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Transportation & Supply Chain Systems

John H. Vande Vate

Spring 2006

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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

• Office Hours: – Tuesday, Thursday 3-5 (after class) or– By appointment

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Our TA

• Office:

• Hours: TBA

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Administrative Details

• Class Home Page:www.isye.gatech.edu/~jvandeva/Classes/6203/2006/

syllabus2006.html

Keep up with information here!

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Recommended Text

• 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

• $76.24 on Amazon• Used copies• Not required• Each team should have access

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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: 75%– February 21st       25%     – March 28th 25% – Final 25%

• Project: 25%– 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

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Project Cont’d• Due January 17th

– 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

• Before April 28th: A presentation and brief report to your sponsor company

• On April 6th, 13th, 20th or 25th. Present in class (approximately 30 minute presentation)

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Project Motivation

• Interviewing for job

• Learning by Doing

• Off-campus students

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Projects

• European Auto manufacturer: (Not confirmed, but highly likely), several questions related to supplying parts from Europe– Is it better to supply to long run average consumption and

adjust inventory as necessary or to ship-to-forecast?– Is the company distinguishing among different parts

appropriately when setting safety-lead-time?– For transmissions, there are two suppliers in different parts

of Europe. Does it make more sense to combine shipments from these two suppliers or to try to achieve higher delivery frequency by using different routes from the different suppliers?

• Contact: Section Manager

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Projects

• Pitney-Bowes: Most likely something in the area of modeling the number of Strategic Stocking Locations for service and repair parts throughout the US, while minimizing transportation cost and inventory, and achieving a high service level such as parts to arrive in 2 hours, 4 hours, etc...

• Contact: VP Sales, Inventory & Operations Planning. Located in Stamford, CT.

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Projects

• Milliken & Co. :• Study their floor covering shipments for 6 month time

period. • Review the results for possible routes that could be

built to certain markets.• Review the results for possible forward placement of

inventory on some of their "commodities" products.• Review and critique their freight "terms"

• Contact: Mfg Supply Chain Leader in Lagrange Georgia

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Projects

•Disney & Co. and Schneider Logistics: Transportation optimization for supplying Disney Parks and Resorts around the world (Orlando, Anaheim, Tokyo, Hong Kong, Paris)

•Contacts: Director of Segment Logistics Operations in Florida and General Manager of Inside Sales at Schneider.

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Projects

• Returns Management Company (not confirmed):•They offer returns management for various retailers and are considering supporting the forward side (i.e., fulfillment services to customers). Want a group to investigate optimal locations of consolidation activities and assignments to Bulk-mail-Centers (they use the postal service for a significant portion of the transportation). •Contact: Director of Transportation.

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Projects

•Ace International (Family-owned Hardware retail company in Panama): Forecasting demand for purchasing and other related topics. •Contact: One of the owners.

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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

• Managing Flows/Network Design– Transportation– Inventory– Finance– Location– Exam 1: February 23rd

• Managing Risk– Revenue Management– Safety Stock– Inventory Pooling– Exam 2: March 28th

• Supply Chain Strategy and Cases

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Transportation

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

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Trade offs

• Cost

• Speed

• 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)

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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/nscorp/application?

origin=content_home.jsp&event=bea.portal.framework.internal.refresh&pageid=Doing+Business&contentId=english/nscorp/doing_business/none1/home/agriculture.html

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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

• Get started on your projects

• Transportation mode basics

• Transportation rate basics

• Economies of scale promote consolidation

• Cautions on “aggregating” transportation rates

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Next Time

• Models for Transportation– Transportation Models– Transshipment Models– Weight, Cube, Linear Cube– Economies of scale– Etc.