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  1. 1. Inventory and Ford’s New Car Distribution <ul><li>Plants in the East </li></ul><ul><ul><li>Norfolk </li></ul></ul><ul><ul><li>Atlanta </li></ul></ul><ul><ul><li>Louisville </li></ul></ul><ul><ul><li>St. Louis </li></ul></ul><ul><ul><li>Kansas City </li></ul></ul><ul><li>Ramps in the West </li></ul><ul><ul><li>Laurel </li></ul></ul><ul><ul><li>Orillia </li></ul></ul><ul><ul><li>Portland </li></ul></ul><ul><ul><li>Benicia </li></ul></ul><ul><ul><li>Mira Loma </li></ul></ul><ul><ul><li>El Mirage </li></ul></ul><ul><ul><li>Belen </li></ul></ul><ul><ul><li>Denver... </li></ul></ul>
  2. 3. How it worked
  3. 4. Tri-level Rail Cars
  4. 5. The Loose Car Network
  5. 6. Car Hauler
  6. 7. 12 Days Enroute <ul><li>4.3 million vehicles in North America in ‘98 </li></ul><ul><li>Estimates </li></ul><ul><ul><li>2 million to western ramps </li></ul></ul><ul><ul><li>$20,000 per vehicle </li></ul></ul><ul><li>Average car spends 12 days in pipeline inventory or 12/365 = .033 </li></ul><ul><li>On average about 66,000 vehicle in pipeline </li></ul><ul><li>Value of pipeline inventory: $1.32 billion </li></ul>
  7. 8. Other Costs <ul><li>Customer service </li></ul><ul><li>Tracking shipment </li></ul><ul><li>Managing shipments </li></ul><ul><ul><li>Bills of lading </li></ul></ul><ul><ul><li>Shipping invoices </li></ul></ul><ul><ul><li>…. </li></ul></ul><ul><li>Real estate at the plant </li></ul>
  8. 9. Inventory at the Plant <ul><li>Load driven system </li></ul><ul><ul><li>When there’s a load, send it. </li></ul></ul><ul><li>Each plant keeps inventory for each ramp </li></ul><ul><ul><li>Average number of vehicles per load lane? </li></ul></ul><ul><li>With 16 ramps </li></ul><ul><ul><li>Average number of vehicles per plant? </li></ul></ul><ul><li>We could be doing other things with that land... </li></ul>
  9. 10. Observation <ul><li>Inventory in a load-driven distribution system depends on </li></ul><ul><ul><li>The capacity of the transportation units and </li></ul></ul><ul><ul><li>... </li></ul></ul>
  10. 11. The Old Model % b b b b % % % %
  11. 12. The New Model % b b b b % % % % g Mixing Center Plants Ramps
  12. 13. Advantages <ul><li>At the plant </li></ul><ul><ul><li>Average inventory of west bound vehicles? </li></ul></ul><ul><ul><li>Space required </li></ul></ul><ul><li>Between the plant and the mixing center </li></ul><ul><ul><li>Larger volume of shipments supports faster unit trains -- no stopping at switching yards </li></ul></ul><ul><li>Between the mixing center and the ramp </li></ul><ul><ul><li>Larger ramps also support unit trains </li></ul></ul><ul><li>To the customer: Faster delivery! </li></ul>
  13. 14. Disadvantages <ul><li>Additional handling at the mixing center </li></ul><ul><ul><li>Every vehicle unloaded from one railcar and loaded onto another </li></ul></ul><ul><ul><li>Additional opportunity to damage vehicle </li></ul></ul><ul><li>Additional capital investment </li></ul><ul><li>Vehicles move farther </li></ul><ul><ul><li>but generally faster </li></ul></ul>
  14. 15. Inventory at the Mixing Center? <ul><li>Minimum Inventory Strategy </li></ul><ul><ul><li>Rail cars come in with mixed loads </li></ul></ul><ul><ul><li>Empty the rail cars into load lanes </li></ul></ul><ul><ul><li>Re-load full load lanes </li></ul></ul><ul><ul><li>Bring in empty rail cars if necessary </li></ul></ul><ul><li>How much inventory? </li></ul><ul><ul><li>At most </li></ul></ul><ul><ul><ul><li>16 ramps*(14 cars per lane) = 224 vehicles </li></ul></ul></ul><ul><ul><li>On average </li></ul></ul><ul><ul><ul><li>16 ramps*(7 cars per lane) = 112 vehicles </li></ul></ul></ul>
  15. 16. Inventory at the Mixing Center? <ul><li>Simple Strategy </li></ul><ul><ul><li>Rail cars come in with mixed loads </li></ul></ul><ul><ul><li>Empty the rail cars into load lanes </li></ul></ul><ul><ul><li>Re-load full load lanes </li></ul></ul><ul><ul><li>Only if empty rail car is available </li></ul></ul><ul><li>How much inventory? </li></ul><ul><ul><li>Claim: 210 vehicles! </li></ul></ul>
  16. 17. Inventory under the Simple Strategy <ul><li>Mixing center has 210 vehicles </li></ul><ul><ul><li>[210 = (16-1)*(15-1)] </li></ul></ul><ul><li>A rail car arrives with 15 more vehicles </li></ul><ul><ul><li>That makes 225 = 16*(15-1)+1 vehicles </li></ul></ul><ul><li>We can re-load the rail car. WHY? </li></ul><ul><li>That leaves us with 210 vehicles again. </li></ul><ul><li>Can you generalize this? </li></ul>
  17. 18. Time Enroute cut to 8 days <ul><li>Effect on inventory: </li></ul><ul><ul><li>12 days = $1.32 billion in inventory </li></ul></ul><ul><ul><li>8 days = $ 880 million in inventory </li></ul></ul><ul><li>Savings of $440 million can go to pay for capital and operating expenses at the mixing center. Right? </li></ul>
  18. 19. Wrong! <ul><li>Reducing inventory by $440 million doesn’t create $440 million in new wealth, it just gives us the use of that money. </li></ul><ul><li>We don’t have to borrow $440 million. </li></ul><ul><li>Savings is the interest: $110 million per year. </li></ul>
  19. 20. When we look at network design... <ul><li>How many mixing centers should we have? </li></ul><ul><li>Where should they be? </li></ul><ul><li>Who should use them? </li></ul>