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WHITE PAPER: Designing Full Potential Transportation Networks


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What Got You Here, Won’t Get You There
Many supply chains are the product of history, developed over time as a company grows with expanding product lines and emerging markets.

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WHITE PAPER: Designing Full Potential Transportation Networks

  1. 1. Designing Full Potential Transportation Networks What Got You Here, Won’t Get You There Many supply chains are the product of history, developed over time as a company grows with expanding product lines and emerging markets. In larger successful companies, supply chains can grow to enormous complexity, encompassing billions of dollars in assets and deeply ingrained processes cemented by hard fought global infrastructures. If an organization continues to gain profitable market share, acquires other companies and strengthens its brands, there may be an assumption that the supply chain, while perhaps not perfect, is functioning to an acceptable degree of efficiency. Based on that assumption, the transportation network must also be acceptable. Adding to this legacy sense-of-security are year-to-year improvements in on-time KPIs, reduced dwell time and higher load density, all pointing to continued improvement. What is the “full potential” of your transportation network? But what if it’s not a great supply chain; what if it’s simply an optimized version of an inefficient supply chain? For most transportation and logistics professionals, this is a challenging question to answer because it requires visibility into the full supply chain network and the balancing of numerous performance metrics, including service, cost, complexity, sustainability, and risk. So how can you do it? How can you design a transportation network that can achieve its full potential. Only through computations that isolate your legacy infrastructure and model the data with a ‘what if’ freedom. Transportation Network Design is a rapidly-growing analysis approach in the logistics market that enables companies to create digital “models” of their end-to-end supply chains to evaluate new strategies and identify break-through improvements in performance. Transportation Guru™ Transportation Guru is the first software application to integrate transportation route optimization with network optimization and simulation. The result is a solution that enables analysts to: Simulate near-term cost and service improvements to existing transportation operations  Identify longer-term strategic improvements to the global transportation network  Run continuous what-if analysis of new strategies, disruptions, constraints and business challenges  © 2013 LLamasoft, Inc. All rights reserved.
  2. 2. LLamasoft – Transportation Network Design The Transportation Guru design engine includes a wide-range of analysis techniques, enabling users to identify optimal DC-to-Customer assignments, determine the ideal mode mix, create optimal multi-stop delivery or pick-up routes, determine the best utilization of assets, evaluate driver work schedules, and even perform service-based greenfield analysis. Using Transportation Guru, you can continuously improve your end-to-end transportation network and quickly adapt to business changes to stay ahead of the competitive curve. Tangible Business Benefits Using Transportation Network Design technology, you can achieve significant and tangible business benefits that lead to lower costs, better service, and more efficient operations. The following are a few real-life examples of these benefits. Challenge Legacy Transportation Networks Is your best option to optimize ‘as-is’ or to re-engineer a new network? Test the effects of new modes or product flow patterns. Evaluate importing through new ports or adding cross-docks. Answer these questions with concrete data and visual references. Determine Lowest Overall Landed Cost Incorporate inventory, sourcing, production, service levels and other constraints to understand true lowest landed cost solution for your global transportation network. Identify Optimal Mode Mix Test and understand trade-offs for ocean vs. air, TL vs. LTL, or rail vs. OTR given your global supply chain network flows and costs, and scale the model to include all required SKUs and shipments. Prove Optimal DC-to-Customer Assignments Determine the optimal assignment of DCs to customer or retail locations to achieve the lowest cost solution that still meets service level targets. Rebalance assignments as new customers or stores are added to the network. Create More Efficient Routings Locate backhaul or continuous move opportunities, or consolidation of both inbound and outbound shipments to reduce empty miles and labor requirements. Choose from various vehicle sizes and carriers and consider multiple cost types related to distance, stops, surcharges and discounts, driver time and overnight hauls. Model Asset Utilization Against Service Metrics Design a More Sustainable Transportation Network Evaluate Network Footprint and Greenfield Locations 2 Identify the most efficient use of your drivers, vehicles, containers, or warehouse capacity by modeling and optimizing the transportation as it relates to customer service. Calculate the emissions associated with as-is and new transportation network strategies or optimize the network to achieve a specific reduction target while also meeting performance criteria. Identify the optimal structure and footprint of distribution, production, or sourcing sites or use advanced greenfield technology to find the ideal location for new facilities. © 2013 LLamasoft, Inc. All rights reserved.
  3. 3. LLamasoft – Transportation Network Design Case 1: Designing Optimal Modes & Routes Business Issue – The existing supply chain network for a major US-based consumer goods company included numerous carrier contracts, using a mix of LTL and TL. As certain contracts or new markets open, they have traditionally been addressed as a point solution, and never as a total “transportation system” . To stay competitive, the company needed to identify the lowest cost transportation network that met their service requirements, leveraging multi-stop shipments where possible. LTL shipments are generally expensive compared to multi-stop routes, but large distances between stops and/or low-volume shipments erode potential cost savings for multi-stop route, so the challenge is to find the right mode mix and design of routes across the entire network. Supply Chain Design Approach – Using historical orders and shipment files, create a complete model of the existing transportation network in Transportation Guru. Automatically add all the alternative lane options and consider each order as a potential TL stop and LTL shipment. Formulate the Transportation Guru problem with typical parameters such as:   OPTIMAL WEIGHT BY MODE 6% 100% $600,000 80% 70% $500,000 60% 50% 40% OPTIMAL TRANSPORTATION COST $700,000 90% 100% 94% 100% $400,000 $300,000 30% 20% $200,000 10% $100,000 0% LTL  3 LTL Shipments – Standard 53 ft. trucks – US DOT hours-of-service constraints – Typical business hours 6am – 6pm – Estimated overnight, waiting, and unloading costs Define individual LTL costs using SMC3 RateWareXL or any benchmark data matrix. Transportation Guru will then calculate the optimal mix of multi-stop routes and LTL shipments to achieve the lowest cost transportation system. Multi-Stop Routes Multi-stop LTL Multi-stop Example and Benefits – Transportation Guru computes best multi-stop routes and calculates the corresponding LTL cost for the constituent shipment, and allows identification of “good” multi-stop routes. In most cases, multi-stop routes are more cost effective. In cases where small shipments have to travel far distances and/or low density at destination, shipments will be LTL. © 2013 LLamasoft, Inc. All rights reserved. Optimal Mix of TL & LTL
  4. 4. LLamasoft – Transportation Network Design Case 2: Balancing DCs and Transportation Business Issue – Companies with extensive distribution networks struggle to determine the correct number and placement of distribution centers for optimal outbound distribution. This involves finding the proper balance between transporta- tion costs, which are lower with more distribution centers, and facility fixed costs, which are lower with fewer distribution centers. Supply Chain Design Approach – Using existing store locations and demand as the primary input, network optimization and transportation optimization engines can solve for the lowest cost distribution network quickly and easily. Network optimization performs an analysis to determine the number of geographically optimal distribution centers, as well as determining the optimal location. The transportation optimization program develops multi-stop routes for inbound or outbound transportation. It considers multiple variables to form cost effective transportation routes. Example and Benefits – A US-based retailer with approximately 600 stores in the eastern half of the US wished to evaluate the fixed distribution center operating cost and transportation route cost by varying the number of distribution centers from 1 to 8.    4 DC Network 5 DC Network NETWORK COST BY SCENARIO 18,000,000 16,000,000 14,000,000 6 DC Network 12,000,000 10,000,000 Transportation modeling enables designers to weigh the advantages and disadvantages of DC location vs. transportation costs including detailed road routes for each alternative design. 8,000,000 6,000,000 4,000,000 2,000,000 DC Cost 4 Transportation Cost With a single distribution center, the facility operating cost is at minimum. (Note: fixed DC costs do not grow linearly with size - a 400,000 square foot building doesn’t cost twice as much as a 200,000 square foot building -- there’s a non-linear relationship between the size and the fixed cost.) As distribution centers are added into the network, the outbound “last mile” transportation costs decrease -- the lowest outbound transportation cost occurs with the most DCs, because they are closest to the end customers. In network optimization, each DC network is its own scenario allowing maps and summary statistics to be viewed side-by-side. © 2013 LLamasoft, Inc. All rights reserved.
  5. 5. LLamasoft – Transportation Network Design Conclusion Supply chains are historical systems, built over time, most often being a derivative of the original. Organizations should not assume that what got them here, will get them there. The technology is readily available to design the optimal transportation network, using the model as a benchmark for full potential. Those companies that deploy this technology can quickly identify alternative transportation networks that can continue to maximize service and profits in the face of a changing environment. Transportation Guru can equip design teams with the tools to effectively analyze, model, and optimize the end-to-end transportation network. Many best-in-class companies use Transportation Guru to identify major financial and operational improvements in their transportation network. LLamasoft supports Transportation Guru with best-practice solutions (packaged methods and models for analyzing specific transportation attributes) and an experienced support services team to help improve your supply chain network. Why LLamasoft? LLamasoft provides software and expertise to design and modify end-to-end supply chain network operations. The world’s leading corporations across nearly every major industry vertical leverage LLamasoft technology to help them achieve a competitive advantage through superior operational design. For detailed transportation modeling, LLamasoft’s Transportation Guru provides a packaged solution that includes Network Optimization, Transportation Optimization, and Simulation. For SAP users, LLamasoft’s certified integration with SAP automates and streamlines the modeling and analysis process. It provides analysts with direct access to key master data and historical transactions, enabling true integrated business planning. Transportation Guru gives you ready access to an up-to-date model of your supply chain. LLamasoft’s modeling framework enables you to include alternate sources, routes, transportation modes, or production processes that may be required to meet your desired services levels. You can introduce disruptive events into the model to better understand the robustness of your supply chain. From the optimized model results, your executives can make informed decisions about the nature and timing of supply chain network design alterations. LLamasoft, Inc. 201 South Main Street, Suite 400 Ann Arbor, Michigan 48104, USA Phone: +1 866.598.9831 © 2013 LLamasoft, Inc. All rights reserved. v.11122013