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

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

Confidential Page 3 Confidential 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

Confidential Page 4 Confidential 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 5 Confidential The Need for Speed Other Incentives l Damage l Flexibility l Others? l

Confidential Page 6 Confidential Before 1996

Confidential Page 7 Confidential

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

Confidential Page 9 Confidential Mixing Centers

Confidential Page 10 Confidential 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 11 Confidential High 1999 Level Statistics l Assembly plants22 l Mixing centers 5 l Destination rail ramps54 l Dealer locations6,000 l Production volume4.4 Mil./Year l Freight expense$1.5 Bil. l Dec. ‘99 avg. transit time16.8 Days l Pipeline Inventory$4.1 Bil.

Confidential Page 12 Confidential 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 l Inform customers

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

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

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

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

Confidential Page 17 Confidential New Allocation of Dealers to Ramps Mainland US

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

Confidential Page 19 Confidential The Objective IS Speed Capital Land

Confidential Page 20 Confidential The Promise Speed Unit trains bypass hump yards

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

Confidential Page 22 Confidential 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 23 Confidential The Price Inventory at the cross dock Handling at the cross dock Capital costs of the cross dock Added distance traveled

Confidential Page 24 Confidential 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 25 Confidential Inventory at the Plants  Half a rail car full for each destination Time Laurel, Montana Orilla, Washington

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

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

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

Confidential Page 29 Confidential Effect on Inventory  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 30 Confidential 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 31 Confidential Consolidation for Speed  Unit Trains of rail cars don’t stop at mixing yards  Trade moving inventory for stationary inventory

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

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

Confidential Page 34 Confidential Variables: Binary Indicators Mixing Center Origin Plant Groupings Destination RampPlanned Ramp Closure Edison Norfolk Atlanta Kentucky Ohio St Louis Canada St Paul Michigan Chicago Kansas City Did we use ANY route that included this leg? Yes or No? 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 ops)

Confidential Page 35 Confidential 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 36 Confidential Satisfy Demand Mixing Center Origin Plant Groupings Destination RampPlanned Ramp Closure Edison Norfolk Atlanta Kentucky Ohio St Louis Canada St Paul Michigan Chicago Kansas City Total flow on these routes must meet the demand in Orilla for vehicles made in Atlanta.

Confidential Page 37 Confidential Observe Logic Mixing Center Origin Plant Groupings Destination RampPlanned Ramp Closure Edison Norfolk Atlanta Kentucky Ohio St Louis Canada St Paul Michigan Chicago Kansas City 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

Confidential Page 38 Confidential 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 39 Confidential Reduced plant destinations New Rail Lanes

Confidential Page 40 Confidential Mixing Centers Destination Ramps Union PacificCSXTFEC BNSFCanadian PacificCar Haul to Ramp Norfolk SouthernCanadian National Edison Norfolk Atlanta Kentucky Ohio St Louis Canada St Paul Michigan Chicago Kansas City Final Outbound Rail Network with Carriers

Confidential Page 41 Confidential 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 42 Confidential For Ford Ford Motor Company Closing Share Price Ford reports record earnings of $7.2 billion in 1999 Ford sets all-time monthly U.S. sales record Jacques Nasser appears before a Senate on Firestone tire recall Firestone recalls tires after roll-over deaths Standard & Poor's cut debt ratings to junk status Jac Nasser retires as CEO of Ford Motor Company Ford Motor Company and UPS Logistics Group form Autogistics Cut 26% off vehicle delivery times releasing $1 billion from inventories Cut 5 days out of total inventories freeing $1.8 billion in capital