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Freight Logistics Fundamentals
The document discusses the fundamentals of freight logistics and strategies. It outlines 8 key fundamentals, including balancing freight and inventory costs, pipeline inventory and mode selection, safety stock and mode selection, and last-mile freight efficiency being the hardest. Overall, it emphasizes that while supply chains continuously change, the underlying fundamentals of minimizing total logistics costs remain the same.
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Freight Logistics Fundamentals
- 1. Freight Logistics andStrategies: Fundamentals of Freight Decisions Alan Erera Associate Professor, Industrial and Systems Engineering Faculty Director, MS in Supply Chain Engineering Program Planning for the Future of Freight Movement Southeast Diesel Collaborative September 16, 2013
- 2. Supply Chain Engineeringat Georgia Tech ISyE • 25 faculty in logistics/manufacturing • Graduate programs – MS in Supply Chain Engineering • 50 grads/yr • Exec MS in International Logistics (EMIL) – 20 grads/yr • Ph.D. in IE: Supply Chain Engineering – 5-10 grads/yr
- 3. My role • MSin Supply Chain Engineering – Faculty Director • Research program – Co-director, Center for Global Transportation – Optimizing design and control of logistics systems – Research program funded by • NSF, DHS, USDOT • Industry partners (trucking, freight railroads, manufacturers)
- 4. What to remember •Shippers focus on total logistics costs when making freight transport decisions • Providers (carriers) configure freight systems to deliver excellent customer service at lowest possible cost • Supply chains continuously evolve, but fundamentals change little
- 5. Supply chain 101 •People demand products – Food, clothing, staples (must have), everything else (nice to have) • Supply chain networks – Procure/produce products – Get them to people • “Logistics” systems – Connect suppliers to customers cost- effectively, using freight transportation networks and logistics facilities
- 6. • Inbound logistics(procurement) Supply chain 101 auto assembly Tier 1 supplier
- 7. • Inbound logistics(procurement) Supply chain 101 auto assembly Tier 1 supplier
- 8. • Inbound logistics(procurement) Supply chain 101 auto assembly Tier 1 supplier
- 9. • Inbound logistics(procurement) Supply chain 101 auto assembly Tier 2 supplier
- 10. • Outbound logistics(distribution) Supply chain 101 medical supplies primary DC
- 11. • Outbound logistics(distribution) Supply chain 101 medical supplies primary DC regional DCs
- 12. • Outbound logistics(distribution) Supply chain 101 medical supplies primary DC regional DCs customer facilities
- 13. Fundamental 1: Transportation CostEOS and Batching • Cost economies of scale (EOS) – Average transportation cost per unit decreases as units increase items Truckload Shipment Price on Lane (o, d) full trailer 1 trailer 2
- 14. Fundamental 1: Transportation CostEOS and Batching • Cost economies of scale (EOS) – Average transportation cost per unit decreases as units increase items LTL Shipment Price on Lane (o, d)
- 15. Fundamental 2: Balancing Freightand Inventory Costs • Selecting shipment quantity – Small shipments sent frequently lead to high freight bill spending – Larger batched shipments take advantage of cost scale economies and reduce freight spend, but – Larger shipment quantities create larger cycle inventories • Working capital increase (cost) • Storage capacity increase (cost) • Other inventory carrying costs: obsolescence/perishability, insurance, …
- 16. Fundamental 2: Balancing Freightand Inventory Costs t I(t) safety stock cycle stock
- 17. Fundamental 2: Balancing Freightand Inventory Costs t safety stock Reduce inventory costs 50% by shipping twice as frequently cycle stock
- 18. Fundamental 2: Balancing Freightand Inventory Costs • Another implication – Although freight cost scale economies often create incentives for sending full trailer (container, …) shipments, cycle inventory costs sometimes make it worthwhile to send partially-loaded equipment
- 19. Fundamental 3: Pipeline Inventoryand Mode Selection • Pipeline inventory – Items on order, that have not yet arrived, often in transit – Although not stored in a facility, still creates working capital and inventory cost!! • For shippers of very high value goods or with high storage costs, inventory costs dominate freight costs – Hard to shift to slower modes
- 20. Fundamental 3: Pipeline Inventoryand Mode Selection t Time items spend in inventories in plant cycle stock in-transit in DC cycle stock Items
- 21. Fundamental 3: Pipeline Inventoryand Mode Selection t Items Reducing pipeline inventory may substantially reduce cost in plant cycle stock in-transit in DC cycle stock
- 22. Fundamental 3: Pipeline Inventoryand Mode Selection t in plant cycle stock in-transit in DC cycle stock Items Low cost goods with high storage costs may better off in pipeline!
- 23. Fundamental 4: SafetyStock and Mode Selection • Safety stock inventory – Buffer inventory held in a supply chain to hedge against uncertainty •Customer demand uncertainty •Procurement quality and reliability uncertainty •Freight transit time uncertainty • Shippers with high costs of inventory will strongly prefer freight modes with little transit time variability
- 24. Fundamental 5: MoreTon-Miles is Often Cheaper • Batching over geography (usually called consolidation) can be as important as batching over time – for shippers – and, for consolidation carriers like LTL, package express, … • Freight ton-miles may increase, but total equipment miles and total costs may decrease – More time, and extra handling
- 25. Fundamental 5: MoreTon-Miles is Often Cheaper • Inbound cross-docking for retail crossdock suppliers destination DC
- 26. Fundamental 5: MoreTon-Miles is Often Cheaper • Inbound cross-docking for retail crossdock suppliers destination DC
- 27. Fundamental 5: MoreTon-Miles is Often Cheaper • LTL cross-docking terminal network
- 28. Fundamental 5: MoreTon-Miles is Often Cheaper • LTL cross-docking terminal network
- 29. Fundamental 5: MoreTon-Miles is Often Cheaper • 40’ to 53’ domestic container transload destination DC POLA/LB ATL ramp
- 30. Fundamental 5: MoreTon-Miles is Often Cheaper • Pack three 40’ into two 53’ domestic containers crossdock destination DC POLA/LB ATL ramp
- 31. Fundamental 5: MoreTon-Miles is Often Cheaper • “Consolidation” onto freight intermodal trains of truckload shipments originMOD ramp IND ramp destination
- 32. Fundamental 5: MoreTon-Miles is Often Cheaper • Non-stop sleeper team truckload originMOD ramp IND ramp destination
- 33. Fundamental 6: Trailersand Containers Must Move Empty • Geographic imbalance between freight origins and destinations – Certain areas net producers of freight traffic (by mode, carrier, …) – Other areas net consumers – Imbalance! • Freight transport mobile resources are reusable – Always travel in cycles: (A, B, C, … , A)
- 34. California Midwest Southwest 15 10 6 Weekly flow (10s) 5 6 8 Fundamental6: Trailers and Containers Must Move Empty
- 35. California Midwest Southwest Weekly flow (10s) 6net arrivals 8 net arrivals 14 net departures Fundamental 6: Trailers and Containers Must Move Empty
- 36. Fundamental 6: Trailersand Containers Must Move Empty Empty Plan Weekly flow (10s of 53’ tractor-trailers) California Midwest Southwest 6 empty supply 8 empty supply 8 6 14 net departures
- 37. Fundamental 7: Freight Demand,Supply, and Pricing • Backhaul lanes – Light volume origin-destination pair lanes that help move equipment back toward high volume lanes – Freight pricing can be significantly lower •Carrier gets paid for otherwise empty move
- 38. Fundamental 7: Freight Demand,Supply, and Pricing California Midwest Southwest 6 empty supply 8 empty supply 8 6 14 net departures 6 8 No backhaul from Southwest to California, due to network effect Not all imbalanced lanes are backhaul lanes!
- 39. Fundamental 8: Last-mile FreightEfficiency is Hardest • Last-mile – Consolidation modes – Pickup from shipper into first terminal – Delivery to consignee from last terminal • Examples – Container drayage into seaport/IM terminal – Package express pickup/delivery routes – LTL pickup/delivery routes – Distribution delivery routes into stores
- 40. Fundamental 8: Last-mile FreightEfficiency is Hardest • Challenges to efficiency – Small shipment sizes – Multiple stop vehicle tours – Tour duration constraints, deadlines – Customer delivery constraints, time windows – Urban logistics: congestion, parking, regulation
- 41. Parting Thoughts: Trendsfor Supply Chains 1. Global manufacturing here to stay 2. Consumers continue to demand better cheaper products, faster 3. Retailing is more and more a supply chain business 4. Ubiquitous sensors, connected devices, data, automation will continue to drive efficiency gains 5. Alternate fuel technologies will expand steadily into fleets as total costs to own/operate decrease
- 42. What to remember •Shippers focus on total logistics costs when making freight transport decisions • Providers (carriers) configure freight systems to deliver excellent customer service at lowest possible cost • Supply chains continuously evolve, but fundamentals change little