1. Kortschak Punctual Freight Trains – a Logistics‘ necessety Moscow 2016-03-24 Prof. Dr. Dr. Bernd H. Kortschak Venia legendi in Business Administration Professor for Business and Logistics at the Faculty Economics Logistics Transport at the Univ. of Applied Sciences, Erfurt, Germany e: bernd.kortschak@wu.ac.at Tel.+436643074244bernd.kortschak@wu.ac.at Punctual Freight Trains – a Logistics‘ Necessity!

2. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 Abbildung 13: Rohstoff und Fertigprodukt beider Marktentnahme als „Eckpfeiler“ der Logistik. Have a look at a typical Supply Chain:

3. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 Abbildung 13: Rohstoff und Fertigprodukt beider Marktentnahme als „Eckpfeiler“ der Logistik. T r a n s p o r t Every value added activity is linked by transport Value added activity

4. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 Abbildung 13: Rohstoff und Fertigprodukt beider Marktentnahme als „Eckpfeiler“ der Logistik. Between transport and value added inventory serves as safety stock and buffer T r a n s p o r t Inventory/Warehousing S t o c k – k e e p i n g

5. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 4 A typical industrial Supply Chain: Before logistics optimisation: safety stock warehousing Raw materials Auxiliaries Supplies Individual parts Procurement Production Sales Retail Enduser inventory Warehousing Safety-stock

6. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 5 T r a n s p o r t Robert Bosch GmbH Germany BEFORE Logistics optimisation started

7. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 6 T r a n s p o r t Inventory/Warehousing/stock keeping on both ends of Transport Not optimised Supply Chain Business to Business (B2B) Robert Bosch GmbH Germany BEFORE Logistics optimisation started

8. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 7 An optimised Supply Chain without safety stock Raw materials Auxiliaries Supplies Individual parts Procurement Production Sales Retail Enduser Inventory NO Warehousing Safety stock

9. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 8 Robert Bosch‘s Vision in 1985: no stock keeping at industry:

10. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 9 Robert Bosch‘s Vision in 1985: no stock keeping at industry: …due to logistics‘optimisation – now called: Supply Chain Management

11. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 10 Robert Bosch‘s Vision in 1985: no stock keeping at industry: …due to logistics‘optimisation – now called: Supply Chain Management BUT: Supply Chain Management may only eliminate Safety stock!

12. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 11 Robert Bosch‘s Vision in 1985: no stock keeping at industry: …due to logistics‘optimisation – now called Supply Chain Management! In reality: Buffer stock is unavoidable – but should be kept at a minimum!

13. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 Why?

14. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 Why? Have a look at the Transport costs from the customer‘s point of view:

15. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 Transport costs from the customer‘s point of view: Transport costs/unit Insurance Costs Source: Bahke 1984 adapted from: Culliton/Lewis/Steele, Boston, Mass. 1956 Volume/Weight

16. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 Transport costs from the customer‘s point of view: Transport costs/unit Calc. capital costs Insurance Costs Source: Bahke 1984 adapted from: Culliton/Lewis/Steele, Boston, Mass. 1956 Volume/Weight

17. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 Transport costs from the customer‘s point of view: Transport costs/unit Packaging costs Calc. capital costs Insurance Costs Source: Bahke 1984 adapted from: Culliton/Lewis/Steele, Boston, Mass. 1956 Volume/Weight

18. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 Transport costs from the customer‘s point of view: Transport costs/unit Handling costs Packaging costs Calc. capital costs Insurance Costs Source: Bahke 1984 adapted from: Culliton/Lewis/Steele, Boston, Mass. 1956 Volume/Weight

19. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 Transport costs from the customer‘s point of view: Freight Transport costs/unit Handling costs Packaging costs Calc. capital costs Insurance Costs Source: Bahke 1984 adapted from: Culliton/Lewis/Steele, Boston, Mass. 1956 Volume/Weight

20. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 Transport costs from the customer‘s point of view: Freight Transport costs/unit Handling costs Packaging costs Calc. capital costs Insurance Costs Source: Bahke 1984 adapted from: Culliton/Lewis/Steele, Boston, Mass. 1956 Volume/Weight Total Costs

21. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 Transport costs from the customer‘s point of view: Freight Transport costs/unit Handling costs Packaging costs Calc. capital costs Insurance Costs Source: Bahke 1984 adapted from: Culliton/Lewis/Steele, Boston, Mass. 1956 Volume/Weight …freight is only small proportion of total transport costs… Total Costs

22. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 Transport costs from the customer‘s point of view: Freight Transport costs/unit Handling costs Packaging costs Calc. capital costs Insurance Costs Source: Bahke 1984 adapted from: Culliton/Lewis/Steele, Boston, Mass. 1956 Volume/Weight Total Costs …freight is only small proportion of total transport costs… BUT:

23. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 Transport costs from the customer‘s point of view: Freight Transport costs/unit Handling costs Packaging costs Calc. capital costs Insurance Costs Source: Bahke 1984 adapted from: Culliton/Lewis/Steele, Boston, Mass. 1956 Volume/Weight Total Costs Inventory adds unnecessarily high costs to the product! …freight is only small proportion of total transport costs… BUT:

24. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 23 12345 The „ideal“ Supply Chain: only buffer stock as inventory left days scheduled journey time Buffer-stock Buffer-loading

25. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 24 12345 The „ideal“ Supply Chain: only buffer stock as inventory left days scheduled journey time Buffer-stock Buffer-loading Look at the buffers, not so much at the wagon… !

26. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 25 12345 1st day: days scheduled journey time What happens with the buffer during transit time when cargo is transported? Have a look at the shipper‘s & consignee‘s invenotry: the loaded wagon has left the factory

27. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 26 12345 1st day: days scheduled journey time What happens with the buffer during transit time when cargo is transported? The buffer is created: Production at the supplier creates the buffer for the next transport Have a look at the shipper‘s & consignee‘s invenotry:

28. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 27 12345 1st day: days scheduled journey time What happens with the buffer during transit time when cargo is transported? The buffer is reduced: The buffer is created: The buffer at the consignee is reduced to serve his production… Have a look at the shipper‘s & consignee‘s invenotry:

29. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 28 12345 days scheduled journey time What happens with the buffer during transit time when cargo is transported? 2nd day: The buffer is reduced: The buffer is created: Have a look at the shipper‘s & consignee‘s invenotry:

30. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 29 12345 days scheduled journey time What happens with the buffer during transit time when cargo is transported? 3rd day: The buffer is reduced: The buffer is created: Have a look at the shipper‘s & consignee‘s invenotry:

31. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 30 12345 days scheduled journey time The buffer is reduced: What happens with the buffer during transit time when cargo is transported? The buffer is created: 4th day: Have a look at the shipper‘s & consignee‘s invenotry:

32. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 31 12345 days scheduled journey time The buffer is EMPTY : What happens with the buffer during transit time when cargo is transported? The buffer is created: 5th day: Have a look at the shipper‘s & consignee‘s invenotry: STOP!

33. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 32 12345 because ON TIME delivered! Wagon unloaded Buffer inventory for next day‘s demand created What happens with the buffer during transit time when cargo is transported? BUT: …refilled: 5th day: Buffer-stock Have a look at the shipper‘s & consignee‘s invenotry:

34. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 33 34578621 B U T: What happens if train is 3 days late? No buffer inventory left = NO PRODUCTION! ? 6th day:

35. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 34 34578621 B U T: What happens if train is 3 days late? No buffer inventory left = NO PRODUCTION! ? 6th day: NO PRODUCTION?

36. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 35 3457 What does consignee, if ON TIME delivery is NOT expected? 8621 What happens if train is 3 days late? Industry holds additional safety stock days actual journey time 6th day:

37. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 36 3457 What does consignee, if ON TIME delivery is NOT expected? 8621 What happens if train is 3 days late? Industry holds additional safety stock days actual journey time 6th day: He adds safety-stock to his invenotry!

38. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 37 3457 What does consignee, if ON TIME delivery is NOT expected? 8621 What happens if train is 3 days late? Industry holds additional safety stock days actual journey time Safety stock is added 6th day:

39. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 38 34578621 What happens if train is 3 days late: Industry holds additional safety stock But not only for 3 days, for 5 days – because they don‘t know when the cargo will arrive! What does consignee, if on time delivery is not expected? 6th day: Safety stock is held!

40. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 What is the economic result, if safety stock increases costs: Freight remains the same Transport Costs/unit BUT: Safety stock increases costs much more than freight : x-fold! Total Costs Volume/Weight Source: Bahke 1984 adapted from: Culliton/Lewis/Steele, Boston, Mass. 1956 !!

41. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 40 Conclusion: Late freight trains at least double inventory costs of Industry due to progressive safety-stock increases in industry.

42. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 41 Conclusion: Late freight trains at least double inventory costs of Industry due to progressive safety-stock increases in industry. Inventory costs of industry exceed freight paid to the carriers by many times (i.e. 1:5 in Western Europe on av.)

43. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 42 Conclusion: Late freight trains at least double inventory costs of Industry due to progressive safety-stock increases in industry. Inventory costs of industry exceed freight paid to the carriers by many times (i.e. 1:5 in Western Europe on av.) Industry cannnot afford the huge extra money to be spent compared to freight just because of late trains – if there is an alternative, they shift their cargo to other modes!

44. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 43 Conclusion: Late freight trains double inventory costs of industry due to progressive safety-stock increases in industry. Inventory costs of industry exceed freight paid to the carriers by many times (i.e. 1:5 in Western Europe on av.) OR – in short: If there is an alternative transport offer which promises AND keeps ON TIME delivery cargo will shift to the alternative!

45. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 44 Conclusion: Late freight trains at least double inventory costs of industry due to progressive safety-stock increases in industry. Inventory costs of industry exceed freight paid to the carriers by many times (i.e. 1:5 in Western Europe on av.) Therefore: If there is an alternative transport offer which promises AND keeps ON TIME delivery cargo will shift to the alternative! I congratulate RZD for having cut the average transit time on the TSR already to calculable 7-9 days border to border and I cross the fingers for your new 120 km/h flat wagons to reach stable 6-7 days only!

46. Prof. Dr. Dr. Bernd H. Kortschak – Moscow March 24, 2016 THANK YOU for your attention! 45