United Parcel Service United Parcel Service NAAFN - GroundNAAFN - Ground

Senior Design

Final Presentation

April 15, 2008

Jessel Dhabliwala, Megan Patrick, Tom Pelling, Nathan Petty, Vikas Venugopal, Selin Yilmaz

This presentation has been created in the framework of a student design project and it is neither officially sanctioned by the Georgia Institute of Technology nor the United Parcel Service.

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OutlineOutline• Client Description• Problem Description• Design Strategy

– Truckload Demand Generator– Independent Lane Scheduling Model

• Integrated Approach– Stochastic Optimization

• Results• Conclusion

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UPS North American Air Freight Network (NAAFN)

• Large Third Party Logistics (3PL)

• Product Offerings of NAAFN– Next Day– Second Day– Economy/Deferred Delivery

• Ground Truck Movements– Scheduled Movements – Ad-hoc Movements

Client DescriptionClient Description

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FLL

MSY

MOB

MIA Gateway

BHM

BTR

JAN

CID

MKE

GRB

MSN

TUS

SAN

LAS

YOWBGR

PVD

PSM

OKC

SAT

GRR

SJC

PHX

PWMBTV

BOS

ROA

BUF

SBN

YYZROC

MLI

SYR

ERITTN

TRI

MDTSLC

SEA

BOI

GEG

GSP

MEMLIT

ABE

JFK Gateway

IAH

COS

RNO

PDX

JFK

IAD

ORF

PHL

RIC

EWR

GSOTYS

ONT

SHV

LAX Gateway

PSC

FAT

CHA

RFD MDW

BWI

YUL

BGMELM

BDL

TLH

CHS

CAE

RDU

FAY ILM

WIL

LBB

AMA

MAF

TUL

FSM

JLN

FYV

TPA

OAKDEN

SAC

ALB

JAX

AVL

ATL

ORDGateway

HSVFLO

ELP

LRD

BRO

ACT

AUS

ATLGateway

ABQ

FNT

DTW

TOL CLE

IND

FWA

CMIPIA

STL

EVV

MCI

ICT

OMA

MSP

DSM

SDF

BNA

LEX

CVG

DAYCMH

PIT

PKB

CRW

SWF

CLT

MCO

DFW

LAX

Regional Hub Ground NetworkRegional Hub Ground Network

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Truckload Procurement ProcessTruckload Procurement Process

Determine Scheduled Moves per Lane

Build Routes to Cover Scheduled Moves

Obtain Carrier Bids for Routes

Award Route Contracts to Winning Bidders

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Project FocusProject Focus

Determine Scheduled Moves per Lane

Build Routes to Cover Scheduled Moves

Obtain Carrier Bids for Routes

Award Route Contracts to Winning Bidders

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UPS’s Current MethodUPS’s Current Method

Average Weekly Demand

Weekly Operating Days

Moves per Day

=

Determine Scheduled Moves per Lane

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Operational ProcessOperational Process

Scheduled Routes are Executed Weekly

Scenario Two

Demand > Scheduled

Dispatch ad-hoc truck(s)

Scenario One

Demand < Scheduled

Incur scheduled truck cost

OR

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DAILY VARIABILITY2007

100

120140

160180

200

MON TUE WED THUR FRI SAT

DAY OF WEEK

LBS

(MIL

LIO

NS)

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Design StrategyDesign Strategy

Integrated Model

Independent Lane

Scheduling Model

Truckload Demand

Generator

Detailed Cost Estimation

Model

Detailed Cost Estimation

Model

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Shipment Level OD

Demand Data

Chain Tables

Input

Includes:OD data, Day of departure,

Actual weight, GAD weight,

Miles

Functionality Output

Conversion

Trucks per lane per day

Convert to truckloads required on each lane each day

Assigns OD freight to

sequences of lanes

Truckload Demand GeneratorTruckload Demand Generator

Demand Histogram

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Design StrategyDesign Strategy

Truckload Demand

Generator

Integrated Model

Independent Lane

Scheduling Model

Detailed Cost Estimation

Model

Detailed Cost Estimation

Model

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Independent Lane

Scheduling Model

Input Functionality Output

Numberof moves toschedule on

each lane per day

Histograms from TDG

Lane Cost Estimates•Ad-hoc•Scheduled

Minimize expected costs per lane per day

Independent Lane Scheduling Independent Lane Scheduling ModelModel

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• Multiple Linear Regression

• R-squared = 0.752

n

iiiiiABAB COUTINdrY

1

)()()(

Ad-hoc Cost EstimationAd-hoc Cost Estimation

Where

• YAB = Ad-hoc cost from city A to city B

• β, α, d, C = Factor coefficients

• rAB = Distance in miles from city A to city B

• INi, OUTi = Indicates a move into or out of state i

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• Treats each lane individually

• Decides amount of moves to schedule (TS)

• Distributions (Ta) approximated by TDG

• Lane Cost = CS*TS+ E[CAH*MAX(0,TA-TS)]

Where:• CS = Cost of scheduled move on lane• CAH = Cost of an ad-hoc move on lane• TS = Amount of scheduled trucks• TA= Amount of actual trucks needed

ILSM FunctionalityILSM Functionality

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Detailed Cost EstimationDetailed Cost Estimation• Total Cost: Scheduled cost + Ad-hoc cost

• Two-Phase Approach– Phase I: Deterministic integer program

• Covers complete lane moves with pre-existing routes• Minimizes scheduled truck dispatch costs

– Phase II: Compute ad-hoc cost• Uses route schedule from phase I• Computes necessary ad-hoc moves and cost per day

from historical data

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ILSM ResultsILSM Results

• Possible Causes of Higher Cost:– Unbalanced routes

Scheduled Ad-hoc Total

UPS 2007 $70,900,000 $4,900,000 $75,800,000

ILSM $63,900,000 $18,300,000 $82,200,000

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Design StrategyDesign Strategy

Integrated Model

Independent Lane

Scheduling Model

Truckload Demand

Generator

Detailed Cost Estimation

Model

Detailed Cost Estimation

Model

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Integrated ModelIntegrated Model

• Integrates Scheduling and Costing– Stochastic programming model– Uses pre-existing NAAFN routes and costs– Selects routes to execute weekly

• Sample Average Approach– Generates n random weeks from TDG– Covers all moves in each scenario

• With a route or an ad-hoc move

• Minimize Sample Average Cost per Week

Xpress ModelXpress Model• Inputs

– Pre-existing routes, route costs, ad-hoc costs, and TDG frequency histograms

• Functionality– Random variables represent CDF of histogram– Number of constraints = n * number of unique lane-day

combinations• n = 50

– Over 125,000 constraints– Run time of three minutes

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Integrated Model ResultsIntegrated Model Results

• Results:

Concerns:– Extremely risky to depend on unscheduled moves– Sensitivity of model to ad-hoc cost estimates

Scheduled Ad-hoc Total

UPS 2007 $70,900,000 $4,900,000 $75,800,000

SA n=10 $33,000,000 $39,200,000 $72,200,000

SA n=50 $32,300,000 $37,100,000 $69,400,000

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ImprovementsImprovements• “Scheduling” Ad-hoc Movements

– One-way moves • Occur consistently throughout the year• Scheduled at ad-hoc price

Scheduled w/ Routes

Scheduled One-Way

Total Scheduled

Ad-hoc Total

UPS 2007 $70,900,000 --- $70,900,000 $4,900,000 $75,800,000

ILSM $63,900,000 $6,500,000 $70,400,000 $18,300,000 $88,700,000

SA n=50 $32,600,000 $21,000,000 $53,600,000 $15,800,000 $69,400,000

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ConclusionsConclusions

• Suggested Method– Integrated model

• Further Improvements– Scheduling one-ways

• Significant Potential for Cost Savings– Scheduling daily may save $6M annually

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RecommendationsRecommendations• Implementation

–Estimate daily demand per lane from TDG

–Generate new “candidate” routes

–Estimate new route costs

• Solve Integrated Model to select routes for bids

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QuestionsQuestions