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Supply chain management in apparel industry: A transshipment problem

with time constraints

Article  in  Tekstil ve Konfeksiyon · April 2011

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Deniz T Eliiyi Emine Zehra Akgün

İzmir Bakırçay University Edinburgh Napier University
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 (REFEREED RESEARCH)

SUPPLY CHAIN MANAGEMENT IN APPAREL INDUSTRY:

A TRANSSHIPMENT PROBLEM WITH TIME
CONSTRAINTS

HAZIR GİYİM ENDÜSTRİSİNDE TEDARİK ZİNCİRİ YÖNETİMİ:

ZAMAN KISITLI BİR AKTARIM PROBLEMİ

Deniz Türsel ELIIYI Emine Zehra YURTKULU Dicle YURDAKUL ŞAHİN

Izmir University of Economics Izmir University of Economics Izmir University of Economics
Department of Industrial Systems Engineering Department of Logistics Management Department of Business
e-mail: [email protected] Administration

ABSTRACT
Supply chain management is one of the main sources of competitive advantage for companies. As a useful tool for inventory and
transportation management in supply chains, transshipment points provide an effective mechanism for correcting discrepancies between
demand and available inventory. This study aims to model the transshipment problem of a company in the apparel industry with multiple
subcontractors and customers, and a transshipment depot in between. Unlike a typical transshipment problem that considers only the
total cost of transportation, our model also considers the supplier lead times and the customer due dates in the system and it can be used
for both supplier selection and timely distribution planning. The proposed model can also be adapted easily by other companies in the
industry.
Keywords: Transshipment problem, Lead time constraints, Apparel industry.

ÖZET
Tedarik zinciri yönetimi şirketler için rekabet avantajı sağlamadaki temel kaynaklardan birini oluşturmaktadır. Tedarik
zincirlerinde envanter ve ulaştırma yönetimi konusunda faydalı kullanımları olan aktarım noktaları özellikle talep ve envanter miktarı
arasındaki farkı kapatma konusunda etkin bir mekanizma sunmaktadır. Bu çalışmanın amacı hazır giyim sektöründe birden çok fason
imalatçı ve müşteri ile faaliyet gösteren ve aktarım deposuna sahip bir şirketin aktarım probleminin modellenmesidir. Yalnızca toplam
maliyeti minimize etmeyi amaçlayan tipik aktarım modellerinden farklı olarak modelimiz tedarik sürelerini ve müşterilerin termin
zamanlarını da dikkate almakta, bu sayede hem tedarikçi seçiminde hem de zamanında dağıtım planlamasında kullanılabilmektedir.
Önerilen model sektördeki diğer firmalar için de kolaylıkla adapte edilebilir.
Anahtar Kelimeler: Aktarım problemi, Tedarik süresi kısıtları, Hazır giyim sektörü.

Received: 12.07.2010 Accepted: 31.03.2011

1. INTRODUCTION terms of both the customers and the reduce its costs and improve the level
organization on the other (2, 3). of service without increasing the stock
Supply chain management is one of
level and bearing additional costs (5).
the main sources of competitive Supply chain management entails
advantage for companies and its effective replenishment and inventory Transshipment problems are variations
importance is increasing due to its policies. The use of transshipment of transportation problems in which
effects on solving problems faced by points in supply chains renders goods and services are distributed
many companies in terms of monitored movement of stocks to between sources, storage points and
mismatches between customer intermediary storage locations between destinations. Like in many cases, the
demand and supply, which will lead to two echelon levels. Transshipments objective function of transshipment
low levels of customer satisfaction and are effective policies for correcting problems is to minimize cost.
eventually decreasing sales and discrepancies between demand and Transshipments problems were first
market share (1). Logistics is a critical inventory available at specific defined by Orden (6) as an extension
part of supply chain management, and locations, serving as a tool for effective of transportation problems with
is used to control the flow of materials, management of stocks that are already transshipment points between the
services and information taking into procured and delivered into the system sources and the destinations (7).
account the cost of these activities on (4). By using transshipments as a tool Transshipment models can be used to
one side and the value created in for utilizing stocks, a company can enhance cost efficient movement of

176 TEKSTİL ve KONFEKSİYON 2/2011

goods and improve the level of most of the production is via contract production right after receipt of the
customer satisfaction. Dynamic manufacturing. required materials. Upon completion of
transshipment problems involving production at the workshop, the order
Competition is dense in the textile and
inventory decisions have several is shipped via the transportation
apparel industry. The main competitors
locations, and in each of these company.
of the company are its own
locations companies have to bear fixed
subcontractors, who are willing to sell The company has a depot used as a
replenishment, per unit replenishment,
their products directly to the transshipment point. The products
and per unit holding costs.
customers. The company works under manufactured at various
Transshipping inventories between
the pressure of strict due dates. High subcontracting facilities are supposed
locations also includes fixed and per
penalty fees apply in case the to be gathered at this depot for final
unit costs. The objective in these kind
deliveries are untimely. The relationships arrangements and packaging. Different
of problems is to determine the
with both suppliers and customers play items of personnel uniforms such as
replenishment quantities and how
key roles in the personnel garments hats, shirts and trousers may be
much to transfer in each demand
industry, and trust is a key factor in produced by different subcontractors.
process to ensure cost minimization. In
these relationships. Therefore, conformity The final packaging and labeling
the studies by Herer and Tzur (8, 9),
to quality standards and deadlines is processes bring these items together.
the authors develop optimal and
crucial. There are mainly five key However, due to tight due dates of the
heuristic algorithms for dynamic
players in the transshipment process: customers, and as a result of working
transshipment problems incorporating
with many subcontractors, the
fixed replenishment and transshipment 1. The customer: The source of the
company usually has to ship from the
costs. A dynamic and deterministic request or order.
supplier directly to the customer at the
environment is considered, where the
2. The company: The decision maker. last minute. This result stems from
transshipments are not used as a tool
This represents our company, ineffective planning of the whole
for emergency source of supply, but
which receives the order from the transshipment process. The
instead they can be used to offset
customer and outsources the transportation cost is considerably high
different replenishment and holding
production via different suppliers for these last-minute shipments as the
costs at different stock locations.
and ateliers. usual modes of transportation cannot
In this study, we use integer be used. The decision makers in the
programming to solve the transshipment 3. Suppliers/Subcontractors: company wish to use their depot and
problem of an apparel company. One Companies that provide raw mate- provide timely deliveries at the same
of the core aims of this study is to rials, semi-finished and finished time.
ensure that the offered model and the products used in the production
process. The problem is analyzed within the
corresponding solution can be used
context of a transshipment scheme.
practically by the company, leading to 4. The workshop: The atelier in which Basic elements of the transshipment
more efficient management of the the production activity is outsourced/ problem are the capacity of supply
supply chain. In Section 2, we define performed. points, requirements of the demand
the problem in detail. Next, we develop
5. The transportation company: The points, and the costs associated with
the mathematical model in Section 3.
firm that is responsible for the shipping of one unit of product from
Numerical results are presented in
transportation of finished products each supply point to each
Section 4. Discussion and conclusion
to customers. transshipment point, from each
is presented in Section 5.
transshipment point to each demand
The process flow of the order point, and from each supply point to
2. PROBLEM DEFINITION fulfillment process is provided in Figure each demand point directly. The
We consider a real-life problem faced 1. The process begins with the receipt objective is to minimize the total
by an apparel company located in of a customer order. Then, the company transportation cost. We model the
Izmir, Turkey. The company currently communicates with its suppliers to problem as a transshipment problem
operates in the segment of ready-to- discuss if required materials are with due date restrictions. Unlike
wear garments. The company has two already available at stocks or if they typical transshipment models, the due
basic branches of operations; namely, should be manufactured. Hence the date of an order is also considered in
the casual wear branch and personnel lead time for each order is determined our model since the company faces
garments branch. Personnel garments and the order is scheduled for high penalty costs. We present our
are manufactured partly in-house, but production. The workshop starts model in the following section.

Figure 1. The order fulfillment process.

TEKSTİL ve KONFEKSİYON 2/2011 177

3. THE MATHEMATICAL MODEL
We define the indices and parameters used in the model as below:

s: supplier index
t: transshipment point index
c: customer index
p: product type index
Dcp: Demand quantity depending on customer and product type.
DDcp: Deadline of order depending on customer and product type.
lsp: Lead time of production depending on supplier and product type.
cst: Cost of shipping one unit from supplier point to transshipment point.
csc: Cost of shipping one unit from supplier point to the customer.
ctc: Cost of shipping one unit from transshipment point to the customer.
tst: Shipping time from supplier point to transshipment point.
tsc: Shipping time from supplier point to the customer.
ttc: Shipping time from transshipment point to the customer.
prp: The percentage of volume a specific product p occupies in a package.

⎧1, if supplier s is eligible for providing product p

E ps = ⎨
⎩0, otherwise

We define our decision variables are given below.

Binary variables:
⎪⎧1 if product p, which is produced by supplier s, is assigned to customer c on the route S → C⎫
X scp = ⎨ ⎬
⎩⎪0 otherwise ⎭
⎧⎪1 if product p, which is produced by supplier s, is assigned to customer c on the route S → T ⎫
Ycpst = ⎨ ⎬
⎩⎪0 otherwise ⎭
⎪⎧1 if product p, which is produced by supplier s, is assigned to customer c on the route T → C⎫
Z cpt = ⎨ ⎬
⎪⎩0 otherwise ⎭
Integer variables:
Xpcs: Number of packages shipped from supplier s to customer c.
Ypst: Number of packages shipped from supplier s to transshipment point t.
Zptc: Number of packages shipped from transshipment point t to customer c.

Our objective function in Equation 1 minimizes the sum of the batch-shipment-costs.

n n n n n n
Min ∑∑ Xpsc * csc + ∑∑ Ypst * cst + ∑∑ Zptc * ctc
s =1 c =1 s =1 t =1 t =1 c =1
(1)

Batch-shipment-cost is represented by three different cost components: The total cost of sending packages directly, the total
cost of sending packages from suppliers to transshipment points and the total cost of sending packages from transshipment
points to customers.

Every customer must be served with each product either directly from a supply point or through the transshipment point. This
constraint is reflected by the following equation:

178 TEKSTİL ve KONFEKSİYON 2/2011

 n n

∑X
s =1
scp + ∑ Z cpt = 1 , ∀c, p
t =1
(2)

Constraint set 3 below ensures time limits for direct shipments. The company works with strict deadlines for each order.
These time constraints make our model different from the typical transshipment problems. Sum of the lead time and the
shipping time from supplier to customer cannot exceed the deadline of an order. Note that, instead of including due dates
and related penalty costs in the objective function, strict deadlines are included as constraints in the model. This is due to
the fact that there are very high penalty costs for late orders, and the company decision makers never prefer this situation
regarding future relationships with customers. So it can be said that the company actually has deadlines rather than due
dates.

lsp + t sc ≤ DDcp + ( M * (1 − X scp )), ∀c , p , s (3)

Constraint set 4 ensures time limits for shipments via transshipment points. Sum of the lead time, the shipping time from
supplier to transshipment point and the shipping time from transshipment point to the customer cannot exceed the deadline
of an order.

lsp + t st + ttc ≤ DDcp + ( M * (1 − Ycpst )), ∀c, p, t , s (4)

The next constraint set assures that, at every transshipment point, if a product p for customer c is sent from one of the
possible suppliers to the transshipment point, then it must be sent out from the transshipment point to customer c. Hence,
these constraints ensure the conservation of flow for the transshipment points.
n

∑Y
s =1
cpst = Z cpt , ∀c, p , t (5)

Xpcs denotes the number of packages shipped from the supplier to the customer directly. The next constraint set settles the
total number of packages to be shipped, depending on the number of products to be shipped and their capacity usage in a
package.
n
Xpsc ≥ ∑ X scp * Dcp * Prp , ∀s, c (6)
p =1

Ypst denotes the number of packages shipped from the supplier to the transshipment point, and Zptc denotes the number of
packages shipped from the transshipment point to the customer. Constraint sets 7 and 8 compute the total number of
packages to be shipped in a similar way similar as constraint set 6.
n n
Ypst ≥ ∑∑ Ycpst * Dcp * Prp , ∀s, t (7)
c =1 p =1

n
Zptc ≥ ∑ Z cpt * Dcp * Prp , ∀t , c (8)
p =1

Not all suppliers can provide all product types. Product p can only be sent from a supplier s if that supplier is eligible to
provide that product. There may be more than one eligible supplier for a product, and our model makes optimal supplier
selections based on transportation cost, lead times and transshipment times. The following constraint sets ensure that only
eligible suppliers are selected for each product in both direct shipments and shipments through the transshipment points.

X scp ≤ E ps , ∀c, p, s (9)

Ycpst ≤ E ps , ∀c, p, s, t
(10)
Finally, types of variables in the model are defined.

Xpcs, Ypst, Zptc, ≥ 0 and integer, X scp , Ycpst , Z cpt binary, ∀c, p, s, t
(11)

4. PROBLEM DATA In this problem instance with a 20-day customers changes between 25 and
planning horizon, there are 13 31 monetary units and the shipping
The data used is obtained from the potential suppliers, 11 customers and takes 2 to 3 days. The unit shipment
company by taking a recent snapshot 5 product types. The unit direct costs from the suppliers to the
of the system involving many orders. shipment cost from the suppliers to the transshipment point is between 3 to 7

TEKSTİL ve KONFEKSİYON 2/2011 179

monetary units depending on the through 1 transshipment node. The shipped the products from the
location of the supplier. The unit supplier nodes are candidate supplier suppliers directly to the customers. In
shipment cost from the transshipment nodes, which provide different lead addition, the company had to make the
points to each customer changes times for the incoming orders. The consolidation of the packages in the
between 6 and 12 monetary units. The model therefore also performs supplier suppliers’ workshops, and the packages
shipment from the supplier to the selection regarding the due dates of were transferred from one supplier to
transshipment point, and from the the orders at minimum total cost of another for rearranging and
transshipment point to the customer transportation. reconsolidation, which lead to conflicts
takes approximately 1 day each. Table and higher labor and time costs.
According to the optimal solution
1 shows the lead times of each Labeling processes were delayed,
obtained from GAMS 22.5, only 4
potential supplier based on product interrupted or even cancelled, decreasing
suppliers are selected to serve the 11
type. The prp values, i.e. the percentage the quality of shipments. This is partly
customers. The optimal solution is
of volume that a specific product type p due to the fact that the company did
depicted in Figure 2 in a network
occupies in a package are estimated not prefer the suppliers giving the best
representation. The numbers on the
as 2% for product types 1, 2 and 3, lead times, although the manufacturing
arcs of the network represent the
and 8.3% for product types 4 and 5. prices were very similar among them.
number of shipped packages between
The demand of each customer from The total number of shipments in the
any two nodes. The reasons for
each product is given in Table 2. The optimal solution of our model is 15 for
selecting only 4 suppliers out of 13
due date of each customer is 20 days this instance while the company had to
supplier candidates are either the high
for this instance. We provide the results make more than double this amount,
costs of transportation from the other
of the computational study in the next i.e. 30 direct shipments plus the inter-
suppliers or the due date restrictions.
section. supplier travels. The number of packages
The optimal solution suggests that all
shipped in the optimal solution is 76,
packages should be shipped through
Table 1. Lead times of potential suppliers while the company used 89 packages
the transshipment point, which is an
for each product type (in days). for shipments due to inefficient
expected result of high direct shipment
p1 p2 p3 p4 p5 planning. The company’s intuitive
costs. The transshipment point also
solution is depicted in Figure 3.
s1 13 4 6 6 6 facilitates the distribution and
s2 5 7 6 6 6 transportation of the packages. For
s3 8 8 7 6 6 instance, 72 packages come from
s4 5 5 5 6 6 suppliers in our data set. Since these
s5 14 6 7 9 5 packages are consolidated in the
s6 12 7 8 5 6 transshipment point and then shipped
to the customers, complete delivery to
s7 10 8 9 7 7
the customer is possible in one shot.
s8 4 9 5 6 6
s9 8 5 5 7 7
s10 9 6 6 7 6
s11 8 7 7 8 6
s12 8 6 7 6 6
s13 7 7 8 8 8

Table 2. Customer demand data (in unit of

product).

p1 p2 p3 p4 p5
c1 0 0 46 0 138
c2 48 0 0 0 16
c3 1136 852 35 0 101 Figure 3. Solution of the company.
c4 54 36 18 0 0
c5 42 32 15 0 0
The solution time of the model in
c6 0 4 2 0 0
GAMS for this size of an instance with
c7 21 14 8 0 0
c8 6 4 1 0 0
334 variables is ignorable due to the
c9 21 8 14 0 0
simplistic network-type formulation of
c10 18 12 3 0 0
the problem. The optimization model
c11 0 0 0 5 0 Figure 2. The optimal solution. provides a cost advantage to the
company as well as improving customer
Next, we explain how the company satisfaction related with the timely
5. COMPUTATIONAL RESULTS actually proceeded in this specific shipments. When the actual cost of the
The problem is modeled and solved problem instance and compare their company is compared to the results
using GAMS 22.5 optimization software. intuitive solution with the optimal obtained from the optimization model,
As it was stated in the previous solution. Because of the tight due it can be observed that there is a
section, the gathered real life data dates and since one of their most reduction in the transportation costs
includes a planning horizon where the important accounts is among these 11 almost by 35%. This means that using
orders from 11 customers should be customers, the company actually did the transshipment point provides cost
fulfilled using 13 supplier nodes not use transshipment point and advantage and operational efficiency.

180 TEKSTİL ve KONFEKSİYON 2/2011

6. CONCLUSION optimal suppliers in terms of cost and systems, or they are not capable of
time constraints. The simplicity and using the proposed methods easily
In this study, we consider a real-life
easy implementation are the due to complex computational aspects.
problem of an apparel company
advantages of the developed model. The simple optimization model in this
regarding the transportation of goods.
GAMS is a commercial optimization study is proves useful in improving the
We propose a transshipment model for
software, and may not be readily shipment operations in both time and
the problem that can be adapted
available in many companies. However, cost terms. Hence, we believe that our
practicably by other companies in the
the proposed compact model can study contributes to the literature and
industry. According to the findings of
easily be handled in widely available industry by closing the gap between
the study, use of the transshipment
spreadsheet software such as the theoreticians and practitioners.
point increases the overall efficiency
MSExcel and solved by built-in
and decreases the total transportation
solvers. Introducing such optimization ACKNOWLEDGEMENTS
cost.
models into the everyday operations of
small to medium size companies in the We would like to acknowledge the
Our transshipment model differs from
textile and apparel industry will greatly support of the company managers for
previously used models in the
increase their efficiency of operations. providing the necessary data for our
literature due to the addition of time
However, many of such companies are computations.
constraints. The model also provides
decision support to the supplier either not aware that some optimization
selection problem by selecting the methods can be adapted to their

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