Ford Motor Company’s Finished Vehicle Distribution System April 2001 Ellen Ewing Project Director UPS Logistics Dr. John Vande Vate Exec. Director EMIL ISyE Georgia Tech

Outline l Introduction l 1999 Environment l Solution Approach l Network Design l Car Tracker l Implement New Strategy l Results to Date l Summary

Objectives/Motivation l Novel application of cross-docking: Rail-to-Rail l Cross-docking for Speed l Role of modeling l Role of information l Network Management

Competitive Necessity The new BMW Sales and Production System

Financial Incentives: Capital Utilization –In 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. »1400 fewer railcars The Need for Speed

Demand for land 22 Plants 54 Destination Ramps ~1,200 Load lanes ~8,400 vehicles waiting at plants $166 Million in inventory

The Need for Speed Other Incentives l Damage l Flexibility l

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

1999 Vehicle Network Delivery Conditions l Record production levels l Demand shift from cars to trucks l Overburdened rail infrastructure l Deteriorating rail service l Shortage of transport capacity l Mixing centers l 15+ day transit time l High inventory cost l Dissatisfied customers

High 1999 Level Statistics l Assembly plants22 l Mixing centers 5 l Destination rail ramps54 l Dealer locations6,000 l Production volume4.4 Mil./Year l Freight expense$1.5 Bil. l Dec. ‘99 avg. transit time16.8 Days l Pipeline Inventory$4.1 Bil.

Mixing Center Origin Plant Groupings Destination RampPlanned Ramp Closure Edison Norfolk Atlanta Kentucky Ohio St Louis Canada St Paul Michigan Chicago Kansas City 15% of all vehicles go Haulaway Direct to Dealer within Miles of the Assembly Plant 85% of all Vehicles go via Rail to a Hub (Mixing Center or Destination Ramp) Ford Distribution Network

Old Delivery Design l Push Network l Vendor sub systems optimized for individual segments l Little to no visibility l Mixing Centers not used effectively

Ford Goals Speed l 1999: Average 15 days transit time l Goal: Maximum of 8 days transit time Precision l 1998/1999: 37% on time within 1 week l Goal: 95% on time within 1 day Visibility l 100 % Internet vehicle tracking from plant release to dealer delivery l Guide the flow of vehicles l Respond to variations l Inform customers

Why UPS Logistics Group Chosen? l Global logistics expertise l State-of-the-art technology l Rail experience l Brand identity l Financial stability l Bench strength

Solution Process l Assemble team of experienced operations and network planning personnel from Ford and UPS l Evaluate current system - process mapping l Develop a new “no constraint” vision for the industry l Design a new network l Create a new organization l Implement the new network

Tools Used for Modeling Supply Chain Strategist from i2 Technologies Cost Modeling l Cost impact measured for each sort - route combination Sourcing l Determined optimum sourcing route from ramp to dealer

Plant Mixing Center Origin Ramp Dest. Ramp MC Ramp Ford Locations

Sourcing Solution Process l Input dealer demand volumes by product family and plant location l Create candidate lanes between dealers and closest ramps l Run models to determine optimum ramp to dealer sourcing

Dealers sourced by multiple ramps Old Ramp Allocation Southern US

Dealers sourced by single ramps New Ramp Allocation Southern US

New Allocation of Dealers to Ramp Mainland US

Cost Modeling Solution Process l Assign each plant to a mixing center l Determine rail shipment sizes for all rail lanes l Determine shipments that move direct from plant to dealer l Obtain carrier rates and perform regression analysis of historical shipments

Reduced plant destinations New Rail Lanes

Mixing Centers Destination Ramps Union PacificCSXTFEC BNSFCanadian PacificCar Haul to Ramp Norfolk SouthernCanadian National Edison Norfolk Atlanta Kentucky Ohio St Louis Canada St Paul Michigan Chicago Kansas City Final Outbound Rail Network with Carriers

Characteristics l Shipment tracking - plant to dealer l Shipment events - customizable based on route specifications l Exception event tracking - alerts & alarms l Financial event tracking l Similar to UPS Package Tracking System

Value Add l Management of supply chain down to individual VINs l Alerts & alarms - “pipeline bottlenecks” l Management of inventory levels l Enhanced communications l Improved accountability of rail provider, mixing center, and convoy carrier resources l Better reporting mechanism

New Organization Announced new strategic alliance on February 2, 2000 Launched on March 1 Manage finished vehicle delivery network l Network design and planning l Carrier selection and rate negotiation l Carrier performance management l Daily network operations l Freight bill payment and claims processing Staffed by Ford and UPS Autogistics personnel Offices in Atlanta and Detroit Operations personnel in key field locations

Results l Cut vehicle transit time by 26% or 4 days l Initiative is 6 months ahead of time l $1 billion savings in vehicle inventory l $125 million savings in inventory carrying costs l Avoid bottlenecks l Reduce assets in supply chain l Less damage l Improved inventory turns at dealer l By end of Q network will be fully operational in US, Canada and Mexico

Benefits l Ford l Dealers l Rail Carriers l Auto Haulers

Benefits - Ford l On-time delivery l Supply chain visibility l Competitive edge l Single network manager l Improved accountability l Cost control

Benefits - Dealers l Reduced inventories l Increased customer satisfaction

Benefits - Rail Carriers l Improved equipment utilization (reduced capital expenditures) l Visibility and planning capabilities l Synergies with existing UPS traffic l Increased cooperation

Benefits - Auto Haulers l Expanded dealer delivery hours l Visibility and planning capability l Improved asset utilization l Increased cooperation

Status Report Before l Sub Optimization l Little Visibility l Mixing Center Concept l Rail Car Shortage l 15 Day Network Now l Car Tracker for Operations l Increased Bypass Loads l Clean Ramps & Mixing Centers l 24 Hour monitoring l 12 Day Network Future l Transit Merge l Add Customers l Daily Dedicated Rail Networks l Too Many Railcars l Less than 8 Day Network

The Whole Picture l Mixing Centers l Network design and planning l Carrier selection and rate negotiation l Tracking l Daily network operations l Carrier performance management