1. Transportation Management
John Vande Vate
ISyE 3103 Fall 2001

2. Identifying and Exploiting Economies of Scale
Reduce transportation cost by consolidating, leveraging, ...

3. Why does Consolidation Help?
Freight rates depend on
Distance
Location
Order size!

4. Dependence on Size Shipment Cost Shipment Size Medium Shipment
Large Shipment
Small Shipment
Medium Shipment

5. Your Case: What forms of Consolidation?
Chinese Factory
Port in China
Store
Port of Long Beach
NY DC
Cross Dock

6. Types of Consolidation
Time:
Wait for full loads
Cross Dock
Combine shipments
Common Carrier, e.g., LTL Carrier
Combine shippers loads
Shippers Association
Combine shippers
Collaborations
Match-up head hauls
Other examples?

7. Use Leverage Big customers can command lower rates
How to be a big customer?

8. Gaining Leverage Limit the number of carriers you use
Is it wise to use just one?
Consolidate your shipments
Cross Docks concentrate volumes on fewer lanes
Negotiate rates across the system rather than lane by lane
Combinatorial bidding
Join a group
Shipper’s Associations
Use someone else’s size
Freight Forwarders
NVO’s

9. Consolidating Finished Vehicle Deliveries at Ford
Cross Docking rail shipments of finished vehicles
More about speed than about freight

10. Why Speed Matters
The new BMW Sales and Production System

11. Ford’s Situation 1996 Average 15 days delivery
3.9 million vehicles/year
10,700 vehicles/day
$18 thousand/vehicle
$190 million/day
$2.8 billion in pipeline

12. Before 1996

14. The Price Inventory at the cross dock Added distance traveled
Handling at the cross dock
Capital costs of the cross dock

15. 1999 Statistics Assembly plants 22 Mixing centers 5
Destination rail ramps 54
Dealer locations ,000
Production volume 4.4 Mil./Year
Freight expense $1.5 Bil.
Avg. transit time Days
Pipeline Inventory $4.1 Bil.

16. Dealers sourced by multiple ramps
Old Ramp Allocation Southern US
Dealers sourced by multiple ramps

17. New Ramp Allocation Southern US

18. Final Outbound Rail Network with Carriers
St Paul
Canada
Edison
Michigan
Chicago
Ohio
St Louis
Kentucky
Norfolk
Kansas City
Atlanta
Mixing Centers
Destination Ramps
Union Pacific
CSXT
FEC
BNSF
Canadian Pacific
Car Haul to Ramp
Norfolk Southern
Canadian National

19. Results Cut vehicle transit time by 26% or 4 days
Initiative is 6 months ahead of time
$1 billion savings in vehicle inventory
$125 million savings in inventory carrying costs
Avoid bottlenecks
Reduce assets in supply chain
Less damage
Improved inventory turns at dealer
By end of Q network will be fully operational in US, Canada and Mexico

20. How to Value this Reduced Inventory
Either a one-time windfall for full amount
Or capital charge on full amount over several years
How long?
And
Non-capital charge on reduced inventory over several years
Theft
Insurance
Damage
Average value of non-capital portion 9-10%
For CPU’s and Laptops runs to 35%!
What did Ford do?

21. The Point How Cross Docks Did It?
We will discuss more when we talk about Load-driven systems (10-16 and 10-18)
Concerned about more than the freight bill!
Next Lecture: Total Cost