Transportation Management

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Transportation Management

• John Vande Vate
• ISyE 3103 Fall 2001

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Identifying and Exploiting Economies of Scale

• Reduce transportation cost by consolidating,
  leveraging, ...

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Why does Consolidation Help?

• Freight rates depend on
• Distance
• Location
• Order size!

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Dependence on Size
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Your Case What forms of Consolidation?
Chinese Factory
Port in China
Store
Port of Long Beach
NY DC
Cross Dock
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Types of Consolidation

• Time
• Wait for full loads
• Cross Dock
• Combine shipments
• Common Carrier, e.g., LTL Carrier
• Combine shippers loads
• Shippers Association
• Combine shippers
• Collaborations
• Match-up head hauls
• Other examples?

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Use Leverage

• Big customers can command lower rates
• How to be a big customer?

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Gaining Leverage

• Limit the number of carriers you use
• Is it wise to use just one?
• Consolidate your shipments
• Cross Docks concentrate volumes on fewer lanes
• Negotiate rates across the system rather than
  lane by lane
• Combinatorial bidding
• Join a group
• Shippers Associations
• Use someone elses size
• Freight Forwarders
• NVOs

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Consolidating Finished Vehicle Deliveries at Ford

• Cross Docking rail shipments of finished vehicles
• More about speed than about freight

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Why Speed Matters

• The new BMW Sales and Production System

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Fords Situation 1996

• Average 15 days delivery
• 3.9 million vehicles/year
• 10,700 vehicles/day
• 18 thousand/vehicle
• 190 million/day
• 2.8 billion in pipeline

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Before 1996
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(No Transcript)
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The Price

• Inventory at the cross dock
• Added distance traveled
• Handling at the cross dock
• Capital costs of the cross dock

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1999 Statistics

• Assembly plants 22
• Mixing centers 5
• Destination rail ramps 54
• Dealer locations 6,000
• Production volume 4.4 Mil./Year
• Freight expense 1.5 Bil.
• Avg. transit time 16.8 Days
• Pipeline Inventory 4.1 Bil.

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Old Ramp AllocationSouthern US
Dealers sourced by multiple ramps
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New Ramp AllocationSouthern US
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Final Outbound Rail Network with Carriers
St Paul
Canada
Edison
Michigan
Chicago
Ohio
St Louis
Norfolk
Kentucky
Kansas City
Atlanta
Mixing Centers
Destination Ramps
Union Pacific
CSXT
FEC
BNSF
Canadian Pacific
Car Haul to Ramp
Norfolk Southern
Canadian National
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Results

• Cut vehicle transit time by 26 or 4 days
• Initiative is 6 months ahead of time
• 1 billion savings in vehicle inventory
• 125 million savings in inventory carrying costs
• Avoid bottlenecks
• Reduce assets in supply chain
• Less damage
• Improved inventory turns at dealer
• By end of Q1 2001 network will be fully
  operational in US, Canada and Mexico

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How to Value this

• Reduced Inventory
• Either a one-time windfall for full amount
• Or capital charge on full amount over several
  years
• How long?
• And
• Non-capital charge on reduced inventory over
  several years
• Theft
• Insurance
• Damage
• Average value of non-capital portion 9-10
• For CPUs and Laptops runs to 35!

What did Ford do?
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The Point

• How Cross Docks Did It?
• We will discuss more when we talk about
  Load-driven systems (10-16 and 10-18)
• Concerned about more than the freight bill!
• Next Lecture Total Cost