. of shipments, m1 = 5.194, this should be an integer. So m11 = 5, m12 = 6
Total Cost, TC(5) = `189,755. TC(6) = `192,894.
Here m1 is giving the minimum total cost, so it is selected.
Optimum no. of shipments, m1* = 5
Optimum Production Lot size, Nj* = m1* x qj = 5 x 4650 = 23,250
11
CHAPTER 5
CONCLUSION
5. 1 CONCLUSION
How to implement the JIT system under a global environment has been
attracting increasing attention. Since the downstream assemblers ask the
upstream manufacturers to deliver products using the JIT system, the integration
of 3PL provider will become an extremely important partner in implementing
the JIT system under a global environment in the future.
Some products with larger delivery lot sizes are suitable for sea
transportation. When these products have to be delivered from the upstream
manufacturer to the downstream assembler under a JIT system, the 3PL
provider can collaborate as an inter- face between the upstream manufacturer and
the downstream assembler. The products can be delivered from the
manufacturer to the 3PL provider by optimal delivery lot size to reduce the
transportation cost, and the products can also be delivered from the 3PL
provider to the assembler using smaller delivery lot sizes at a higher delivery
frequency to satisfy the assembler’s needs. A quantitative cost model which can
be executed using a JIT system associated with the 3PL is proposed in order to
investigate the most cost-effective transportation container type, the optimal
production lot size and delivery lot size of the manufacturer which gives the
lowest total cost.
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REFERENCE
[1]. Chian Wang, I., 2010, The application of third party logistics to
implement the Just-In-Time system with minimum cost under a global
environment, International Journal of Expert Systems with
Applications, 37, 2117-2123.
[2]. David, I., & Chaime, M. E., 2003, How far should JIT vendor–buyer
relationship go? International Journal of Production Economics, 361–
368.
[3]. Kelle, P., Khateeb, F. A., & Miller, P. A., 2003, Partnership and
negotiation support joint optimal ordering/setup policies for JIT.,
International Journal of Production Economics, 431–441.
[4]. Khan, L. R., & Sarker, R. A., 2002, An optimal batch size for a JIT
manufacturing system, Computers & Industrial Engineering, 42(2–4),
127–136.
[5]. Koulamas, C. P., 1995, Simultaneous determination of the cutting
speed and lot size values in machining systems. European Journal of
Operational Research, 84(2), 356–370.
[6]. McCann, P., 1996, Logistic costs and the location of the firm: A one-
dimensional comparative static approach, Location Science, 4(1-2),
101–116.
[7]. Sarker, B. R., & Parija, G. R. 1996, Optimal batch size and raw
materials ordering policy for a production system with a fixed-
interval, lumpy demand delivery system, European Journal of
Operational Research, 89 (3), 593–608.
[8]. Swenseth, S. R., & Godfrey, M. R., 2002, Incorporating
transportation costs into inventory replenishment decision.
International Journal of Production Economics, 77(2), 113–130.
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