Transportation Supply Chain Systems John H Vande

Transportation & Supply Chain Systems John H. Vande Vate Fall 2009 1 1

Who am I? • • • John H. Vande Vate Professor and EMIL Executive Director Office: 222 of the Old ISy. E bldg. Phone: (404) 894 -3035 Prefer e-mail: jvandeva@isye. gatech. edu Office Hours: – Tuesday, Thursday 4: 30 -5: 30 (after class) or – By appointment 2 2

Administrative Details • Class Home Page: On T-square http: //t-square. gatech. edu/portal Keep up with information here! 3 3

Recommended Texts (Not Required) • Cachon, Gerard & Terwiesch, Christian, Matching Supply with Demand. Mc. Graw-Hill, 2 nd Ed (2009) • Chopra, Sunil, and Meindl, Peter, Supply Chain Management: Strategy, Planning and Operations, Prentice-Hall, 2001. Good on Inventory models. • Designing and Managing the Supply Chain: Concepts, Strategies & Case Studies, Second Edition, By David Simchi-Levi, Philip Kaminsky and Edith Simchi-Levi, Mc. Graw-Hill/Irwin; (October 11, 2002). ISBN: 0072845538. Source for case studies • All weak on Transportation! 4 4

Other Resources • You may also want to read: – Contemporary Logistics by Johnson, Wardlow, Wood and Murphy – Logistic Systems Analysis by Daganzo – Business Logistics Management 4 th Edition by R. H. Ballou, Prentice Hall, 1999 – Bramel, J. and D. Simchi-Levi, The Logic of Logistics: Theory, Algorithms and Applications for Logistics Management, Springer-Verlag, 1997 – Logistics and Supply Chain Management: Strategies for Reducing Cost and Improving Service (2 nd Edition) by Martin Christopher – Modeling the Supply Chain by Jeremy F. Shapiro 5 5

Grading • Exams: – Thurs. Oct. 6 th – Final (Dec 10 th) • Project: 66% 33% – Groups of 4 to 6 6 6

Objectives • Knowledge and understanding of the issues underlying transportation and supply chain management and • Mastery of the tools and models to support intelligent resolution of those issues. • Some practical experience 7 7

Projects • Project: Ideally a real application – Team of 4 to 6 students – Several projects already available 8 8

Project Cont’d • Due by August 27 th, – one member of your team should send me an e-mail with the subject "6203 Project" providing • The names and contact information (e-mails and phone numbers) • Resumes • Your team's project preferences (list at least four alternatives) in order • Your team's preferences for presentation dates (list all four) in order of preference • • 2 presentations and report to your company On Nov 17, Nov 19, Nov 24, Dec 1. Present in class (~ 30 minute presentation) Self-contained ORGANIZED! CD of everything 9 9 for me (and for your sponsor)

Project Motivation • • Interviewing for job Learning by doing Develop contacts in the industry Share lessons with the class 10 10

Hamilton Sundstrand • Opportunity Statement – • Mission Statement – • Analyze network spend Analyze ship schedule vs. need dates Identify opportunity areas for milk run / line haul optimization Develop on-boarding plan / instructions for suppliers Proposed UTC division Involvement – – – • • Achieve > 25% cost savings through optimized TL/LTL network Customers: Hamilton Sundstrand Success Indicators: Cost reduction Team involvement – – • Optimize TL/LTL shipments from suppliers and transition opportunities to “milk runs” Goals & Objectives – • • • Industrial divisions of HS receive daily TL/LTL shipments from local suppliers Data collection support Carrier bid activity Supplier compliance Project Team Meetings” Bi-weekly updates via 30 -60 min conference call Deliverables – – Go / No-go decision for routing industrial supplier shipments to local milk runs Identify savings achieved from optimized network 11 11

Milliken • Similar project – Identify consolidation and milk run opportunities 12 12

Hamilton Sundstrand Opportunity Statement HS facilities need to move materials management to 3 PL model Mission Statement Identify location for multi-facility regional distribution center Goals & Objectives • Achieve inventory / overhead reduction • Maintain required parts flow / manufacturing service levels • Net cost savings (3 PL cost vs. inventory / OH reduction) Customers Aerospace Operations, Mechanical Operations, Electronics Operations, Finance Success Indicators Net cost savings (3 PL cost vs. inventory / OH reduction) Team involvement • Analyze inbound Aerospace spend • Analyze Aerospace inventory turns • Determine feasibility of single RDC to support all major Aerospace operations • Identify potential locations for RDC Proposed UTC division Involvement Data collection support Project Team Meetings Bi-weekly updates via 30 -60 min conference call Deliverables Go / No-go decision and location for Aerospace RDC 13

Pacer International • Manages intermodal freight for customers • As rail car approaches destination, Pacer receives updates of its location • Several days in advance it must schedule delivery with the customer • Analyze historical data and develop decision tools to help determine when to schedule delivery 14 14

XYZ Corp. • Company sells “white goods” made in Asia to markets in EU • Design the supply chain – Forecasting methods – Ports of Entry – Regional DC number and locations – Inventory positioning policies 15 15

Arch. Brook Laguna: Forecasting Opportunity Statement Provide Forecasting methodology (what forecast type to use, forecast accuracy analysis, etc). recommendations to Arch. Brook Laguna Mission Statement Improve Forecasting Accuracy Goals & Objectives Gain a deep understanding of forecast accuracy performance and get recommendations to improve forecast accuracy as well as tools that allow to monitor forecast accuracy Customers Stakeholders Success Indicators Recommendation on forecast methodology/algorithms and implement a tool to monitor forecast accuracy. Georgia Tech involvement Proposed ABL Involvement Carmen Guerrero 16 16

Projects • More to come…. 17 17

Other Projects • Welcome to propose other topics • Must: – Have a corporate sponsor – Be of value to the company – Give the team experience – Relate to topics in this course 18 18

Deliverables • 2 Presentations to your company • 1 Presentation to the class (~30 minutes) • CD that includes – Project Description – Your presentation(s) – Sufficient description that I can follow your presentation, understand the data and use the tools – Data and data definitions – Any tools (documented) 19 19

Supply Chain Management • Deterministic View – – – • Finance Transportation Inventory Consolidation Location Mid-Exam: October 6 th Managing Variability & Risk – Forecasting – Matching supply & demand • Sourcing • Manufacturing • Distribution – Revenue Management – Inventory Management • • • Supply Chain Applications & Projects Exam Questions will also come from Projects! Exam: 3 -6 pm Dec 10 (Period 15) 20 20

Transportation • Modes – – – … Parcel Less-than-Truck load (LTL) Multi-stop Truck load (TL) Less-than-Container load (LCL) Container load Less-than-Car Load (rail) Block train … 21 21

Trade offs • • Cost Speed Access Reliability Security Special Handling Risk … 22 22

Typical Cost Factors • Parcel (Up to ~150 lbs) – – Zones (origin & destination) Weight & Cube Negotiated discount based on volume Delivery Options • Location • Timing: Same day, next day am, next day, 2 nd day, ground, … • UPS: http: //wwwapps. ups. com/cal. Time. Cost? loc=en_US 23 23

Typically quoted as $/CWT Less-Than-Truck Load (LTL) Why not • Origin & Destination just • Weight (up to ~20, 000 lbs) distance? • Why is this • important? • • • Class Discount based on volume of business Special Requirements Old Dominion http: //www. odfl. com/rateestimate • / 24 24

NMFC Classes • Density – Helps carrier judge demands for capacity • Value – Helps carrier judge risk (liability limits associated with each class) • • Class 50: cheapest, e. g. , sand Class 500: most expensive, e. g. , Ping Pong Balls Maintained by the NMFTA (NMFTA. org) Part of the contract negotiation! 25 25

Typically quoted as $/mile • • • Truck Load (TL) Up to ~45, 000 lbs Origin Destination Volume of business Special Services (accessorials) – Detention, cleaning, … • Schneider National • https: //webapps. schneiderlogistics. com/pwschneiderrate/schneider_rate_ext_customer 26 26

Rail • • Commodity (Grain, Coal, …) Origin, Destination Equipment (Box car, tanker, Tri-level) Number of cars in block Cars handle on the order of 70 tons … Norfolk Southern • http: //www. norfolksouthern. com/nscportal/ nscorp/Customers/Industrial%20 Products/ Agriculture/ 27 27

Undiscounted LTL Rates ATL to LB Class 50 $0. 53/CWT $1. 12/CWT 28 28

Concave Cost per unit decreasing So? ! Shipment Size 29 29

Consolidation • Incentive to consolidate shipments – Make fewer larger shipments – Reduce frequency (!? ) – Hub & Spoke – Share transportation resources –… 30 30

Issues with Freight Rates • Issue of how to estimate rates on lanes you don’t currently use • Levels of detail – $/mile as the crow flies – $/mile on the network – Rate look up • Caution: Average cost of shipments can be smaller than the cost of an average shipment 31 31

Estimating Rates Cost of Average shipment Average Cost of shipment Large shipments Small shipments Average shipment Size 32 32

Why It Matters? • Estimating transportation costs to “customers” – Typically too many customers – Aggregate them • By region • By state • By 3 -digit zip – Use some care in estimating the transportation cost to “aggregated” customers 33 33

Why It Matters? • Customers may order different quantities at different times • Estimating the cost to serve the customer often look at average shipments • Careful how you average 34 34

Summary • • Transportation mode basics Transportation rate basics Economies of scale promote consolidation Cautions on “aggregating” transportation rates 35 35

Next Time 36 36

Next Time • Finance & Supply Chain Mgmt • Suggested Reading: Chapter 5 of Cachon 37 37