Abstract

Material flow along the supply chain affects overall logistics performance. To optimize the material flow network with minimized logistics cost without influencing the effective raw materials and components distribution is an important strategic task for companies. In this thesis, consolidation is considered as a solution to address the material flow optimization, leveraging the capacity of long haul transport to reduce the logistics cost. Instead of several expensive LCL shipments, a coordinated FCL is much more cost competitive, concerning the logistics flow from variety of international suppliers to multiple consignees. A model focusing on material flow optimization via consolidation is presented in this study, which suggests appropriate consolidation patterns for shipment. The author also discusses the application of this model and further analyzes the benefits based on industry case study. This thesis consists of five parts. In part I, the author expounds the background and motivation of this study. In part II, the author gives an introduction of shipping concept and reviews some relevant literature. Models with assumption and parameters are presented in part III, as well as solution method. An industry case study and its result discussion make up as part IV, followed by part V of conclusion. Scope Objective Approach

Key words: material flow optimization, consolidation, LCL, FCL, Break Even Point (BEP)

INTRODUCTION...................................................................................................................3 1.1 Background..................................................................................................................3 Benefits of logistics outsourcing.....................................................................................4 Risks of logistics outsourcing.........................................................................................6 Material flow optimization...............................................................................................8 1.2 Research question and research purpose...................................................................9 Problem description......................................................................................................10 1.3 Organization of thesis................................................................................................12 THEORETICAL FRAMEWORK...........................................................................................12 1.4 Shipping concept........................................................................................................12 Less than container load..............................................................................................12 Buyer consolidation......................................................................................................12 Multiple consignees......................................................................................................12 1.5 Break-even point........................................................................................................12 1.6 Logistic material flow networks..................................................................................14 1.7 Literature Review.......................................................................................................16 MODEL DESIGN AND SOLUTION METHODOLOGY........................................................22 1.8 Mathematical model...................................................................................................22 Assumption...................................................................................................................26 Parameters...................................................................................................................28 Cost functions...............................................................................................................30 1.9 Solution Methodology.................................................................................................37 INDUSTRY CASE STUDY...................................................................................................38 1.10 Company profile.......................................................................................................38 1.11 Data collection and analysis.....................................................................................40 1.12 Data input and computation.....................................................................................40 1.13 Results analysis.......................................................................................................40 IMPLICATION FOR BUSINESS PRACTICE.......................................................................41 CONCLUSION.....................................................................................................................42 LIMITATION AND FUTURE WORK.....................................................................................43

INTRODUCTION 1.1 Background

Logistics is an integral part of any organization and is vital to every economy and every business entity. In Wikipedia, Logistics is defined as the management of the flow of goods between the point of origin and the point of destination in order to meet the requirements of customers or corporations. It involves the integration of information, transportation, inventory, warehousing, material handling, and packaging, and often security. Logistics is a channel of the supply chain which adds the value of time and place utility. For companies, 10 per cent to 35 per cent of gross sales are logistics cost, depending on business, geography and weight/value ratio (Nansi, 2007). Dehler (2001, pp. 233244) states that logistics performance directly influences the overall firm performance. As indicated in Figure 1.1, lower logistics costs have a positive direct, and therefore also total, effect on financial performance. However, increased levels of logistics services have a significantly stronger total effect since they affect both the adaptiveness and the market performance of the firm, which in turn both considerably influence the financial performance.

Figure 1.1 Performance effects of logistics Source: Dehler, 2001, pp. 233 244. In Singapore, logistics industry is a key enabler of the economy. Despite the global economic slowdown in 2009, Singapores logistics sector has held steady, attracting some S$481 million in business spending, making up about 9 per cent of Singapores GDP (Source: Government of Singapore). Benefits of logistics outsourcing Outsourcing has become a megatrend in many industries, most particularly in logistics and supply chain management (Feeney et al. 2005). The worldwide trend in globalization brings fierce competition, which has led many manufacturers, distributors and retailers to outsource their logistics functions to third party logistics (3PL) companies, so as to focus on their core competencies and shed tasks perceived as noncore. According to the Council of Supply Chain Management Professionals, 3PL is defined as "a firm [that] provides multiple logistics services for use by customers. Preferably, these services are integrated, or bundled together, by the provider. Among the services 3PLs provide are transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding." As shown in figure 1.2, a modern 3PL suitable for providing services today exist in abundance, from managing the

receiving, put-away, inventory counting and picking processes, to reacting to the ever increasing demands of the customers and the subsequently developing markets.

Warehouse Management
Receiving Put away Replenishment Kitting Cycle Counting Picking/Order Management Packing Reporting Inbound Scheduling, Reporting and Door Control

Order Management
Order Entry (call center, customer service) Web Storefront Product Catalogs Voice Data Access Online, Web-Based Order Status for Clients and Customers

Activity Billing
Customer Service Agreements (Contracts) Rate Change Automation Flexible Accounting Accessorial Charges Billing Reports

Transportation Management
Manifest/Labeling Rating/Routing Carrier Scheduling Carrier Settlement Dispatch and Equipment Control

Customer Relationship Management

Customer Contact Information Management Purchasing History Sales Management Event Management Recall and Hold Processes and Notification

Accounting
General Ledger Accounts Receivable Accounts Payable Bank/Cash Management

Human Resources Management

Payroll Time Management Regulatory Benefit Management

Productivity Management
Labor Tracking Productivity Measuring

Business Intelligence
Inventory Forecasting ABC Analysis Dead Inventory Alert Financial Reporting Performance Tracking

Figure 1.2: 3PL Functions Source: Kelvin, 2003, p. 3 Besides concentration on the core competence, another benefit of outsourcing, usually the most obviously observed, is reduction of the firms logistics costs and application of high technologies. Lower production costs can be achieved through

economies of scale and scope on the ground of larger volumes of similar or equal logistics services a 3PL produces, and the higher utilization ratio of the assets employed. Furthermore, many organizations generally use their internal reserves while providers of outsourcing implement the new technologies; they simply have no other choice in order to stay on the market (Parashkevova, Vadyba/Management 2007). In this way the use of outsourcing allows the organizations to apply new and high technologies. Many other advantages like use of the best logistics methods and experience and increase of competitiveness also facilitate the close partnership to 3PLs. The studies of Cap Gemini Ernst & Young show that the use of 3PL providers leads to the following changes for the companies: 1. Logistics cost reduction by 8.2%; 2. Fixed logistics asset reduction to 15.6%; 3. The average order cycle length is reduced from 10.7 to 8.4 days; 4. Overall inventories are reduced by 5.3%. Risks of logistics outsourcing As discussed in chapter 1.1.1, logistics is as important to an organization as its core principles for the attainment of maximization of profits and overall growth and development of the organization. In the past decades, logistics outsourcing has been employed for many enterprises, especially foreign-funded enterprises and used by multinational companies. However, the logistics outsourcing has brought many benefits to the enterprise meanwhile it brings lots of risks. Several articles (Freight Forwarder, 2010, Tsai et al, 2008) have studied the potential risks of logistics outsourcing and the conclusions were similar in that, although they are inherently different according to the individual firms perception, the risks mainly lie in the following areas: 1. Outsourced control deficiencies; 2. Increased reliance on outsourcing risk; 3. Internal staff resistance; 4. Lower user satisfaction; 5. Conflicts in corporate interests. The risk perception increases as the number of functions outsourced increases (Tsai, C. et al, 2008). In 2010, Gonzalez revealed a survey among manufacturing and retail companies, looking into the reasons to non-outsourcing logistics. Of the 102 survey

respondents, 23 per cent were currently not working with a 3PL, stating reasons as shown in figure 1.3. Data is informative that the reasons companies are not outsourcing their logistics operations to 3PLs boil down into two high-level categories: 1. Companies believe that they can do a better job than 3PLs in terms of cost, quality, and service; 2. Companies have not explored the outsourcing option.

Figure 1.3: Reasons Why Companies Are Not Outsourcing to 3PLs Source: Gonzalez, A., 2010 This is precisely the reason there is a need to implement effective logistics management in each company so as to get back into the games. Rather than entirely dependent on third-party logistics service providers and take hidden potential risks, companies choose to train their own in the strategic and technical logistics parts, defending the potential risks via coordination and cooperation with 3PLs.

Material flow optimization Material flow, in its most literal sense, is a systems approach to understanding what happens to the materials we use from the time a material is extracted, through its processing and manufacturing, to its ultimate disposition (USGS, 1998). Figure 1.4 provides an overview of the types of materials.

Figure 1.4: Material classification Source: Adapted from Bringezu and Schultz (1988) Material flow affects the economy, society, and the environment. As pointed out by the Organization for Economic Co-operation and Development (OECD) in 2004, the manner of using and managing resources, from an economic perspective, affects (i) short-term costs and long-term economic sustainability; (ii) the supply of strategically important materials; and (iii) the productivity of economic activities and industrial sectors. In a supply chain, the material flow is simplified as the network of raw materials, components work-in-process products, or finished goods distributed through channels

among suppliers, manufacturing centers, warehouses, distribution centers and retail outlets. However, to most companies, this simple material flow is significant enough to be the physical basis of survival and along which, efficiency is the underlying philosophy. Material Flow Optimization (MFO) is a quantitative procedure for re- designing the flow of materials through the supply chain, on the basis of both material and economic information. It identifies the material flow potential optimizations and maximizes the transportation throughput for economic activities and asks whether it is sustainable in terms of overall economical, social, and environmental performance. Though, optimization of material flow from suppliers to customers makes difference from a 3PL company that manages the logistics function for its multiple clients to a company that manages its own logistics function. For 3PL companies, MFO is to maximize the utilization of its distribution facilities to support the material flows in supply chains of multiple customers, and deliver superior performance for each client. A 3PL firm is to balance the need to provide customized solutions to its clients with the economic benefits of maximizing consolidation in terms of freight and warehouse capacity, using a single network. For the latter, MFO is about designing a material network to optimally support its own supply chain at reducing costs while simultaneously achieving long-term sustainability in logistics operation and management. Especially for a multinational company who has outsourced its logistics function to more than dozens of 3PLs, they tend to manage the worldwide material network itself to avoid problems like peer defense among 3PLs. This could be another reason for international companies to lead an MFO. As to the customers, when they are better served with a superior logistics network, their needs are well satisfied, with not only basic delivery efficiency but also easy access to visibility of the material flows. In conclusion, no matter who is planning a MFO, it yields economic benefits to all three parties (supplier, logistics service provider and customer) involved in the supply chain.

1.2

Research question and research purpose

While work productivity is in main focus of management since more than hundred years, the resource and of productions lines and value chains in the majority of cases are still suboptimal. The implementation of MFO offers an enterprise a high potential for realizing new economic competitive advantages.

Problem description Consider the international supply chain of an industry company, there are overseas suppliers, distribution centers, warehouses and manufacturing plants, and along which chain the materials are transported world widely as per delivery requirement. In this overseas network, nodes like origin ports and destination ports must be also taken into the material flow design. The one-way linkage of material flow can be described as pre-carriage from suppliers to origin port via road transport, main carriage from origin port to destination port via sea transport, and on-forwarding carriage from destination port to consignees via road transport again (figure 1.5). When this company outsources its logistics functions to Logistics Service Providers (LSPs), LSPs are required to customize the distribution network and transport strategy, determining the number and location of warehouses and manufacturing plants, allocation of customer demand points to warehouses, and allocation of material flows to warehouses, in order to serve customer in some geographical parts and logistics functions. The traditional setting for each 3PL is to customize the network for each client. The shipment of materials will go directly from suppliers to each set of manufacturers, regardless the quantity and volume of shipment or the distance to consignees, as showed in figure 1.6a. Thus, the material flow network suffers, Suppliers capture no economies of scale in long haul sea transport and have to pay for very expensive lessthan-container-load (LCL) transportation; The 3PLs waste the rest of container capacity, not able to full utilize their facilities; Difficult access to visibility from the supplier to consignee warehouse; Higher risk of damage and loses of goods via LCL transport.

Figure 1.5 Material flow networks By setting up consolidation and deconsolidation hubs at pair origin-destination port, and coordinating materials from a set of suppliers to this hub nearby the origin port, shipments are to be consolidated before going to long haul sea transport; the consolidated shipments are then broke-bulk at a deconsolidation hub nearby destination port and sent separately to each destination of manufacturing sites (figure 1.6b). Such an optimized material flow network design delivers a win-win-win situation to all parties involved in the supply chain, Suppliers win because it is more economic and easier arranged for them to deliver materials to a nearer location and during the long-distance main carriage part, expense and risk are to be shared with each other. 3PL wins because with the integrated network, it can better control the delivery process from the suppliers to consignees. In case of any discrepancy in deliveries, components can be returned to the suppliers in short term. Manufacturers win because they are able to manage their inventory more efficiently with advance supplement information and to better plan their business. The author considers the material flow network design problem as to set up appropriate consolidation/ deconsolidation hubs and implement transport schedule along the pair links among suppliers, ports and consignee warehouses, so as to optimize a trade-off between the service level to customers and total logistics cost while moving materials during time and over space. This paper is therefore to present a deterministic model of material flow network optimization where transportation and inventory problems are solved in an integrated way, 1. Determining the shipment size on each link; 2. Defining the flow allocation along a supply chain: from shipper to port, port to port and port to consignees, respectively, which indicates the openness of hubs nearby ports; 3. Choosing right type of transport service for main carriage, when a shipment is ready at the origin port. Figure 1.6a b Designing such an optimized material flow network, which links multiple shippers to multiple consignees, requires coordination of many interlinked aspects of the distribution system. The reliability and effectiveness of the supply chain must be maintained at a satisfied level, which is to make sure that the right frequency of

shipment departures from each suppliers; the right quantity of materials are shipped; the right pair of origin-destination port is chosen to bridge the suppliers and their consignees; the right number and location of hub are set up; and the right type of seafreight service is used for main carriage.

1.3

Organization of thesis

This thesis consists of five parts. In part I, the author expounds the background and motivation of this study. In part II, the author gives an introduction of shipping concept and reviews some literature on this topic. Mathematical model with assumptions and parameters are presented in part III, as well as corresponding solution methodology. An industry case study and its result discussion make up as part IV, followed by part V of conclusion and future study suggestion.

THEORETICAL FRAMEWORK 1.4 Shipping concept

Less than container load Buyer consolidation Multiple consignees

1.5

Break-even point

In economics and business, specifically cost accounting, the break-even point (BEP) is the point at which the total cost or expenses and sales revenue are equal (see figure 2.1): there is no net loss or gain, and one has "broken even" (Wikipedia, 2012).

Figure 2.1 In the linear Cost-Volume-Profit model, the break-even point (in terms of Unit Sales (X)) can be directly computed in terms of Total Revenue (TR) and Total Costs (TC) as: TR=TC P*X=TFC+V*X P*X-V*X=TFC (P-V)*X=TFC X=
TFC P V

Where: TFC is Total Fixed Costs; P is Unit Sale Price; and V is Unit Variable Cost.

A simple example of BEP calculation is presented as following. Sales price per unit = $250 Variable cost per unit = $150 Total fixed expenses = $35,000

Calculation: X = $35,000 / ($250-$150) X = 350 Units Therefore, the break even point is 350 units, in other words, after selling 350 unit

products only does the business start making net profit. The main advantage of BEP analysis is that it explains the relationship between cost, production, volume and returns, and it indicates the lowest amount of business activity necessary to prevent losses (see Accounting for management, 2012). In this paper, the author brings the BEP concept into the decision of transport service type for main carriage. Shipping cargos via sea transport is either via LCL or FCL, while the former is usually for lower volume and only the cargo size reaches a certain point will it be economic to use FCL service (see figure 2.2). Given the unit price for shipping each unit of cargo via LCL and the fixed FCL shipping cost of per container, the BEP is easy to be compute as, X= Fixed cost of per FCL shipment/ Variable unit cost of LCL shipment Transport service is usually contracted with LSP and distribution rates are defined under different service types, which ranges from LCL/LCL, LCL/FCL 20, LCL/FCL 40 to FCL/FCL 20, FCL/FCL 40. Figure 2.2 is an example that for international multimode transport, rates are specified into pre, main and on-forwarding carriage level, including other charges like BAF and custom clearance fee.
Place of Departure Main Carriage rate Precarriage Rate Port Destination Rate Place of Arrival On Forwarding Rate
205.00 1,100.00 1,225.00 1,100.00 1,225.00

Service Type

Port Origin Surcharge

container

Currency

Currency

Currency

Currency

Currency

HANGZHOU HANGZHOU HANGZHOU HANGZHOU HANGZHOU

HONG KONG HONG KONG HONG KONG HONG KONG HONG KONG

LCL/LCL LCL/FCL LCL/FCL FCL/FCL FCL/FCL

20' 40' 20' 40'

260.00 260.00 260.00 2,490.00 3,400.00

CNY CNY CNY CNY CNY

165.00 165.00 165.00 1,300.00 2,200.00

CNY CNY CNY CNY CNY

87.39 113.00 87.39 113.00

USD USD USD USD USD

2.00 11.66 34.32 9.94 30.88

USD USD USD USD USD

198.00 2,025.00 2,875.00 2,345.00 3,085.00

HKD HKD HKD HKD HKD

HKD HKD HKD HKD HKD

Figure 2.3 Therefore, BEP is calculated as following, BEP 20 = BEP 40= In other words, a more cost friendly shipping method will be FCL 20 rather than LCL if the cargo is more than 9.31 units. Similarly, when cargo is over 12.54 units, it should be shipped via FCL 40.

1.6

Logistic material flow networks

Logistic material flow can be defined as the study of planning, implementation and control of the movement and positioning of people and/ or goods and the associated

Currency

BAF

supporting activities in order to optimize a trade-off between the service level to customers and the total cost. A modern view of logistics is characterized by the global consideration of material flows, which are apparent through movement and storage, plus information and value flows. This paper refers to Daskin (1985), Golden and Baker (1985), Hall (1985) and Sheffi (1985) for an overview of logistic problems with indication of integrated research. The author also briefly summarizes the most important characteristics of logistic material flow networks concerned with the modeling of the systems (refer to Fleischmann, 1993 and Slats et al. 1995). There are five basic types of networks, The single link case is the simplest network, composed of two nodes, origin and destination only. It models several practical situations and represents the building block for the analysis of more complex networks when the dimension of the network does not make it possible a global optimization. In these cases, the network can be decomposed into sub networks, then each sub network is optimized independently and finally the network is improved by means of local search techniques. The sequence of links case is composed of one origin, one destination and one or several intermediate nodes, all of which each product must be shipped though. Materials are shipped via different transport mode on different links between depots, as serial systems in the framework of production system (Muckstadt and Roundy, 1993). A typical example is that an overseas shipment is shipped first from producer to port by truck, and then goes via sea freight to destination port, afterwards to consignee by truck again. The one origin-multiple destinations case represents the typical distribution system in which a set of materials are supplied at the origin point and demanded by several destinations. Bertazzi and Speranza (2000) suggested two shipping strategies for this case: direct shipping, which means there are only one origin and one destination in each shipment and involved no routing problem; or peddling, in which each journey can touch more than one destination and therefore the optimization issue is brought in. The multiple origins-one destination case this network is symmetric to the one origin-multiple destinations case, while it represents the typical material management system (destination requires diverse materials from multiple origins). Similar solutions from above can be adapted.

The multiple origins-multiple destinations case is the most complex material network, which is typically used by 3PL trucking companies that collect goods from a set of depots then distribute them to several depots.

In this thesis, the author focuses on a multi-cases material flow network. This network is composed of the multiple origins-one destination case, the single link case and the one origin-multiple destinations case.

1.7

Literature Review

Since the mid-1990s, analysis and optimization of material flows through regional economies, up to level of economic regions such as the European Union and down to individual firm level have been addressed under the topic of material flow optimization. Although the first example of integration between inventory and transportation costs was published in Harris (1913) (see Erlenkotter, 1990, for comments and curiosities), integrated logistics systems have been intensively studied only recently. A survey of the results obtained on dynamic routing and inventory problems, based on the dichotomy frequency domain/ time domain, can be found in baita et al. (1996), where stochastic models are also discussed. In this paper, the author reviews some deterministic integrated transportation-inventory models in material flow networks, with the aim to understand the different approaches adopted in continuous time models. One critical aspect in mathematical programming models to design such a network is the coordination of the inventory replenishments from the suppliers to the hubs, and from the warehouses to the manufacturers. The author brings in two trades-off: the inventory holding costs incurred at the warehouses, to trade-off with the network shipping cost; and cost-saving in long haul FCL shipment, to trade-off the possibility of increase in short-distance LCL by road. In view of all the related issues, we shall refer to previous literature which covers the four aspects as follows: a) EOQ(Economic Order Quantity)-based material flow network design b) Material flow network design with hubs c) Network design with integration of inventory and transportation d) Network design with concave shipping costs e) Coordination of production and shipping lot sizes f) Mathematical programming material flow network optimization models

a) EOQ-based material flow network design EOQ is the order quantity that minimizes total inventory holding costs and ordering costs. It is one of the oldest classical production scheduling models (Wikipedia, 2012). A large number of network design models have been based on the EOQ model, in which the main common assumptions are: Single product: only one product is considered; Steady state and equilibrium: product is offered at origins and absorbed at destinations at given constant rates, such that the sum over the origins of the production rates is equal to the sum over the destinations of the consumption rates; Single and continuous shipping frequency: exactly one shipping frequency is selected on each link to ship all the materials; In Blumenfeld et al. (1985) an EOQ-based model is applied to the single link case, the one origin-multiple destinations case, the multiple origins-one destination case, the multiple origins-multiple destinations case and to more complex networks as well. In 1989, Erlenkoter formulated a single link case model and defined the optimal time between two consecutive shipments by, t* = min( Where, h=the inventory cost in the time unit q=production and consumption rate of the product at the origin and at the destination v=the unit volume c=transportation cast per journey r=the transportation capacity of each vehicle For the multiple origins-one destination case and its symmetric case of one originseveral destinations case are studied based on EOQ-model. In Burns et al. (1985) and in Daganzo (1996), the guidelines are given, although they did not proposed exact methods for these networks. Some approximations are made on the data, for instance, the methodology is based on the destination density instead of their exact locations. The author solves the peddling routing problem on the basis of the concept of delivery region (a delivery region is the set of destinations that one vehicle has to c r , ) hq vq

visit during one journey and its size is given by the number of destinations that belong to it): First determine the size of the delivery regions; then determine the destinations which belong to each region; finally, send to each region a full load vehicle on the minimum distance route. Hall (1985) shows that if the shipping frequency differs among the nodes, then the total cost can be reduced; based on the EOQ model, Hall further proves that the optimal shipping frequency is a discontinuous function of the production rate, and that the optimal transportation mode depends on the production rate. The more complex case with peddling is analyzed in Burns et al. (1985) and Daganzo (1996). The multiple origins-multiple destinations network with the assumption of independent shipments to the consolidation node and from the consolidation node is solved by simply optimizing separately each link. b) Material flow network design with hubs Hubs are transshipment facilities that allow the construction of a network where large numbers of direct connections between nodes (including suppliers, warehouses and customer locations) can be replaced with fewer, indirect connections. In solving hub location problems, two distinct questions need to be resolved: finding the best location for the hubs, and identifying the best route for flow of materials from the origin nodes to the destination nodes via the hubs. One of the earliest works in hub location is by OKelly (1986) who demonstrated that the one hub location problem is equivalent to the Weber least cost location model; he also discusses the two hub location in a plane. For the location of two interacting hubs, the flows between the hubs are an endogenous function of their relative location, and a gravity model is linked into the objective to allow for complete interdependence between the interaction and hub location.

c) Network design with integration of inventory and transportation There are two indicative streams of the interaction of location and inventory while designing distribution systems. The first stream of research addresses issues related to allocating inventory across multiple locations in a distribution system. Eppen (1979) shows the benefit of centralizing (or pooling) inventory in a multi-location newsvendor problem. Later in 1981, Eppen et al. examine a system consisting of a central distribution center that holds no inventory but must allocate inventory to several retailers using a multi-period newsvendor framework. Schwarz (1981) presents the benefit of pooling inventory in a multi-location EOQ framework. Since hub investments

increase as the number of hub increases in a multi-location EOQ model, Meller (1995) provides the increase in demand that is required to offset these increased costs. The second stream of research examines the issues relating to determining the number and location of hubs in order to minimize the costs related to transportation and operating the hubs. The most basic form of this problem is known as the warehouse location problem, the location allocation problem, or the generalized Weber problem. Efroymson and Ray (1966) consider the problem of determining the number and location of hubs in order to minimize the hub fixed costs and the transportation costs associated with serving a set of discretely located customers. Soland (1974) considers a similar problem, but also includes concave production/distribution costs. Sherali and Adams include location-specific production costs in 1984. A more thorough review of work on this problem can be found in Brandeau and Chiu (1989), where they discuss the difficulty of these NP-hard (non-deterministic polynomial-time hard) problems. The author then reviews some work on related strategic production/distribution models, in which the demands at a set of specified locations are assumed fixed and known with certainty. Most of the formulations focus on a mixed integer programming (MIP) representation, which generally include integer variables for locating plants and/or hubs in given zones and allocating customers to hubs, and continuous variables for determining flows of materials through the distribution system. Examples of such models are described by Geoffrion and Graves (1974), Robinson (1989), Gao and Robinson (1992), and Arntzen et al. (1995). A notable attempt to include demand uncertainty and safety stocks is the work by Cole (1995). He presents a formulation that includes a Normal distribution of demand, and focuses on the safety stocks required for maintaining a specified level of customer service, along with decisions on DC location and customer allocation. Cole's model is represented as a capacitated fixed-charge multi-commodity network flow model with side constraints. The side constraints are the nonlinear inventory service level constraints resulting from the assumption of normal-distributed demands. He suggests two solution procedures, and examines three example problems. The largest problem has four products, nine customers, three potential plant locations, and six potential warehouse locations. The model has about 2300 constraints and 2900 variables (of which about 900 are integers). He illustrates that as the customer service level increases, the effort required to solve the model increases sharply. Unfortunately his solution procedure is impractical for most problems of realistic size. Masters (1993) has illustrated a very effective technique for determining safety stocks for various products in a multi-echelon distribution system. He uses a model for

inventory based on Palin's Theorem (see Feeney and Sherbrooke, 1966), but his analysis does not consider location decisions for the hubs. We have adopted a very similar approach to modeling inventories at the hubs, but linked this to a facility location formulation. d) Mathematical programming material flow network optimization models The multiple origins-multiple destinations case is considered in Klincewicz (1990) for the case of multiple products. The problem is to decide for each origin-destination pair the quantity of each product to ship directly and the quantity to ship through a consolidation node. One of the focuses in this paper is on managing the suppliers for more than one consignee, each of who places purchase orders frequently, as per their customers demand. Such a logistics arrangement is similar to a supply hub (figure 2.1), which was brought up by Barnes et al. in 2003.

In the multiple assignment hub location model (Campbell, 1994), each interacting pair is allowed to utilize the hub that will result in the lowest travel costs for a particular origin to destination path, independent of how this flow helps to produce a large bundle of interaction.

One of the earliest works in hub location is by OKelly (1986) who demonstrated that the one hub location problem is equivalent to the Weber least cost location model. In many conventional logistics problems, we expect to see the shortest path emerge as an ideal candidate for shipments between origins and destinations. In material flow optimization systems, however, determination of the optimal routing for any particular origin-destination pair is a complex question, which is sensitive to the allowable connections between nodes.

MODEL DESIGN AND SOLUTION METHODOLOGY

In particular, the strategic design of the material flow network is of crucial importance. It deeply impacts the supply chain planning and eventually the performance of the company. Our aim is to design the optimized material flow network at a strategic decision level.

1.8

Mathematical model

In this thesis, the author is focusing on a four-layer, multi-shipper multi-consignee network. The network elements are namely, suppliers i , origin ports j , destination ports k and consignee warehouses l , (in this network, a port is with a hub for consolidation or deconsolidation function, in other word, a consolidation hub is to be built nearby the chosen origin port j , and a deconsolidation hub is to be built nearby the chosen destination hub). The suppliers i will supply to the warehouses l , which will in turn replenish the manufacturing plants on a regular basis to support Just-intime (JIT) or Make-to-order (MTO) production or assembly process, via ports j and
k . Each warehouse is dedicated to serve its own manufacturing plant only. The

model integrates three decisions: flow allocation, shipment sizes and type of shipping service on each link. Given the daily demand of final product and the bill of material (BOM) relating the supplier components to the final product, the manufacturer must place the right amounts of components from each supplier, taking into account the shipping frequency from the origin port, the shipping time from suppliers to their assigned port, from port to port and from the deconsolidation hub to the warehouses. In this model, only inventory holding at the warehouse is considered and the hubs function as crossdocks which do not hold inventory. The author associates each pair of origin port j and destination port k with a set of

m and each pair can have a different amount of shipping options. Each shipping option m is defined with,
shipping options Shipping frequency, t jkm (days between shipment) Shipping capacity of main carriage from consolidation hub/ origin port
j

to

deconsolidation hub/ destination port k , G jkm (number of shipping units, where each shipping unit is 1 cube meter) Annual shipping cost and shipping time of pre-carriage from supplier i to
P P consolidation hub/ origin port j , C ijm ($) and T ijm (days)

Annual shipping cost of main carriage from consolidation hub/ origin port j to
M deconsolidation hub/ destination port k , C
jkm

($)

Annual shipping cost and shipping time of on forwarding from deconsolidation hub/ destination port k to consignee warehouse l , CO klm ($) and TO klm (days)

For each shipping option

m at each pair of port

j and k , if supplier i is assigned

to port j and main carriage is directed to port k , the shipping lot size for supplier i and receiving shipment size for consignee l are defined as ijm and klm

respectively (in terms of shipping capacity required). An illustrative example of the application of shipping option is showed in figure 3.1, in which we have two suppliers i ( i =1 and i =2) assigned to one origin port j (with consolidation service), and consolidated shipment is directed to one destination port
k (with deconsolidation service), and to two warehouses l ( l =1 and l =2). The

two warehouses share same suppliers, in other words, either of the suppliers is serving two warehouses, and either of the warehouses is receiving from both suppliers. Port j has two available shipping options to port k , and the analysis selected shipping option 1 (m = 1), The consolidation hub/ origin port j will ship to the warehouses every 7 days ( t jk 1 = 7 days) and suppliers i ( i =1 and i =2) will also ship to consolidation hub/ origin port j every 7 days; The shipping capacity from hub j to hub k ( G jk 1 ) is sum of capacity from k to
l

( jk 11 and jk 21 for warehouse 1 and 2 respectively); also, it equals to sum of

shipping lot size from supplier i ( 1 jkl1 and 2 jkl1 for supplier 1 and 2);

The annual cost for shipping of pre-carriage from supplier i to consolidation hub/
P P P origin port j ( C ijkm ) is C 1 jk 1 and C 2 jk 1 , for supplier 1 and 2 respectively;

The shipping time of pre-carriage from supplier i to consolidation hub/ origin port
P P P j ( T ijkm ) is T 1 jk 1 and T 2 jk 1 , for supplier 1 and 2 respectively;

The annual cost of main carriage for shipping from consolidation hub/ origin port j
M to deconsolidation hub/ destination port k, C
jk 1

The annual cost for shipping of on forwarding from deconsolidation hub/

O destination port k to consignee warehouse l ( C
jklm

O ) is C

jk 1 1

O and C

jk 2 1

, for

warehouse 1 and 2 respectively; The shipping time of on forwarding from deconsolidation hub/ destination port k to
O consignee warehouse l ( T
jkL m

O ) is T

jk 1 1

O and T

jk 2 1

, for warehouse 1 and 2

respectively.
T Total annual shipping cost for the material flow network C C M O and C
jk 1

P is sum of C ijk 1 ,

jk 1

jkl 1

Total shipping lead time for shipment from supplier to consignee warehouse
T T
jk 1

ax{ T ijk 1 } , T P M is sum of m

jk 1

ax{ and m TO jkl 1 }

Figure 3.1 The model costs consist of the transport costs and transshipment/warehousing costs along the material flows. In order to assess costs which reflect reality and the relation to the cost-originators at best, mostly process cost models are applied. The network cost (Figure 3.2) includes, Annual transport cost of pre-carriage from supplier i to consolidation hub/ origin
P port j with shipping option m, C ijkm , including handling charges at suppler i and

any other variable costs; Annual transport cost of main carriage for shipping from consolidation hub/ origin
M port j to deconsolidation hub/ destination port k with shipping option m, C
jkm

including handling charges at hub j and any other variable costs; Annual transport cost of on forwarding from deconsolidation hub/ destination port k
O to consignee warehouse l with shipping option m, C
jklm

($), including handling

surcharge at hub k and any other variable costs;

C Fixed annual cost of hub j with shipping option m, F

jm

($);

Fixed annual cost of hub k with shipping option m, FD km ($); Annual inventory holding cost at warehouse l , attributable to components from
I supplier i , who using hub j and k with shipping option m, C
ijklm

($);

Annual custom clearance fee for shipping from hub j to hub k with shipping option
C m, C
jkm

($).

Figure 3.2: Cost Components for the Consolidated Network Design Assumption Economic order quantity (EOQ) inventory the demand rate at warehouse is assumed to be constant over the year and each new order is delivered in full when inventory reaches zero. The inventory review system is assumed to be continuous and shipments of items, of a given size, are shipped instantaneously, in other words, the transportation time is negligible compared to the holding time at the consignee warehouses. Perfect coordination shipments of items are only sent to a partner when the latters inventory is empty, and flows are balanced, i.e. the total shipment amount equals the total demand. Each supplier supplies only one type of material or component (i.e. supplier i supplies only component i ). If the supplier supplies more than one type of component, dummy suppliers for each component type are created. Each supplier can supply to more than one warehouse. This assumption is in line with the concepts of multiple consignee consolidation and concave shipping cost. A supplier can consolidate the total quantity of components required by more than

one consignee and ship via its assigned main carriage flow, to take advantage of concave shipping cost. If each supplier only supplies to one consignee warehouse, benefits of such consolidation will not be fully realized. Each consignee warehouse is demanding components from more than one supplier. This assumption is in line with the concept of buyer consolidation. Consolidated materials from several suppliers are sorted according to each consignee orders after main carriage, only materials ordered by consignee l are shipped to warehouse l . If each consignee only demands from one suppler, benefits of such consolidation will not be fully realized. Each supplier is assigned to exactly one consolidation hub and shipment from this hub is linked to exactly one destination port, with no direct supplier or consolidation hub to warehouse link is allowed. If the shipment at origin port needs to be shipped to more than one destination port, dummy origin ports for each destination port are created. This assumption will reduce the shipping cost involved, by combining all potential consolidation among single LCL shipments, since it is more economical to ship a larger quantity to a single hub, then to distribute smaller quantities to multiple consignees. A consolidation or deconsolidation hub is to be set up close enough to each chosen origin or destination port, and that transport effort between port and hub can be neglected. Each hub acts as a cross-docking facility and holds no inventory. Without loss of generality, no inventory holding cost at hubs is considered in this model. We use the shipping frequency for a selected shipping option to coordinate the shipping lot sizes from the suppliers and the lot sizes required by the warehouses. This assumption is in line with perfect coordination concept. Each hub k can serve more than one warehouse. This assumption allows the hub to ship sorted shipment directly to multiple consignee warehouses. No shipment capacity limitation for main carriage. This assumption simplifies the shipment size decision and allows the full consideration of influence of shipping option on shipping lot size decision. At most one shipping option is chosen for each pair of port j and k . With a single shipping option, all the components from suppliers assigned to the hub j are to be consolidated for shipping. Also, we can coordinate the shipping lot sizes from the suppliers and the lot sizes required by the consignees. For a selected shipping option m for hub j and k , if supplier i is assigned to hub

j , then supplier i must also ship to hub j using the same shipping option m . These assumptions are reasonable as this paper focuses on strategic decision level. EOQ policy has been shown to be quite robust and valid at the strategic decision level (Nahmias, 2009). Assuming perfect coordination in general is an approximation as specific proportionality between the demand rate and supply rate is required for perfect coordination to be achievable. Perfect coordination simplifies the flow balance issue, which is not relevant at the strategic level. Similarly, other assumptions are for purpose of generalization and simplification, and will not influence the effectiveness of model at strategic level. Parameters The input parameters include, i , j , k = indices for suppliers, consolidation hubs/ origin ports, destination ports/ deconsolidation hubs respectively l = index for manufacturing plants as well as their dedicated warehouses m = index for the available shipping options for each pair of hub j and k dl = daily production or assembly rate of final product at manufacturing plants l

= demand of component i to produce or assemble one unit of final product at il

warehouse l , which refers to BOM of the final product (number of units)

U i = shipping capacity required per unit of component i (number of shipping

units, where each shipping unit is 1 m3)

Wi = weight per unit of component i (number of shipping units, where each

shipping unit is 1 KG)

hil

= inventory holding cost of component i at warehouse l ($ per unit of

component i per year)

ij = handling cost per unit of component i at hub j ($)

= handling cost per unit of component i at hub k ($) ik

k = custom clearance fee per shipment at port k ($)

T ijkm P

= shipping time of pre-carriage from supplier i to consolidation hub/ origin

port j with shipping option m , including shipment lead time (days)

T M
jk

= shipping time of main carriage from consolidation hub/ origin port j to

deconsolidation hub/ destination port k , including shipment lead time (days)

T O
jklm

= shipping time of on forwarding from deconsolidation hub/ destination port

k to consignee warehouse l with shipping option m , including shipment lead time (days)

t jkm

= shipping frequency for consolidation hub/ origin port j to deconsolidation

hub/ destination port k , with shipping option m (days between shipment)

N
jk m

= number of shipments per year from consolidation hub/ origin port j to

deconsolidation hub/ destination port k under shipping option m

ijkm = shipping lot size for supplier i of pre-carriage with shipping option m
(number of shipping units, where each shipping unit is 1 cube meter)

jklm = shipping lot size receiving for consignee l from on forwarding carriage with
shipping option m (number of shipping units, where each shipping unit is 1 cube meter)

G jkm

= shipping capacity of main carriage from consolidation hub/ origin port j to

deconsolidation hub/ destination port k (number of shipping units, where each shipping unit is 1 cube meter)
F C
jm

= annual fixed investment of hub j with shipping option m ($)

F km = annual fixed investment of hub k with shipping option m ($) D

C ijkm P

= annual shipping cost of pre-carriage from supplier i to consolidation hub/

origin port j with shipping option m ($)

C M

jkm

= annual shipping cost of main carriage from consolidation hub/ origin port

j to deconsolidation hub/ destination port k with shipping option m ($), including port origin and destination surcharge and BAF.
C O
jklm

= annual shipping cost of on forwarding carriage from deconsolidation hub/

destination port k to consignee warehouse l ($)

C I
ijklm

= annual inventory holding cost at warehouse

l , attributable to

components from supplier i , who uses pair link of consolidation hub/ origin port j and destination port/ deconsolidation hub k with shipping option m ($)
C C
jkm

= annual custom clearance fee at destination port k for shipping from hub

j to hub k with shipping option m ($) Cost functions

P Before formulate the completed model, we can pre-calculate parameters C ijkm , C M O , C I ,C

jkm

jklm

ijklm

as following.

a) For a selected shipping option m for hub j to hub k , if supplier i is assigned to

P hub j , C ijkm = (shipping cost from i to j ) * (number of shipments per year), thus,

C ijkm P

P P = [( R ijkm * ijkm ) + F ijkm ] * N jkm

Where,

ijkm = Shipment lot size from supplier i , measured in units of shipping

capacity. Given the average daily demand of component i at warehouse l (
il * d l ), shipping frequency in days ( t jkm ), and shipping capacity required per

unit of component i ( U i ), ijkm = il * d l * t jkm * U i

l

R ijkm P

= Applicable shipping rate from i to j , for shipping option m and

shipment capacity ijkm , usually equal to LCL rate.

F ijkm P

= Fixed logistics cost incurred from i to j for shipping option m = Number of shipment per year for hub j and k , with selected shipping

jk m

option m, N jkm = Int (365 / t jkm ) b) Similarly, CM Where,

G jkm = ( RM * G jkm + FM ) * N jkm

jkm

jkm

jkm

= Shipping size of main carriage from consolidation hub/ origin port j to in units of shipping capacity.

deconsolidation hub/ destination port k

G jkm = ijkm
i

R M

jkm

= Applicable shipping rate from consolidation hub/ origin port j to

deconsolidation hub/ destination port k , for shipping option m and shipment capacity G jkm
F M

jkm

= Fixed logistics cost incurred from consolidation hub/ origin port j to

deconsolidation hub/ destination port k for shipping option m

N
jk m

= Number of shipment per year for j - k pair origin-destination port, with

selected shipping option m, N jkm = Int (365 / t jkm ) After consolidation, shipment size at hub j is consolidated and RM incurred

jkm

from hub j to hub k , depending on selected shipping service type and container size.
R M
jkm

varies from LCL, FCL 20 to FCL 40. BEP is decisive to the

determination of change from LCL to FCL, as discussed in Chapter 2. Following is an example that illustrates the relationship between shipment features and shipping service decision. If a consolidated shipment of weight w and volume v is

ready at hub j for long haul sea transport to hub k , given the rate card we can easily calculate the BEP for 20 and 40 for this shipping lane using the method mentioned in Chapter 2, as shown figure 3.3.
BEP Calculation 11.26 BEP40' 28 Max Volume40' 24 Max Weight40' 0.86 Weight/Volume 40'

BEP20' Max Volume20' Max Weight20' Max Weight/Volume 20'

17.45 56 30.48 0.54

Figure 3.3 Therefore, when w < 30.48 && v < 56 is true, figure 3.4 is applicable for this shipping service decision: i.e. if w = 7 and v = 12, according to figure 3.4, the most economic way for this shipment from consolidation hub/ origin port j to deconsolidation hub/ destination port k is to go via FCL as 1x20 container. Total cost saving in this shipment will be EUR34 as shown in figure 3.5.
w Max W 40' 3 Max W 20' 2 BEP 40' 2 BEP 20' 1 0 1 LCL 2 FCL 3 FCL BEP 20' 2 BEP 40' Shipping Service = Max(v,w) Shipping Service = 1x20' Shipping Service = 1x40' 2 Max V 20' 3 Max V 40' v 2 2 3 2 2 3 3 3 3

Figure 3.4

Cost Saving in Euro Saving 34 Unconsolidated Cost 1,432 Consolidated Cost 1,398

Figure 3.5

c) CO jklm = ( RO jklm * jklm + FO jklm ) * N jkm Where,

jklm =

Shipping lot size from consolidation hub/ origin port

to

deconsolidation hub/ destination port k in units of shipping capacity. Given the average daily demand of component i at warehouse l ( il * d l ), shipping frequency in days ( t jkm ), and shipping capacity required per unit of component i ( U i ), jkm = (il * d l * t jkm * U i )
i

R O

jklm

= Applicable shipping rate from deconsolidation hub/ destination port k

to warehouse l , for shipping option m and shipment capacity jklm , usually equal to LCL rate.
F O
jklm

= Fixed logistics cost incurred from deconsolidation hub/ destination

port k to l for shipping option m

N
jk m

= Number of shipment per year or j - k pair origin-destination port, with

selected shipping option m, N jkm = Int (365 / t jkm ) d) For a selected shipping option m for hub j to hub k, if supplier i is assigned to hub j
I and k, which in turn is to be stored in warehouse l , C
ijklm

can be pre-calculated. is reviewed

According to the EOQ model, the inventory at warehouse l

periodically, with a frequency equal to the selected shipping frequency t jkm .

CI ijklm = E[ I ijkm ] * hil

Where, E[ I ijklm ] is the expected inventory of component i at warehouse l , which is the total amount of cycle stock and safety stock. Cycle stock is held based on the re-order point, and defines the inventory that must be held for production, sale or

consumption during the time between re-order and delivery. Safety stock is held to account for variability, either upstream in supplier lead time, or downstream in customer demand. Given by,
E[ I ijklm ] =

il * d l * t jkm + z * il * LTijklm + t jkm , 2

Where the first item is cycle stock and the second item is safety stock,

z = normal distribution service factor based on desired service level

il = standard deviation of demand of component i at warehouse l
L ijklm T

= the maximum lead time for component i ( i {i : il > 0, i j} ) being from supplier i to warehouse l ,
L ijklm T

shipped

i{i:il > 0 ,i j }

Max

(TP

ijkm

+ TM jkm + TO jklm )

An example computation of effective lead time for safety stock is given in figure 3.3. Supplier 1 and 2 are both assigned to from hub j to k, and corresponding material 1 and 2 are shipped to warehouse l afterwards. Shipping time for each
P P linkage is given, T 1 jkm = 2 days, T 2 jkm = 4 days, TM
jk

O = 15 days, T

jklm

=2

days, with selected shipping frequency t jkm = 7 days. Thus, lead time for supplier 1 is 19 days and lead time for supplier 2 is 21 days. Effective lead time for safety stock calculation is
i{i:il > 0 ,i j }

Max

(TP

ijkm

+ TM jkm + TO jklm ) = 21 days.

1A sent S upplier 1 2A sent S upplier 2 1A&2A received Hub j

1B sent

2B sent

1B&2B received

1A&2A received Hub k 1A&2A received Warehouse k

1B&2B received

1B&2B received Lead Time of S upplier 1 Lead Time of S upplier 2

t jkm
TP1 jkm TP2 jkm

TO jklm Figure 3.6 The decision variables in the model are,

X ijm

=7 days =2 days =4 days TM jk =15 days =2 days

= binary variable to denote if supplier i is assigned to consolidation hub/

origin port j , using shipping option m

Y jkm

= binary variable to denote if shipment at consolidation hub/ origin port j is

shipped to deconsolidation hub/ destination port k , using shipping option m

Z klm = binary variable to denote if shipments at deconsolidation hub/ destination

port k are distributed to warehouse l , using shipping option m The model minimizes the network cost given by objective function as, Min

i , j ,m

CP
j ,k ,m

ijm

X ijm + FC + FD km ) * Y jkm

(CM

jkm

jm

+ +

k ,l , m

CO
k ,l

klm

* Z klm

i , j ,m

(CI

ijklm

* Z klm ) * X ijm

Subject to,

X
j ,m

ijm

=1 , i =1 , j

Y
k ,m

jkm

Y
m

jkm

1 , k j,
i , , j , k , l , m

X ijm Y jkm Z klm

X ijm , Y jkm , Z klm {0,1} , , j , k , l , m i

The objective function minimizes the sum of following costs: The annual shipment cost of pre-carriage (1), including other relevant logistics cost like handling charges at suppliers side; annual shipment of main carriage, including other relevant logistics cost like BAF and custom clearance fee etc, and annual fixed operational costs of distribution centers (2); annual shipment cost of on forwarding carriage (3), including other relevant logistics cost like handling charges at warehouses side; and annual inventory costs in warehouses (4). The constraints include, (5) ensures that each supplier i is assigned to exactly one hub j (6) ensures that each hub j is assigned to exactly one hub k (7) ensures that at most one shipping option is chosen for each pair of origindestination port (8) ensures that supplier i is assigned to a hub j with shipping option m, only if the hub is open with the shipping option m, and hub j is linked to an open hub k under shipping option m The idea of using available shipping options at each hub allows us to overcome the complexities involved in the non-linear analysis of concave shipping cost and inventory holding cost. Such costs can be pre-computed for each shipping option for each pair of

origin-destination ports, and for all suppliers and warehouses related to the hub links. Our model is reduced to a linear binary integer program with decision variables which tells us directly the opening/closing of hubs; selection of shipping option; assignment of material flow from origin to destination port; and assignment of suppliers to consolidation hubs. In addition, the selected shipping option also sets the inventory replenishment cycle for each open hub and the suppliers assigned to it, as well as provides information on the expected inventory of each component i at the warehouse
l .

1.9

Solution Methodology

As in a supply chain with four echelons namely supplier, consolidation center, deconsolidation center and consignee warehouse, the model is a linear binary integer program (BIP), where the computational difficulty depends on its number of binary decision variables. If there are n binary decision variables, then the solution space will increase exponentially by 2n . The binary decision variables in this model are X ijm , Y jkm and Z klm . For a material flow network optimization problem with six suppliers, four potential origin ports, two potential destination ports, two warehouses and three shipping options per pair of consolidation hub/ origin port and destination port/ deconsolidation hub (that is, i = 6, j = 4, k = 2 and l =2, m = 3), there will be a total of 108 binary decision variables, and the solution space will be 2108 = 3.24532 solutions. The branch-and-bound method is used for solving such BIPs. We know that for very large problem size, the computational time will increase. We have implemented the model using the Lingo solver and branch-and-bound is used to solve the model. We tested the model with the problem described above on an Intel Pentium 4, 2.4 GHz PC with 256MB of RAM, and the computation time is only 1 second involving 81 iterations. When designing such a network, it is not common to expect large numbers of potential origin-destination/consolidation-deconsolidation ports ( j - k ), warehouses ( l ) and available shipping options ( m ). Only a large number of suppliers are expected in reality. With the computational efficiency provided, we can expect a relatively large problem size of 50 to 100 suppliers to be solved within reasonable computational time.

INDUSTRY CASE STUDY 1.10 Company profile

Bosch has been present in Singapore since 1923. The company delivered several firsts products from Power Tools and Automotive Aftermarket into the Southeast Asian market. With the acquisition of Diesel Electric in 1973, Robert Bosch (SEA) Pte Ltd (RBSI) was born. Following the set-up of new business divisions and expanding services, a new building was built and commissioned as the new regional headquarters in 1996. Today, Bosch is represented in Singapore by four companies - Robert Bosch (SEA) Pte Ltd, Bosch Rexroth Pte Ltd, Bosch Packaging Technology Pte Ltd and BSH Home Appliances Pte Ltd, of which Bosch has a 50 per cent interest. Since the 1920s, Bosch has been present in Southeast Asia through various sales and representative offices as well as manufacturing plants. We have been active in Boschs three business sectors namely automotive technology, industrial technology, as well as consumer goods and building technology. The vast potential and development of market in the region saw the establishment of the Southeast Asian regional headquarters in 1996. Today, Robert Bosch (SEA) Pte Ltd (RBSI) is the headquarters for the region and is located in Singapore, with subsidiaries in Malaysia, Philippines, Thailand, Vietnam and Indonesia. Apart from being the regional headquarters, RBSI is also home to the Asia Pacific headquarters for Automotive Aftermarket and Security Systems. In addition, Singapore also houses the IT Center for Asia Pacific with an IT operations center to service more than 200 Bosch locations in the region and an IT R&D facility to design and develop global IT platforms and systems for Bosch. In 2008, the Bosch Group established its Asia Pacific regional headquarters for Research and Advance Engineering in Singapore. The Research and Technology Center Asia Pacific (RTCAP) will study technology trends and market opportunities in the region to identify local technology leaders and strategic research subjects. In October 2009, RBSI moved into the new Robert Bosch SEA headquarter building

(SGP101) which spans over 223,000 square feet and have brought together several Bosch divisions under one roof. The new building was officially opened on 12 May 2010. Robert Bosch is a German company that has been around for 125 years, it was founded by Mr. Robert Bosch in 1886 and the company headquarters is now located in Gerlingen, Germany. Bosch is the worlds leading technology and Services Company, with more than 350 subsidiaries and regional companies in over 60 countries in the world. There are some 285,000 associates worldwide and generated sales of 47.3 billion Euros in fiscal 2010.

Bosch Singapore, also known as Robert Bosch (SEA) Pte Ltd is the regional headquarters for the ASEAN region. On 12 May 2010, the new regional building of Robert Bosch (SEA) was officially opened by Mr Lim Hng Kiang, the Minister for Trade and Industry. The building has a floor area of 223,000 square feet and has about 600 Bosch associates. Bosch Singapore has achieved a sale of 113 million Euros in 2010. The main business divisions in Singapore are the automotive technology, consumer goods and building technology and finally the Industrial technology. Bosch automotive aftermarket is one of the biggest in the Bosch group. They achieved sales of 28.1 billion Euros in 2010 worldwide. Bosch automotive aftermarket sells products related to the automotive industries such as brake pads, wiper blades and also starter batteries. Bosch automotive also offers car services. The car services include maintenance, repairs and diagnosis. The other business division is the consumer goods and building technology. This division consists of 3 separate divisions which are the power tools division, household appliance and the security systems. The power tools division offers products such as power drills, electronic screw drivers, and even lawn and gardening tools. Bosch power tools are one of their icons as they specialize in tools for industrials and home standards. The household appliance offers products such as fridge, washing machine and iron. Bosch is the European market leader of household appliances. Lastly the Security system offers products such as CCTV, alarms and also speakers. Bosch security products are used all over the world in all types of buildings. From parliaments to shopping centre, it is very likely to see the Bosch security products being used.

The Consumer goods and building technology achieved sales of 12.5 billion Euros in sales in 2010. Finally, the industrial technology offers products such as solar panels, packaging technology, services and hydraulics technology also known as Bosch Rexroth. They are the smaller divisions of Bosch and they have their individual offices in Kallang and Tuas. The division has generated sales totaling 6.7 billion Euros in 2010.

1.11 Data collection and analysis 1.12 Data input and computation 1.13 Results analysis

IMPLICATION FOR BUSINESS PRACTICE

CONCLUSION

LIMITATION AND FUTURE WORK

SOURCE OF REFERENCE Bibliography

Surname, first name of author(s), year of publishing, name of the literature,

volume number (if applicable), edition number (if applicable), place of publishing, publisher, page number (if applicable) (Use Arial/TNR, size 12, spacing before=12pt, use small capitals for names of

authors) PARASHKEVOVA, Loretta. Logistics outsourcing a means of assuring the

competitive advantage for an organization, VADYBA / MANAGEMENT. 2007 m. Nr. 2 (15) MICHEL, Kevin. The modern logistics service provider, Cadre Technologies,

Inc. 2003 Tsai M., Liao C., Han C. (2008). Risk perception on logistics outsourcing of

retail chains: model development and empirical verification in Taiwan, Emerald Group Publishing Limited Government of Singapore. Logistics Industry Key Enabler for Singapore

Economy. The Govmonitor, September 6, 2010, accessed December 25, 2011 U.S. Geological Survey (USGS). Materials Flow and Sustainability, USGS

Fact Sheet FS-068-98, June 1998, accessed December 26, 2011 Schenk M., Wirth S., Mller E.,(2010).Factory Planning Manual, Situation-

Driven Production Facility Planning, Springer-Verlag Berlin Heidelberg, p223-225 Aykin, T. and Gursoy, K. (1996) Hub and spoke system design with concave

costs. Paper presented at INFORMS Atlanta, GA. Bryan, D. (1998) Extensions to the hub location problem: formulations and

numerical examples. Geographical Analysis. 30, 315-330.

Bryan, D. and O'Kelly, M. E. (in press) Hub-and-spoke networks in air

transportation: an analytical review. Journal of Regional Science. Campbell, J. F. (1994) Integer programming formulations of discrete hub

location problems. European Journal of Operational Research 72, 387-405. Eppen, G.D. (1979) Eects of centralization on expected costs in a multi-

location newsboy problem. Management Science, 25(5), 498-501. Eppen, G.D. and Schrage, L. (1981) Centralized ordering policies in a multi-

warehouse system with lead times and random demand, in Multi-Level Production/Inventory Systems: Theory and Practice, Schwarz, L.B. (ed), NorthHolland, Amsterdam, pp. 51-67. Schwarz, L.B. (1981) Physical distribution: the analysis of inventory and

location. AIIE Transactions, 13, 138-150. Meller, R.D. (1995) The impact of multiple stocking points on system

protability. International Journal of Production Economics, 38, 209-214. Efroymson, M.A. and Ray, T.L. (1966) A branch-and-bound algorithm for plant

location. Operations Research, 14, 361-368. Soland, R.M. (1974) Optimal facility location with concave costs. Operations

Research, 22, 373-382. Sherali, H.D. and Adams, W.P. (1984) A decomposition algorithm for a discrete

location-allocation problem. Operations Research, 32, 878-900. Brandeau, M.L. and Chiu, S.S. (1989) An overview of representative problems

in location research. Management Science, 35, 645-674. Georion, A.M. (1979) Making better use of optimization capability in

distribution system planning. AIIE Transactions, 11(2), 96-108. Benjaafar, S. and Gupta, D. (1998) Scope versus focus: issues of flexibility,

capacity, and number of production facilities. IIE Transactions, 30(5), 413-425.

List of Laws and Regulations

ISSN 0583-3655, YEARBOOK OF STATISTICS SINGAPORE 2011,

Department of Statistics, Ministry of Trade & Industry, Republic of Singapore, (www.singstat.gov.sg )

Webliography
Surname, first name of author(s), title of the article, year of publication, in

exact URL, date of last access (Use Arial/TNR, size 12, spacing before=12pt) GRAHAM, J. , Logistics: Vital to Every Business, 2000, http://www.going-

global.com, last accessed on 25.12.2011 Logistics Service Providers - Do They Have A Role In Your Organization?,

2011, http://www.bestlogisticsguide.com/, last accessed on 25.12.2011 Freight Forwarder, Logistics Outsourcing Risk and Decision Analysis, 2010,

http://www.laowee.com/, last accessed on 25.12.2011 GONZALEZ, A., Reasons Why Companies Arent Outsourcing to 3PLs, 2010,

http://logisticsviewpoints.com/, last accessed on 26.12.2011 Langley C., Allen G., Tyndall G. Cap Gemini Ernst &Young Inc. -

http://www.us.cgey.com, last accessed on 11.12.2011 Accounting for management, Formula Break and Even Point Analysis-Definition, 2011,

Explanation

Calculation,

http://www.accountingformanagement.com/, last accessed on 17.1.2012

List of other sources