General Rules for AggregationAggregate demand points into at least 200zonesHolds for cases where customers areclassified intoclasses according to their service levels or frequencyof deliveryMake sure eachzone has approximately anequal amount of total demandZonesmaybeof different geographic sizesPlace aggregated points at the center of thezoneAggregateproducts into 20to 50productgroups3-11
3-11 General Rules for Aggregation ⚫ Aggregate demand points into at least 200 zones ⚫ Holds for cases where customers are classified into classes according to their service levels or frequency of delivery ⚫ Make sure each zone has approximately an equal amount of total demand ⚫ Zones may be of different geographic sizes. ⚫ Place aggregated points at the center of the zone ⚫ Aggregate products into 20 to 50 product groups
Customer AggregationBased on 3-Digit Zip CodesTotalCost:$5.796.000TotalCost:$5.793.000TotalCustomers:800Total Customers:18.000CostDifference<0.05%3-12
3-12 Customer Aggregation Based on 3-Digit Zip Codes Total Cost:$5,796,000 Total Customers: 18,000 Total Cost:$5,793,000 Total Customers: 800 Cost Difference < 0.05%
Product AggregationTotalCost:$104.564.000TotalCost:$104.599.000TotalProducts:46TotalProducts:4CostDifference:0.03%3-13
3-13 Product Aggregation Total Cost:$104,564,000 Total Products: 46 Total Cost:$104,599,000 Total Products: 4 Cost Difference: 0.03%
Transportation RatesRatesarealmostlinearwithdistancebutnot with volumeDifferencesbetweeninternalrateandexternalrate3-14
3-14 Transportation Rates ⚫ Rates are almost linear with distance but not with volume ⚫ Differences between internal rate and external rate
Internal Transportation RateForcompany-ownedtrucksDataRequired:AnnualcostspertruckAnnualmileagepertruckAnnualamountdeliveredTruck's effective capacityCalculatecostpermileperSKU3-15
3-15 Internal Transportation Rate ⚫ For company-owned trucks ⚫ Data Required: ⚫ Annual costs per truck ⚫ Annual mileage per truck ⚫ Annual amount delivered ⚫ Truck’s effective capacity ⚫ Calculate cost per mile per SKU