Various quantitive models are used to provide for logistical information needed to make optimal decisions. Many of these models have their origins in operation research. A brief description of some of the models used in logistics management is given below.
1. Forecasting models
Forecasting is the prediction of demand by location, stock keeping unit and time period for the purpose of planning logistics operations. Forecasting models allow better planning on the basis of the lead time necessary for response. The prediction of demand is based on past data or other parameters that are independently available.
2. Mathematical programming models
These models include location models, allocation models, and distribution network design models. A brief description of each type of model is given below:
- Location models are used to plan the optimal solutions for locating plants or warehouses, based on the inbound and outbound transportation costs as well as the infrastructure costs at different locations. An example of such a model is a linear programming model.
- Allocation models are used to find the optimal allocation for commodities from sources to destinations in a multi-source, multi-destination environment. For example, such as model has application in the case of a product manufactured in 10 different manufacturing plants and distributed through 150 warehouses. The model could be used to emphasize production costs, transportation costs and warehousing costs considering the constraints due to demand, capacity, route restrictions, etc.
- Distribution network design models optimize total distribution costs including transportation, warehousing and handling inventory. These models are usually capable of providing solutions in deciding between a two, three or even four stage distribution network, the location of warehouses and break bulk points and may even provide for the choice of the transportation mode.
3. Inventory models
Inventory decisions are high risk and high impact from the perspective of logistics operations. The models are related to some of the following categories.
- Shipment size
- Supplying to one or many points in one shipment
- Single location vs multiple location stocking
- How much to order?