1. Finished Vehicle Distribution System
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

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

3. Introduction

4. Objectives/Motivation
Importance of Pipeline Inventory
Pipeline Inventory and Network Design
Role of modeling
Information in variables
Stronger formulation
Financial impact

5. The Need for Speed Financial Incentives: Capital Utilization In 1996
Ford produced 3.9 million vehicles in the US
In 2008 they produced 2.3 million
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

6. 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

7. The Need for Speed
Other Incentives
Damage
Flexibility
Others?

8. Before 1996

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

11. Mixing Centers

12. 1999
environment

13. 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

14. High 1999 Level Statistics Assembly plants 22 Mixing centers 5
Destination rail ramps 54
Dealer locations 6,000
Production volume Mil./Year
Freight expense $1.5 Bil.
Dec. ‘99 avg. transit time Days
Pipeline Inventory $4.1 Bil.

15. Ford Distribution Network
Mixing Center
Origin Plant Groupings
Destination Ramp
Planned 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)

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

17. solution
approach

18. 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

19. network
design

20. Design Process Truck vs Rail delivery Allocate Dealers (FIPS) to Ramps
Route Flows through
Rail Network

21. Ford Locations Plant Mixing Center Origin Ramp Dest. Ramp MC Ramp
This is the Ford Network.
The lavender triangles represent the plants
Light blue squares are the current mixing centers.
Green and Red Diamonds represent origin and destination ramps respectively.
The yellow stars are Ford Dealerships.
Plant
Mixing Center
Origin Ramp
Dest. Ramp
MC Ramp

22. An Allocation Model

23. 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];

24. Old Ramp Allocation Southern US
Dealers sourced by multiple ramps
Under the old system dealerships could be fed from multiple destination ramps. This proved to be costly and more difficult to manage.

25. New Ramp Allocation Southern US
As you can see the new design is much cleaner and eliminates the delivery overlap from various ramps.
Dealers sourced by single ramps

26. New Allocation of Dealers to Ramps Mainland US
This is how the entire U.S. looks. Again, no overlapping areas.

27. Flows through the Rail Network
Objective is NOT Freight cost!

28. The Objective IS
Speed
Capital
Land

29. The Promise
Speed
Unit trains bypass hump yards

30. The Promise
Capital & Land
Laurel, Montana
Orilla, Washington
Time

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

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

33. 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

34. Inventory at the Plants
Half a rail car full for each destination
Laurel, Montana
Orilla, Washington
Time

35. Inventory at the Mixing Centers
Half a rail car full for each destination
Laurel, Montana
Orilla, Washington
Time

36. Workload at the Mixing Centers
Unpredictable
Rail car holds 5 vehicles
Orilla
Benicia
Mira Loma
Laurel
Denver
Orilla
Benicia
Mira L.
Laurel
Denver

37. Workload at the Mixing Centers
Balanced: Only load cars you empty
Rail car holds 5 vehicles
Orilla
Benicia
Mira Loma
Laurel
Denver
Orilla
Orilla
Benicia
Mira L.
Laurel
Denver

38. 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
Why this number?

39. Consolidation for Speed
Unit Trains of rail cars don’t stop at
mixing yards
Trade moving inventory for stationary
inventory

40. Model Paths Demand[ramp, plant] Variables: 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

41. 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]

42. 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];

43. 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];

44. Model Large Model Lots of Variables: Many Paths
Lots of Constraints: DefineUseLane
The LP relaxation is nearly always integral
Use Column Generation

45. Reduced plant destinations
New Rail Lanes
The model concentrated allocated volume in fewer lanes reducing the amount of destinations built by each plant.
Reduced plant destinations

46. Final Outbound Rail Network with Carriers
St Paul
Canada
Edison
Michigan
Chicago
Ohio
St Louis
Kentucky
Norfolk
Kansas City
Atlanta
Mixing Centers
Destination Ramps
Union Pacific
CSXT
FEC
BNSF
Canadian Pacific
Car Haul to Ramp
Norfolk Southern
Canadian National

47. results
to date

48. 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

49. Benefits Ford Dealers Rail Carriers Auto Haulers
While we have touched upon the benefits, let’s review them in greater detail.
There are 5 primary beneficiaries that we will address.

50. Benefits - Ford On-time delivery Competitive edge Cost control
1. The Autogistics network supports the “On Time Delivery” initiative and increases its chances for success.
2. For the first time the supply chain can be accurately analyzed by segment and activity. Core problems can be analyzed and solved in less time and with much greater accuracy. The potential for reducing system variation is a reality.
3. The manufacturer that can produce a reliable finished goods network can obtain a competitive edge in multiple ways.
Increase customer satisfaction
Reduce the total cost of a vehicle for manufacturer and dealer
4. Allows Ford a single source for finished vehicle logistics.
5. Car Trackers ability to measure and produce reports improves accountability throughout the supply chain and eliminates the continuous finger pointing. Key to successful systems of any type is an accurate feedback loop. That is now in place. More importantly, it allows more time to be expended solving the problem.
6. Where does this improve the cost picture?
Shortened supply chain reduces the amount of assets in the chain and reduces the inventory carrying cost.
A shortened and reliable chain will increase the potential for custom orders and internet orders and reduce build for inventory. Also stops additional expense of shipping diversions due to equipment shortages.

51. Ford Motor Company Closing Share Price 2000 - 2001
A Bit of History
Ford reports record earnings of $7.2 billion in 1999
Ford Motor Company Closing Share Price
Ford sets all-time monthly U.S. sales record
Firestone recalls tires after roll-over deaths
Cut 5 days out of total inventories freeing $1.8 billion in capital
Jacques Nasser appears before a Senate on Firestone tire recall
Standard & Poor's cut debt ratings to junk status
Jac Nasser retires as CEO of Ford Motor Company
Ford Motor Company and UPS Logistics Group form Autogistics
Cut 26% off vehicle delivery times releasing $1 billion from inventories

52. Benefits - Dealers Reduced inventories Increased customer satisfaction
Inventories are maintained to provide cars for the buying public. When the source is not reliable higher inventories are maintained to ensure that stock is available and sales are not lost. The improved visibility and precision in the network allows a leaner inventory while not sacrificing sales.
The ability to provide a customer an arrival date and meet that date enhances the buying experience thus increasing customer satisfaction
Dealerships will be better able to plan car preparation functions due information on Car Tracker.

53. Benefits - Rail Carriers
Improved equipment utilization (reduced capital
expenditures)
Visibility and planning capabilities
Synergies with existing UPS traffic
Increased cooperation
1. If velocity of the inventory increases, as it will, then the automotive rail cars will more quickly travel through the system. Reducing the amount of equipment needed will decrease the amount of future capital expenditures.
2. Using Car Tracker will enable the rail carriers to better plan and respond to the needs of Ford.
3. By combining existing UPS intermodal traffic with automotive traffic more dedicated trains can be created easing scheduling of crews and equipment.
4. The improved visibility promotes cooperation between the carriers.

54. Benefits - Auto Haulers
Expanded dealer delivery hours
Visibility and planning capability
Improved asset utilization
Increased cooperation
1. Allows haulers to reduce equipment and maintain lot sizes.
2. Haulers will no longer have to respond with no notice.
3. Without having to deliver in a narrow window the car hauler can run multiple shifts and use the same equipment.
Knowledge of what is in the supply chain enables them to increase routing effectiveness.
4. The system is no stronger than the weakest link. Getting away from optimizing sub systems through Car Tracker will force cooperation.