11

Mode Selection

John H. Vande Vate

Fall, 2002

22

Choices

• Parcel• Airfreight• LTL• TL• LCL• Car load• Unit train• …

33

What Matters?

• Range of acceptable shipment quantities

• Delivery Commitments

• Special Handling requirements

• Infrastructure

• Security

• Reliability

• …

44

Costs• Freight• Packaging/Racking• Pipeline Inventory• Cycle Stock Q• Safety Stock• Shrinkage/Damage• Forecast Accuracy• Market Access

55

Packaging

Moving axels to Detroit from Mexico• 2,000 units per day on average• 10 units per rack• $1,500 per rack• 2 days at supplier• 7 days in-bound• 2 days in-house• 7 days return• Rack Investment?

66

Rack Fleet

• Analogous to pipeline• Rack cycle:

2 days at supplier7 days in-bound2 days in-house7 days return

18 days + contingency

• Racks per day:– 2,000 units/10 units/rack = 200 racks/day

• Fleet size:– 200 racks/day * 18 days = 3,600 racks

77

Rack Investment

• $1,500/rack * 3,600 racks = $5.4 Million

• Annualized: $540,000 +

• Contingency fleet

• Attrition/loss damage

• …

88

Best Total Cost

• Freight• Packaging/Racking• Pipeline Inventory• Cycle Stock Q• Safety Stock• Shrinkage/Damage• Forecast Accuracy• Market Access•  Integrated Transportation Costs

99

Effects of Speed

• Freight • Packaging/Racking• Pipeline Inventory• Cycle Stock Q• Safety Stock• Shrinkage/Damage• Forecast Accuracy Improves• Market Access Improves

 

1010

Organizational Issues

Players:• Purchasing

– unit price

• Transportation– Freight cost/Loss/Damage/Reliability

• Manufacturing– Cycle stock/Safety Stock/Reliability

• Finance– Pipeline Inv.