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Mode Selection

Mode Selection. John H. Vande Vate Fall, 2002. Choices. Parcel Airfreight LTL TL LCL Car load Unit train …. What Matters?. Range of acceptable shipment quantities Delivery Commitments Special Handling requirements Infrastructure Security Reliability …. Costs. Freight

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Mode Selection

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  1. Mode Selection John H. Vande Vate Fall, 2002 1

  2. Choices • Parcel • Airfreight • LTL • TL • LCL • Car load • Unit train • … 2

  3. What Matters? • Range of acceptable shipment quantities • Delivery Commitments • Special Handling requirements • Infrastructure • Security • Reliability • … 3

  4. Costs • Freight • Packaging/Racking • Pipeline Inventory • Cycle Stock Q • Safety Stock • Shrinkage/Damage • Forecast Accuracy • Market Access 4

  5. Packaging Moving axels to Detroit from Mexico • 2,000 units per day on average • 10 units per rack • $1,500 per rack • 2 days at supplier • 7 days in-bound • 2 days in-house • 7 days return • Rack Investment? 5

  6. Rack Fleet • Analogous to pipeline • Rack cycle: • 2 days at supplier • 7 days in-bound • 2 days in-house • 7 days return 18 days + contingency • Racks per day: • 2,000 units/10 units/rack = 200 racks/day • Fleet size: • 200 racks/day * 18 days = 3,600 racks 6

  7. Rack Investment • $1,500/rack * 3,600 racks = $5.4 Million • Annualized: $540,000 + • Contingency fleet • Attrition/loss damage • … 7

  8. Best Total Cost • Freight • Packaging/Racking • Pipeline Inventory • Cycle Stock Q • Safety Stock • Shrinkage/Damage • Forecast Accuracy • Market Access •  Integrated Transportation Costs 8

  9. Effects of Speed • Freight • Packaging/Racking • Pipeline Inventory • Cycle Stock Q • Safety Stock • Shrinkage/Damage • Forecast Accuracy Improves • Market Access Improves 9

  10. Organizational Issues Players: • Purchasing • unit price • Transportation • Freight cost/Loss/Damage/Reliability • Manufacturing • Cycle stock/Safety Stock/Reliability • Finance • Pipeline Inv. 10

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