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Transportation Management

Transportation Management. John Vande Vate ISyE 3103 Fall 2001. Identifying and Exploiting Economies of Scale. Reduce transportation cost by consolidating, leveraging,. Why does Consolidation Help?. Freight rates depend on Distance Location Order size!. Shipment Cost. Medium Shipment.

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Transportation Management

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  1. Transportation Management John Vande Vate ISyE 3103 Fall 2001

  2. Identifying and Exploiting Economies of Scale • Reduce transportation cost by consolidating, leveraging, ...

  3. Why does Consolidation Help? • Freight rates depend on • Distance • Location • Order size!

  4. Shipment Cost Medium Shipment Large Shipment Small Shipment Shipment Size Dependence on Size

  5. Your Case: What forms of Consolidation? Chinese Factory Port in China Store Port of Long Beach NY DC Cross Dock

  6. 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?

  7. Use Leverage • Big customers can command lower rates • How to be a big customer?

  8. 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 • Shipper’s Associations • Use someone else’s size • Freight Forwarders • NVO’s

  9. Consolidating Finished Vehicle Deliveries at Ford • Cross Docking rail shipments of finished vehicles • More about speed than about freight

  10. Why Speed Matters • The new BMW Sales and Production System

  11. Ford’s 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

  12. Before 1996

  13. The Price • Inventory at the cross dock • Added distance traveled • Handling at the cross dock • Capital costs of the cross dock

  14. 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.

  15. Old Ramp AllocationSouthern US Dealers sourced bymultiple ramps

  16. New Ramp AllocationSouthern US

  17. 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

  18. 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

  19. 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 CPU’s and Laptops runs to 35%! What did Ford do?

  20. 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

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