Inventory and Ford’s New Car Distribution

Plants in the East Norfolk Atlanta Louisville St. Louis Kansas City

Ramps in the West Laurel Orillia Portland Benicia Mira Loma El Mirage Belen Denver...

% Laurel

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Orillia

Portland

% Benicia

% Mira Loma% El Mirage

% Belen

% Salt Lake% Denver

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Omaha

Kansas City St. Louis

% Oklahoma City%Amarillo

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Alliance

Houston

%Reisor

b

bAtlanta

bLouisville b

Norfolk

Ford Motor CompanyNorth American Vehicle Distribution

How it worked

Tri-level Rail Cars

The Loose Car Network

Car Hauler

12 Days Enroute4.3 million vehicles in North America in ‘98Estimates

2 million to western ramps $20,000 per vehicle

Average car spends 12 days in pipeline inventory or 12/365 = .033

On average about 66,000 vehicle in pipeline

Value of pipeline inventory: $1.32 billion

Other Costs

Customer serviceTracking shipmentManaging shipments

Bills of lading Shipping invoices ….

Real estate at the plant

Inventory at the Plant

Load driven system When there’s a load, send it.

Each plant keeps inventory for each ramp Average number of vehicles per load lane?

With 16 ramps Average number of vehicles per plant?

We could be doing other things with that land...

Observation

Inventory in a load-driven distribution system depends on The capacity of the transportation units

and ...

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The Old Model

The New Model

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Mixing Center

Plants

Ramps

Advantages

At the plant Average inventory of west bound vehicles? Space required

Between the plant and the mixing center Larger volume of shipments supports faster

unit trains -- no stopping at switching yardsBetween the mixing center and the ramp

Larger ramps also support unit trainsTo the customer: Faster delivery!

Disadvantages

Additional handling at the mixing center Every vehicle unloaded from one railcar

and loaded onto another Additional opportunity to damage vehicle

Additional capital investmentVehicles move farther

but generally faster

Inventory at the Mixing Center?Minimum Inventory Strategy

Rail cars come in with mixed loads Empty the rail cars into load lanes Re-load full load lanes Bring in empty rail cars if necessary

How much inventory? At most

16 ramps*(14 cars per lane) = 224 vehicles

On average16 ramps*(7 cars per lane) = 112 vehicles

Inventory at the Mixing Center?

Simple Strategy Rail cars come in with mixed loads Empty the rail cars into load lanes Re-load full load lanes Only if empty rail car is available

How much inventory? Claim: 210 vehicles!

Inventory under the Simple Strategy

Mixing center has 210 vehicles [210 = (16-1)*(15-1)]

A rail car arrives with 15 more vehicles That makes 225 = 16*(15-1)+1 vehicles

We can re-load the rail car. WHY?That leaves us with 210 vehicles again.Can you generalize this?

Time Enroute cut to 8 days

Effect on inventory: 12 days = $1.32 billion in inventory 8 days = $ 880 million in inventory

Savings of $440 million can go to pay for capital and operating expenses at the mixing center. Right?

Wrong!

Reducing inventory by $440 million doesn’t create $440 million in new wealth, it just gives us the use of that money.

We don’t have to borrow $440 million.

Savings is the interest: $110 million per year.

When we look at network design...

How many mixing centers should we have?

Where should they be?Who should use them?