Transportation Management John Vande Vate ISy E 3103

Transportation Management John Vande Vate ISy. E 3103 Fall 2001

Identifying and Exploiting Economies of Scale n Reduce transportation cost by consolidating, leveraging, . . .

Why does Consolidation Help? n Freight rates depend on u Distance u Location u. Order size!

Shipment Cost Dependence on Size Medium Shipment Small Shipment Size Large Shipment

Your Case: What forms of Consolidation? Chinese Factory Port in China Store Port of Long Beach NY DC Cross Dock

Types of Consolidation n Time: u Wait n for full loads Cross Dock u Combine n Common Carrier, e. g. , LTL Carrier u Combine n shippers Collaborations u Match-up n shippers loads Shippers Association u Combine n shipments head hauls Other examples?

Use Leverage n n Big customers can command lower rates How to be a big customer?

Gaining Leverage n Limit the number of carriers you use u Is n it wise to use just one? Consolidate your shipments u Cross n Docks concentrate volumes on fewer lanes Negotiate rates across the system rather than lane by lane u Combinatorial n Join a group u Shipper’s n bidding Associations Use someone else’s size u Freight u NVO’s Forwarders

Consolidating Finished Vehicle Deliveries at Ford n n Cross Docking rail shipments of finished vehicles More about speed than about freight

Why Speed Matters n The new BMW Sales and Production System

Ford’s Situation 1996 n n n Average 15 days delivery 3. 9 million vehicles/year 10, 700 vehicles/day $18 thousand/vehicle $190 million/day $2. 8 billion in pipeline

Before 1996

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

1999 Statistics u. Assembly plants u. Mixing centers u. Destination rail ramps u. Dealer locations u. Production volume Mil. /Year u. Freight expense u. Avg. transit time u. Pipeline Inventory 22 5 54 6, 000 4. 4 $1. 5 Bil. 16. 8 Days $4. 1 Bil.

Old Ramp Allocation Southern US Dealers sourced by multiple ramps

New Ramp Allocation Southern US

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

Results u. Cut vehicle transit time by 26% or 4 days u. Initiative is 6 months ahead of time u$1 billion savings in vehicle inventory u$125 million savings in inventory carrying costs u. Avoid bottlenecks u. Reduce assets in supply chain u. Less damage

How to Value this n Reduced Inventory u Either a one-time windfall for full amount u Or capital charge on full amount over several years F How long? u And What did Ford do? F Non-capital charge on reduced inventory over several years • Theft • Insurance • Damage n n Average value of non-capital portion 9 -10% For CPU’s and Laptops runs to 35%!

The Point n How Cross Docks Did It? u We will discuss more when we talk about Load-driven systems (10 -16 and 10 -18) n Concerned about more than the freight bill! u Next Lecture: Total Cost