 Hello everyone, welcome to this course on supply chain digitization, this course is jointly being offered by three faculty members from IIM Mumbai including myself, Professor Priyanka Verma and my colleagues Professor Sushmita Narayana and Professor Debra Prathadas. So in this week, we are focusing on analytics in supply chain management and particularly in this week, we are talking about network optimization. If you remember in our previous discussions, we have focused on break even analysis to understand the selection of facilities considering the total cost. Then we have seen the center of gravity method for selecting a facility or for defining the location of the facility based depending on its coordinates and the total loads to be taken care. In the third part, we have focused on supply chain problem which is which is capacity facility location problem and now we will be talking about a little complex problem which is about supply chain network design. We will start our discussion with the supply chain network design problem. In order to understand how a supply chain network can be designed, let us refer to a simple example. Suppose we have a company which has got 2 manufacturing facilities M1 and M2 and along with this, the company is manufacturing only single product which it is trying to distribute from 3 warehouses and from warehouses, the products are moving to 4 retailers. So, let us reiterate once again, there are 2 manufacturing facilities, 3 warehouses and 4 retailers and there is only one product which is required to be manufactured and distributed to retailer through warehouses. The manufacturer M1 has got a manufacturing capacity of 150,000 units. Similarly, manufacturing M2 has also got a manufacturing capacity of 1,20,000 units. We need to remember these values. Going forward, if we talk about the production cost, it is assumed that both the manufacturing facilities have got the same production cost. Similarly, at the warehouses, another very strong assumption is all these 3 warehouses have got the same handling cost. In order to simplify our problem, we have kept these assumptions. However, in real life, these costs can be different for different facilities in a supply chain. Followed by this, it is given to us that the 4 retailers have got demand of 45,000 units, 35,000 units, 68,000 units and 70,000 units respectively. Let us summarize all these things together in the form of this table. As we can see, there are 2 manufacturers, there are 3 warehouses and there are 4 retailers. Along with that, the capacity of the manufacturers are given to us over here. Along with that, the retailers demand are also mentioned over here. But in between this table, you can see these numbers are nothing but they are the cost, which is the per unit shipment cost. So, if I refer to this value, this is indicating that in order to move 1 unit of product from manufacturer 1 to warehouse 1, you need to pay 1 rupee per unit of shipment cost. Similarly, all these other values are given over here. So, between every pair of the facilities in the possible supply chain network, these transportation costs are also given to us. The next question is, it is very important to decide that how the network design should be done, so that the total cost of transporting the goods is minimum. So, if we try to make a supply chain network based on the above case, we can see that there are 2 manufacturers, which are required to supply the single product to these 3 warehouses and these 3 warehouses have to fulfill the demand of these 4 retailers. In terms of their capacity, the capacities of these manufacturers are also given over here and the retailers demand are also mentioned over here. We can see that every manufacturer can supply to any of the warehouse, so that is what you can see lot of arrows, which are connecting these manufacturers and the warehouse. Similarly, any warehouse can supply to any of these 4 retailers. We have shown just for the combination of 1 warehouse and 4 retailers over here, but the similar pattern is also possible between every warehouse to the all 4 retailers. So, this way we can see that these are all possible movement in which the products can be distributed from manufacturer to the warehouse and then from warehouse to the retailer. But remember that there is a constraint that all these manufacturers have got a supply constraint and similarly, all these retailers have this requirement that their demand should be fulfilled. So, we have got 2 types of constraints over here, one is the supply constraint and another one is the demand constraint. So, if you have to solve this problem, again there are different approaches of solving this problem. We will try to look into this approaches one by one and then we will see that which approach is best for solving particularly this problem. Just to summarize it once again, the objective of this case is to find out a optimal distribution strategy that will help you in understanding the flow of products that should happen between the manufacturers to the retailers through these warehouses. The objective is also to ensure that the retailers demand is fulfilled and finally the total distribution cost should be minimized. So, how do we take care of this problem? Here this is our basic case which is given to us, we will try to follow this table again and again to solve our problem. So, let us first try to solve this problem through a heuristic approach, we are calling it this heuristic as heuristic one that is our first approach and going forward we will try to solve it again through some other approaches as well. Our strategy for the heuristic one is very simple, we will try to fulfill the requirement of every market, but in order to do so, we will select that combination of warehouse to that demand such that these cost is minimum. So, if we look into this combination going back if we try to understand that which warehouse can supply the retailers in minimum cost, let us see through this table. If we check particularly this part of the table, it is showing all the shipments which are possible between the warehouses to the retailers. Here we can see that the warehouse one is the best option because it is fulfilling the requirement of all the four retailers in minimum cost. This cost is the minimum out of 5 and 4, this cost is again minimum out of 1, 4 and 3, this cost is again minimum comparing to the other shipment cost and similarly for retailer 4 also this cost, this shipping cost is minimum compared to the other two costs. So, overall we can see that if we fulfill the requirement of these four retailers through warehouse one, the total shipment cost is coming as minimum. In order to calculate this cost, we can also see the quantity is being transported for that we have to see what is the capacity for the warehouse one and what is the requirement of these four retailers. So, let us look into this through this example. The requirements are already mentioned as retailer one has a requirement of 45,000, retailer two has the requirement of 35,000, retailer three has 68,000 and retailer four has 70,000. If we total up all this demand, this comes around 2,18,000 of the demand units which are required to be fulfilled. Now if we see that how can we get this total demand fulfilled, out of this the manufacturer one has got the capacity of only 1,050,000. So if we go back to the table of the shipping cost and then we can decide on that what strategy or what heuristic we can apply. If we see the retailer one, two and three have got the shipping cost lower than retailer four. So, we will we can try to first fulfill the requirement of retailer one, two and three because the cost associated with them is the minimum. Going forward we can see that the requirement of 45,000 can be fulfilled easily, 35,000 can be done easily and 68,000 can also be done. The remaining is so if we add these three this is coming around 148,000 and for retailer four because the capacity of manufacturer one is only 1,050,000. So out of that the remaining 2000 can be supplied from the manufacturer one. This will exhaust all the capacities of manufacturer one and then now we are required to fulfill the balance requirement of retailer four which is around 68,000. This 68,000 as you can see from here will be supplied from manufacturer two. So you can see this heuristic particularly follows a method where it tries to find out the combinations which search for the minimum way of transporting which looks for the method or which looks for the approach by which you can transport the product in the minimum cost. So it always tries to find out that combination of the two facilities which will help in fulfilling the requirement in minimum cost. That is why it observed that warehouse one is the best option as it is able to fulfill the requirement of retailer one, two and three in the minimum possible cost. The balance amount is transferred to retailer four because its shipping cost is also the minimum and whatever requirement is remaining for retailer four is fulfilled from the second manufacturing plant. So this is our first heuristic and if we go by this heuristic we can see the warehouse one is actually choosing the cheapest plant first for getting the supply and that is why it is going to select the warehouse the manufacturer one and going forward the total transportation cost for all these possible combinations are calculated over here and this will give us that the total transportation cost is coming around 9,61,000 rupees. These calculations are also given to you in the excel sheet which is attached with this session and you can go through that excel sheet to understand this further. So we can say that following heuristic one our total supply chain cost is coming around 9,61,000. Let us remember this number and we will be using this number further to compare it with some other heuristics and other optimization way of solving this problem. So we can see this is our final solution which is shown in this network by following the heuristic one which tells that the manufacturer one is exhausting its capacity of 1,50,000 to supply the requirement of these four retailers. The balance amount of 68,000 is supplied from manufacturer two which is again used for fulfilling the requirement of the remaining requirement of retailer four. So in this way by following heuristic one we have got the total cost as 9,61,000. Let me show you this solution through excel as well. So let me show you this let me show you this solution in excel sheet as well that is how we got this total cost using heuristic one approaches. If you see in this sheet our all this transportation cost are given over here and you can see the same table is reproduced over here with their capacities and demands. The capacities of manufacturers are presented over here and the demands of the retailers are also shown to you over here. Similarly we can see that how the solution has to be taken care. So because we are first looking for the last retailers related cost we will see the all the possible way by which the retailer one requirement can be fulfilled. So here we have calculated the total transportation cost through warehouse one which is a shipping cost in the maximum value of the retailer demand that can be fulfilled. Similarly for retailer two and similarly for retailer three in this similar way we have calculated the transportation cost for all of through these combinations of warehouse one through these combinations of warehouse one, warehouse two and warehouse three respectively. And when you see the total cost is now calculated assuming that if warehouse one is going to supply the requirement of all the four retailers what is the total cost. Similarly what is the total cost if warehouse two is responsible for fulfilling the requirements of all four retailers and finally if warehouse three is going to fulfill the requirements what is the total cost. While comparing these three cost we found that warehouse one has got the lowest shipping cost because of which the total cost of transporting or getting the products through warehouse one is minimum. Moving forward we have used this and now we will try to explore that which out of these two manufacturer which manufacturer is satisfying or supplying the requirement of warehouse one in minimum cost. So we found that if you look into these particular two cost obviously manufacturer one is supplying to warehouse one in minimum cost. So we will try to shape the maximum quantity from a manufacturer one and that is where the full the full quantity of manufacturer one is occupied is supplied to warehouse one whatever is balanced is again supplied from manufacturer two. So this becomes the total cost of transportation from manufacturers to the warehouse one and when we add these two cost we got the total cost of distribution in this given supply chain which is coming around 9,61,000. So this completes our heuristic one. Let us now look into heuristic two parallel we will now try to solve the same problem but using a different heuristic and we are calling it as heuristic two. So here our heuristic is little different than the previous heuristic what we will do over here that for each retailer we will choose the warehouse where the total delivery cost to and from the warehouse are the lowest. So we will try to map actually the journey of fulfilling the requirement of the retailer right from the manufacturer to the warehouse and then finally to the retailer. So whole path will be traced over here to find out the right combination. For example if you are referring to the retailer one the retailer one requirement can be fulfilled by manufacturer one warehouse one or retailer one. Let us go back to the network diagram and see the possible combination of fulfilling the requirement of retailer one. So if we look into the possible way of fulfilling the requirement of retailer one we can transport the product from manufacturer one to warehouse one and then to retailer one or manufacturer one to warehouse two then to retailer one or manufacturer one to warehouse two then to retailer one. Similarly there are many other possible combinations via manufacturer two as well like manufacturer two to the warehouse one to the retailer one manufacturer two to the warehouse to, to the retailer one, manufacturer to, to the warehouse three and to the retailer one. So, we can see there are that there are lot of possible combinations with which the products can be transported from these manufacturers and to this warehouses and then finally to the retailer to fulfill its requirement. But as our object is to find out the way by which this transportation can be done in minimum cost, we will evaluate all these costs that is all the possible ways by which the products can be moved and their corresponding cost and the minimum of it will be selected for your solution. So, when we evaluated the solutions, we found out that if the product is moved from manufacturer one to through warehouse one and then to retailer one, this cost is coming as minimal. And similarly for retailer two, the best combination is coming as manufacturer one to warehouse one and then to retailer two. Similarly for retailer three, the best combination is manufacturer one to warehouse one to retailer three and finally for retailer four, there are two possible option that is via M1 to W1 to R4 or from manufacturer two to warehouse two to retailer four and so, we have found out the different combinations of the overall transportation by which the cost of distribution is can be considered as minimum. When we added these costs together, we got that the total cost is coming around 7,57,000 rupees. So, if we compare it with our previous solution, in heuristic one, we got the cost around 9,61,000 whereas in heuristic two, we got this value further reduced as 7,57,000. We can see that by following the heuristic approaches, the cost is now reducing and next now the question comes that do we have a better way of solving this problem which can help us in reducing this cost further. We have also given you one excel sheet corresponding to this heuristic two which has shown all the calculations over here. Let me give you a brief review of the of that excel sheet as well. If you look into the solution of this heuristic two, the same method we have done but the solution has shown over here. So, again our cost are mentioned, all our capacity and demand are mentioned and in this sheet or using the shipping cost and using the supply and using the capacity and demand values. We have calculated the total cost and you can see all these combinations are explored. For example, in order to fulfill the requirement of retailer one via manufacturer one to the warehouse one, what is the total cost and similarly via manufacturer two to warehouse one and then to retailer one, what is the total cost? All these six combinations are explored and their cost are calculated. The minimum of it is the solution for fulfilling the requirement of retailer one. The similar exercise is done for all the four retailers to get the total cost and finally we can see that the total units being shipped is also taken care while ensuring that the requirements are fulfilled and considering the capacity constraints of the manufacturers. So going forward, we can see that the final solution is giving us the as the total cost of 757000 and if you want to see that how a network looks like or how the distribution happens using heuristic two, let us see the network diagram and the solution also. This is the solution of the given network following the heuristic two. We can see that warehouse one is responsible for fulfilling the requirement of retailer one completely similarly for retailer two and retailer three but for retailer four only 2000 of the requirement is fulfilled because of the capacity constraint of manufacturer one. The remaining amount that is of 68000 unit for retailer four is fulfilled via warehouse two from the manufacturer two. So this is the only difference which is coming over here as it can be seen and because of this the total cost has drastically reduced in this particular strategy. So in this session we have seen that how a supply chain network design can be done by following the heuristic approach. We have seen two different type of heuristics and we have seen that how each heuristic is giving us a different solution but still we are confused that is this the best solution or whether there exist any better way of solving this problem. With this we will end today's session. See you all in the next week. Thank you everyone.