CHAPTER 7

VEHICLE ROUTING AND

SCHEDULING
 transportation: a key decision in
logistics mix
 transportation absorbs a higher
percentage of logistics costs than
any other logistics activity
 transportation decisions are
 mode selection
 carrier routing
 vehicle scheduling, and
 shipment consolidation
 7.1
TRANSPORT
SERVICE SELECTION
Selection of Mode of
Transportation
 depends on a variety of service characteristics
 speed
 time of delivery
 inventory carried
 from surveys that rank transport service
characteristics, shows that, except for cost,
speed and dependability are the most
important factors
 cost of service, average transit time (speed),
and transit-time variability (dependability) are
the basis for transportation modal selection
 7.1.1
Basic Cost Trade-Offs
Basic Cost Trade-Offs
 When transportation is not used to provide a
competitive advantage, the best choice is by
trading off the cost of using a particular transport
service with the indirect cost of inventory
associated with the selected transportation mode
 speed and dependability affect
 shippers and buyer’s inventory levels

 the amount of inventory in transit between the

shipper and buyer’s locations

 slower, less reliable services create more
inventories in the channel
 inventory carrying cost may be trade-off with
lower cost for the transportation service
 the favored service will be the one that offers the
lowest total cost consistent with customer service
goals while meeting customer service objectives
Example 1
The CarryAll Luggage Company
 produces a line of luggage goods
 finished goods inventories are kept at the plant site
 goods are then shipped to field warehouses by common
carriers
 rail is currently used
 average transit time for rail shipments is T = 21 days
 at each stocking point,
 average of 100,000 units
 average cost of C = $30 per unit
 inventory carrying cost is I = 30% per unit cost per
year
 To select the mode of transportation that will minimize
the total costs
 estimated that for every day that transit time can be
reduced from the current 21 days, average inventory
levels can be reduced by 1%
 Demand, D = 700,000 units sold per year
Transport Rates Door-to-door Transit No. of
service ($/unit) Times (days) shipments per
year
Rail 0.10 21 10
Piggyback 0.15 14 20
Truck 0.2 5 20
Air 1.40 2 40

Procurement costs and transit-time variability is assumed to

be negligible.
 Table 7-2 Transportation Choice Evaluations
for the CarryAll Luggage Company

Cost Type Method of Rail Piggyback Truck Air

Computatio
n
Transportation RXD (0.10)(700,000) (0.15)(700,000) (0.20)(700,000) (1.40)(700,000)
= 70,000 = 105,000 = 140,000 = 980,000

In-transit ICDT (0.30)(30)(700,000)(21) (0.30)(30)(700,000)(14) (0.30)(30)(700,000)(5) (0.30)(30)(700,000)(2)

Inventory 365 365 365 365 365
= 362,466 = 241,644 = 86,301 = 34,521

Plant ICQ/2 (0.30)(30)(100,000)/2 (0.30)(30)(50,000)/2 (0.30)(30)(50,000)/2 (0.30)(30)(25,000)/2

inventory = 450,000 = 225,000 = 225,000 = 112,500

Field IC’Q/2 (0.30)(30.1)(100,000)/2 (0.30)(30.15)(50,000)/2 (0.30)(30.2)(50,000)/2 (0.30)(31.4)(25,000)/2

inventory = 451,500 = 226,125 = 226,500 = 117,750

Totals $1,333,966 $797,769 $677,801 $1,244,771

 7.1.2
Competitive
Considerations
Selection of transportation
mode to create a competitive
service advantage
 when buyer purchases goods from >1 supplier, the
logistics service offered + the price, may influence
the supplier’s selection
 if suppliers select the transport mode, they can
control this element and thus influence the buyer’s
patronage
 to buyer, better transport service (lower transit time
and transit-time variability) means
 lower inventory levels and/or

 operating schedules can be met with greater

certainty
 The buyer’s action is to shift its purchasing decision
toward the supplier offering the preferred transport
service
 The profit may defray a premium transport service
and encourage supplier to seek the transport service
appealing to the buyer rather than simply the one
offering the lowest cost
 transport service selection becomes a joint decision
between supplier and buyer
 supplier competes for the buyer’s patronage through
the choice of a transport mode
 buyer responds to the choice by offering the supplier
more business
 more business will depend on the transport service
differential created among competing suppliers
 supplier will not settle on a single transport service in a
dynamic, competitive environment
Example 2
 A manufacturer purchases 3,000 cases of plastic
parts valued at $100 per case from two suppliers
 purchases are currently divided equally between
the suppliers
 supplier uses rail transport and achieves the same
average delivery time
 if for each day that a supplier can reduce the
average delivery time, the manufacturer will shift
5% of its total purchases, or 150 cases, to the
supplier
 supplier earns a margin of 20% per case before
transportation charges
 Supplier A would like to consider whether it would
be beneficial to switch from rail to air or truck
modes
Transport Mode Transport Rate Delivery Time

Rail $2.50/case 7 days

Truck 6.00 4

Air 10.35 2
 Profit comparison for Supplier A’s
Transport Modal Choices

Transport Cases Gross Transport cost Net profit

Mode Sold Profit

Rail 1,500 $30,000.00 - $ 3,750.00 = $26,250.00

Truck 1,950 $39,000.00 - $11,700.00 = $27,300.00

Air 2,250 $45,000.00 - $23,287.50 = $21,712.50

 7.1.3
Appraisal of Selection
Methods
Methods for transport
service selection
 need to account for the indirect
effect that transportation choice
has on inventory costs
 the patronage of the shippers
and consignees
 there are other factors which
are not under the control of the
logistics manager
1. Effective Cooperation
between Supplier and
Buyer
 a reasonable knowledge of each party’s cost is
available
 if they are separate legal entities, doubt that
perfect cost information is possible unless
some information exchange is worked out
 Sensitivity
 to the other party’s reactions to a transport service
choice
or
 to the degree of patronage
should indicate the direction of cooperation
2. Competing suppliers
in the distribution
channel
 buyer and the supplier should
act rationally to gain optimum
cost-transport service trade­
offs
 rationality among the parties
can not be guaranteed.
3. Price effects
 supplier might raise product
price to provide a higher-
quality transportation service
than the competitor
 buyer should consider both
price and transport
performance when
determining patronage
4. Transport rate
 changes because of changes in
product mix and inventory cost
 adds a dynamic element to the
problem that is not directly
considered
5. Indirect effects of
transport choice on supplier
inventories
 suppliers and buyers may
experience increased or decreased
inventory levels as a result of the
shipment size associated with the
transport choice
 suppliers may adjust price to
reflect this, which, in turn, will
affect transport choice
 7.2
VEHICLE ROUTING
VEHICLE ROUTING
 transportation costs range between 1/3 to 2/3 of logistics
costs
 improve efficiency through maximum utilization of
transportation equipment and personnel is a major concern
 length of time that goods are in tran­sit reflects on the
number of shipments a vehicle can made within a given
period of time
 to reduce transportation costs and improve customer
service, finding the best path to minimize the time or
distance of travel, is an important consideration
 many variations of routing problems
 find a path through a network where the origin point is
different from the destination point
 find a path which involves multiple origin and destination
points
 find a path where origin and destination points are the
same
7.2.1 Separate and
Single Origin and
Destination Points
 problem of routing a vehicle
through a network can be
solved by many methods
 the simplest and most
straightforward method is the
shortest route method
 Example 3
7.2.2 Multiple Origin
and Destination Points
 multiple source points that may serve
multiple destination points
 commonly occurs when there is more than
one vendor, plant, or warehouse to serve
more than one customer for the same
product
 further complicated when the source points
are restricted in the amount of the total
customer demand that can be supplied from
each location
 solved by transportation method
 Example 4
7.2.3 Coincident Origin
and Destination
Points
 origin point is the same as the destination point
 commonly occurs when transport vehicles are
privately owned, e.g.
 routing of delivery trucks from a warehouse to

retail points and return to the warehouse

 local delivery trucks from retail stores to customers

 routing of school buses, newspaper delivery trucks,

garbage collection trucks, and cars making

deliveries of meals to offices
 the objective is to find the sequence in which the
points should be visited that will minimize to­tal travel
time or distance
 known as the “traveling salesman” problem
 cognitive and heuristic solution procedures are used
to solve these problems
(a)Points Are Spatially
Related
 solutions can be found by using the pattern
recognition capabilities of the human mind
 good stop sequences are formed when the
paths of the route do not cross
 the shape of the route will usually bulge, or
form a teardrop shape, where possible
 illustrated in Figure 7-6
 based on these two principles, an analyst
can quickly sketch out a route plan that
might require a computer many hours to
find
(a)Points Are Spatially
Related
 alternatively, a computer model can be used to
find the stop sequences on a route
 better choice when the spatial relationship
between stops does not represent their true
travel time or distance, e.g
 travel barriers

 one-way streets, or

 traffic congestion present

 locating stops geographically, e.g. coordinate

points, can reduce the amount of data
 the computer is assigned the task of estimating
the distances or times
 computational procedures have been developed
that rapidly solve the problem and produce
results that are close to optimum
 Example 5
(b)Points Are Not
Spatially Related
 where it is not easy to establish the spatial
relationship between stops on the tour, or
 where the spatial relationships become
distorted because of exact distances, or times,
should be specified between stop pairs
 cognitive procedures are less applicable
 must resort to a mathematical procedures to
treat this problem
 although the inter-stop distances, or times,
can be exact, solution procedures tend to
gives approximate answers
 example 6