Ford Motor Company’sFord Motor Company’sFinished Vehicle Distribution SystemFinished Vehicle Distribution System

April 2001April 2001

Ellen EwingProject DirectorUPS Logistics

Dr. John Vande VateExec. Director EMILISyE Georgia Tech

2

Agenda

Introduction 1999 Environment Solution Approach Network Design Implement New Strategy Results to Date Summary

3

Objectives/Motivation

Novel application of cross-docking: Rail-to-Rail

Cross-docking for Speed Role of modeling Load-driven System Modeling Inventory in Network Design

4

Financial Incentives: Capital UtilizationIn 1996

•Ford produced 3.9 million vehicles in the US•Avg. transit time 15+ days•Avg. vehicle revenue $18,000•Value of pipeline inventory: > $2.8 Billion•One day reduced transit time:

–$190 Million reduction in pipeline inv.–1,400 fewer railcars

The Need for Speed

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The Need for SpeedDemand for land 22 Plants 54 Destination Ramps ~1,200 Load lanes ~8,400 vehicles waiting

at plants $166 Million in inventory

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The Need for Speed

Other Incentives Damage Flexibility Others?

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Origin RampDeparture

Dealer

Arrival at Dealer

InterchangePoint

This diagram represents most of themovements of Ford vehicles.

Copyright 2000. UPS Logistics Inc., All Rights ReservedLast Updated: 8/30/00

FORDTRANSPORTATION

NETWORK OVERVIEW

Destination Ramp Arrival

VehicleForecast

ProductionBegins

VehicleReleased

Origin RampDeparture

Dealer

Arrival at Dealer

InterchangePoint

This diagram represents most of themovements of Ford vehicles.

Copyright 2000. UPS Logistics Inc., All Rights ReservedLast Updated: 8/30/00

FORDTRANSPORTATION

NETWORK OVERVIEW

Destination Ramp Arrival

VehicleForecast

ProductionBegins

VehicleReleased

8

The Price

Inventory at the cross dock Added distance traveled Handling at the cross dock Capital costs of the cross

dock

9

1999 Vehicle Network Delivery Conditions

Record production levels Demand shift from cars to trucks Overburdened rail infrastructure Deteriorating rail service Shortage of transport capacity Mixing centers 15+ day transit time High inventory cost Dissatisfied customers

10

High 1999 Level Statistics

Assembly plants 22 Mixing centers 5 Destination rail ramps 54 Dealer locations 6,000 Production volume 4.4 Mil./Year Freight expense $1.5 Bil. Dec. ‘99 avg. transit time 16.8 Days Pipeline Inventory $4.1 Bil.

11

NEVADA

OREGON IDAHO

CALIFORNIA

WASHINGTON

VT. N.H.

R.I.

MASS.

MAINE

MONTANA

WYOMING

UTAH

ARIZONA

NEW MEXICO

COLORADO

NEBRASKA

MINNESOTA

IOWA

KANSAS

TEXAS

OKLAHOMA

MISSOURI

ARKANSAS

TENNESSEE

KENTUCKY

ILLINOIS

WISCONSIN

MICHIGAN

INDIANA

OHIO

GEORGIA

VIRGINIA

FLORIDA

NEW YORK

MD. DEL.

N.J.

HAWAII

W.VA.

MISS.

N. DAKOTA

S. DAKOTA

PENN.

LA.

ALA. S. CAROLINA

N. CAROLINA

CT.

U N I T E D S T A T E S

C A N A D A

M E X I C OGULF OF MEXICO

OCEANATLANTIC

OCEANPACIFIC

Mixing Center Origin Plant Groupings Destination Ramp Planned Ramp Closure

Edison

Norfolk

Atlanta

Kentucky

Ohio

St Louis

CanadaSt Paul

Michigan

Chicago

Kansas City

15% of all vehicles go Haulaway Direct to Dealer within 200-300 Miles of the Assembly Plant

85% of all Vehicles go via Rail to a Hub (Mixing Center or Destination Ramp)

Ford Distribution Network

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Old Delivery Design Push Network Vendor sub systems optimized for individual segments

Little to no visibility Mixing Centers not used effectively

13

Ford Goals Speed

1999: Average 15 days transit time

Goal: Maximum of 8 days transit time

Precision 1998/1999: 37% on time within 1 week

Goal: 95% on time within 1 day

Visibility 100 % Internet vehicle tracking from plant release to dealer

delivery

Guide the flow of vehicles

Respond to variations

Inform customers

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Design Process

Truck vs Rail delivery Allocate Dealers (FIPS) to Ramps

Route Flows through Rail Network

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Single-Sourcing Allocation

Var Assign{FIPS, RAMPS} binary;Minimize TotalCost: sum{fip in FIPS,ramp in RAMPS}

Cost[fip,ramp]*Assign[fip,ramp];s.t. SingleSource{fip in FIPS}: sum{ramp in RAMPS}Assign[fip,ramp] = 1;s.t. ObserveCapacity{ramp in RAMPS}: sum{fip in FIPS}

Volume[fip]*Assign[fip,ramp] <= Capacity[ramp];

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Dealers sourced by

multiple ramps

Old Ramp AllocationSouthern US

17

Dealers sourced by

single ramps

New Ramp AllocationSouthern US

18

New Allocation of Dealers to RampsMainland US

19

Flows through the Rail Network

Objective is NOT Freight cost!

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The Objective IS

Speed Capital Land

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The Promise

Speed

Unit trains bypass hump yards

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The Promise

Capital & Land

Time

Laurel, Montana

Orilla, Washington

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The PromiseCapital & Land 22 Plants 54 Destination Ramps ~1,200 Load lanes ~8,400 vehicles waiting at plants $166 Million in inventoryEach Plant to One Mixing Center ~22 Load lanes ~154 vehicles waiting at plants ~$3 Million in inventory

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The Price

Inventory at the cross dock Handling at the cross dock Capital costs of the cross dock

Added distance traveled

25

Making the Trade-offs

Measuring Inventory In the rail network At the plants and Cross Docks Load-driven system Railcars depart when full Relationship between

Network Design and Inventory

26

Inventory at the Plants Half a rail car full for each

destination

Time

Laurel, Montana

Orilla, Washington

27

Inventory at the Mixing Centers Half a rail car full for each

destination

Time

Laurel, Montana

Orilla, Washington

28

Workload at the Mixing Centers Unpredictable

Rail car holds 5 vehicles

OrillaBeniciaMira LomaLaurelDenver

Orilla Benicia Mira L. Laurel Denver

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Workload at the Mixing Centers Balanced: Only load cars you empty

Rail car holds 5 vehicles

OrillaBeniciaMira LomaLaurelDenver

Orilla Benicia Mira L. Laurel DenverOrilla

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Effect on Inventory

Inventory at Mixing Center slowly grows

to just over (ramps -1)(capacity -1) and remains there Roughly twice the inventory of before Still depends on the number of ramps the cross dock

serves

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Consolidation for Speed

Unit Trains of 15-20 rail cars don’t stop at

mixing yards Trade moving inventory for stationary inventory

32

Model

Paths Route from Plant to Ramp Mode used on each edge

Demand[ramp, plant] Combined demand at ramp for all products from the plant

Variables: PathFlow[path]:

Volume from the plant to the ramp on the path

UseLane[fromloc, toloc, mode] binary Did we use the mode between two locations

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Model Objective

Minimize the number of vehicles in the pipeline Moving Component (Transit times) Waiting Component (Mode Size)

Minimize PipelineInventory: sum{path in Paths} (Total Transit Time)*PathFlow[path]; sum{(f,t,m)} (Size[m]/2)*UseLane[f,t,m]

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Model Satisfy Demand

The sum of flows on all paths between a plant and a ramp must meet demand

s.t. SatisfyDemand[p in PLANTS, r in RAMPS}: sum{path in PATHS: Plant[path]=p and Ramp[path] = r} PathFlow[path] >= Demand[p,r];

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Model Define UseLane

For each pair of locations and mode between them write a constraint for each plant and ramp

s.t. DefineUseLane[p in PLANTS, r in RAMPS, (f,t,m) in EDGES}:

sum{path in PATHS: Plant[path]=p and Ramp[path] = r and (f,t,m) in PATHEDGES[path]} PathFlow[path] <= Demand[p,r]*UseLane[f,t,m];

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Model

Large Model Lots of Variables: Many Paths Lots of Constraints: DefineUseLane

The LP relaxation is nearly always integral

37

Reduced plant

destinations

New Rail Lanes

38

NEVADA

OREGON IDAHO

CALIFORNIA

WASHINGTON

VT. N.H.

R.I.

MASS.

MAINE

MONTANA

WYOMING

UTAH

ARIZONA

NEW MEXICO

COLORADO

NEBRASKA

MINNESOTA

IOWA

KANSAS

TEXAS

OKLAHOMA

MISSOURI

ARKANSAS

TENNESSEE

KENTUCKY

ILLINOIS

WISCONSIN

MICHIGAN

INDIANA

OHIO

GEORGIA

VIRGINIA

FLORIDA

NEW YORK

MD. DEL.

N.J.

HAWAII

W.VA.

MISS.

N. DAKOTA

S. DAKOTA

PENN.

LA.

ALA. S. CAROLINA

N. CAROLINA

CT.

U N I T E D S T A T E S

C A N A D A

M E X I C OGULF OF MEXICO

OCEANATLANTIC

OCEANPACIFIC

Mixing Centers Destination Ramps

Union Pacific CSXT FEC

BNSF Canadian Pacific Car Haul to Ramp

Norfolk Southern Canadian National

Edison

Norfolk

Atlanta

Kentucky

Ohio

St Louis

Canada

St Paul

Michigan

Chicago

Kansas City

Final Outbound Rail Network with Carriers

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Results Cut vehicle transit time by 26% or 4 days

$1 billion savings in vehicle inventory

$125 million savings in inventory carrying costs

Avoid bottlenecks Reduce assets in supply chain Improved inventory turns at dealer

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Benefits

Ford Dealers Rail Carriers Auto Haulers

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Benefits - Ford

On-time delivery

Competitive edge

Cost control

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Benefits - Dealers

Reduced inventories Increased customer satisfaction

43

Benefits - Rail Carriers

Improved equipment utilization (reduced capital expenditures) Visibility and planning capabilities Synergies with existing UPS traffic Increased cooperation

44

Benefits - Auto Haulers

Expanded dealer delivery hours Visibility and planning capability Improved asset utilization Increased cooperation