A Combined Terminal Location and Ship Routing Problem Author(s): H. Gunnarsson, M. Rnnqvist, D.

Carlsson Reviewed work(s): Source: The Journal of the Operational Research Society, Vol. 57, No. 8 (Aug., 2006), pp. 928938 Published by: Palgrave Macmillan Journals on behalf of the Operational Research Society Stable URL: http://www.jstor.org/stable/4102406 . Accessed: 02/11/2011 18:01
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Journal of the Operational Research Society (2006) 57, 928-938

? 2006 OperationalResearchSociety Ltd.All rights reserved. 0160-5682/06 $30.00

www.palgrave-journals.com/jors

combined

terminal

location

and

ship

routing

problem
H Gunnarsson'*, M R6nnqvist' and D Carlsson2
'Link6ping Institute of Technology, Linkiping, Sweden; and 2S6dra Cell AB, Vdxjd, Sweden supply the customers'annualdemandfor pulp productswhile minimizingthe distributioncosts. Customersare supplied with various pulp productsfrom pulp mills in Scandinaviaby ships, trains, or lorries.The ship routes go from the pulp mills to terminalsin Europe. From each terminal,the products are transportedto customersby lorry, train, or barge. Some customers can be supplied directly from the pulp mills by trains or lorries. We have developed a mathematical model to select which terminals to use and, at the same time, determine the shipping routes. The mixed integer

is a and at Cell In thispaper, consider combined terminal location shiprouting we problem Sddra AB. Thepurpose to

is of solver. Whenthe number routesgenerated large,the modelwas solveddirectly usinga commercial programming
time requiredto obtain an optimal solution is too long. Hence, we have developed heuristicsin order to obtain an provide solutions that are within 0.12% of the optimal ones. ResearchSociety (2006) 57, 928-938. doi:10.1057/palgrave.jors.2602057 Journalof the Operational Published online 17 August 2005 mixed integer programming; facility location; transportation;ship routing Keywords:

weretested.Ourheuristics scenarios in time.In addition thebasiccase,fivedifferent to solution reasonable acceptable

Introduction The problem addressed in this paper is to minimize the distribution costs for satisfying the demand for pulp products for one of the world's largest suppliersof market pulp, S6dra Cell AB. The supply chain consideredin this projectstartsat the supply sources(ie pulp mills), located in Swedenand Norway, and ends at the customers'papermills, located mainly elsewhere in Europe. Around 30 different from pulp mills to customersin the productsare transported Trainsor lorriesare used to reachcustomersin supplychain. the Nordic countries. The most common way to reach the customers outside Sweden and Norway is by a shipping vessel. The vessels charteredlong term are called TC-vessels vessels). They load at a harbournear one (ie time-chartered of the pulp mills, and unload at a terminalnext to a harbour elsewherein Europe. In addition to the TC-vessels,vessels that are charteredshort term (ie spot vessels)can be used. It is also possibleto use trainsand lorriesdirectlyfor export to Europe. Trains and lorries transport the pulp products furtherfrom the terminalsto the customers. The contributionof this paper is an optimizationmodel for a combinedterminallocation and ship routingproblem togetherwith an industrialcase studythat shows its practical usage. The model is tested and evaluatedthrough different scenariosat SddraCell AB. The numberof possibleroutesis

estimated to be several thousands, and we have, thus, a priori generated a relevant subset of these. The model is a mixed integer linear programming model. The commercial solver CPLEX gives a solution, but it takes longer time than is

acceptable.We have thereforedeveloped various heuristics that can be used to get a good-enough solution within

acceptable time limits. By using these heuristics, the problem can be solved within 11 min: a result that is 0.12% from the optimal solution for the given case studies. The results are used in the ongoing planning work at S6dra Cell AB. In the literature on ship scheduling on tactical and operative levels, the problems are often solved by formulating and solving a Set Partitioning (SP) problem (Christiansen et al, 2004). Each route represents a column, and the columns are often generated a priori. The column gives information about which places to visit on the current route. The constraints in the model state that all places have to be visited and that each ship is assigned exactly one route. This method for solving the ship routes problem can be found in Ronen (2000) and Butchers et al (2001). Daily operative planning of ships scheduling combined with distribution for S6dra Cell AB can be found in Bredstr6m (2003), where a mixed integer programming model was developed and a rolling horizon solution approach as well as a genetic algorithm were used to solve it. A survey of applications and methods within the facility location area can be found in Drezner (1995). In the Division Optimization, H Gunnarsson, Department literature on forest, a review of locational issues in forest of *Correspondence.: 58183,Sweden. Univeristy, Linkdping Link6ping of Mathematics, management can be found in Church et al (1998). Melkote E-mail: hegun@mai.liu.se

HGunnarsson etal-Terminal location ship and routing 929 problem

and Daskin (2001a,b), and Bhaduryet al (2000) described different integrated models of facility location and transportation network design. Related problems of uncapacitated fixed charge network design problemswere studiedin Magnanti and Wong (1984), and in Balakrishnanet al of (1989). Overalldescriptions modellingof multicommodity in transportation networkdesign problemscan be found in Crainicand Rousseau (1986). Different approaches for the attempt to integrate the facility location problem with the vehicle routing problem are discussed and evaluated in Balakrishnanet al (1987). Other problems integratinglocation decisions with routing can be found in Min et al (1998),and in ReVelleand Laporte (1996). Other related problems include hub location problems.A review of hub location problemscan be found in Campbell et al (2002). Studies integratingship routing with inventory can also be found in Christiansen(1999), Christiansenand Nygreen (1998a,b). In the supplychain literature, thereare severalstudiesthat include decisions concerning ship routes. Fagerholt and freshwater, Rygh (2002) studiedthe problemof distributing and the results concerned the number of shipping vessels, their capacity, and their speed. Mehrez et al (1995) worked with the problem of shipping bulk minerals from facilities to customers. Severaltime periods in the planning horizon were used, and decisionsconcerningthe size of the fleet and which route to use were taken. Storage is possible at the warehouses, which are located near the harbours. Mehrez et al (1995) only considershipsthat are charteredfor a single voyage (ie spot trips), and these ships do not have to return to their origins, nor are they necessarily fully occupied by one company. We, however, also consider long-term charteredships that are requiredto return to the origin in the right time. The problempresentedin Mehrezet al (1995) was solved using a mixed integerprogramming model. The outline of the remainderof the present paper is as follows. In the next section the combined terminallocation and ship routing problem is described. Then, in the model for the problem subsequentsection, the mathematical is formulated. In the following two sections, the solution methods are describedand numericalresultsusing data from a real-lifecase study arepresented.The case is obtainedfrom S6dra Cell AB, and the results include an analysis of a number of different scenarios. Finally, in the last section some concludingremarksare made. Problem description The supply sources in the present problem are pulp mills. S6dra Cell AB owns three pulp mills in Sweden and two pulp mills in Norway. Figure 1 shows the location of the pulp mills. The raw materialsfor pulp productionconsist of wood logs and sawmill chips. Around 30 different pulp products are producedat the pulp mills. Most of the pulp products have to be transportedto the nearest harbour in

order to be shipped out of the two Nordic countries.This carriesa cost, and the size of this cost depends transportation on the distancefrom the pulp mill to the harbour.The rest of the pulp is transportedby train or lorry to final customers. The pulp productsare exportedby ship from Swedenand Norway to terminalselsewherein Europe. There are two kinds of terminals:harbourterminalsand inland terminals. The inland terminalsare reachedfrom harbourterminalsby barges, trains, or lorries. Sddra Cell AB uses 24 terminals, three of which are inland terminals. Figure 1 shows the location of the terminals. The terminals have different capacities to receive products and are rented on annual agreements. From each terminal, the pulp products are transportedto a number of customers.The transportation from terminalsto the final customer is done by trains or from lorries, or a combinationof both. The transportation harbour terminals to inland terminals can be handled by trains, lorries, or barges. The last link in the supply chain consists of the customer demand, both domestic and foreign. There are about 300 delivery points spread across Europe. About 80% of the volume is delivered outside Sweden and Norway. The 10 largestcustomerspurchasehalf of the volume. The most common way to supplythe Europeancustomers is via shipping vessels to terminals, and then further by trains, lorries, or barges. S6dra Cell AB uses three TCvessels. The vessels deliverabout 0.7 million tonnes of pulp terminals.The vesselroutesvary in productsto international journey time from a few days for short routes to about 25 days for longer routes (eg to Italy). Loading and unloading times at harboursare included in these journey times. The time for unloading a full shippingvessel is estimatedto be 8 h and the ship capacity of a TC-vesselis 5600 tonnes. We define two types of routes, simple routes and composite routes, in the problem,which will be referredto as A-routes and B-routes,respectively. The A-routes load at one pulp mill and go to one terminalfor unloading.B-routes start at one pulp mill and visit one or severalpulp mills or terminalsand end at one terminal.An exampleof a B-route can be to load at the pulp mill in M6nster go on to the ts, pulp mill in M6rrum for additional loading, and finally unload at the terminalin Bremen.Another possible B-route can be to load at the pulp mill in Tofte, unload some of the products at the terminal in Aberdeen, and then go on to Bremento unload the rest of the products.The spot vessels are charteredfor a single voyage, from an origin (pulp mill) to a destination(terminal), have differentcapacities.The and smallestspot vessel can carry 2600 tonnes of pulp. The annualplanningof routesand terminalusagerequires several types of decisions. With regard to the routes, the plannersat S6dra Cell AB have to decidewhich terminalsto use, and how much (ie how largea total flow will be accepted for each terminal). The total flow at a terminal will also control the possible amount of products received on Aroutes to the current terminal.The planner has to decide

930 JournaltheOperational of Research Vol. No. Society 57, 8

UFolla

U-Tofte

Corpach A

-&Aberdeen , Grangemouth

Uvir

-M6nsterAs UMorrum

Sunderland , AGrimsby

Flensburg Emden,

A
Kiel

A Swinouj

scie

A Bremen

Northfleet Chatham Rouen,

Terneuzen

Wesel Walsum

A Ghent
Boulogne

&Basel

ALa

Pallice

-Genova

A Pasaj

es

A Figueira

Da Foz
A Gandia

and Figure1 Locationof pulp mills (squares) terminals (triangles).

which A-routesand B-routesto use, as well as the total flow of productson the routes. In addition, S6dra Cell AB wants to know whetherit is profitableto use spot vesselsor not and to what extent to use them.

Model formulation Modelling issues The A-routes go from one pulp mill to one terminal.The ship vessels always transporta full cargo of pulp products

the shortest way, directly to the final destination. The planning period in the model is 1 year, but the customers have continuous demand (ie monthly). For terminals connected to customersthat togetherhave a large demand, the A-routes can bring full cargoes and deliver the pulp productsmonthly.However,thereare problemsin supplying the terminalsconnected to customers that together have a small demand.Using A-routesto these terminalswould lead to delivery of the total annual demand of pulp products just once a year instead of once a month. There are no possibilities to store the pulp products because the pulp

HGunnarsson eta/-Terminal location ship and routing problem 931

production capacity barely covers the total pulp demand. The use of A-routes in the model is only allowed for those terminalsthat are connectedto customersthat togetherhave a large demand. For the other terminals another kind of routeis used, namelyB-route.A B-routevisits severalplaces, which means a longer journey. B-routes supply customers connected to different terminals, and the annual pulp demandof a specificcustomercan be dividedon 12 different B-routes, which enables monthly delivery.The ship vessels using B-routes do not always bring full cargoes, which makes the B-routes expensive expressed in tonnes per kilometer,comparedto the A-routes. In order to include restrictionson the size of the flow on the A-routes in the model, we have defined a number of levels with corresponding flow for each terminal.A specified maximalproportionof A-routesis designedto each of these levels. The levels give informationabout the total flow at each terminal.In the solution of the model, a terminalwith large total flow is assigned an appropriate high level, allowing a correspondinghigh proportion of A-routes. A terminal with small total flow in the solution would, in contrast, be assigned a low terminal level with hard restrictions.Very small flow at a terminalwill result in no acceptanceat all for flow on A-routes, and large flow at a terminalwill lead to an acceptanceof receivingalmost all the flow by A-routes. The maximal proportionsof flow on Aroutes and the terminal levels are presented in Figure 2, where 16 different levels are used. It requires a lot of experienceto decide the numberof terminallevels and their sizes. S6dra Cell AB uses history of their routes and distributionstructuresto find the relevantinformation. In order to model a B-route we need one link for each possible combinationof mills and terminalsincludedin the B-route. For example, a B-route that starts at a pulp mill, then goes to one terminal for unloading some of the products, and thereafter further to another terminal for unloading the remainingcargo is modelled as two types of links from the pulp mill: one link for the flow of each product to the first terminaland another link representing the flow of each product to the second terminal.
0.9 0.8 g 0.7-

Mathematical model The mathematical model of the combinedterminallocation and ship routing problem is a linear mixed integer model. We start the descriptionof the model programming by introducingthe necessarysets. Let I be the set of pulp mills, J the set of terminals,P the set of products,Q the set of customers,R the set of routes, and L the set of terminal flow levels. The set of pulp mills includesa subset for pulp mills in route k, Ik. The set of terminalsincludessubsets for harbour terminals,JH, inland terminals,JL, and terminals in route k, Jk. Finally, the set of routes includes subsets for A-routes, RA, and for B-routes,RB. In general, we will use index i for pulp mills, j for terminals, k for routes, p for products, q for customers, and 1 for terminalflow levels. Unless otherwise stated, we assume that definitionsusing for example index i are valid for all iE/. Variables First we define variables representingthe transportation flows of productson A-routes and B-routesfrom pulp mills to terminals.We define them as xki,= flow of product p on A-route k from pulp mill i to terminal j, Xk~p=flow of product p on B-route k from pulp mill i to terminal j. We also need variablesfor spot flows. We definethem as

x4 = spot flow of productp from pulp mill i to terminalj.

All the routes end at a terminal.In order to model the time restrictionfor the A-routes and B-routes,we introduce a variable describing the return flows on routes from harbour terminalsback to pulp mills. This flow does not include any productsas the shippingvessel is empty. These variablescan be definedas j xj = returnflow from terminal to pulp mill i. The variablesrelatedto transportation train and lorry by can be formulatedas follows:
yiqp

=flow of product p from pulp mill i to customer q

2 0.60

yorY

0.5

transportedby train, = flow of product p from pulp mill i to customer q transportedby lorry.

C 0.4 0.3
C.

2 0.2
0.1

The flows from terminals and at terminals can be definedas yp = flow of productp from harbourterminalh to inland terminal1, yOt = total flow of products at terminal j, = flow of productp from terminal to customerq. j yip All variablesdefinedso far are continuousvariables.

0
0 50 100 150 200 250 300 350 400 450 500 550 600 650 700 750 Annual flow in 1000 tonnes

Figure2 Proportionof A-routes dependingon the annual flow.

932 JournaltheOperational Society 57, No. of 8 Research Vol.

We also need some sets of binaryvariablesin the model formulation. The set of variables concerning A-routes, B-routes,and spot trips can be expressedas
A

uk k and s
B

1, if A-routek is used 0, otherwise

1, if B-routek is used 0, otherwise

Constraints(4) make sure that the total inflow to a harbour terminalequals the flow of products on the routes and the flow of products on the spot vessels passing the terminal. The flow out from a harbour terminal can be transported to an inland terminal or directly to a customer. The correspondingflow-balanceconstraintsfor inland terminals become hy= Ap Vj E JL, pEP (4)

hEJH

qEQ

The set of variables related to the use of terminals is definedas

u-

0, otherwise

1, if a spot tripfrompulpmill i to terminaljis used

Constraints (4) make the flow of each product to each inland terminal equal the flow of each product from the inland terminal to the customers. The total inflow of products to an inland terminalbecomes

1,
,

if terminalj is used

otherwise

Yj
yot
hEJH pEP

T
hjpV,

EJ L

(5)
(5)

In orderto model the restrictionson flows on A-routes to a giventerminal,we defineflow levelsspecifyingthe maximal allowed proportion of flow on A-routes entering the terminal. Terminals receiving a large volume of products are allowed a larger proportion of A-routes compared to terminalsreceivinga small volume of products.In order to model the levels we use the variables
T Wj

Constraints (5) ensure that all flow of products transported from harbourterminalsto an inland terminalequals the total flow at the inland terminal. Let the capacity at terminalj be denoted by bj. The capacity constraints at terminalscan then be formulatedas
ytot bizT, VjEJ (6)

f 1, if terminalj has a total flow of level1

0, otherwise

Constraints

Let sipbe the volume of productp availableat pulp mill i. In orderto ensurethat the supply of a productat a pulp mill is not exceeded,we formulatethe constraints
kERA jJk

Constraints (6) also ensure that nothing can be transported from or to a terminalwhich is not opened (zf= 0). Let the amount of flow associatedwith level I be denoted by tt and let the intervalflow for the levels be denoted by N. To assure that the terminals have the right level of flow, we formulate
t
lcL t~'tW;,

Vj E J

(7)

S+ :
+

+5
xo1rysip,

kERB jJk

X + xE Z

Xkij p-

jEJH

Vi E,

+ x i traini ' C- qEQ

and
yjt

PEP

(tlEL

N)w;, VjEJ

(8)

qEQ

The flow balanceconstraintsfor harbourterminalscan be expressedas

X

kERA iEIk

xk ijp

XB +
B

Constraints(7) ensurethat the total flow at each terminal does not exceed the amount of flow associated with the chosen terminallevel, and constraints(8) make sure that the right level of the terminalis chosen. The constraints
leL

kERB iEIk

k ijp

iEI

s:X
Xijp

(2)

w=

leJL

yp

qEQ

Yp,

Vj E JH, P E P

1, VjE J

(9)

The total inflow of products to a harbour terminal becomes

ensure that one level of flow is chosen to each terminal.In order to limit the A-routes, we use the constraints

55xC~p5

kERA iElk pEP

IeL pltllWl,

VijEJH

(10)

keRA iGIkpeP Stot,

kERB iElk pEP

iEI pEP

Vj E JH

(3)

Constraints(2) assure that the inflow of each product to every harbourterminalequals the outflow of each product.

where pi denotes the maximal proportion of flow on A-routes with terminallevel 1.Largertotal flow of products to terminalsmeans higher levels, and that, in turn, means largerallowed proportionsof flow of products on A-routes.

HGunnarsson etal--Terminal and routing location ship 933 problem

We have to expressconstraintsensuringthat the demandof the customers is satisfied. The demand for product p of customerq is denoted by dqp.The demand constraintsare

trainy?
jeJ

iEl

iEI

= dqp,

(11)

Vq e Q, Vp E P Constraints(11) show the differenttransportationmodes used to fulfilthe demand:the flow from terminals,trainflow, and, finally, lorry flow. There are time restrictionsfor TCvessels.Let r denote the total time, in workingdays per year, available for TC-vessels,let sH denote the total capacity of each shipping vessel, and let m denote the number of TCvessels. The ship capacity of each one of the TC-vesselsis 5600 tonnes. Further,let tj denote the used time (in days) for A-route k and let tB denote the correspondingtime for B-route k. The transportation time from terminal back to j pulp mill i is denotedby tif.To ensurethat the time limitsare not exceededwe express
kERA iEIk jEJk pEP

on the route in the left-hand side. Large flow on routes meansmany shippingvoyages. Let bA, bB, and bs denote the minimal number of shipping vessels per year on A-routes, B-routes, and spot trips, respectively.The flow of products on A-routeshas to be largein comparisonwith B-routesand spot trips.The customershave continuousdemand,and they thereforehave to be visitedmany times a year,which means several shipping vessels per year. In the case of B-routes, there are several possibilities to visit the terminal using different B-routes, so the number of shipping vessels transportingpulp products on B-routes is allowed to be smaller.In our cases, the minimalnumberof shippingvessels on an A-routeis 10 and on a B-routeis two. Finally,the spot trips are chartered short term, so the only restriction regardingthe number of ship voyages is that a shipping vessel gets filled (ie brings at least 2600 tonnes). In order to get a certainnumberof shippingvessels on routes, we need the following constraints to guarantee a minimal size of flows on routes: , X p, 5 ki> bASHuk Vk ERA (17)

x4XA SEtZZ + 5tBxB

kERB iEIk jEJk pEP iEI

(12)

iEIk jEJk pEP

j+ jEJH

ijrsnmS i

5
and

b B BsHU,
xoE

This constraint is an approximation,as parts of a full shipping vessel will be modelled as using parts of the time comparedto a full shippingvessel. However, the routes use at least two vessels. The route balance constraintscan be formulatedby

iEIk jEJk PEP

k'

VkERB

(18)

xip~bSsHu pEP

Vi E I,

Vj EJH

(19)

x +1x+=?
kERA jEJk pEP kERB jEJk PEP

x ji,
jEJH

Vi (13) EI

Constraints(13) ensurethat the outflow from a pulp mill equals the returnflow to the same pulp mill. To assurethat nothing is transportedon routes that are not chosen, we need the constraints
x <i pA
iElk jEJk pEP

B-routesconsist of severallinks of varyinglength, and all these links have to be utilized. Otherwise,the route can be misclassified as an A-route. In order to get a certain proportion of flow on each link in a route we need the constraints
xx
pEP

in5xp,
iEIk EJk pEP

Vk ERB,

Vi E Ik,

MuA,

Vk E RA

(14)

(20)

Vj E Jk where n denotes the share of the flow on a link in a route compared to the total flow on the given route. In order to strengthenthe linear programmingrelaxation we add the redundantconstraints zf> w ,
lELf

Bx<k MuB, p
iElk jEJk pEP

Vk E RB

(15)

and
x
pEP

, <Mu.

ViEI,

Vj EJH

(16)

Vj E J

(21)

Constraints(14) and (15) are related to A-routes and Broutes, respectively,and constraints(16) concern spot trips. The constant M is a big number and in our cases we have used M= 1000000 (related to the sum of the demand outside of Scandinavia).If the binaryvariablefor a route is zero, the right-handside in the constraintbecomeszero, and thereis no possibilityto use the corresponding flow variable

where Lf denotes the set of terminalflow levels with flow greaterthan zero.
Objective function

The objective is to minimize the total distribution cost for satisfying the customers. The total cost can be

of 8 934 JournaltheOperational Society 57, No. Research Vol.

expressedas
Z = Croutes + Cspot + Ctrain/lorry + Ctermterm + Cdistr

between terminalsand customersas

cterm-cust jEJ

Z
qEQ pEP

CjQ

(26)

+ + Cretumrn Cflow + Cfix-term

where
Croutes transportationcost for routes, = Cspot spot cost,

train and lorry cost, transportationcost betweenterminals, = distribution cost betweenterminalsand customers, Cdistr = cost for returnroutes, Creturn Cfow= flow cost at terminals,and = fixed terminalcost. Cfix-term
Ctrain/l=rry= Cterm-term =

The transportationbetween terminals, as well as from terminalsto customersonly, consists of the cheapest mode of transportationon each specific distance by either train, lorry, or barge. A customer can be supplied with pulp productsfrom differentterminals. Let cj be the unit cost for the return route between terminalj and pulp mill i. We can express the total return route cost as
Cretum =
jEJ iEl

c)xiR

(27)

cost per unit (tonnes) for ALet c be the transportation cost route k, and let cB be the corresponding transportation per unit for B-routek. Further,let ciy be the transportation harbour. cost per unit from pulp mill i to the corresponding The shippingvessels are charteredon long term. Hence, the these shippingvesselsis consideredto be fixedcost regarding sunk costs. The total transportation cost for routes can now be expressedas

Let T be the unit cost for flow at terminalj, and let furtherffTbe the fixed cost at terminalj. The flow cost at terminals is a variable cost of operating a terminal as a function of volume. The fixed cost of using a terminal consists of a cost regarding continuous operation of a terminal.We can expressthe total flow cost at terminalsand the total fixed terminalcost as Coflw =
jEJ

cy)ot

(28)

Croutes =

5
+ 5
5(c?

kERA iEIkjEJk pEP

ijp (c + ci )X
+ CMP)4pB

and

(22)
Cfix-term =
jEJ

TzT

(29)

kCRB iCIk jEJk pEP

Let cs be the transportationspot cost per unit between pulp mill i and terminalj. We can express the total spot cost as CspotM
MP)x S (23)

Solution methods One solution approach was to use the commercial solver CPLEX 7.0 directly, with default settings. The modelling language AMPL (version 10.6.16) was used to model the problem. The problem was solved in about 3 h using a PC with a Pentium 4 processor,with 1.7GHz clock frequency and 1 Gb RAM. However, when the number of B-routesis large, the time requiredto solve the problem directlyis too long. We have thereforedeveloped heuristicswhich enable us to obtain a solution within practical time limits. Below follows a short descriptionof the heuristics. Heuristic Heurl We startby solvingthe problemwithout binaryvariablesfor the B-routes, uf, and without the related constraints (18) that guaranteea minimalsize for the B-routes,and without constraints (15) that prevent flow on routes when the correspondingbinary variable is zero. The resulting new problem will be a relaxation of the original problem. The flow on the B-routes in this solution can be too small. Therefore,we add binaryvariablesfor the B-routesused in the solution. The corresponding constraints that were relaxedin the previous solution are also added, and finally

iEI jEJH PEP

be Let ctrain and Clorry the trainand lorrycost, respectively, betweenpulp mill i and customerq. We can expressthe total train and lorry cost as
= Ctrain/lorry
iEI qEQ peP

c train train

iEl qGQpEP

y clorry'

(24)

Let chi be the transportation cost between harbour terminalh and inland terminal 1. We can express the total cost betweenterminalsas transportation
= Cterm-term

(25)

heJH IEJLpEP hlhp

cost betweenterminal and be the transportation Let j cq customer q. We can express the total transportationcost

HGunnarsson eta/-Terminal location ship and routing problem 935

the rest of the possible B-routes are removed, and the problem is resolved. This generates a feasible integer solution. The main steps of the heuristic Heurl can be summarizedas follows. (1) Solve the problem: (i) without binaryvariablesfor the B-routes,and (ii) without the related constraints, guaranteeing a minimalsize of the B-routes,and (iii) without the constraintspreventingflow on routes with binaryvariablesequal to zero. This gives a tentativesolution. (2) Introducebinary variablesfor the B-routes used in the solution obtained in step 1, and add the constraintsof type (ii) and (iii) that include these binaryvariables. (3) Fix the flow on the other B-routesto zero. (4) Solve the problem to obtain a feasibleintegersolution. Heuristic Heur2 This heuristic is very similar to Heurl described above; however, step 2 differs.The approachin Heur2 is based on the use of reduced costs for the B-routes. The size of the reduced cost for the B-routes that are not used gives us information about which B-routes are most attractive.We reducedcosts for the links in study the linearprogramming the B-routes that are obtained when the original binary variablesare fixed at their optimalvalues. The reducedcosts on links on the B-routes are summed up and compared. Then, the sums less than a given positive value are chosen. Binary variablesfor these correspondingB-routes are then added to the problem.This strategywill includethe B-routes used in the firstsolution,becausethey have a reducedcost of zero. To summarize,Heur2 consists of the same steps as Heurl, except that step 2 is replacedby the following: (2) Introduce binary variables for the B-routes with the sum of the reduced costs less than a given value in the tentative solution, and add the corresponding constraints(ii) and (iii). More binary variables for B-routes are added in step 2 than in Heurl. The numberdependson the size of the given numberin step 2. Heuristic Heur3 We have also developed an iterative heuristic. This was accomplishedby starting by solving the relaxed problem, expanding the set of B-routes that is binary, and finally solving the problemagain. The time requiredfor getting an optimal solution using this heuristic is however not considered to be acceptable. Therefore, we interrupt the procedureafter a given numberof iterations.Finally, all the B-routes that are not yet binary are fixed to zero, so a feasible integersolution is guaranteedin the end.

We noted that using Heurl, Heur2, and Heur3 will never result in infeasible solutions since there are always alternatives to using the A-routes and B-routes, such as using spot trips, or using transportationby trainsand lorries. Results Cases The case study from S6dra Cell AB is based on data from the period April 2002 to March 2003. There are only four pulp mills involved in the test cases. The pulp mill Folla in Norway is excluded due to its special distributionsystem, which prevents easy comparison.All the possible A-routes and spot trips are generatedand includedin the test cases. Regardingthe B-routes,thereis a largeset of possibleroutes. In order to restrictthe numberof B-routeswe have chosen the types of B-routes presentedin Table 1. The choice of these types of B-routes is based on planning experienceat Sadra Cell AB. The total number of places visited is restrictedto four, due to the fact that routesincludingmore places are rarelyused by S6dra Cell AB. The visiting order of the pulp mills and terminalsis not considered.That is, a route from a pulp mill to terminal1 and then to terminal2 is considered as the same route as starting at the pulp mill, visiting terminal 2 first, and then visiting terminal 1. The reason for that is that annual decisions are only considered in the model, since thereare no other time periodsincluded. Information about the size of the test problem is given in Table 2. The size of the problemis very large,motivatingthe developmentof the heuristics.

Table1
Type of route Destinations

Different kindsof routes

Number of routes

A-route B-route B-route B-route B-route

Pulpmill-Terminal Pulpmill-Terminal-Terminal Pulpmill-Pulpmill-Terminal Pulpmill-Pulpmill-Terminal-Terminal Pulpmill-Pulpmill-Pulpmill-Terminal

84 664 126 999 84

Table2

Size of the problemin the basiccase 4 262 21 3 3 30 84 1873 425245 2449 11309

Numberof pulp mills Numberof customers Numberof harbour terminals Numberof inlandterminals Numberof shipping vessels Numberof products Numberof A-routes Numberof B-routes Total numberof variables Numberof binaryvariables Numberof constraints

936 JournaltheOperational Society 57, No. of Research Vol. 8

It is not easy to obtain the costs for spot vessels.Thereare often differentagreementsthat decide the levels of the costs, and there are other parametersbesides the length of the transportationto consider. The used spot rates are mainly obtainedthroughhistoricaldata. The possibilityof using the spot vessels for return flow can be importantfor the price setting. We have generated six scenarios (problems)to test the model and the efficiency of the solution procedures.The problemsare presentedbelow. Each case is based on specific interest from S6dra Cell AB for their tactical decision making. The first problem (P1) is the basic case, and all other problemsare modificationsof this problem.Everycustomer has at least two possible terminals to get pulp from. The numbersof componentsas well as the size of corresponding the basic case are presentedin Table 2. In problem P2 the terminalin Terneuzenis made availablefor all customersin Italy. In addition, the costs from Terneuzento customersin Italy are decreased by 20%. In problem P3 the terminals in Sunderland and Grimsby are made available for all customers in Great Britain. In problem P4 the terminals in Sunderland and Grimsby are made available for all customers in Great Britain, and simultaneouslyonly one of these terminalsis allowed to be used. In problemP5 the terminals in Kiel, Ghent, Boulogne, and La Pallice are removed. In addition, the flow cost at terminals are decreasedfor the terminalsin Terneuzenand Bremen.All the routesin the basic case use the Kiel Canal for routes not involving Tofte and Vair6.In problem P6 the possibilityto round Denmark instead of using the Kiel Canal is investigated. Rounding Denmark will be cheaper due to Canalcosts, but thejourneytime of the routeswill be longer. This is going to result in a larger problem because the number of routes is considerablyincreased.This problem includes 2393 B-routes, compared to the basic case, where the numberof B-routesis 1873.

correspondingLP-solutionsto the differentproblems.In all the cases, the time to get an LP-solution is short and the optimalintegersolution is close to the LP-solution.We have also used the options in CPLEX with the LP-solversBaropt and Dualopt and both use computationaltimes very similar to the default option (within 10% of each other). The objectivefunctionvaluesare given in cost units, not to reveal the actual commercialvalues. Table 4 presentsthe resultsof solving the problemsusing the differentheuristics.We have chosen to presentthe result afterfive iterationsin Heur3,due to the fact that the time for solving the problem then becomes less than 1h. Regarding the Heur2, we present the problem solved with the sum of the reduced costs (red. cost) less than 1500, for the same reason. It should be noted that the times for solving the problemsby using Heurl and Heur2 are similar. It shouldbe notedthat in Heur3around30 binaryvariables connectedto B-routesare added in the beginningand only a few (two to four) are added towards the end. To use the Heur3on the basiccase to the end requires73 iterations,and takes around 165h. The numberof includedbinaryvariables connectedto B-routesin the last iterationis 403. Analysis of cases The resultsfrom the six differentscenariosare presentedin Table 5. The figureswithin parenthesesrepresentthe total possible number of the components, respectively.Around five terminals are not used in the cases, which is in accordance with Sbdra Cell AB's ambition to use fewer terminals.It should be noted that only a small part of the

Table3

in functionvaluesand CPU-times Optimalobjective the different usingCPLEXdirectly problems

IP (CPLEX) Time (h) LP-solution Time (h) Gap (%)

Problem

Numerical results

The objective values from solving the six problems using the CPLEX directly as the solution method are given in Table 3. We also show the objectivefunction values for the

P1 P2 P3 P4 P5 P6

401359 400148 400816 400908 400072 400724

2.26 2.21 8.30 1.62 0.18 2.87

396 107 394916 395289 395289 395047 395300

0.006 0.008 0.020 0.005 0.005 0.006

1.32 1.32 1.40 1.42 1.28 1.37

Table4
P Heurl Time (h)

functionvaluesin different usingthe proposedheuristics problems Optimalobjective

opt. Diff. (%) Heur2 red. cost <,1500 Time (h) Diff. opt. (%) Heur3 5 iterations Time (h) Diff opt. (%)

P1 P2 P3 P4 P5 P6

401465 400270 401 103 401218 400525 401 107

0.13 0.12 0.12 0.13 0.05 0.18

0.026 0.030 0.072 0.077 0.113 0.096

401465 400270 401 103 401215 400455 401 107

0.14 0.17 0.18 0.17 0.15 0.20

0.026 0.030 0.072 0.077 0.096 0.096

401464 400264 400915 401016 400080 400828

0.75 0.72 0.52 0.81 0.20 0.72

0.026 0.029 0.025 0.027 0.002 0.026

HGunnarsson and routing et a/-Terminal location ship 937 problem

Table5

Resultsfromthe different scenarios usingCPLEXdirectly

PI

P2

P3

P4

P5

P6

Numberof terminals used 19(24) 19(24) 21(24) 20(23) 19(24) 15(20) Numberof A-routesused 2(84) 2(84) 1(84) 1(84) 3(68) 2(126) Numberof voyageson usedA-routes 20 22 22 22 73 22 Numberof B-routes used 24(1873) 24(1873) 24(1873) 24(1873) 17(1214) 24(2393) Numberof voyageson used B-routes 146 145 143 147 91 140 Numberof spot tripsused 10(84) 11(84) 11(84) 11(84) 8(68) 10(126) Maximum numberof voyageson used spot trips 75 88 80 76 80 87 of 45 45 46 46 46 46 Proportion the volumetransported trainand lorry(%) by

the possibleroutesare used. The restrictions regarding size of the routeshave decreasedthe amount of routes.The number of voyageson used A-routesand B-routesis basedon the fact that the TC-vesselshave a capacityof 5600 tonnes. In all the cases all possible times for running routes are used, explaining almost the same proportion of train and lorry in transportation all instances.The spot trips selectedby the model are mainlytripsto distantdestinations. The maximum numberof voyageson used spot tripsis basedon the fact that the capacitiesof the spot vessels are from 2600 tonnes. As many as 19 of totally 24 terminalsare used in P1. Two of the three inland terminalsare used. The number of Broutes used is only 24 out of 1873possible.The B-routesare usually used for nearerdestinations.Regardinglong routes, for instance,to Genova, the spot tripsare chosen to a greater extent. By using spot ships to these distant destinations, Sodra Cell AB can make more A- and B-routesto the close destinations. If the distributioncosts from Terneuzento the customers located in Italy could be decreased by at least 20% as describedin problem P2, it would be better for Sbdra Cell AB to close the terminalin Genova and use the terminalin Terneuzenmore. The main disadvantagewith this action is that the distancefrom the terminalto the customersin Italy would be longer, which could mean less good service. S6dra Cell AB has severalterminalsin Great Britainand is striving to reduce the number. We can see that if all customerscan use the terminalsin Sunderland and Grimsby as in problem P3, the costs would decrease,in spite of the fact that neitherSunderland Grimsbyis used in the basic nor case. The costs would increasemarginallyif just one of the two terminalsin Sunderlandand Grimsbyis allowed to be used as describedin problem P4. For making a complete not comparison,other circumstances, includedin the model, have to be considered. The resultsconcerningproblemP5 indicate that it would be cost efficientto close the terminalsKiel, Ghent, Boulogne, and La Pallice,and insteaduse the terminalsTerneuzenand Bremen more frequently. However, the loss in value for customerslocatedclose to the terminalsthat would be closed is hard to estimate.Thereis a trade-offbetweenavailability of productsat the largerterminalsversuslonger distancesto some customers.

We can see from the results of problem P6 that all the longer routes rounding Denmark have been chosen at the expenseof the shorterroutes via the Kiel Canal. Thereis no loading or unloadingin the weekendsfor the staff in S6dra Cell AB, which will mean even more savings by using these longer routes. Since many routes in the present situation include waiting time for loading or unloading, using this time for transport could be as good as waiting at the harbour.

Concluding remarks The strategic decisions on location of terminals for distributing the pulp at S6dra Cell AB are regularly reconsidered.It has been the aim of the company to reduce the number of terminalsfor the last couple of years. One argument for reducing the number of terminals is to concentratevolumes which makes shippingto the terminals more efficient. Having a higher volume assigned to a terminal also means a bigger 'bargaining power' when discussing handling costs and service with the operating company. Another argument is that availability can be improvedby having the full assortmentof productsin stock for quick delivery to customers. There are, however, problems associatedwith taking away terminals.The main disadvantage is that the distance to some customers costs. There increases,whichmeans increasedtransportation are also other aspects, which are harder to express in numbers,and thereforeare difficultto includein a numerical model. One such aspect can be how the relationship with an importantcustomeris influencedif a terminalis removed. In the strategicdecisionprocessas well as tacticaldecision makingin the annualbudgetingprocessit is importantto be able to quantify the impact of different scenarios. The suggestedmodel does exactly this and is used by S6dra Cell AB as a support tool. Even though some aspects exist that are hard to include, the developed model is an important tool in weighing the different measurableaspects against each other. It is also a tool for measuringthe actual cost of with keeping a terminaljust to maintaina good relationship a certaincustomer.Suchinformationcan also be valuablein negotiations with the customer.In the tests we have found

of 8 Research Vol. 938 JournaltheOperational Society 57, No.

that the six case studies can be solved by CPLEX directly, and for instances including a considerable amount of B-routes, we have developed heuristics to obtain good solutions within practical time limits.

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Received February2004; June 2005 after two revisions accepted