Inventory and Ford

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Inventory and Fords New Car Distribution

• Plants in the East
• Norfolk
• Atlanta
• Louisville
• St. Louis
• Kansas City

• Ramps in the West
• Laurel
• Orillia
• Portland
• Benicia
• Mira Loma
• El Mirage
• Belen
• Denver...

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How it worked
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Tri-level Rail Cars
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The Loose Car Network
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Car Hauler
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12 Days Enroute

• 4.3 million vehicles in North America in 98
• Estimates
• 2 million to western ramps
• 20,000 per vehicle
• Average car spends 12 days in pipeline inventory
  or 12/365 .033
• On average about 66,000 vehicle in pipeline
• Value of pipeline inventory 1.32 billion

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Other Costs

• Customer service
• Tracking shipment
• Managing shipments
• Bills of lading
• Shipping invoices
• .
• Real estate at the plant

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Inventory at the Plant

• Load driven system
• When theres a load, send it.
• Each plant keeps inventory for each ramp
• Average number of vehicles per load lane?
• With 16 ramps
• Average number of vehicles per plant?
• We could be doing other things with that land...

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Observation

• Inventory in a load-driven distribution system
  depends on
• The capacity of the transportation units and
• ...

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The Old Model

b

b

b

b

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The New Model

b

b
g

b

Mixing Center
b

Plants
Ramps
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Advantages

• At the plant
• Average inventory of west bound vehicles?
• Space required
• Between the plant and the mixing center
• Larger volume of shipments supports faster unit
  trains -- no stopping at switching yards
• Between the mixing center and the ramp
• Larger ramps also support unit trains
• To the customer Faster delivery!

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Disadvantages

• Additional handling at the mixing center
• Every vehicle unloaded from one railcar and
  loaded onto another
• Additional opportunity to damage vehicle
• Additional capital investment
• Vehicles move farther
• but generally faster

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Inventory at the Mixing Center?

• Minimum Inventory Strategy
• Rail cars come in with mixed loads
• Empty the rail cars into load lanes
• Re-load full load lanes
• Bring in empty rail cars if necessary
• How much inventory?
• At most
• 16 ramps(14 cars per lane) 224 vehicles
• On average
• 16 ramps(7 cars per lane) 112 vehicles

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Inventory at the Mixing Center?

• Simple Strategy
• Rail cars come in with mixed loads
• Empty the rail cars into load lanes
• Re-load full load lanes
• Only if empty rail car is available
• How much inventory?
• Claim 210 vehicles!

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Inventory under the Simple Strategy

• Mixing center has 210 vehicles
• 210 (16-1)(15-1)
• A rail car arrives with 15 more vehicles
• That makes 225 16(15-1)1 vehicles
• We can re-load the rail car. WHY?
• That leaves us with 210 vehicles again.
• Can you generalize this?

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Time Enroute cut to 8 days

• Effect on inventory
• 12 days 1.32 billion in inventory
• 8 days 880 million in inventory
• Savings of 440 million can go to pay for capital
  and operating expenses at the mixing center.
  Right?

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Wrong!

• Reducing inventory by 440 million doesnt create
  440 million in new wealth, it just gives us the
  use of that money.
• We dont have to borrow 440 million.
• Savings is the interest 110 million per year.

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When we look at network design...

• How many mixing centers should we have?
• Where should they be?
• Who should use them?