Ford Motor Companys Finished Vehicle Distribution System April

Ford Motor Company’s Finished Vehicle Distribution System April 2001 Ellen Ewing Project Director UPS Logistics Dr. John Vande Vate Exec. Director EMIL ISy. E Georgia Tech 1

Agenda y. Introduction y 1999 Environment y. Solution Approach y. Network Design y. Implement New Strategy y. Results to Date y. Summary 2

Objectives/Motivation y. Novel application of cross-docking: Rail-to-Rail y. Cross-docking for Speed y. Role of modeling y. Load-driven System y. Modeling Inventory in Network Design 3

The Need for Speed Financial Incentives: Capital Utilization x. In 1996 • Ford produced 3. 9 million vehicles in the US • Avg. transit time 15+ days • Avg. vehicle revenue $18, 000 • Value of pipeline inventory: > $2. 8 Billion • One day reduced transit time: – $190 Million reduction in pipeline inv. – 1, 400 fewer railcars 4

The Need for Speed z. Demand for land z 22 Plants z 54 Destination Ramps z ~1, 200 Load lanes z ~8, 400 vehicles waiting at plants z $166 Million in inventory 5

The Need for Speed z. Other Incentives y. Damage y. Flexibility y. Others? y y 6

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The Price z z Inventory at the cross dock Added distance traveled Handling at the cross dock Capital costs of the cross dock 8

1999 Vehicle Network Delivery Conditions y. Record production levels y. Demand shift from cars to trucks y. Overburdened rail infrastructure y. Deteriorating rail service y. Shortage of transport capacity y. Mixing centers y 15+ day transit time y. High inventory cost 9

High 1999 Level Statistics y. Assembly plants y. Mixing centers y. Destination rail ramps y. Dealer locations y. Production volume y. Freight expense y. Dec. ‘ 99 avg. transit time y. Pipeline Inventory 22 5 54 6, 000 4. 4 Mil. /Year $1. 5 Bil. 16. 8 Days $4. 1 Bil. 10

Ford Distribution Network St Paul Canada Michigan Edison Chicago 85% of all Vehicles go via Rail to a Hub (Mixing Center or Destination Ramp) Ohio St Louis Norfolk Kentucky Kansas City 15% of all vehicles go Haulaway. Atlanta Direct to Dealer within 200 -300 Miles of the Assembly Plant Mixing Center Origin Plant Groupings Destination Ramp Planned Ramp Closure 11

Old Delivery Design y. Push Network y. Vendor sub systems optimized for individual segments y. Little to no visibility y. Mixing Centers not used effectively 12

Ford Goals z Speed y 1999: Average 15 days transit time y Goal: Maximum of 8 days transit time z Precision y 1998/1999: 37% on time within 1 week y Goal: 95% on time within 1 day z Visibility y 100 % Internet vehicle tracking from plant release to dealer delivery y Guide the flow of vehicles y Respond to variations y Inform customers 13

Design Process Truck vs Rail delivery Allocate Dealers (FIPS) to Ramps Route Flows through Rail Network 14

Single-Sourcing Allocation z Var Assign{FIPS, RAMPS} binary; z Minimize Total. Cost: z sum{fip in FIPS, ramp in RAMPS} Cost[fip, ramp]*Assign[fip, ramp]; z s. t. Single. Source{fip in FIPS}: z sum{ramp in RAMPS}Assign[fip, ramp] = 1; z s. t. Observe. Capacity{ramp in RAMPS}: z sum{fip in FIPS} Volume[fip]*Assign[fip, ramp] 15 z <= Capacity[ramp];

Old Ramp Allocation Southern US Dealers sourced by multiple ramps 16

New Ramp Allocation Southern US Dealers sourced by single ramps 17

New Allocation of Dealers to Ramps Mainland US 18

Flows through the Rail Network z. Objective is NOT Freight cost! 19

The Objective IS z. Speed z Capital z Land 20

The Promise z. Speed z Unit trains bypass hump yards 21

The Promise z. Capital & Land Laurel, Montana Orilla, Washington Time 22

The Promise z Capital & Land z 22 Plants z 54 Destination Ramps z ~1, 200 Load lanes z ~8, 400 vehicles waiting at plants z $166 Million in inventory z Each Plant to One Mixing Center z ~22 Load lanes z ~154 vehicles waiting at plants z ~$3 Million in inventory 23

The Price z Inventory at the cross dock z Handling at the cross dock z Capital costs of the cross dock z Added distance traveled 24

Making the Trade-offs Measuring Inventory In the rail network At the plants and Cross Docks Load-driven system Railcars depart when full Relationship between Network Design and Inventory 25

Inventory at the Plants Half a rail car full for each destination Laurel, Montana Orilla, Washington Time 26

Inventory at the Mixing Centers Half a rail car full for each destination Laurel, Montana Orilla, Washington Time 27

Workload at the Mixing Centers Unpredictable Rail car holds 5 vehicles Orilla Benicia Mira Loma Laurel Denver Orilla Benicia Mira L. Laurel Denver 28

Mixing Centers Balanced: Only load cars you empty Rail car holds 5 vehicles Orilla Benicia Mira Loma Laurel Denver Orilla. L. Laurel Benicia Mira Denver 29

Effect on Inventory at Mixing Center slowly grows to just over (ramps -1)(capacity -1) and remains there Roughly twice the inventory of before Still depends on the number of ramps the cross dock serves 30

Consolidation for Speed Unit Trains of 15 -20 rail cars don’t stop at mixing yards Trade moving inventory for stationary inventory 31

Model Paths Route from Plant to Ramp Mode used on each edge Demand[ramp, plant] Combined demand at ramp for all products from the plant Variables: Path. Flow[path]: u Volume from the plant to the ramp on the path Use. Lane[fromloc, toloc, mode] binary u Did we use the mode between two locations 32

Model Objective Minimize the number of vehicles in the pipeline Moving Component (Transit times) Waiting Component (Mode Size) Minimize Pipeline. Inventory: sum{path in Paths} (Total Transit Time)*Path. Flow[path]; sum{(f, t, m)} (Size[m]/2)*Use. Lane[f, t, m] 33

Model Satisfy Demand The sum of flows on all paths between a plant and a ramp must meet demand s. t. Satisfy. Demand[p in PLANTS, r in RAMPS}: sum{path in PATHS: Plant[path]=p and Ramp[path] = r} Path. Flow[path] >= Demand[p, r]; 34

Model Define Use. Lane For each pair of locations and mode between them write a constraint for each plant and ramp s. t. Define. Use. Lane[p in PLANTS, r in RAMPS, (f, t, m) in EDGES}: sum{path in PATHS: Plant[path]=p and Ramp[path] = r and (f, t, m) in PATHEDGES[path]} Path. Flow[path] <= Demand[p, r]*Use. Lane[f, t, m]; 35

Model Large Model Lots of Variables: Many Paths Lots of Constraints: Define. Use. Lane The LP relaxation is nearly always integral 36

New Rail Lanes Reduced plant destinations 37

Final Outbound Rail Network with Carriers St Paul Canada Edison Michigan Chicago Ohio St Louis Kentucky Norfolk Kansas City Atlanta Mixing Centers Destination Ramps Union Pacific CSXT FEC BNSF Canadian Pacific Car Haul to Ramp Norfolk Southern Canadian National 38

Results y. Cut vehicle transit time by 26% or 4 days y$1 billion savings in vehicle inventory y$125 million savings in inventory carrying costs y. Avoid bottlenecks y. Reduce assets in supply chain y. Improved inventory turns at dealer 39

Benefits l Ford l Dealers l Rail Carriers l Auto Haulers 40

Benefits - Ford l On-time delivery l Competitive edge l Cost control 41

Benefits - Dealers Reduced inventories l Increased customer satisfaction l 42

Benefits Rail Carriers Improved -equipment utilization (reduced capital l expenditures) l Visibility and planning capabilities l Synergies with existing UPS traffic l Increased cooperation l 43

Benefits - Auto Haulers l l Expanded dealer delivery hours Visibility and planning capability Improved asset utilization Increased cooperation 44