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Dr. Jabir Ali Associate Professor Centre for Food and Agribusiness Management, Indian Institute of Management, Prabandh Nagar, Off Sitapur Road, Lucknow - 226013, Uttar Pradesh, India
Technology
Primary Producer
Processing
Distribution
Retail
M A R K E T
Social/ Legal
Environment
Mapping the Agriculture Commodity Flow in Uttar Pradesh Rice & Wheat
Rice = 2.62 Million tonnes (30.9 % of MSR) Wheat = 3.88 Million tonnes (28.2% of MSR) Rice = 2.33 Million tonnes Wheat = 13.79 Million tonnes
Govt. Procurement
PDS
Consumers
Self Consumption
Spot Market
What to do with the leakage? What efficient and innovative model can we suggest for linking the farmers with the markets? It is even more critical to understand the commodity chain for perishable products such as fruits, vegetables, milk, meat etc
Facility location
Where should facilities be located?
Capacity allocation
How much capacity should be allocated to each facility?
Technological
Macroeconomic Political
Infrastructure
Competitive Logistics and facility costs
Response time: time taken for a customer to receive an order Product variety: number of different products offered Product availability: probability of having a product in stock Customer experience: ease in placing order Time to market: bring a new product to the market Order visibility: ability of customers to track their orders Returnability: ease in returning unsatisfactory merchandise Inventories Transportation Facilities and handling Information
Number of Facilities
Where inventory needs to be for a one week order response time typical results --> 1 DC
Customer DC
Where inventory needs to be for a 5 day order response time typical results --> 2 DCs
Customer DC
Where inventory needs to be for a 3 day order response time typical results --> 5 DCs
Customer DC
Where inventory needs to be for a next day order response time typical results --> 13 DCs
Customer DC
Where inventory needs to be for a same day / next day order response time - typical results --> 26 DCs
Customer DC
Transportation
Facilities and handling Information
Transportation
Number of facilities
Cost of Operations
Facilities Inventory
Transportation Labor
Number of Facilities
Will product be delivered to the customer location or picked up from a preordained site? Will product flow through an intermediary (or intermediate location)?
Based on the choices for the two decisions, there are six distinct
Manufacturer storage with direct shipping Manufacturer storage with direct shipping and in-transit merge Distributor storage with package carrier delivery Distributor storage with last mile delivery Manufacturer / distributor storage with costumer pickup Retail storage with customer pickup
Retailer
Customers
The biggest advantage of drop shipping is the ability to centralize inventories at the manufacturer Lower inventories by postponing customization until after the customer order Transportation costs are high with drop shipping because the average outbound distance to the end consumer Truckload (TL) or less-than-truckload (LTL) carriers Response times tend to be large
Product Flow
Information Flow
Performance
Lower costs because of aggregation. Benefits of aggregation are highest for low-demand, highvalue items. Benefits are very large if product customization can be postponed at the manufacturer. Higher transportation costs because of increased distance and disaggregate shipping Lower facility costs because of aggregation. Some saving on handling costs if manufacturer can manage small shipments or ship from production line. Significant investment in information infrastructure to integrate manufacturer and retailer.
Service Factor
Response Time Product variety
Performance
Long response time of one to two weeks because of increased distance and two stages for order processing. Response time may vary by product, thus complicating receiving. Easy to provide a very high level of variety
Product availability
Customer experience Time to market Order visibility Returnability
Retailer
Customers
In-transit merge combines pieces of orders from different locations to provide single delivery to consumers
Customers
Inventory is held at distributor/ retailers and package carriers are used to deliver the product to customer
Information
Service Factor Response Time
Lower than manufacturer storage. Higher cost to provide the same level of availability as manufacturer storage.
Better than manufacturer storage with drop-shipping. Higher than manufacturer storage Easier than manufacturer storage Easier than manufacturer storage
Distributor/Retailer Warehouse
Customers
Product Flow
Inventory is held at distributor/ retailers and they deliver the product to customer
Information Flow
Retailer
Cross Dock DC
Pickup Sites
Inventory
Transportation Facilities & Handling Information Service Factor
Response Time
Product variety Product availability Customer experience Time to market Order visibility Returnability
Same-day (immediate) pickup possible for items stored locally at pickup site.
Lower than all other options. More expensive to provide than all other options. Related to whether shopping is viewed as a positive or negative experience by customer. Highest among distribution options. Trivial for in-store orders. Difficult, but essential, for online and phone orders. Easier than order options given that pickup location can handle returns.
INTERNAL CONSTRAINTS Capital, growth strategy, existing network PRODUCTION TECHNOLOGIES Cost, Scale/Scope impact, support required, flexibility
COMPETITIVE ENVIRONMENT
REGIONAL DEMAND Size, growth, homogeneity, local specifications POLITICAL, EXCHANGE RATE AND DEMAND RISK
AVAILABLE INFRASTRUCTURE
network while providing customers with the appropriate responsiveness Trade-off: between revenue and costs Information required:
Location of supply sources and markets Location of potential facility sites Demand forecast by market Facility, labour and material costs by sites Transportation costs between each pair of sites Inventory costs by site and as a function of quantity Sale price of product in different regions Taxes and tariffs Desired response time and other service factors
inputs:
n=number of potential plant locations/ capacity m=number of markets or demand points Dj=annual demand from market j Ki=potential capacity of plant i fi=annualized fixed cost of keeping factory i open cij=cost of producing and shipping one unit from factory i to market j yi=1 if plant i is open, 0 otherwise xij=quantity shipped from plant i to market j
s.t.
x D ,
i 1 m ij j
For j 1,...,m
Demand at each regional market be satisfied No plant can supply more than its capacity
x K
j 1 ij
N. America
N. America S. America Europe Asia Africa Demand 81 117 102 115 142 12
S. America
92 77 105 125 100 8
Europe
Asia
Africa
10 10 10 10 10
20 20 20 20 20
Worksheet