Load Driven Distribution Systems
Do not run on a scheduleWait for the vehicle to fillMost examples are unfamiliar
Retail industry -- like DCs in our casetrucks don’t depart to cross docks until they are full
Some manufacturing settingsAuto industry finished vehicle delivery
Cost of poor equipment utilization significant
Objectives
Use Cross Docks to consolidate What effect does this have on inventory What effect does this have on time to
deliveryThis pass, we will focus on inventoryLater, in the guise of “trailer fill” we
will look at service or time to market.
Use an Example
Ford’s new vehicle deliveryMotivation
Successful example Regular loads - 15 vehicles per railcar
Inventory and Ford’s New Car Distribution
Plants in the East Norfolk Atlanta Louisville St. Louis Kansas City
Ramps in the West Laurel Orillia Portland Benicia Mira Loma El Mirage Belen Denver...
% Laurel
%
%
Orillia
Portland
% Benicia
% Mira Loma% El Mirage
% Belen
% Salt Lake% Denver
%
% b
Omaha
Kansas City St. Louis
% Oklahoma City%Amarillo
%
%
Alliance
Houston
%Reisor
b
bAtlanta
bLouisville b
Norfolk
Ford Motor CompanyNorth American Vehicle Distribution
How it worked
Tri-level Rail Cars
The Loose Car Network
Car Hauler
12 Days Enroute4.3 million vehicles in North America in ‘98Estimates
2 million to western ramps $20,000 per vehicle
Average car spends 12 days in pipeline inventory or 12/365 = .033 yrs
On average about 66,000 vehicles in pipeline
Value of pipeline inventory: $1.32 billion
Other Costs
Customer serviceTracking shipmentManaging shipments
Bills of lading Shipping invoices ….
Real estate at the plant
Inventory at the Plant
Load driven system When there’s a load, send it.
Each plant keeps inventory for each ramp Average number of vehicles per load lane?
With 16 ramps Average number of vehicles per plant?
We could be doing other things with that land...
Observation
Inventory in a load-driven distribution system depends on The capacity of the transportation units
and ...
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%
The Old Model
The New Model
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g
Mixing Center
Plants
Ramps
Advantages
At the plant Average inventory of west bound vehicles? Space required
Between the plant and the mixing center Larger volume of shipments supports faster
unit trains -- no stopping at switching yardsBetween the mixing center and the ramp
Larger ramps also support unit trainsTo the customer: Faster delivery!
Disadvantages
Additional handling at the mixing center Every vehicle unloaded from one railcar
and loaded onto another Additional opportunity to damage vehicle
Additional capital investmentVehicles move farther
but generally faster
Inventory at the Mixing Center?Minimum Inventory Strategy
Rail cars come in with mixed loads Empty the rail cars into load lanes Re-load full load lanes Bring in empty rail cars if necessary
How much inventory? At most
16 ramps*(14 cars per lane) = 224 vehicles
On average16 ramps*(7 cars per lane) = 112 vehicles
Inventory at the Mixing Center?
Simple Strategy Rail cars come in with mixed loads Empty the rail cars into load lanes Re-load full load lanes Only if empty rail car is available
How much inventory? Claim: 210 vehicles!
Inventory under the Simple Strategy
Mixing center has 210 vehicles [210 = (16-1)*(15-1)]
A rail car arrives with 15 more vehicles That makes 225 = 16*(15-1)+1 vehicles
We can re-load the rail car. WHY?That leaves us with 210 vehicles again.Can you generalize this?
Time Enroute cut to 8 days
Effect on inventory: 12 days = $1.32 billion in inventory 8 days = $ 880 million in inventory
Savings of $440 million can go to pay for capital and operating expenses at the mixing center. Right?
Wrong!
Reducing inventory by $440 million doesn’t create $440 million in new wealth, it just gives us the use of that money.
We don’t have to borrow $440 million.
Savings is the interest: $110 million per year.
When we look at network design...
How many mixing centers should we have?
Where should they be?Who should use them?
