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
Agenda l Introduction l 1999 Environment l Solution Approach l Network Design l Implement New Strategy l Results to Date l Summary Confidential Page 2
Introduction
Objectives/Motivation l Importance of Pipeline Inventory l Pipeline Inventory and Network Design l Role of modeling l Information in variables l Stronger formulation l Financial impact Confidential Page 4
Competitive Necessity The new BMW Sales and Production System Confidential Page 5
The Need for Speed Financial Incentives: Capital Utilization – 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 Confidential Page 6
The Need for Speed Demand for land • 22 Plants • 54 Destination Ramps • ~1, 200 Load lanes • ~8, 400 vehicles waiting at plants • $166 Million in inventory Confidential Page 7
The Need for Speed Other Incentives l Damage l Flexibility l Others? l l Confidential Page 8
Before 1996 Confidential Page 9
Confidential Page 10
The Price • Inventory at the cross dock • Added distance traveled • Handling at the cross dock • Capital costs of the cross dock Confidential Page 11
Mixing Centers Confidential Page 12
1999 environment
1999 Vehicle Network Delivery Conditions l Record production levels l Demand shift from cars to trucks l Overburdened rail infrastructure l Deteriorating rail service l Shortage of transport capacity l Mixing centers l 15+ day transit time l High inventory cost l Dissatisfied customers Confidential Page 14
High 1999 Level Statistics l Assembly plants 22 l Mixing centers 5 l Destination rail ramps 54 l Dealer locations 6, 000 Production volume Mil. /Year 4. 4 l Freight expense $1. 5 Bil. l Dec. ‘ 99 avg. transit time 16. 8 Days l Pipeline Inventory $4. 1 Bil. l Confidential Page 15
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 Confidential Page 16 Origin Plant Groupings Destination Ramp Planned Ramp Closure
Old Delivery Design l l Confidential Page 17 Push Network Vendor sub systems optimized for individual segments Little to no visibility Mixing Centers not used effectively
solution approach
Ford Goals Speed l 1999: Average 15 days transit time l Goal: Maximum of 8 days transit time Precision l 1998/1999: 37% on time within 1 week l Goal: 95% on time within 1 day Visibility l 100 % Internet vehicle tracking from plant release to dealer delivery l Guide the flow of vehicles l Respond to variations Confidential Page l 19 Inform customers
network design
Design Process Truck vs Rail delivery Allocate Dealers (FIPS) to Ramps Route Flows through Rail Network Confidential Page 21
Ford Locations Plant Mixing Center Origin Ramp Dest. Ramp MC Ramp
An Allocation Model Confidential Page 23
Single-Sourcing Allocation Var Assign{FIPS, RAMPS} binary; Minimize Total. Cost: sum{fip in FIPS, ramp in RAMPS} Cost[fip, ramp]*Assign[fip, ramp]; s. t. Single. Source{fip in FIPS}: sum{ramp in RAMPS}Assign[fip, ramp] = 1; s. t. Observe. Capacity{ramp in RAMPS}: sum{fip in FIPS} Volume[fip]*Assign[fip, ramp] <= Capacity[ramp]; Confidential Page 24
Old Ramp Allocation Southern US Dealers sourced by multiple ramps Confidential Page 25
New Ramp Allocation Southern US Confidential Page 26 Dealers sourced by single ramps
New Allocation of Dealers to Ramps Mainland US Confidential Page 27
Flows through the Rail Network Objective is NOT Freight cost! Confidential Page 28
The Objective IS Speed Capital Land Confidential Page 29
The Promise Speed Unit trains bypass hump yards Confidential Page 30
The Promise Capital & Land Laurel, Montana Orilla, Washington Time Confidential Page 31
The Promise Capital & Land • 22 Plants • 54 Destination Ramps • ~1, 200 Load lanes • ~8, 400 vehicles waiting at plants • $166 Million in inventory Each Plant to One Mixing Center • ~22 Load lanes • ~154 vehicles waiting at plants • ~$3 Million in inventory Confidential Page 32
The Price • Inventory at the cross dock • Handling at the cross dock • Capital costs of the cross dock • Added distance traveled Confidential Page 33
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 Confidential Page 34
Inventory at the Plants Half a rail car full for each destination Laurel, Montana Orilla, Washington Time Confidential Page 35
Inventory at the Mixing Centers Half a rail car full for each destination Laurel, Montana Orilla, Washington Time Confidential Page 36
Workload at the Mixing Centers Unpredictable Rail car holds 5 vehicles Orilla Benicia Mira Loma Laurel Denver Orilla Confidential Page 37 Benicia Mira L. Laurel Denver
Workload at the Mixing Centers Balanced: Only load cars you empty Rail car holds 5 vehicles Orilla Benicia Mira Loma Laurel Denver Orilla Confidential Page 38 Orilla. L. Laurel Benicia Mira Denver
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 Confidential Page 39
Consolidation for Speed Unit Trains of 15 -20 rail cars don’t stop at mixing yards Trade moving inventory for stationary inventory Confidential Page 40
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, u Confidential Page 41 toloc, mode] binary Did we use the mode between two locations
Model Objective Minimize the number of vehicles in the pipeline Moving Component (Transit times) Waiting Component (Mode Size) Minimize Confidential Page 42 Pipeline. Inventory: sum{path in Paths} (Total Transit Time)*Path. Flow[path]; sum{(f, t, m)} (Size[m]/2)*Use. Lane[f, t, m]
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}: Confidential Page 43 sum{path in PATHS: Plant[path]=p and Ramp[path] = r} Path. Flow[path] >= Demand[p, r];
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}: Confidential Page 44 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];
Model Large Model Lots of Variables: Many Paths Lots of Constraints: Define. Use. Lane The LP relaxation is nearly always integral Use Column Generation Confidential Page 45
New Rail Lanes Confidential Page 46 Reduced plant destinations
Final Outbound Rail Network with Carriers St Paul Canada Edison Michigan Chicago Ohio St Louis Kentucky Kansas City Atlanta Mixing Centers Union Pacific BNSF Confidential Page 47 Norfolk Southern Destination Ramps CSXT FEC Canadian Pacific Car Haul to Ramp Canadian National Norfolk
results to date
Results l Cut vehicle transit time by 26% or 4 days l $1 billion savings in vehicle inventory l $125 million savings in inventory carrying costs l Avoid bottlenecks l Reduce assets in supply chain l Improved inventory turns at dealer Confidential Page 49
Benefits l Ford l Dealers l Rail Carriers l Auto Haulers Confidential Page 50
Benefits - Ford l On-time delivery l Competitive edge l Cost control Confidential Page 51
Benefits - Dealers Reduced inventories l Increased customer satisfaction l Confidential Page 52
Benefits - Rail Carriers Improved equipment utilization (reduced capital expenditures) l Visibility and planning capabilities l Synergies with existing UPS traffic l Increased cooperation l Confidential Page 53
Benefits - Auto Haulers Expanded dealer delivery hours l Visibility and planning capability l Improved asset utilization l Increased cooperation l Confidential Page 54
Other Opportunities Where to go from here? Confidential Page 55
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