Otis Project Utilizing Backhaul amp Consolidation to Reduce Transportation Cost Team members Mao Yangxu Qiao Huicong Qu Hongyi Stankiewicz Michael Xu Li 11172009 Agenda Introduction ID: 763200
Download Presentation The PPT/PDF document "Otis Project Utilizing Backhaul & Co..." is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Otis ProjectUtilizing Backhaul & Consolidation to Reduce Transportation Cost Team members: Mao, Yangxu Qiao, Huicong Qu, HongyiStankiewicz, Michael Xu, Li 11/17/2009
AgendaIntroductionBackground Project ScopeObjectiveOptimization OpportunityCurrent Cost StructureOptimization StrategiesBackhaulConsolidationConclusion 2 /28
Introduction - Background and ScopeOtis Elevator CompanyWorld’s leading manufacturer, installer and maintainer of elevators, escalators and moving walkways Suppliers and customers across the worldProject ScopeNorth America DistributionInbound Logistics OptimizationTL & LTL Shipment Modes3/28
4/28 Introduction - North American Distribution Network : 4 Regional Distribution Center (RDCs) : 55 Suppliers
5 /28Focus on suppliers with highest costs and frequenciesSupplierState Frequency (times/month) Average Weight (lbs) Total Costs (dollars) Nogales AZ 92.78 24118.71 $ 1,524,340 Rome GA 21.56 4243.17 $ 79,490 Battleboro NC 17.2220413.57$223,280IndianapolisIN13.2226564.58$109,800BrazilIN7.6715942.28$68,990RichmondVA6.897396.61$70,300HatfieldPA6.678784.28$80,620East St PaulMB(CA)6.1136990.65$270,100RoanokeVA5.3319888.40$28,650 Introduction - Major Suppliers
Better utilize cross dock/ distribution centersIncrease utilization of existing backhaul and line haul Consolidate TL shipments into dense line hauls between RDCsIncrease TL densities 6/28Introduction - Project Objective
7 /28Optimization Opportunity - Current Cost Structure
Strategy 1: Backhaul Where? Pinning on Nogales and East St PaulCost on the way back with full truckloads is nearly FREE!Strategy 2: ConsolidationAt RDCsAt suppliers 8/28Optimization Opportunity - Optimization Strategies
Frequent shipments from Nogales to 4 RDCs : RDC’s : shipments between Nogales and RDCs 9 /28 Optimization Opportunity - Strategy 1: Backhaul
From To 4 RDCsFrequency/monthAvg. Weight Nogales ONTARIO 30 + 2/2days 27,739 GRAND PRAIRIE 30 + 2/2days 27,928 RICHMOND 30 + 2/2days 22,887 WOODRIDGE 30 + 2/2days 23,023 Data of shipments from NogalesBackhaul Opportunity High FrequencyHigh CapacityLocationAssumptionsNearly free backhaulTime window of 3~7 daysEnough capacities to carry goods back10/28Optimization Opportunity - Strategy 1: Backhaul
Direct shipments from suppliers to CA RDC 11/28 : destination : RDCs : suppliers : direct shipmentsOptimization Opportunity - Strategy 1: Backhaul
Way back with truckload through backhaul 12/28 : destination : RDCs : truck delivery and backhaul : suppliers : shipments to the nearest RDC : shipment to destination Optimization Opportunity - Strategy 1: Backhaul
13/28 Direct shipments f rom suppliers to TX RDC Optimization Opportunity - Strategy 1: Backhaul : destination : RDCs : suppliers : shipments to the nearest RDC
14 /28Way back with truckload through backhaul : destination : RDCs : truck delivery and backhaul : suppliers : shipments to the nearest RDC Optimization Opportunity - Strategy 1: Backhaul
Originally…. VA RDCTX RDC Battleboro Supplier Avg. Weight of TL #TL Shipments Distance TL Rate 1($/mile) Direct Route Total Cost BATTLEBORO 20,044 lbs 30 in 3 Qts 1261 mile $2.28 $ 86,230 Consol pt Miles to Consol pt TL Rate 2($/mile) Cost to Consol pt Cost Reduction VA RDC113 mile$5.5 $86,230 * 113/1261 * 5.5/2.28 = $18,640$67,560Cost to Consol pt = ToTal Cost * Miles to Consol pt/Distance *TL Rate2/TL Rate 1Backhaul ….15/28Optimization Opportunity - A Backhaul Example: Battleboro
16 /28Optimization Opportunity - Cost Reduction From Backhaul
Original Cost ( including Nogales)Total New CostCost ReductionPercentage TX RDC $ 408,384 $ 241,015 $ 167,368 40.98% CA RDC $ 552,863 $ 352,708 $ 200,154 36.20% 17 /28 Remark: Table above shows the costs of all shipments from all suppliers to TX and CA RDCs, except Nogales .If backhaul is applied, large savings will appear.Optimization Opportunity - Cost Reduction From Backhaul
Potential backhaul/line haul Find TL shipments with high frequenciesFor example, shipments from East St Paul to VA RDC 18/28 From EAST ST PAUL To VA RDC Frequency (times/month) 7.3 Mode Full Truckload (30,000lbs ) Additional Backhaul Opportunity - Backhaul to East St Paul
Assumptions: Backhaul is almost freeTime window of 4 days is acceptedUtilize this opportunityFind shipments from suppliers near VA RDC to IL RDCMake use of backhaul to East St Paul to realize the above shipments Cost reduction19/28Suppliers near RichmondShipment to Woodridge Distance to Woodridge Distance to Richmond Total Cost New Cost Reduction BATTLEBORO 54 939 113 $ 94,618 $ 11,386 $ 83,231 DAVENPORT 9 1183 770$17,845$11,615$6,230HATFIELD23773277$34,482$12,356 $22,126HIALEAH161391943$12,091$8,197$3,894RICHMOND198310$13,688$0.00 $13,688ROANOKE28756193$18,508$4,725$13,783TOTAL $191,231$48,280 $ 142,952 Additional Backhaul Opportunity - Backhaul to East St Paul
Assumptions:TL and larger LTL cost less than smaller LTLThe time window is flexible StrategyIn the case that shipments are first sent to their nearest RDCs, some of them may have chances to be consolidated there and shipped to the final destinations respectively.All TL/LTL shipments are consolidated at suppliers’ locations in a certain time window (e.g. one week), then shipped to the nearest RDCs. 20/28 -Strategy 2: Consolidation Optimization Opportunity
All supplies except Nogales LTL Separate nearest RDCCommon destination RDC TL or larger LTL 21 /28 Remark: Consolidation at RDCs does not save a lot (only 2.76%) TL shipment cost is high between IL and VA Because of low frequency, most LTL shipments can’t be consolidated due to a fixed time window. Therefore, try to add capacity to TL shipments on this route Consolidate LTL shipments having common destination -Consolidation at RDCs Optimization Opportunity
22/28All suppliersexcept NogalesTL or larger LTL Separate nearest RDC Common destination RDC TL or larger LTL Consolidate at each supplier -Consolidation at Suppliers Optimization Opportunity Consolidate shipments having common destination
Data: Rome, Feb, 2009 Green route: existing shipment routesRed route: New routes when utilizing backhaul 23 /28 Ship date From To LTL Cost 2/9/2009 ROME GRAND PRAIRIE 487 $93.46 2/9/2009 ROME GRAND PRAIRIE 939 $150.40 2/9/2009 ROME ONTARIO 683$196.71 2/9/2009ROMERICHMOND224$84.60 2/9/2009ROMERICHMOND1059$127.17 2/11/2009ROMEGRAND PRAIRIE487$97.36 2/11/2009ROMEGRAND PRAIRIE1329$208.21 2/11/2009ROMEONTARIO918$245.23 2/11/2009ROMEONTARIO549$158.12 2/11/2009ROMERICHMOND355$84.60 2/17/2009ROMEONTARIO2032$419.02 2/17/2009ROMERICHMOND2002$205.14 2/17/2009ROMERICHMOND1294$161.88 2/18/2009ROMEGRAND PRAIRIE190$87.98 2/18/2009ROMEONTARIO480$144.00 2/20/2009ROMEONTARIO533$153.14 2/24/2009ROMERICHMOND885$124.81 2/26/2009ROMERICHMOND8880$670.98 VA RDCRome What if the time window is 3 days?Original total cost: $793New cost by this consolidation: $370We save $423 (53%)Original total cost: $1446New cost by this consolidation: $650We save $796 (55%)Time window is 1 day.Original Cost $50,000 New Cost $26,000Cost Reduction$24,000 -A Consolidation Example: RomeOptimization Opportunity
TL rate=charge/distance LTL rate is concave in weight 24/28LTL weightCharges2048$209.86 2499$257.89 2918$299.01 3563 $365.10 3888 $394.64 5286 $429.30 6910 $562.51 7440 $594.41 8044 $653.30 8880 $670.98 10418 $700.68 11155 $752.03 16083 $1,104.71 TL i.e. $1026Not always available -How To Estimate LTL RateOptimization Opportunity
The strategy of consolidation at suppliers saves $47,000 out of $2,597,000 (only 1.81%) The strategy of consolidation at RDCs cannot save The TL cost between the two RDCs (IL and VA) is HIGHDo NOT have more chances to consolidate shipments from other suppliers at the nearest RDC because of the fixed time windowBetter to consolidate both LTL and TL at suppliers and then ship them DIRECTLY to the destination RDCs25/28 -Summary of Strategy 2Optimization Opportunity
Optimization Strategies Cost Reduction to Entire Inbound TransportationBackhaul to Nogales for shipments to TX and CA 13.95% Consolidating LTL shipments at RDC’s 0.06% Consolidating LTL shipments at suppliers 1.81% Total 15.92% 26 /28 Summary of Results
ConclusionAll TL & LTL shipments to TX and CA can be shipped to the nearest RDCs and then use backhaul to NogalesFind other backhaul opportunities, e.g. East St Paul to VA RDCThe shipments to VA and IL RDCs should be shipped directly to the destinations 27/28
28/28Thank you