1 1 Transportation & Supply Chain Systems John H. Vande Vate Spring 2007

2 2 Who am I? John H. Vande Vate Professor and EMIL Executive Director Office: 222 of the Old ISyE bldg. Phone: (404) Prefer Office Hours: –Tuesday, Thursday 2-3:30 (after class) or –By appointment

3 3 Administrative Details Class Home Page: Keep up with information here!

4 4 Recommended Text Designing and Managing the Supply Chain: Concepts, Strategies & Case Studies, Second Edition, By David Simchi-Levi, Philip Kaminsky and Edith Simchi-Levi, McGraw-Hill/Irwin; (October 11, 2002). ISBN: $106 on Amazon Used copies Not required Each team should have access

5 5 Other Resources You may also want to read: –Contemporary Logistics by Johnson, Wardlow, Wood and Murphy –Logistic Systems Analysis by Daganzo –Business Logistics Management 4th Edition by R. H. Ballou, Prentice Hall, 1999 –Bramel, J. and D. Simchi-Levi, The Logic of Logistics: Theory, Algorithms and Applications for Logistics Management, Springer-Verlag, 1997 –Logistics and Supply Chain Management: Strategies for Reducing Cost and Improving Service (2nd Edition) by Martin Christopher –Modeling the Supply Chain by Jeremy F. Shapiro

6 6 Grading Exams: 66% –February 19 st 33% –Final 33% Project: 33% –Groups of 4 to 6

7 7 Objectives Knowledge and understanding of the issues underlying transportation and supply chain management and Mastery of the tools and models to support intelligent resolution of those issues.

8 8 Projects Project: Ideally a real application –Team of 4 to 6 students –Distance learning students encouraged to bring projects from their companies and recruit teams of on-campus students to work with them –Every team must have at least 1 on-campus student –Several projects already available

9 9 Project Cont’d Due February 19 –one member of your team should send me an with the subject "6203 Project" providing The names and contact information ( s and phone numbers) Resumes Your team's project preferences (list at least four alternatives) in order Your team's preferences for presentation dates (list all four) in order of preference A presentation and report to your company On April 11th, 16th, 18th or 23rd. Present in class (~ 30 minute presentation) Self-contained CD of everything for me

10 Project Motivation Interviewing for job Learning by Doing Off-campus students

11 Projects European Auto manufacturer Shipping parts from European suppliers to average forecasted demand significantly better in terms of reducing the bullwhip effect. Simulation too time consuming and requires too much data. Tool for faster computation of good parameter values using less detailed information about the parts.

12 Projects XYZ: Transportation optimization –LTL consolidation –Multi-stop TL –Dynamic vendor assignment –Milk runs –Zone skipping –…

13 Other Projects Welcome to propose other topics Must: –Have a corporate sponsor –Be of value to the company –Give the team experience –Relate to topics in this course

14 Deliverable Presentation to your company and to the class (These may have to be different) CD that includes –Project Description –Your presentation(s) –Sufficient description that I can follow your presentation, understand the data and use the tools –Data and data definitions –Any tools (documented)

15 Supply Chain Management Deterministic View –Transportation –Inventory –Finance –Location –Mid-Exam: February 19rd Managing Variability & Risk –Revenue Management –Safety Stock –Inventory Pooling Supply Chain Applications & Projects Exam Questions from Variability & Risk and Projects

16 Transportation Modes –… –Parcel –Less-than-Truck load –Multi-stop TL –Truck load –Less-than-Car Load (rail) –Car Load (rail) –Block train –Less-than-Container load –Container load –…

17 Trade offs Cost Speed Access Reliability Security Special Handling Risk …

18 Typical Cost Factors Parcel (Up to ~150 lbs) –Zones (origin & destination) –Weight & Cube –Negotiated discount based on volume –Delivery Options Location Timing: Same day, next day am, next day, 2 nd day, ground, … UPS:

19 Less-Than-Truck Load (LTL) Origin & Destination Weight (up to ~20,000 lbs) Class Discount based on volume of business Special Requirements Old Dominion Why not just distance? Why is this important? / Typically quoted as $/CWT

20 NMFC Classes Density –Helps carrier judge demands for capacity Value –Helps carrier judge risk (liability limits associated with each class) Class 50: cheapest, e.g., sand Class 500: most expensive, e.g., Ping Pong Balls Maintained by the NMFTA (NMFTA.org)

21 Truck Load (TL) Up to ~45,000 lbs Origin Destination Volume of business Special Services (accessorials) –Detention, cleaning, … Schneider National Typically quoted as $/mile

22 Rail Commodity (Grain, Coal, …) Origin, Destination Equipment (Box car, tanker, Tri-level) Number of cars in block Cars handle on the order of 70 tons … Norfolk Southern on?origin=content_home.jsp&event=bea.portal.fr amework.internal.refresh&pageid=Doing+Busine ss&contentId=english/nscorp/doing_business/non e1/home/agriculture.htmlhttp:// on?origin=content_home.jsp&event=bea.portal.fr amework.internal.refresh&pageid=Doing+Busine ss&contentId=english/nscorp/doing_business/non e1/home/agriculture.html

23 Undiscounted LTL Rates ATL to LB Class 50 $1.12/CWT $0.53/CWT

24 Concave Cost Shipment Size Cost Cost per unit decreasing So?!

25 Consolidation Incentive to consolidate shipments –Make fewer larger shipments –Reduce frequency (!?) –Hub & Spoke –Share transportation resources –…

26 Issues with Freight Rates Issue of how to estimate rates on lanes you don’t currently use Levels of detail –$/mile as the crow flies –$/mile on the network –Rate look up Caution: Average cost of shipments can be smaller than the cost of an average shipment

27 Estimating Rates Small shipments Shipment Size Cost Large shipments Cost of Average shipment Average Cost of shipment

28 Why It Matters? Estimating transportation costs to “customers” –Typically too many customers –Aggregate them By region By state By 3-digit zip –Use some care in estimating the transportation cost to “aggregated” customers

29 Why It Matters? Customers may order different quantities at different times Estimating the cost to serve the customer often look at average shipments Careful how you average

30 Summary Transportation mode basics Transportation rate basics Economies of scale promote consolidation Cautions on “aggregating” transportation rates

31 Next Time Inventory and Transportation