Load Driven Distribution Systems zDo not run on a schedule zWait for the vehicle to fill zMost examples are unfamiliar yRetail industry -- like DCs in our case xtrucks don’t depart to cross docks until they are full ySome manufacturing settings xAuto industry finished vehicle delivery zCost of poor equipment utilization significant

Objectives zUse Cross Docks to consolidate yWhat effect does this have on inventory yWhat effect does this have on time to delivery zThis pass, we will focus on inventory zLater, in the guise of “trailer fill” we will look at service or time to market.

Use an Example zFord’s new vehicle delivery zMotivation ySuccessful example yRegular loads - 15 vehicles per railcar

Inventory and Ford’s New Car Distribution zPlants in the East yNorfolk yAtlanta yLouisville ySt. Louis yKansas City zRamps in the West yLaurel yOrillia yPortland yBenicia yMira Loma yEl Mirage yBelen yDenver...

How it worked

Tri-level Rail Cars

The Loose Car Network

Car Hauler

12 Days Enroute z4.3 million vehicles in North America in ‘98 zEstimates y2 million to western ramps y$20,000 per vehicle zAverage car spends 12 days in pipeline inventory or 12/365 =.033 yrs zOn average about 66,000 vehicles in pipeline zValue of pipeline inventory: $1.32 billion

Other Costs zCustomer service zTracking shipment zManaging shipments yBills of lading yShipping invoices y…. zReal estate at the plant

Inventory at the Plant zLoad driven system yWhen there’s a load, send it. zEach plant keeps inventory for each ramp yAverage number of vehicles per load lane? zWith 16 ramps yAverage number of vehicles per plant? zWe could be doing other things with that land...

Observation zInventory in a load-driven distribution system depends on yThe capacity of the transportation units and y...

         The Old Model

The New Model           Mixing Center Plants Ramps

Advantages zAt the plant yAverage inventory of west bound vehicles? ySpace required zBetween the plant and the mixing center yLarger volume of shipments supports faster unit trains -- no stopping at switching yards zBetween the mixing center and the ramp yLarger ramps also support unit trains zTo the customer: Faster delivery!

Disadvantages zAdditional handling at the mixing center yEvery vehicle unloaded from one railcar and loaded onto another yAdditional opportunity to damage vehicle zAdditional capital investment zVehicles move farther ybut generally faster

Inventory at the Mixing Center? zMinimum Inventory Strategy yRail cars come in with mixed loads yEmpty the rail cars into load lanes yRe-load full load lanes yBring in empty rail cars if necessary zHow much inventory? yAt most x16 ramps*(14 cars per lane) = 224 vehicles yOn average x16 ramps*(7 cars per lane) = 112 vehicles

Inventory at the Mixing Center? zSimple Strategy yRail cars come in with mixed loads yEmpty the rail cars into load lanes yRe-load full load lanes yOnly if empty rail car is available zHow much inventory? yClaim: 210 vehicles!

Inventory under the Simple Strategy zMixing center has 210 vehicles y[210 = (16-1)*(15-1)] zA rail car arrives with 15 more vehicles yThat makes 225 = 16*(15-1)+1 vehicles zWe can re-load the rail car. WHY? zThat leaves us with 210 vehicles again. zCan you generalize this?

Time Enroute cut to 8 days zEffect on inventory: y12 days = $1.32 billion in inventory y8 days = $ 880 million in inventory zSavings of $440 million can go to pay for capital and operating expenses at the mixing center. Right?

Wrong! zReducing inventory by $440 million doesn’t create $440 million in new wealth, it just gives us the use of that money. zWe don’t have to borrow $440 million. zSavings is the interest: $110 million per year.

When we look at network design... zHow many mixing centers should we have? zWhere should they be? zWho should use them?