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

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

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

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

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

The Need for Speed Other Incentives Damage Flexibility Others?

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

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

High 1999 Level Statistics Assembly plants 22 Mixing centers 5 Destination rail ramps 54 Dealer locations 6,000 Production volume 4.4 Mil./Year Freight expense $1.5 Bil. Dec. ‘99 avg. transit time 16.8 Days Pipeline Inventory $4.1 Bil.

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

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

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

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

Single-Sourcing Allocation Var Assign{FIPS, RAMPS} binary; Minimize TotalCost: sum{fip in FIPS,ramp in RAMPS} Cost[fip,ramp]*Assign[fip,ramp]; s.t. SingleSource{fip in FIPS}: sum{ramp in RAMPS}Assign[fip,ramp] = 1; s.t. ObserveCapacity{ramp in RAMPS}: sum{fip in FIPS} Volume[fip]*Assign[fip,ramp] <= Capacity[ramp];

Old Ramp Allocation Southern US Dealers sourced by multiple ramps Under the old system dealerships could be fed from multiple destination ramps. This proved to be costly and more difficult to manage.

New Ramp Allocation Southern US As you can see the new design is much cleaner and eliminates the delivery overlap from various ramps. Dealers sourced by single ramps

New Allocation of Dealers to Ramps Mainland US This is how the entire U.S. looks. Again, no overlapping areas.

Flows through the Rail Network Objective is NOT Freight cost!

The Objective IS Speed Capital Land

The Promise Speed Unit trains bypass hump yards

The Promise Capital & Land Laurel, Montana Orilla, Washington Time

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

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

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

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

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

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

Effect on Inventory 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

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

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: PathFlow[path]: Volume from the plant to the ramp on the path UseLane[fromloc, 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 PipelineInventory: sum{path in Paths} (Total Transit Time)*PathFlow[path]; sum{(f,t,m)} (Size[m]/2)*UseLane[f,t,m]

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

Model Define UseLane For each pair of locations and mode between them write a constraint for each plant and ramp s.t. DefineUseLane[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]} PathFlow[path] <= Demand[p,r]*UseLane[f,t,m];

Model Large Model The LP relaxation is nearly always integral Lots of Variables: Many Paths Lots of Constraints: DefineUseLane The LP relaxation is nearly always integral

Reduced plant destinations New Rail Lanes The model concentrated allocated volume in fewer lanes reducing the amount of destinations built by each plant. Reduced plant destinations

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

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

Benefits Ford Dealers Rail Carriers Auto Haulers While we have touched upon the benefits, let’s review them in greater detail. There are 5 primary beneficiaries that we will address.

Benefits - Ford On-time delivery Competitive edge Cost control 1. The Autogistics network supports the “On Time Delivery” initiative and increases its chances for success. 2. For the first time the supply chain can be accurately analyzed by segment and activity. Core problems can be analyzed and solved in less time and with much greater accuracy. The potential for reducing system variation is a reality. 3. The manufacturer that can produce a reliable finished goods network can obtain a competitive edge in multiple ways. Increase customer satisfaction Reduce the total cost of a vehicle for manufacturer and dealer 4. Allows Ford a single source for finished vehicle logistics. 5. Car Trackers ability to measure and produce reports improves accountability throughout the supply chain and eliminates the continuous finger pointing. Key to successful systems of any type is an accurate feedback loop. That is now in place. More importantly, it allows more time to be expended solving the problem. 6. Where does this improve the cost picture? Shortened supply chain reduces the amount of assets in the chain and reduces the inventory carrying cost. A shortened and reliable chain will increase the potential for custom orders and internet orders and reduce build for inventory. Also stops additional expense of shipping diversions due to equipment shortages.

Increased customer satisfaction Benefits - Dealers Reduced inventories Increased customer satisfaction Inventories are maintained to provide cars for the buying public. When the source is not reliable higher inventories are maintained to ensure that stock is available and sales are not lost. The improved visibility and precision in the network allows a leaner inventory while not sacrificing sales. The ability to provide a customer an arrival date and meet that date enhances the buying experience thus increasing customer satisfaction Dealerships will be better able to plan car preparation functions due information on Car Tracker.

Benefits - Rail Carriers Improved equipment utilization (reduced capital expenditures) Visibility and planning capabilities Synergies with existing UPS traffic Increased cooperation 1. If velocity of the inventory increases, as it will, then the automotive rail cars will more quickly travel through the system. Reducing the amount of equipment needed will decrease the amount of future capital expenditures. 2. Using Car Tracker will enable the rail carriers to better plan and respond to the needs of Ford. 3. By combining existing UPS intermodal traffic with automotive traffic more dedicated trains can be created easing scheduling of crews and equipment. 4. The improved visibility promotes cooperation between the carriers.

Benefits - Auto Haulers Expanded dealer delivery hours Visibility and planning capability Improved asset utilization Increased cooperation 1. Allows haulers to reduce equipment and maintain lot sizes. 2. Haulers will no longer have to respond with no notice. 3. Without having to deliver in a narrow window the car hauler can run multiple shifts and use the same equipment. Knowledge of what is in the supply chain enables them to increase routing effectiveness. 4. The system is no stronger than the weakest link. Getting away from optimizing sub systems through Car Tracker will force cooperation.