1. Tiffany & Co. Transportation Project Sponsor:
Joseph Shearn Jeff Larson
Advisor:
Dr. Vande Vate
Student:
Hongliang Miao Zheng Nie Ruizhi Wang Pengxiang Xu Yaan Zhang

3. Agenda Background Problem Statement Project Objectives Approach
Results
Sustainable Implementation
Afterthoughts

4. Background
Tiffany & Co. is the world's premier jeweler and America's house of design since 1837.
The company has 246 stores in 17 countries worldwide with 700 million sales per year.

5. Problem Statement High value jewelry
More attention to shipping security
Transportation cost (more secure options)
Trade-off between cost and loss
Tradeoff important

6. UPS and Brinks UPS the world's largest package delivery company
full-service provider of secure logistics solutions
comprehensive insurance protection
UPS
the world's largest package delivery company
 develop the frontiers of supply chain solutions

7. Trade off between UPS and Brinks
lower transportation cost
less than 0.5% lost rate
Common carrier coverage
higher transportation cost
no history of loss
full insurance coverage

8. Project Objective Domestic & International shipment
Tradeoff between risk and cost
Reduce annual freight expense by 20%,
and control the risks at the same time
Building a model to optimize carrier selection.

9. Approach Lost sales Labor and Jewelry Reputation
Current and future customers
Labor and Jewelry
Design and Art
Reputation
Goodwill and development of company
Introduce concept of penalty parameter
Customers relationship

10. Approach Penalty parameter P-Value Quantify the impacts of loss
Higher P-value, more conservative selection
Influent carrier selection
Reflects of tolerance of loss
Take and example to explain penalty. E.g, P=2, price+reputation,etc…..

11. Approach Carrier Criteria
Ship To State
ZIP
Carrier Description
Carton Weight
Carton Qty
Total Xfer (Transfer) Price
Shipment
Selection Value
Trans Cost
Inventory Cost
Insurance Cost
Loss = +
Internal price when we transfer the product to store, whole sale price, the Tiffany sells to its stores. Net insurance value=insurance coverage-insurance cash flow.
Loss
= P* Transfer value at risk- Net insurance coverage
UPS Selection Value
P* Transfer Value at risk
Net insurance coverage
UPS Trans
UPS Inventory = + -
Compare &
Select the Optimal
Brinks Selection Value
Brinks Trans
Brinks Inventory = + =

12. =Loss Rate* Total Xfer Price of shipment using UPS
[Domestic Analysis as Example] Step 1 Selection between current carriers
UPS & Brinks
What is operation cost?
We caculated every P, and choose policy undomained
Value of lost packages: surrogated customer impact, not direct sale loss, not financial, as it will be insured.
Current policy is dominated, lost rate stay the same, same risk, operation cost decrease
Move around P, change policy, undominated, decrease operation cost, on customer side.
operation cost decrease,
=Loss Rate* Total Xfer Price of shipment using UPS
Customer Impact

13. Step 1 Selection between current carriers
UPS & Brinks
Including coverage, direct financial impacts, go back to explain customer a little more. In last slide, 40,000 surrogated savings, but under the same net loss, more than 40,000 savings. It means what budget to hold, there are 80,000 or more.
Net Loss= Transfer value at risk- Net insurance coverage
Direct Financial Impact

14. Summary
Including coverage, direct financial impacts, go back to explain customer a little more. In last slide, 40,000 surrogated savings, but under the same net loss, more than 40,000 savings. It means what budget to hold, there are 80,000 or more.

15. Step 2 Exploring New Options
AIB Insurance
Not a transportation carrier, a supplemental insurance program
Only for UPS shipments
Lower transportation cost than Brinks
Higher declared value limit than UPS
Brinks Connect Program
Hybrid of Brinks and UPS
Consolidated delivery method
Higher security level than UPS 

16. Step 2 Exploring New Options

17. Direct financial Impact
Step 2 Exploring New Options
Direct financial Impact

18. Summary

19. Summary-Carrier Distribution

20. International Introduction
4 times transportation cost of Domestic
Larger magnitude of potential savings
Current situation
Only use Brinks: 0 lost rate
Un-dominated policy
Trade-off between risk and loss
Hard to select policy
Same Security level (loss rate) with domestic
Larger magnitude of increase/savings

21. International Trade-off Analysis
Half Domestic Security Level
Lost=0.35M
Lost=0.17M
Domestic Security Level
Customer Impact

22. International Trade-off Analysis
Financial Impact

23. International Carrier Distribution (International)

24. International Decomposition Analysis

25. Results Savings (Half Domestic Security)
Current
Optimal
Savings
Percentage
Transportation Cost
$1.41
$0.92
$0.49
34.44%
Net Loss
$0.08
$0.01
$0.07
85.90%
Fraction of Lost Packages
0.26%
0.24%
0.02%
6.73%
Fraction of Lost Value
0.04%
0.00%
8.81%
Total Cost
$2.09
$1.66
$0.43
20.51%
International
Current
Optimal ( Half Domestic Security)
Savings
Percentage
Trans. Cost
$5.74
$2.85
$2.89
50.35%
Net Lost
$0.00
$0.01
-$0.01 -
Fraction of Lost Packages
0.00%
0.17%
Fraction of Lost Value
0.02%
Total Cost
$7.54
$4.67
$2.87
38.06%
Loss Probability = 0?
Overall
Current
Optimal
Savings
Percentage
Trans. Cost
$7.15
$3.77
$3.38
47.21%
Net Lost
$0.08
$0.02
$0.06
72.94%
Fraction of Lost Packages
0.21%
0.23% -
Fraction of Lost Value
0.01%
0.03%
Total Cost
$9.63
$6.33
$3.30
34.26%

26. Results Savings (Domestic Security)
Current
Optimal
Savings
Percentage
Transportation Cost
$1.41
$0.92
$0.49
34.44%
Net Loss
$0.08
$0.01
$0.07
85.90%
Fraction of Lost Packages
0.26%
0.24%
0.02%
6.73%
Fraction of Lost Value
0.04%
0.00%
8.81%
Total Cost
$2.09
$1.66
$0.43
20.51%
International
Current
Optimal (Domestic Security)
Savings
Percentage
Trans. Cost
$5.74
$2.19
$3.55
61.85%
Net Lost
$0.00
$0.01
-$0.01 -
Fraction of Lost Packages
0.00%
0.22%
Fraction of Lost Value
0.04%
Total Cost
$7.54
$4.08
$3.46
45.89%
Loss Probability = 0?
Overall
Current
Optimal
Savings
Percentage
Trans. Cost
$7.15
$3.11
$4.04
56.44%
Net Lost
$0.08
$0.02
$0.06
72.94%
Fraction of Lost Packages
0.21%
0.24% -
Fraction of Lost Value
0.01%
0.04%
Total Cost
$9.63
$5.74
$3.89
40.39%

27. Results Max Savings, P=1, Regardless of goodwill
　Domestic
Current
Optimal
Savings
Percentage
Transportation Cost
$1.41
$0.62
$0.79
56.29%
Net Loss
$0.08
$0.03
$0.05
62.20%
Fraction of Lost Packages
0.26%
0.2972% % -
Fraction of Lost Value
0.04%
0.2700% %
Total Cost
$2.09
$1.19
$0.90
43.13%
International
Current
Optimal
Savings
Percentage
Trans. Cost
$5.74
$1.38
$4.36
75.96%
Net Lost
$0.00
$0.02
-$0.02 -
Fraction of Lost Packages
0.00%
0.29%
Fraction of Lost Value
0.13%
Total Cost
$7.54
$3.57
$3.97
52.65%
Loss Probability = 0?
Overall
Current
Optimal
Savings
Percentage
Trans. Cost
$7.15
$2.00
$5.15
72.08%
Net Lost
$0.08
$0.05
$0.03
36.29%
Fraction of Lost Packages
0.21%
0.27%
-0.06%
Fraction of Lost Value
0.01%
0.10%
-0.09%
Total Cost
$9.63
$4.76
$4.87
50.59%

28. Sustainable implementation Carrier Selection Logic (In Class)
Translate into policy
International
Net lost
$ 17,563
p=1
Brinks
UPS+AIB
Threshold
AUSTRALIA
AUSTRIA
BELGIUM
BRAZIL
CANADA
CHINA
FRANCE
GERMANY
$ A1+B1
$ A1-B1
$ A1
GUAM
HONG KONG
IRELAND
ITALY
$ A2+B2
$ A2-B2
$ A2
JAPAN
$ A3+B3
$ A3-B3
$ A3
KOREA
$ A4+B4
$ A4-B4
$ A4
MACAU
$ A5-B5
$ A5+B5
$ A5
MALAYSIA
MEXICO
NETHERLANDS
SINGAPORE
$ A6-B6
$ A6+B6
$ A6
SPAIN & CANARY ISLAN
SWITZERLAND
TAIWAN
UNITED KINGDOM
Mixed
Total UPS
Clear Threshold

29. Sustainable implementation Carrier Selection Logic (In Class)
Translate into policy
International
Total cost
$ M
Operation cost
$ M
Net lost
$ 10,014
p=3.3
Brinks
UPS+AIB
Threshold
AUSTRALIA
$ K1-M2
$ K1+M1
$ K1
AUSTRIA
$ K2-M2
$ K2+M2
$ K2
BELGIUM
$ K3+M3
$ K3-M3
$ K3
BRAZIL
CANADA
$ K4-M4
$ K4+M4
$ K4
CHINA
$ K5+M5
$ K5-M5
$ K5
FRANCE
$ K6-M6
$ K6+M6
$ K6
GERMANY
$ K7-M7
$ K7+M7
$ K7
GUAM
HONG KONG
$ K8-M8
$ K8+M8
$ K8
IRELAND
ITALY
$ K9-M9
$ K9+M9
$ K9
JAPAN
$ K10-M10
$ K10+M10
$ k10
KOREA
$ K11-M11
$ K11+M11
$ K11
MACAU
$ K12+M12
$ K12-M12
$ K12
MALAYSIA
$ K13+M13
$ K13-M13
$ K13
MEXICO
$ K14+M14
$ K14-M14
$ K14
NETHERLANDS
$ K15+M15
$ K15-M15
$ K15
SINGAPORE
$ K16-M16
$ K16+M16
$ K16
SPAIN & CANARY ISLAN
$ K17-M17
$ K17+M17
$ K17
SWITZERLAND
$ K18+M18
$ K18-M18
$ K18
TAIWAN
$ K19-M19
$ K19+M19
$ K19
UNITED KINGDOM
$ K20-M20
$ K20+M20
$ K20
Total Cost
Xfter Price
Threshold Policy
$4,111,304
Optimal Model
$4,080,000
Difference
$31,304
Fraction
0.77%

30. Sustainable implementation
Query Interface

31. Afterthoughts
For UPS, explore specific risks for different lanes, various security levels
Exploring new blended programs like Brinks Connect
For new programs, we need to record lost information.
International Split
Split policy
We hope to reduce total cost by splitting a large value shipment to several smaller ones. However, it’s hard to come up with a simple policy. Because the total cost of the shipment depends on:
characteristic of the shipment (weight, transfer price, carton quantity)
the split method (How to split the carton? Relationship between weight and value might not be linear. )
the different rate for different region.
Split: combine UPS shipments to Brinks
Tiffany’s product is valuable and small, lost rate is different from regular UPS lost rate. And it’s different by lanes.

32. ACKNOWLEDGEMENTS The team would like to thank:
Joseph Shearn, VP Distribution, Tiffany & Co.
Jeff Larson, Director-Engineering Analysis, Tiffany & Co.
Larry Sims, UPS Director of Enterprise Accounts Sales 
Jill Benedetti, VP Diamond and Jewelry, Brink’s
Dr. Vande Vate, Prof. and EMIL Executive Director, ISyE
The team would like to thank:
Joseph Shearn, for giving us this great opportunity to work for Tiffany.
Jeff Larson, for his tireless support, willingness to discuss every details with us every week.
Susan, for checking our detailed calculation.
We would also like to thank:
Dr. Vande Vate, our advisor, for his precious guidance.
This is a very interesting project.

33. THANK YOU!
Thank