1. 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

2. Outline l Introduction l 1999 Environment l Solution Approach l Network Design l Car Tracker l Implement New Strategy l Results to Date l Summary

3. Objectives/Motivation l Novel application of cross-docking: Rail-to-Rail l Cross-docking for Speed l Role of modeling l Role of information l Network Management

4. Competitive Necessity The new BMW Sales and Production System

5. 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. »1400 fewer railcars The Need for Speed

6. Demand for land 22 Plants 54 Destination Ramps ~1,200 Load lanes ~8,400 vehicles waiting at plants $166 Million in inventory

7. The Need for Speed Other Incentives l Damage l Flexibility l

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

10. 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

11. 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.

12. Mixing Center Origin Plant Groupings Destination RampPlanned Ramp Closure Edison Norfolk Atlanta Kentucky Ohio St Louis Canada St Paul Michigan Chicago Kansas City 15% of all vehicles go Haulaway Direct to Dealer within 200-300 Miles of the Assembly Plant 85% of all Vehicles go via Rail to a Hub (Mixing Center or Destination Ramp) Ford Distribution Network

13. Old Delivery Design l Push Network l Vendor sub systems optimized for individual segments l Little to no visibility l Mixing Centers not used effectively

14. 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

15. Why UPS Logistics Group Chosen? l Global logistics expertise l State-of-the-art technology l Rail experience l Brand identity l Financial stability l Bench strength

16. Solution Process l Assemble team of experienced operations and network planning personnel from Ford and UPS l Evaluate current system - process mapping l Develop a new “no constraint” vision for the industry l Design a new network l Create a new organization l Implement the new network

17. Tools Used for Modeling Supply Chain Strategist from i2 Technologies Cost Modeling l Cost impact measured for each sort - route combination Sourcing l Determined optimum sourcing route from ramp to dealer

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

19. Sourcing Solution Process l Input dealer demand volumes by product family and plant location l Create candidate lanes between dealers and closest ramps l Run models to determine optimum ramp to dealer sourcing

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

21. Dealers sourced by single ramps New Ramp Allocation Southern US

22. New Allocation of Dealers to Ramp Mainland US

23. Cost Modeling Solution Process l Assign each plant to a mixing center l Determine rail shipment sizes for all rail lanes l Determine shipments that move direct from plant to dealer l Obtain carrier rates and perform regression analysis of historical shipments

24. Reduced plant destinations New Rail Lanes

25. 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

26. Characteristics l Shipment tracking - plant to dealer l Shipment events - customizable based on route specifications l Exception event tracking - alerts & alarms l Financial event tracking l Similar to UPS Package Tracking System

27. Value Add l Management of supply chain down to individual VINs l Alerts & alarms - “pipeline bottlenecks” l Management of inventory levels l Enhanced communications l Improved accountability of rail provider, mixing center, and convoy carrier resources l Better reporting mechanism

31. New Organization Announced new strategic alliance on February 2, 2000 Launched on March 1 Manage finished vehicle delivery network l Network design and planning l Carrier selection and rate negotiation l Carrier performance management l Daily network operations l Freight bill payment and claims processing Staffed by Ford and UPS Autogistics personnel Offices in Atlanta and Detroit Operations personnel in key field locations

32. Results l Cut vehicle transit time by 26% or 4 days l Initiative is 6 months ahead of time 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 Less damage l Improved inventory turns at dealer l By end of Q1 2001 network will be fully operational in US, Canada and Mexico

33. Benefits l Ford l Dealers l Rail Carriers l Auto Haulers

34. Benefits - Ford l On-time delivery l Supply chain visibility l Competitive edge l Single network manager l Improved accountability l Cost control

35. Benefits - Dealers l Reduced inventories l Increased customer satisfaction

36. Benefits - Rail Carriers l Improved equipment utilization (reduced capital expenditures) l Visibility and planning capabilities l Synergies with existing UPS traffic l Increased cooperation

37. Benefits - Auto Haulers l Expanded dealer delivery hours l Visibility and planning capability l Improved asset utilization l Increased cooperation

38. Status Report Before l Sub Optimization l Little Visibility l Mixing Center Concept l Rail Car Shortage l 15 Day Network Now l Car Tracker for Operations l Increased Bypass Loads l Clean Ramps & Mixing Centers l 24 Hour monitoring l 12 Day Network Future l Transit Merge l Add Customers l Daily Dedicated Rail Networks l Too Many Railcars l Less than 8 Day Network

39. The Whole Picture l Mixing Centers l Network design and planning l Carrier selection and rate negotiation l Tracking l Daily network operations l Carrier performance management