1 1 Transportation & Supply Chain Systems John H. Vande Vate Spring 2008

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Transportation & Supply Chain Systems

John H. Vande Vate

Spring 2008

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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 2-3:30 (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!

• TA: Huizhu “Crystal” Wang

hwang8@gatech.edu

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Recommended Texts (Not Required)

• 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

• Both 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%– February 21st       33%     – Final 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.

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Projects

• Project: Ideally a real application– Team of 4 to 6 students– Distance learning students encouraged to bring

projects from their companies and recruit teams of on-campus students to work with them

– Every team must have at least 1 on-campus student

– Several projects already available– Encourage teams to include off-campus students

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Project Cont’d• Due January 31st

– 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

• A presentation and report to your company • On April 8th, 10th, 15th, 17th . 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

• Share lessons with the class

• Off-campus students

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Projects

• BMW

• Predict the variance between system stock and physical stock for major parts and use this information to schedule physical counts. The goal is to simultaneously reduce the effort involved in maintaining accurate inventory levels (e.g., the physical counts) and to avoid expedited shipments

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BMW Project

Estimates of:

• Data availability: medium

• Technical requirements: high

• Computational requirements: medium

• Initiative and Creativity requirements: medium to high

• Potential for impact: medium

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Projects

•Intel – Low Cost PC Supply Chain– Planning and forecasting– Production and distribution– Two aspects:

• Characteristics: how• Structure: what & where

•Educational Objective: Comprehensive overview of differences between high value and high volume supply chains that dives beneath superficial aspects in key areas of planning and distribution.

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Intel Project

Estimates of:

• Data availability: low

• Technical requirements: low

• Computational requirements: low

• Initiative and Creativity requirements: very high

• Potential for impact: medium to high

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Projects

• ABC Pharma Co. – CRO Sourcing opportunity

– Quantify uncertainty in requirements– “Optimize” sourcing of CRO capacity to

balance• Lower price available from contracts• Reduced commitment from “spot”

•Educational Objective: In-depth investigation of matching supply and demand in the face of forecast uncertainty.

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ABC Pharma Project

Estimates of:

• Data availability: high

• Technical requirements: medium to high

• Computational requirements: high

• Initiative and Creativity requirements: medium

• Potential for impact: medium

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Projects

• FMCG Co. – Fleet Composition– Quantify uncertainty in requirements– “Optimize” balance between

• Lower cost available from owned fleet

• Flexibility from outsourced fleet

•Educational Objective: In-depth investigation of matching supply and demand in the face of forecast uncertainty.

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Coca Cola (FMCG) Project

Estimates of:

• Data availability: high

• Technical requirements: high

• Computational requirements: medium

• Initiative and Creativity requirements: medium

• Potential for impact: high

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Projects

• CARE – Emergency Preparedness– Improve disaster forecasting– Translate forecasts into expected requirements – Develop appropriate sourcing plans– Develop appropriate distribution and response

plans

•Educational Objective: In-depth supply chain study in emergency response setting.

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CARE Project

Estimates of:

• Data availability: low

• Technical requirements: low

• Computational requirements: low

• Initiative and Creativity requirements: high

• Potential for impact: high

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Projects

• GE Energy – Transportation Planning– Two components:

• User interface to interact with supply and demand data for wind turbines

• Optimization engine to automate assignments

•Educational Objective: Implementing transportation management tools for a changing world.

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GE Energy Project

Estimates of:

• Data availability: high

• Technical requirements: medium to high

• Computational requirements: medium

• Initiative and Creativity requirements: medium to high

• Potential for impact: high

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Projects

• Dell Malaysia – Order Cycle Time Reduction

– Reduce order-to-delivery variability– Determine whether it is possible to achieve

sufficient lead-time consistency to offer a service commitment

•Educational Objective: Interactions among manufacturing, transportation and customer service.

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Dell Malaysia Project

Estimates of:

• Data availability: mixed

• Technical requirements: medium

• Computational requirements: medium

• Initiative and Creativity requirements: high

• Potential for impact: medium

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XYZ Project

Analyze the company’s LTL and TL shipments to identify opportunities for:– Consolidation points – Multi-stop routes – Dynamic assignment to consolidation points – Impacts on cycle time and inventory

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XYZ Project

Estimates of:

• Data availability: high

• Technical requirements: medium

• Computational requirements: high

• Initiative and Creativity requirements: medium

• Potential for impact: medium

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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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Deliverable

• Presentation to your company and to the class (These may have to be different)

• 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: February 21st

• 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: 8 – 10:50 am May 1st (Period 10)

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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

James R. Kellso, P.E.Manager of Supply Network Research & Supply Chain MasterIntel

James R. Kellso, P.E., has more than 35 years of experience in industrial engineering, consulting and logistics/supply chain management. He has extensive experience in a variety of manufacturing and distribution operations from his 16 years in consulting and 19 years at Intel. During this time, Kellso has managed all aspects of world-wide logistics, including systems development and deployment, network construction, transportation management, engineering and business process development; and construction and start-up of new integrated facilities world-wide. Kellso currently is heavily involved in the strategies and supply chain aspects of the growth in new businesses and supply chain optimization for Intel.