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Transportation & Supply Chain Systems

John H. Vande Vate

Fall 2009

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Who am I?

• John H. Vande Vate

• Professor and EMIL Executive Director

• Office: 222 of the Old ISyE 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

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Administrative Details

• Class Home Page: On T-square

http://t-square.gatech.edu/portal

Keep up with information here!

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Recommended Texts (Not Required)

• Cachon, Gerard & Terwiesch, Christian, Matching Supply with Demand. McGraw-Hill, 2nd 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, McGraw-Hill/Irwin; (October 11, 2002). ISBN: 0072845538. Source for case studies

• All weak on Transportation!

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Other Resources• You may also want to read:

– Contemporary Logistics by Johnson, Wardlow, Wood and Murphy

– Logistic Systems Analysis by Daganzo

– Business Logistics Management 4th 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 (2nd Edition) by Martin Christopher

– Modeling the Supply Chain by Jeremy F. Shapiro

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Grading

• Exams: 66%– Thurs. Oct. 6th       33%     – Final (Dec 10th) 33%

• Project: 33%– Groups of 4 to 6

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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

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Projects

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

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Project Cont’d• Due by August 27th,

– 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 for me

(and for your sponsor)

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Project Motivation

• Interviewing for job

• Learning by doing

• Develop contacts in the industry

• Share lessons with the class

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Hamilton Sundstrand• Opportunity Statement

– Industrial divisions of HS receive daily TL/LTL shipments from local suppliers• Mission Statement

– Optimize TL/LTL shipments from suppliers and transition opportunities to “milk runs”• Goals & Objectives

– Achieve > 25% cost savings through optimized TL/LTL network• Customers: Hamilton Sundstrand • Success Indicators: Cost reduction • Team involvement

– 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– 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

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Milliken

• Similar project – Identify consolidation and milk run opportunities

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Hamilton SundstrandHamilton SundstrandOpportunity Statement

HS facilities need to move materials management to 3PL modelMission Statement

Identify location for multi-facility regional distribution centerGoals & Objectives• Achieve inventory / overhead reduction• Maintain required parts flow / manufacturing service levels• Net cost savings (3PL cost vs. inventory / OH reduction)Customers Aerospace Operations, Mechanical Operations, Electronics Operations, FinanceSuccess Indicators Net cost savings (3PL 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 RDCProposed UTC division Involvement Data collection supportProject Team Meetings Bi-weekly updates via 30-60min conference callDeliverables Go / No-go decision and location for Aerospace RDC

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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

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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

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ArchBrook Laguna: Forecasting

Opportunity Statement Provide Forecasting methodology (what forecast type to use, forecast accuracy analysis, etc). recommendations to ArchBrook 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

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Projects

• More to come….

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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

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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)

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Supply Chain Management• Deterministic View

– Finance – Transportation– Inventory– Consolidation– Location– Mid-Exam: October 6th

• 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)

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Transportation

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

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Trade offs

• Cost • Speed• Access• Reliability• Security• Special Handling• Risk• …

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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, 2nd day, ground, …

• UPS: http://wwwapps.ups.com/calTimeCost?loc=en_US

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Less-Than-Truck Load (LTL)

• Origin & Destination

• Weight (up to ~20,000 lbs)

• Class

• Discount based on volume of business

• Special Requirements

• Old Dominion

• http://www.odfl.com/rateestimate

Why not just

distance?

Why is this important?

•/

Typically quoted as $/CWT

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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!

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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

Typically quoted as

$/mile

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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%20Products/Agriculture/

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Undiscounted LTL Rates

$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

0 2000 4000 6000 8000 10000 12000 14000 16000 18000 20000

ATL to LBClass 50

$1.12/CWT

$0.53/CWT

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Concave Cost

Shipment Size

Cos

tCost per unit decreasing

So?!

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Consolidation

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

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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

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Estimating Rates

Small shipments

Shipment Size

Cos

t

Large shipments

Cost ofAverage shipment

Average shipment

AverageCost of

shipment

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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

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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

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Summary

• Transportation mode basics

• Transportation rate basics

• Economies of scale promote consolidation

• Cautions on “aggregating” transportation rates

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Next Time

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Next Time

• Finance & Supply Chain Mgmt

• Suggested Reading:

Chapter 5 of Cachon