Collaborative logistics case studies Nadia Lehoux, Jean-François Audy, Sophie D Amours and Mikael Rönnqvist Professor, Université Laval, Québec City, Canada Professor, Université Laval, Québec City, Canada Doctoral Student, Université Laval, Quebec City, Canada Professor, Norwegian School of Economics and Business Administration, Bergen, Norway FOR@C Research Consortium & CIRRELT Forestry Research Institute of Sweden
Different levels of collaboration 2
1- Wood supply collaboration Company Volume Proportion (%) Company 1 77,361 8,76 Company 2 301,660 34,16 Company 3 94,769 10,73 Company 4 44,509 5,04 Company 5 232,103 26,29 Company 6 89,318 10,12 Company 7 36,786 4,17 Company 8 6,446 0,73 Total 882,952
Wood bartering Individual plan Collaborative plan From Forsberg et al. (2005) 4
Case study Analysis done by Skogforsk (The Forest Research Institute of Sweden) 8 participating companies in southern Sweden 898 supply points 101 demand points 39 assortments, 12 assortment groups Savings: Total of 14.2% as compared to actual transportation 8.7% by co-operation Environment CO 2 : 5,330 tons to 4,350 tons. Issue: How to share the common cost?
Game theory approach Basics coalition S :a subset of participants (or players) grand coalition S = :all participants c(s) :cost for the transportation for S Efficient allocation : Individual rational : y Core : j S y j j j y j c( = c( ) { j} c(s), S )
EPM Company Volume Shapley Shadow Nucleo. EPM Company 1 9,0 5,1 4,1 3,4 6,7 Company 2 9,7 9,0 12,7 11,1 8,8 Company 3 11,2 13,5 14,2 14,0 8,8 Company 4 4,3 8,6 13,3 6,4 8,8 Company 5 0,2 5,7-1,8 4,8 8,8 Company 6 19,9 9,2 11,7 8,3 8,8 Company 7 13,2 15,8 15,6 11,5 8,8 Company 8 14,0 6,9 9,1 4,6 8,8
Model Equal Profit Method Relative saving : c ({ i} ) yi yi = 1 c( { i} ) c( { i} ) Relative difference between two participants : Minimize difference i.e. minf s.t. f j S j y y c j j y i ({ i} ) c( { j} ). y Stable allocation c c( S), S = c( ) j y i y c ({ i} ) c( { j} ) j ({ i} ) y i.
2- Furniture outbound transportation collaboration 363 shipments/filo 44,6% of total volume 4 companies Study area 9
2- Furniture outbound transportation collaboration First phase: Simulation of 4 logistics scenarios of collaboration Cost and delivery time reductions/losses The optimal logistics scenario: 21% savings Exclude one company US regional terminal Suppliers Canadian terminal Furniture company Too high delay and/or number of transits for some shipments Retailers Customers Issue: Modification of the optimal logistics scenario? 10
Modification of the optimal logistics scenario Second phase: New logistics approach Canadian terminal at company A + direct LTL Additional constraints to the heuristic (to solve the optimal scenario): Limit on the delay and the number of transits for a shipment (customized by company) Modified heuristics provide a logistics scenario that: Allows the Grand coalition (no exclusion) 8.1% increase of the cost Issue: How to share the common cost knowing that an additional cost of 8.1% was incurred to satisfy the heterogeneous limits of the companies? 11
Cost allocation strategy Modified Equal Profit Method (EPM) to take into account non transferable costs Modified Alternative Costs Avoided Method (ACAM) to distribute the non transferable costs associated with the special logistics requirements in particular: Extra costs imposed by special logistics requirements Allows a share according to the impact of each company s limit 12
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Non transferable cost Ai 14
Results Company New method EPM Difference Cost Savings Cost Savings Cost Savings ($CAD) (%) ($CAD) (%) ($CAD) (%) A 58 817 18.0 62436 12.9 3 619-5.1 B 25 111 4.0 22773 12.9-2 338 8.9 C 10 951 12.0 10838 12.9-113 0.9 D 9 708 1.0 8540 12.9-1 168 11.9 Sum 104 587 12.9 104 587 12.9 0 0 15
3- Collaboration in the pulp and paper industry Analysis of the relationship between a pulp and paper producer and its wholesaler The objective: Identify the best collaborative approach to implement in order to: Maximize revenues and minimize production, distribution and inventory costs of the producer Maximize revenues and minimize buying, ordering and inventory costs of the wholesaler 16
3- Collaboration in the pulp and paper industry SECO D SUPPLY SOURCE -Demand of the final consumer WHOLESALER FI AL CO SUMER -Demand of the wholesaler -Demand of other clients PRODUCER OTHER CLIE TS 17
3- Collaboration in the pulp and paper industry Issue: Find the best collaborative approach that maximizes profit of both the network and the two partners Based on the use of Mixed-Integer Linear Programs (MIP) Four different approaches tested and compared using simulation of the rolling planning processes VMI CPFR MTO Regular Replenishment 18
Regular Replenishment Vendor Managed Inventory QSS it d it t=1 d cc it QSS it t=1 d cc it IF c i0 ISS c i0 RETAILER Determines the products to order from the producer D c it PRODUCER Manufactures and ships the products to satisfy retailer demand Q m it Q it R it, Ntru t d it stc c it IF c i0 I i0 PRODUCER Manages the inventories for the retailer Q m it Q it R it, Ntru t RETAILER Satisfies the demand of the final consumer Chooses the products to order from the 2 nd supply source Manufactures the products to satisfy the demand of other clients Manufactures the products to satisfy the demand of other clients Orders products from the 2 nd supply source if necessary t=t+1 IF c i0 = IFc it, ISSc i0 = ISSc it, I i0 = I it, RSS it+lds = QSS it RC it+τ+ld = R it (MTO) / RC it+ld = R it (Regular Replenishment) t=t+1 IF c i0 = IFc c it, ISSc c i0 = ISSc c it, I i0 = I it, RSS it+lds = QSS it t=1 d it de cc it IF c i0 I i0 RETAILER Determine the quantity to produce and to ship to satisfy the final consumer PRODUCER Q m it Q it R it Ntru t Take into account the products to manufacture for other clients t=t+1 IF c i0 = IFc it, I i0 = I it, RC it+ld = R it Collaborative planning, forecasting and replenishment
3- Collaboration in the pulp and paper industry CPFR is the most profitable approach for the network Inventory cost down up to 44% Transportation cost down up to 18% However CPFR is the most beneficial method for the producer, while the Regular Replenishment is the most advantageous for the wholesaler CPFR is the most difficult collaborative approaches to implement PRODUCER: CPFR CUSTOMER: Regular Replenishment Issue: How to share benefits so as to obtain a profitable collaboration profitable for each partner? 20
Quantity based price discount 21
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What did we learn. Case 1 3 companies and a new collaborative planning approach Research opportunities: methods for collaborative planning integrating the sharing optimization; the concept of business stability Case 2 No coalition company B left the coalition and negotiated better transportation rates; company C went bankrupt; company A joined another coalition Research opportunities: trust ; non tangible benefits 23
Results Company New method EPM Difference Cost Savings Cost Savings Cost Savings ($CAD) (%) ($CAD) (%) ($CAD) (%) A 58 817 18.0 62436 12.9 3 619-5.1 B 25 111 4.0 22773 12.9-2 338 8.9 C 10 951 12.0 10838 12.9-113 0.9 D 9 708 1.0 8540 12.9-1 168 11.9 Sum 104 587 12.9 104 587 12.9 0 0 24
PRO-VE 2009, 7-9 October 2009, Thessaloniki, Greece 25
Geographical Coverage Benefits 26
What did we learn. Case 3 Strong resistance from the sales department of the producer Implementation of RR Disruption in the collaborative approach because of competitive offers More collaboration!! Research opportunities: changes in internal business model; impacts of asymmetric information and lack of rationality Other issues Information sharing Standardization of cost/pricing functions Standardization of planning processes and levels of operational excellence IT-Web-based collaborative infrastructure 27
Three cases Frisk, M., K. Jörnsten, M. Göthe-Lundgren, M. Rönnqvist. 2009. Cost allocation in collaborative forest transportation, to appear in EJOR. Available as a working paper on www.nhh.no. Audy J.-F., D Amours S., Rousseau L.-M., 2009. Cost allocation in the establishment of a collaborative transportation agreement an application in the furniture industry, in review JORS. Available as a working paper on www.cirrelt.ca. Lehoux N., D Amours S., Frein Y., Langevin A., Penz B., 2009. Collaboration for a two-echelon supply chain in the pulp and paper industry: the use of incentives to increase profit, to appear in JORS. Available as a working paper on www.cirrelt.ca. 28