XYZ Company

Supply Chain Optimization ProjectNetwork Optimization

Date: 04/25/2006ISyE 6203: Transportation and Supply Chain ManagementPrepared By:Jayson ChoyChristie WilliamsAndy AngThomas OuNaragain Phumchusri Raghav Himatsingka

AgendaIntroduction

Key Deliverables

Data Analysis

Mathematical Model

Recommendation

Sensitivity Analysis

Conclusion

IntroductionLocations in Florida and California

Each location has Multiple Operations

Suppliers across USA

Supplier shipments may be parcel, less-than-truckload or full truckload, some must be frozen or chilled

Project goal: Reduce inbound transportation costs across the business while meeting customer service requirements.

TimelinePhaseProject kick-off & Deliverables Rationalization Data Cleansing & ValidationPreliminary ModelingValidation of ModelGeneration of results & sensitivity AnalysesJanFebMarApr

AgendaIntroduction

Key Deliverables

Data Analysis

Mathematical Model

Recommendation

Sensitivity Analysis

Conclusion

Key DeliverablesCreate a graphic illustration of Current North American Supply Chain network

Document Current Volumes and Freight spend by mode to each location and in total

Identify and recommend North American Consolidation Points for most efficient route and capacity utilization

Create a graphic illustration of the Recommended New Supply Chain Network with all consolidation facility representations and conceptual lanes to each location

California and Florida Supplier Locations

Problem DefinitionFlorida

Chart1

0.5437582453

0.4562417547

Amount Paid

Breakdown of Volume by Transportation Costs

Sheet1

WeightAmount PaidShipment Count

Florida96%Florida54%Florida76%

California4%California46%California24%

Florida964552707400967121875

California4119900620980037810

10057517013610767159685

Sheet1

0

0

Weight

Breakdown of Volume by Weight

Sheet2

0

0

Amount Paid

Breakdown of Volume by Transportation Costs

Sheet3

0

0

Shipment Count

Breakdown of Volume by Shipment Frequency

Chart2

0.9590366089

0.0409633911

Weight

Breakdown of Volume by Weight

Sheet1

WeightAmount PaidShipment Count

Florida96%Florida54%Florida76%

California4%California46%California24%

Florida964552707400967121875

California4119900620980037810

10057517013610767159685

Sheet1

Weight

Breakdown of Volume by Weight

Sheet2

Amount Paid

Breakdown of Volume by Transportation Costs

Sheet3

Shipment Count

Breakdown of Volume by Shipment Frequency

Chart3

0.763221342

0.236778658

Shipment Count

Breakdown of Volume by Shipment Frequency

Sheet1

WeightAmount PaidShipment Count

Florida96%Florida54%Florida76%

California4%California46%California24%

Florida964552707400967121875

California4119900620980037810

10057517013610767159685

Sheet1

Weight

Breakdown of Volume by Weight

Sheet2

Amount Paid

Breakdown of Volume by Transportation Costs

Sheet3

Shipment Count

Breakdown of Volume by Shipment Frequency

Problem Definition36%26%13%8%11%6%LTL: Greatest Opportunity for Savings

Chart6

0.36

0.26

0.06

0.11

0.08

0.13

Breakdown of Florida's Volume by Cost

Sheet1

WeightAmount PaidShipment Count

Florida96%Florida54%Florida76%

California4%California46%California24%

Florida964552707400967121875

California4119900620980037810

10057517013610767159685

Sheet1

0.9590366089

0.0409633911

Weight

Breakdown of Volume by Weight

Sheet2

0

0

Amount Paid

Breakdown of Volume by Transportation Costs

Sheet3

0.763221342

0.236778658

Shipment Count

Breakdown of Volume by Shipment Frequency

Breakdown of Florida's Volume by Cost

FTL36%

LTL26%

Parcel - Ground6%

Parcel - Air11%

Produce8%

Frozen13%

Breakdown of Florida's Volume by Cost

Problem DefinitionFocus on Consolidation of LTL shipments to Florida

Eliminated Frozen and Chilled shipments from the Optimization model

Included most FTL shipments by breaking them down

AgendaIntroduction

Key Deliverables

Data Analysis

Mathematical Model

Recommendation

Sensitivity Analysis

Conclusion

Data Analysis

WDW Florida Amount Paid

4292175.78

2533464.77

0

10125.59

555433.97

9766.41

Florida Breakdown of Individual Business Units by Total Amount Paid

Food (FOB)0%

WDW Florida Shipment Count

107240

2323

11757

91

420

44

WDW Florida Breakdown of Individual Business Units by Shipment Count

Sheet1

Summary of Florida Business Units

WeightAmount PaidShipment Count

Total723007097400966.51999999110118

Tab 12

WeightAmount PaidShipment Count

Total24154560.5083998NA11757

Tabs1MDSE2MDSE3MDSE4MDSE5MDSE7MDSE9MDSE10MDSETotal

Weight28766051563124829649944392461689563,500,110338932916678234

Amount Paid869452.921,156.62556.7125346.620000004186781.8399999991119406.92259232528624.6

Shipment Count3096118.00172197402901195919628953581

Tabs1 Stop Off2 Stop Off3 Stop Off4 Stop OffTotal

Weight31933491798454422141892094004617

Amount Paid824978.340000001150,816.22515708.619999993272047.9999999981763551.17999999

Shipment Count27673,514.00355191185953659

Tabs11 Food4 Food5 Food6 FoodTotal

Weight3961182365076398558141288350446786199

Amount Paid48953.361009715.2553688.69921107.522533464.77

Shipment Count15811204026432323

TabsCostumingTotalFlorida Breakdown by Business UnitsWeightAmount PaidShipment CountTotal (Merchandise)

Weight6387063870Merchandise206828514292175.78107240206828514292175.78107240

Amount Paid10125.5910125.59Food467861992533464.772323

Shipment Count9191Food (Tab 12)24154560.5083998NA11757

Costuming6387010125.5991

Tabs8 Gen SuppliesTotalGeneral Supplies4726109555433.97420

Weight47261094726109Others416809766.4144

Amount Paid555433.97555433.97Total96455269.50839987400966.52121875

Shipment Count420420

TabsOthersTotal

Weight4168041680

Amount Paid9766.419766.41

Shipment Count4444

WDW Florida Weight

20682851

46786199

24154560.5083998

63870

4726109

41680

WDW Florida Breakdown of Individual Business Units by Weight

Sheet2

Sheet3

Data Analysis

WDW Florida Amount Paid

4292175.78

2533464.77

0

10125.59

555433.97

9766.41

WDW Florida Breakdown of Individual Business Units by Total Amount Paid

WDW Florida Shipment Count

107240

2323

11757

91

420

44

Florida Breakdown of Individual Business Units by Shipment Count

Food (FOB)10%

Sheet1

Summary of Florida Business Units

WeightAmount PaidShipment Count

Total723007097400966.51999999110118

Tab 12

WeightAmount PaidShipment Count

Total24154560.5083998NA11757

Tabs1MDSE2MDSE3MDSE4MDSE5MDSE7MDSE9MDSE10MDSETotal

Weight28766051563124829649944392461689563,500,110338932916678234

Amount Paid869452.921,156.62556.7125346.620000004186781.8399999991119406.92259232528624.6

Shipment Count3096118.00172197402901195919628953581

Tabs1 Stop Off2 Stop Off3 Stop Off4 Stop OffTotal

Weight31933491798454422141892094004617

Amount Paid824978.340000001150,816.22515708.619999993272047.9999999981763551.17999999

Shipment Count27673,514.00355191185953659

Tabs11 Food4 Food5 Food6 FoodTotal

Weight3961182365076398558141288350446786199

Amount Paid48953.361009715.2553688.69921107.522533464.77

Shipment Count15811204026432323

TabsCostumingTotalFlorida Breakdown by Business UnitsWeightAmount PaidShipment CountTotal (Merchandise)

Weight6387063870Merchandise206828514292175.78107240206828514292175.78107240

Amount Paid10125.5910125.59Food467861992533464.772323

Shipment Count9191Food (Tab 12)24154560.5083998NA11757

Costuming6387010125.5991

Tabs8 Gen SuppliesTotalGeneral Supplies4726109555433.97420

Weight47261094726109Others416809766.4144

Amount Paid555433.97555433.97Total96455269.50839987400966.52121875

Shipment Count420420

TabsOthersTotal

Weight4168041680

Amount Paid9766.419766.41

Shipment Count4444

WDW Florida Weight

20682851

46786199

24154560.5083998

63870

4726109

41680

WDW Florida Breakdown of Individual Business Units by Weight

Sheet2

Sheet3

Data Analysis

WDW Florida Amount Paid

4292175.78

2533464.77

0

10125.59

555433.97

9766.41

WDW Florida Breakdown of Individual Business Units by Total Amount Paid

WDW Florida Shipment Count

107240

2323

11757

91

420

44

WDW Florida Breakdown of Individual Business Units by Shipment Count

Sheet1

Summary of Florida Business Units

WeightAmount PaidShipment Count

Total723007097400966.51999999110118

Tab 12

WeightAmount PaidShipment Count

Total24154560.5083998NA11757

Tabs1MDSE2MDSE3MDSE4MDSE5MDSE7MDSE9MDSE10MDSETotal

Weight28766051563124829649944392461689563,500,110338932916678234

Amount Paid869452.921,156.62556.7125346.620000004186781.8399999991119406.92259232528624.6

Shipment Count3096118.00172197402901195919628953581

Tabs1 Stop Off2 Stop Off3 Stop Off4 Stop OffTotal

Weight31933491798454422141892094004617

Amount Paid824978.340000001150,816.22515708.619999993272047.9999999981763551.17999999

Shipment Count27673,514.00355191185953659

Tabs11 Food4 Food5 Food6 FoodTotal

Weight3961182365076398558141288350446786199

Amount Paid48953.361009715.2553688.69921107.522533464.77

Shipment Count15811204026432323

TabsCostumingTotalFlorida Breakdown by Business UnitsWeightAmount PaidShipment CountTotal (Merchandise)

Weight6387063870Merchandise206828514292175.78107240206828514292175.78107240

Amount Paid10125.5910125.59Food467861992533464.772323

Shipment Count9191Food (Tab 12)24154560.5083998NA11757

Costuming6387010125.5991

Tabs8 Gen SuppliesTotalGeneral Supplies4726109555433.97420

Weight47261094726109Others416809766.4144

Amount Paid555433.97555433.97Total96455269.50839987400966.52121875

Shipment Count420420

TabsOthersTotal

Weight4168041680

Amount Paid9766.419766.41

Shipment Count4444

WDW Florida Weight

20682851

46786199

24154560.5083998

63870

4726109

41680

Florida Breakdown of Individual Business Units by Weight

Food (FOB)25%

Sheet2

Sheet3

AgendaIntroduction

Key Deliverables

Data Analysis

Mathematical Model

Recommendation

Sensitivity Analysis

Conclusion

Supplier Locations (LTL Florida)(Data Aggregation by 3-Digit Zip Code)

To Consolidate LTL Shipments into FTL ShipperXYZ CompanyShipperShipperShipperCPPresent SituationProposed Solution

Proposed 2-Step ModelStep 1: Set Covering Model (SCM)Step 2: Network Design Model (NDM)To Generate Potential Consolidation Point CandidatesTo Determine which Consolidation Points to Open/ Close

Step 1: Set Covering Model (SCM)

Maximize sum(i in Suppliers) y[i]

s.t {sum(i in Suppliers) x[i]

SCM Results: 30 Consolidation PointsNext Step:CP Candidates will be fed into the Network Design Model (NDM)

Step 2: Network Design Model (NDM)

Model Objectives : To Decide which Consolidation Points to open or close To Determine whether Suppliers should Ship Direct to the company To Assign Suppliers to Consolidation Points To Open or Close?To Open or Close?To Open or Close?To Open or Close?To Open or CloseTo Open or Close?To Open or Close?To Open or Close?To Open or Close?

XYZ CompanyShipperDirect LTLShipmentConstraint I: If Supplier is not a Candidate CP We either serve this 3 Digit zip via LTL shipments to the destination or via a consolidation pointCPLTLShipment

Step 2: Network Design Model (NDM)

Constraint II: If Supplier is a Candidate CP Case 1: If NOT OPEN We send LTL direct or via a designated CP CPXYZ CompanyCase 1

Step 2: Network Design Model (NDM)

Constraint II: If Supplier is a Candidate CP Case 2: If OPEN We consolidate at CP and send FTL direct CPXYZ CompanyCase 2

Step 2: Network Design Model (NDM)

Constraint III: Load Factor of 0.8Total Inflow into CP < = [ 0.8 * Total Truckloads ]

CPConstraint IV: FrequencyMinimum Truckloads going through an Open CP per year

> = 52LTLLTLLTLie at least 1 truckload per week

AgendaIntroduction

Key Deliverables

Data Analysis

Mathematical Model

Recommendation

Sensitivity Analysis

Conclusion

5 CP Locations

Assignment of Suppliers

CP Location I: Charlotte, NC

CP Location II: Atlanta, GA

CP Location III: Los Angeles, CA

CP Location IV: Gulfport, MS

CP Location V: Jackson, KY

LTL Direct Shipments

Cost SavingsLess than 8% Reduction8% Reduction

Chart1

1920Cost Before Optimization ('000)Cost Before Optimization ('000)

1770Cost After Optimization ('000)Cost After Optimization ('000)

Sheet1

Cost Before Optimization ('000)Cost After Optimization ('000)

19201770

Summary

AgendaIntroduction

Key Deliverables

Data Analysis

Mathematical Model

Recommendation

Sensitivity Analysis

Conclusion

Sensitivity Analysis

Chart4

5

5

3

2

1

1

1

Shipments Per week

No. of Consolidation Points

Effect of Shipment Frequency on CP

Sheet1

Frequency per weekShipments per yearNo. of CPLTL-NFTL-N1FTL-N2FTL-NTotal NewLTL newFTL newTotal newLTL oldFTL oldTotal oldSavingsPercentage savings

15251,339,333431,3381,195,0831,626,4212,965,7541,726,4321,195,0832,921,5151763375268404344474181,481,66433.3%

210451,304,916533,5511,195,0831,728,6343,033,5501,784,5091,195,0832,979,5921763375268404344474181,413,86831.8%

315631,186,306727,0871,195,0831,922,1703,108,4761,840,0361,195,0833,035,1191763375268404344474181,338,94230.1%

420821,791,214157,0481,195,0831,352,1313,143,3451,927,0541,195,0833,122,1371763375268404344474181,304,07329.3%

526011,756,607196,3101,195,0831,391,3933,148,0001,933,2861,195,0833,128,3691763375268404344474181,299,41829.2%

631211,961,931235,5721,195,0831,430,6553,392,5861,938,2851,195,0833,133,3681763375268404344474181,054,83223.7%

736411,973,857274,8341,195,0831,469,9173,443,7741,946,3471,195,0833,141,4301763375268404344474181,003,64422.6%

Sheet2

No. of CP2770730301928803955642719

5

5

3

2

1

1

1

Sheet3

No. of CPFrequency per week

51

52

33

24

15

16

17

Total oldTotal newFrequency per week

4,447,4182,965,7541

4,447,4183,033,5502

4,447,4183,108,4763

4,447,4183,143,3454

4,447,4183,148,0005

4,447,4183,392,5866

4,447,4183,443,7747

Percentage savingsFrequency per week

33.3%1

31.8%2

30.1%3

29.3%4

29.2%5

23.7%6

22.6%7

Sheet3

Shipments Per week

No. of Consolidation Points

Effect of Shipment Frequency on CP

2,965,754 3,033,550 3,108,476 3,143,345 3,148,000 3,392,586 3,443,774

Shipments Per Week

Total Trucking Cost

Effect of Shipment Frequency on Trucking Cost

Percentage savings

Shipments Per Week

Savings in Total Trucking Cost

Effect of Shipment Frequency on Percentage Savings

Sensitivity Analysis

AgendaIntroduction

Key Deliverables

Data Analysis

Mathematical Model

Recommendation

Sensitivity Analysis

Conclusion

ConclusionKey LearningCounter intuitive peculiarities of LTL cost structure (small volumes, backhauling etc)

Moving ForwardMilk run study on remaining LTL direct volumesOptimization of other shipment modes (e.g. parcel, frozen, chilled etc)Optimization of Florida bound shipments

Q & A

LTL looked the most promising for savings!Currently, the company does some consolidation of LTL to FTL. However, it is not optimized. The company was very adamant that we not ignore these shipments in our model. Only single shipments of over 18000 lbs will be eliminated from the model.LTL looked the most promising for savings!Currently, the company does some consolidation of LTL to FTL. However, it is not optimized. The company was very adamant that we not ignore these shipments in our model. Only single shipments of over 18000 lbs will be eliminated from the model.LTL looked the most promising for savings!Currently, the company does some consolidation of LTL to FTL. However, it is not optimized. The company was very adamant that we not ignore these shipments in our model. Only single shipments of over 18000 lbs will be eliminated from the model.The company requested we breakdown the shipments by business unit. The business unit does not will not directly influence our model- but it gives visibility to the company as to how the current budget is divided and how potential savings may be split among the various units.The next 3 slides show the business unit breakdownWe would like to smooth out fluctuations in freight volumes by inserting a load factor of 0.8 into our model.

% reduction should be less than 8% because we are breaking up FTL shipments into LTL shipments which we count as total LTL costThis is due to the incomplete FTL data from xyz

Initial Cost should be less than 1.92 million, it is based on the assumption that all LTL are directly sent to xyz. The current situation is that some of them are already consolidated