Motor Carrier Fleet Management (Suzuki and Pautsch, 2005)  Background  Dramatic decrease of vehicle resale value  Sharp increase of vehicle insurance premiums  How should carriers respond to these changes?  One important factor that affects a carrier’s profit is vehicle replacement policy  Looks at how optimal replacement cycle would be affect by these changes, and gain insights.  How?  A unique solution exists (models exist)  But these models may not give “implementable” solutions  Create a model that considers short-run constraints and investigate year-to-year replacement decisions

 Goals  Develop implementable model  Apply actual data and give implications  Intensive sensitivity analyses  Model  Costs = maintenance, fuel, insurance, down- time, depreciation, re-sale prep.  Objective = min total cost for a carrier over the planning horizon  Constraints = Cash, vehicle availability, etc.  Features  Unique solution to each carrier  Can purchase vehicles of any age  Different replacement cycle for each vehicle  Simple, easy to solve (except integer constraints)

 Data  A mid-sized TL carrier (>500 tractors)  Freightliner C-120 Century-class tractors (Table 1)  Currently uses 3-year cycle  Other data sources: Transport Topics, Wall street journal, Government pubs, internet, interviews with vehicle manufacturer, inputs from a truck dealer  Optimization issues  10 years of planning horizon  4 scenarios tested (Table 2)  Heuristic approach for integer constraints  Results  Table 3, Figures 2-5

 Implications  Carriers with newer vehicles can use shorter cycles (cash effect)  All scenarios have similar ending inventories (8 th year)  In the long-run, 3-year replacement cycle with brand new purchase may be optimal  Purchase age-1 vehicles whenever possible  Sensitivity analyses  Resale value = 60% - 115%  Insurance premium = 25% - 150%

 Implications (Figures 2-5)  As resale value decrease, use longer cycles regardless of initial inventory (counter intuitive?)  As resale value decrease, age of purchased vehicles generally increase  When both not necessary, use longer cycle than buy older vehicles to minimize costs  No effect of insurance premiums on replacement policy  Only if > 800%

 Discussion Questions  Why carriers do not buy age-1 vehicles?  What do you do if resale value or premium change dramatically?  Should you be concerned about increase in insurance premiums?  What other constraints would you include in the model?  What is the disadvantage of using longer replacement cycles?