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

Objectives/Motivation l Importance of Pipeline Inventory l Pipeline Inventory and Network Design l Inventory at Cross Docks l Financial impact Confidential Page 2

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 3

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 4

The Need for Speed Other Incentives l Damage l Flexibility l Others? l l Confidential Page 5

Before 1996 Confidential Page 6

Confidential Page 7

The Price • Inventory at the cross dock • Added distance traveled • Handling at the cross dock • Capital costs of the cross dock Confidential Page 8

Mixing Centers Confidential Page 9

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 10

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 11

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 12 Inform customers

Design Process Truck vs Rail delivery Allocate Dealers (FIPS) to Ramps Route Flows through Rail Network Confidential Page 13

Ford Locations Plant Mixing Center Origin Ramp Dest. Ramp MC Ramp

Old Ramp Allocation Southern US Dealers sourced by multiple ramps Confidential Page 15

New Ramp Allocation Southern US Confidential Page 16 Dealers sourced by single ramps

New Allocation of Dealers to Ramps Mainland US Confidential Page 17

Flows through the Rail Network Objective is NOT Freight cost! Confidential Page 18

The Objective IS Speed Capital Land Confidential Page 19

The Promise Speed Unit trains bypass hump yards Confidential Page 20

The Promise Capital & Land Laurel, Montana Orilla, Washington Time Confidential Page 21

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 22

The Price • Inventory at the cross dock • Handling at the cross dock • Capital costs of the cross dock • Added distance traveled Confidential Page 23

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 24

Inventory at the Plants Half a rail car full for each destination Laurel, Montana Orilla, Washington Time Confidential Page 25

Inventory at the Mixing Centers Half a rail car full for each destination Assumes we can Laurel, call up an. Montana empty rail car and dispatch it whenever we have a full load lane Orilla, Washington Time Confidential Page 26

Workload at the Mixing Centers Unpredictable Rail car holds 5 vehicles Orilla Benicia Mira Loma Laurel Denver Orilla Confidential Page 27 Benicia Mira L. Laurel Denver We’ll have to load 5 rail cars! Outbound volumes vary widely from day to day

lanes can Centers Workload at the. Load Mixing over fill … more than Balanced: Only load cars enough foryou a empty Rail car holds 5 vehicles rail car. Inventory Orilla Impact? Benicia Mira Loma Laurel Denver Orilla Confidential Page 28 Orilla. L. Laurel Benicia Mira Denver

Effect on Inventory at Mixing Center slowly grows to (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 29

Why (ramps – 1)(capacity – 1)? The pigeon-hole principle: • Suppose we have (ramps – 1)(capacity – 1) = (ramps – 1)*capacity – (ramps – 1) vehicles in the mixing center. • A new rail car arrives with capacity more • Now we have ramps * capacity – (ramps – 1) = ramps*(capacity – 1) + 1 But the most we accommodate without filling a load lane is ramps * (capacity – 1) Some load lane must have capacity vehicles in it. Confidential Page 30

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

Model Variables Flows on Routes Binary Indicators Constraints Meet Demand Enforce Logic Objective Transportation Cost + Pipeline Inventory + Waiting Inventory Confidential Page 32

Variables: Routes How many vehicles we send from Atlanta to Orilla via Kentucky and KC (may even distinguish modes, block train, single rail car) St Paul Canada Michigan Edison Chicago Ohio Costs: The transportation and pipeline inventory costs St Louis Kentucky Norfolk Kansas City Atlanta There can be very many! Mixing Center Confidential Page 33 Origin Plant Groupings Destination Ramp Planned Ramp Closure

Variables: Binary Indicators Did we use ANY route that included this leg? Yes or No? St Paul Canada Michigan Edison Chicago Ohio St Louis Kentucky Norfolk Kansas City Atlanta Costs: Inventory costs at the origin. Either half the capacity of the mode (for min. inv. ops) or the full capacity of the mode (for balanced Confidential Page 34 ops) Mixing Center Origin Plant Groupings Destination Ramp Planned Ramp Closure

Constraints Satisfy Demand: The sum of flows on all routes between a plant and a ramp must meet demand Observe Logic: Did any route use a given leg? Confidential Page 35

Satisfy Demand Total flow on these routes must meet the demand in Orilla for vehicles made in Atlanta. St Paul Canada Michigan Edison Chicago Ohio St Louis Kentucky Norfolk Kansas City Atlanta Mixing Center Confidential Page 36 Origin Plant Groupings Destination Ramp Planned Ramp Closure

Observe Logic Total flow on these routes from Atlanta to Orilla that go from KC to Orilla must not exceed BINARY VARIABLE for this leg * Demand in Orilla for vehicles from Atlanta St Paul Canada Michigan Edison Chicago Ohio St Louis Kentucky Norfolk Kansas City Atlanta Mixing Center Confidential Page 37 Origin Plant Groupings Destination Ramp Planned Ramp Closure

Model Large Model Lots of Variables: Many Routes Lots of Constraints: Observe Logic Bad news: The LP takes a while to solve Good news: The LP nearly always gives an integral solution. Confidential Page 38

New Rail Lanes Confidential Page 39 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 40 Norfolk Southern Destination Ramps CSXT FEC Canadian Pacific Car Haul to Ramp Canadian National Norfolk

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 41

For Ford reports record earnings of $7. 2 billion in 1999 Ford Motor Company Closing Share Price 2000 - 2001 Ford sets all-time monthly recalls tires U. S. Firestone sales record after roll-over Cut deaths 5 days out of total Jacques Nasser appears inventories freeing $1. 8 Standard & Poor's cut before a Senate on billion in capital debt ratings to junkas status Jac Nasser CEO Firestone tire recall retires Ford Motor Company and UPS Logistics Group form Autogistics Cut 26% off vehicle delivery times releasing $1 billion Confidential from inventories Page 42