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HUB Group Implements a Suite of OR Tools to Improve Its Operations

HUB Group Implements a Suite of OR Tools to Improve Its Operations. Barış Kamay – 21001470 Hülya Patır – 20901837 Pamir Yanık – 20901081. «…Hub Group is USA’s largest intermodal transportation company.» [1] Founded in 1971 [2] North American firm

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HUB Group Implements a Suite of OR Tools to Improve Its Operations

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  1. HUB Group Implements a Suite of OR Tools to Improve Its Operations Barış Kamay – 21001470 Hülya Patır – 20901837 Pamir Yanık – 20901081

  2. «…Hub Group is USA’s largest intermodal transportation company.» [1] • Founded in 1971[2] • North American firm • Intermodal freight rail transportation company • Intermodal transportation uses two or more modes. • For this case, train and truck.

  3. Figure 1. Intermodal rail network of Hub Group

  4. Figure 2. Theintermodalprocess

  5. The Change in HubGroup’s Strategy • Previously, • Perspective on freight shipment: One-Way • Using rail-owned containers • After railroad companies reduced their fleets, • Hub needs to have its own containers • Hub has to overhaul its approach

  6. The Change in HubGroup’s Strategy After having its own fleet, The new CHALLENGE: «To find the right mix of customer traffic and the best allocation of rail-owned and Hub-owned containers to effectively and efficiently serve its customer base.» [1]

  7. Early Attempts at Improvement • Hub Group realizes that its new fleet will change their view of business. • One-way economics no longer sufficient • How to best deploy the new fleet to maximize the profit? • In 2003: Fleet Allocation Model (FAM)

  8. The Fleet Allocation Model (FAM) • FAM minimizes the cost of serving customer demand, subject to: • Fleet availability constraints • Historical transit time • Hub fleet balance constraints • Estimated rail fleet availability • FAM helps the company to develop good mixes of Hub fleet and rail fleet containers.

  9. The Fleet Allocation Model (FAM) • Questioning: • Can the timespan be enlarged? • Why in a quarterly basis?

  10. The Fleet Allocation Model (FAM) • FAM drawbacks: • Containers become available very frequently as they are released from receivers but FAM cannot deal with it in the long run. • FAM works on a three-month basis and the optimal mix of Hub fleet and rail fleet may not hold on a daily basis.

  11. Figure 3. The FAM network

  12. The Network Optimization Program • In order to achieve the benefits of FAM, they thought they should come up with something new. • In 2007,Hub Group introduced the Network Optimization Program. • Into Hub’s existing production information system • Five integrated modules

  13. Figure 4. TheSystem Architecture and Decision Support Modules

  14. SupplyandDemandForecasts Provides a two- weekview of thenetwork Createddaily

  15. SupplyForecast: • Based on geographical areas, • Around 20 major rail ramp based markets

  16. Controlled Supply (CS) • Comprises all containers that Hub customers unloaded (Currently Supply), • Currently moving under load and will soon be available (Future Supply),

  17. Street Supply (SS) • Number of rail owned containers that can be attained on a spesific date at a ramp location Sum of controlled and predicted supply indicates the expected container capacity at a location on a given date.

  18. Demand Forecasts • Created for nearly 150 major origin-destination pairs in the Hub network, • Constitutes 85 percent of the total demand of Hub. • Statistical forecasts based on customer order behaviour

  19. Table 1 shows a forecasted demand of 20 units for an example lane

  20. Capacity Valuation Model • Estimates the marginal profit potential of a container at a location on a given date • At an origin, value is considered an opportunity cost of accepting a load • At a destination, considered the profit potential created by future incremental supply for future moves.

  21. Hub created a novel two step heuristic methodolgy for • estimating the marginal value of incremental container supply • to support real time desicion making

  22. Step 1: Calculatethemarginalexpectedprofitability (MEP) within a singlelane, • MEP depends on theprofatibility of loads in a locationand • Theprobabilitythatthecontainerwill be used.

  23. Hub defined inverse cumulative probability denstiy function (InvCDF) • They calculate the InvCDF for the error distribution point forecast. • In table 3, they used the joint probability of each level of demand and market segment to calculate the InvCDF for each time

  24. Step 2: Rank the opportunities by expected profit and calculate their whole-unit equivalent. • Results of this step can be seen in Table 3.

  25. Given an anticipated level of container inventory for date, the CVC identifies the CV.

  26. Hub Fleet Inventory Targets • Because; - Hub’ s railroad contracts, the Hub fleet and rail-owned fleets have different profit potential. - Hub have responsibility of maintaining their container fleet distribution.

  27. So a question comes up; What inventoryof Hub containers is desirable at each location toallow a profit-maximizing mix of Hub and rail containerfleet assignments?

  28. Conceptualization of the Hub Fleet Cost Function by Origin • Thegraphbelowconverts the global FAM view to an origin- specific inventory cost function

  29. Establishing Fleet Inventory Target • To estimate the optimal container inventory targets • Hub built a nonlinear optimization model based on the regular day of week patterns at a location • Result of this optimization is a steady state allocation of containers by day of week

  30. Steady State Modeling Bases • After the simulation of implementation of this optimization, • They found the steady state target inventory model can be misleading when used in tactical setting, • In the tactical model, faced with a paradox, • Additional research are being conducted.

  31. The Implemented Heuristic Applied in 2 steps, • Identify target inventory levels, • Identify cost of deviation, Results might have to be adjusted to account for possible negative fleet inventory levels, volatile fleet releases and customer orders.

  32. Load Acceptance Optimization (LAO) • Profitability thresholds for tendered load acceptance , given forecasted demand, anticipated equipment supply, and margin distributions • Previously; • Based on one way profitability on first-come-first-serve basis • Now; • Based on their experience, current booking patterns, risk-aversion level

  33. LAO • A tendered load or a potential future load • Sequential representative decision process • Expected-value-based heuristic • Expected yield of container capacity maximization • Supply & DemandForecasts • Container capacity & profitability • Accept if load tendered load profitability ≥ load profitability threshold

  34. Load Routing Optimization (LRO) • The optimal assignment of expected loads to the available set of containers and rail service providers • Previously; • Based on one-way economics • The problem1: expensive and unprofitable misallocations of containers • The problem2: difficultcalculation of the future value of the container at the load • Now; • Based on the dual values

  35. LRO • Combines forecasts, CV’s and inventory targets • Minimizes the costs of assigning containers to accepted orders (actual accepted orders & placeholders ) • Similar to FAM in tactical setting • One-way costs of the load • Economic penalties • Different from FAM • day-of-week effects

  36. Challenges • Target inventory deviation costs,future probability-based profit-potential values, the network-based values • The more complicated CVs and network dual values

  37. Business Impact • Broad perspective of the Hub network • Two-week horizon rather than on a one-load-at-a-time, one way cost view • Profitability Improvement • Performance Improvement

  38. SUMMARY • Improved container management through the implementation of integrated optimization-based tools • Goal: to support the daily decision making of customer service representatives and dispatchers • Maximization of the yield of the containers • Minimization of short term costs • Maximization of future potential profitability • $11 million benefit • New avenues for theoretical research in intermodal freight yield management

  39. Intermodal Transportation in Turkey • Good potential, currently improving [3] • Mostly with trucks and ferries [3] • Between Turkey and Europe [3] • Trieste (Italy) port, one of the most important ports for transportation

  40. Intermodal Transportation in Turkey • [4]

  41. Web Search about Hub Group • [5] • [6]

  42. References [1] Gorman, Michael F. «HubGroupImplements a Suite of OR Tools toImproveIts Operations» [2] History. Online. www.hubgroup.com [3] Deveci, Ali. «A Strategic Model Suggestion for Intermodal Transportation in Turkey» [4] Roro Şirketini Kara Geçirdi. Online. http://www.ulasimgazetesi.com/?id=8068 [5] Hub Group Receives 2012 Intermodal Carrier of the Year Honor From Walmart. Online. http://finance.yahoo.com/news/hub-group-receives-2012-intermodal-204400880.html [6] Hub Group Receives The US EPA 2013 SmartWay Excellence Award. Online. http://finance.yahoo.com/news/hub-group-receives-us-epa-223000997.html

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