November 30, 2011
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Transportation, Distribution and Logistics
Nishant Jain,
Consultant CHAINalytics
MSIE Georgia Tech Fall 2010
Agenda
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CHAINalytics Overview
Transportation Modes in the Supply Chain
Transportation Benchmarking
Fastenal Overview (Summer Internship)
Picking, Slotting and Cycle Counting
A little about me and Questions !
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Who is Chainalytics?
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2001
Our Genesis
• Market Lacked Proven, Focused Supply Chain
Analytics Competence
• “Best Analytical Minds in Supply Chain”
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
• 1st Named to “100 Great Supply Chain Partners”
List by SupplyChainBrain; Recognized for 7 Years
Running
• Launch of Model-Based Benchmarking Consortium
(MBBC)
• Mike Kilgore named a “Pro to Know” by Supply &
Demand Chain Executive; Jeff Metersky (2006), Gary
Girotti (2007), Tim Brown (2009), Bill Loftis (2010),
and Steve Ellet (2011) also named Pros to Know
• Established Chainalytics India Private Limited in
Bangalore
• MBBC named “Top Supply Chain Innovation” by
Supply & Demand Chain Executive
• Named to ARC Advisory’s “10 Coolest Supply
Chain Boutiques”
• Named “Supply Chain Company of the Year” by
Metro Atlanta Chamber
• Launch of Sales & Operations Variability Consortium
(S&OVC)
Empowering
Fact-Based Decisions
Across
Your Supply Chain
TODAY
 Supply Chain Strategy
 Network Optimization
 Inventory Planning
 Sales and Operations Strategy
 Transportation services expansion
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Mode Benchmarking, Service Benchmarking
Network Fleet Modeling
Business Intelligence
Transportation Bidding
 Packaging Optimization
 Based in Minneapolis
 Supply Chain Services Optimization
 Warehouse Optimization, Reverse Logistics, etc.
 Supply Chain Services Optimization
 Warehouse Optimization, Reverse Logistics, etc.
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We Support Value-Driven Supply
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Chain Decisions
Years
Supply Chain Design
Quarters
Packaging Optimization
Logistics
Operations
Months
Weeks
Planning
Horizon
Transportation
Sales,
Inventory &
Operations
Planning
When should
we buy or make
product to make
the best use of
our capacity?
What is the
best flowpath?
Service
Supply Chain
How much and At what service
level can we
where should
inventory be profitably satisfy
demand?
positioned in the
supply chain?
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Should our
warehousing
and material
operations be
insourced
or outsourced?
How should
Can we reduce
we transport
our transport and
product through logistics costs by
the supply
improving cube
chain?
utilization?
How well do
our current
operations
mitigate repair
and warranty
costs?
How can we
increase
visibility to
stakeholders?
Some of Our
Clients
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RETAIL
FOOD AND
BEVERAGE
HOME/OFFICE
NON DURABLES
HEALTHCARE
HOME/OFFICE
DURABLES
Packaging
Utilities/
Telecomm/Media
Auto/Industrial
Chemical/Process
LSP
OTHER
INDUSTRIES
SERVED
• 62 of the Fortune 500
• 9 of the Top 15 US Retailers
• 13 of AMR’s Top 25 Supply Chains
• 5 of the Top 20 Global Forest and Paper Companies
5 5
• 8 of the World’s 25 Largest Food & Beverage Mfgs
• 9 of the Top 10 Consumer Goods Supply Chains., SC Digest
Agenda
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CHAINalytics Overview
Transportation Modes in the Supply Chain
Transportation Benchmarking
Fastenal Overview (Summer Internship)
Picking, Slotting and Cycle Counting
A little about me and Questions !
6
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What is Transportation
about
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 5 primary modes of freight delivery methods in North America
 Full Truck Load (TL)
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Cargo above 20,000 lbs upto 50,000 lbs on a 53 feet trailer
Semi-trailers of sizes 23 ft, 32 ft, 36 ft, 40 ft, 45 ft, 48 ft, 53 ft exist
Temperature Controlled items, Flatbed and Dry Vans are 3 different types of TL
Dedicated loads move for a shipper hence Economies of Scale and faster transit time than LTL
Companies such as J.B. Hunt, Schneider, Swift, Covenant are prominent.
Highly competitive and fragmented market. Top 25 carriers contribute to less than 10% of total N. American revenues
Average trucker travels 47 mph including traffic and US Road Safety regulations
A tractor unit pulling a semi-trailer
A classic 53 ft. semi-trailer truck
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Less- Than-Truckload
 Less- Than-Truckload (LTL)  Generally moves freight >150 Lbs & < 20,000 lbs
 The LTL market is much smaller than TL ($27B vs. ~$320B)
 LTL is a much more concentrated market than TL
 Top 25 LTL carriers = 88% of total LTL Revenues (top 6 = 50%)
 Top 25 TL carriers ≤ 10% of total TL Revenues
 While TL is mainly driven by distance, LTL is influenced by many factors that interact with each
other, such as:
 Freight Class
 Weight
 Distance
 Pricing is based off of different tariffs with a negotiated discount that can apply to all, or portions,
of a network
 Freight All Kinds (FAK) classification dominates and can obscure cost drivers
 2000 lbs of ping pong(FAK 70) balls occupy more space than 2000 lbs of palletized containers (FAK 500)
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Other Modes
 Intermodal freight Transport
 Multiple modes of transport (rail, ship and truck) with minimal handling when changing modes
 Reduced costs over road trucking over larger distances (>1000 miles)
 Ocean
 Container ships transporting twenty-ft-eq. (TEU) and forty-foot-eq units over sea
 Constraints of canals (Panama & Suez) limit capacity on ships
 Container fleet, route constraints, terminal capacity play a huge role
 Air Cargo
Containerization has been a huge
proponent of modern transportation/ supply chains
 Used to carry freight <150 lbs
Intermodal ship-to-rail transfer of containerized cargos at APM
Terminals in Portsmouth, VA
300 m long container ship CMA CGM of France
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Transportation
Networks
 Intermodal freight Transport used between Plant
on East Coast and the DC’s in Texas, Arkansas,
Illinois (>1000 miles )
 Dedicated fleets of Full Truck Loads employed for
low mileage high frequency shipments. Eg. Plant to
DC’s and Vendor to Plants which are closer by to
plant
 Common Carrier Truck Loads ( one-off shipments )
employed for delivery to customers esp. from DC’s
 LTL used for low weight shipments to customers
from DC
 Ocean containers used to ship containers from
primary vendors (foreign)
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Dedicated Fleets and Common Carrier both are semi-trailer
shipments 53”, 40” , etc…
However a key difference is Dedicated loads usually go multistops taking advantage of every day delivery to same
destinations covering lower miles.
Usually fixed cost/load or variable cost/mile or mixed
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Vendor
Plant
DC
Agenda
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CHAINalytics Overview
Transportation Modes in the Supply Chain
Transportation Benchmarking
Fastenal Overview (Summer Internship)
Picking, Slotting and Cycle Counting
A little about me and Questions !
11
Truckload Benchmarking
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 Chainalytics Created the Model-Based Benchmarking Consortium
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A collaborative membership based organization for confidentially sharing transportation rate information for
the purpose of benchmarking against market costs
 MBBC Goals
 Build a representative model of the market – 10 % of actual freight spend by over 90 member cos
 Isolate and Quantify impact of individual freight characteristics - Origin, destination, distance, loading
conditions, service requirements, regional imbalances…
 Use of econometric modeling to predict the cost per load for TL freight, given characteristics of the freight
 Provide score card to validate procurement performance
 Identify need and plan procurement – Change the carriers and choose the best bid on lanes
 Where do I stand as against other peers in the same industry shipping on the same lane with same freight
characteristic ?
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Quantifying a Freight Characteristic
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– Origin and Destination Region
But what about the regional effect?
 So far . . .
 A shipment from OH to FL will cost as much as
FL to OH!
 Regional Values
 Capture impact of a truck entering / leaving an
area
 Separates the regional effect from other factors
(miles, etc)
 QUESTION
 FLORIDA – High demand region but also low
manufacturing/production output in the state
 OHIO – High production (hence stable inflow and
outflow of trucks)
 What do you think shipments from OH to FL cost
as a Truck Load vs. FL to OH. ????
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Origin and Destination Region
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Effect
 Difficult to get loads out of Florida as low
production hence trucks normally return
empty.
 Heavy manufacturing in Ohio so easy to get
back-hauls.
 Calculating the impact:
 Move from OH to FL
 $539.11 = 153.17 + 385.41
 Move from FL to OH
 $87.01 = 39.91 + 47.10
 Moving South is approximately
~ $452 more per load!
Ohio
Florida
In
47.10
385.41
Out
153.71
39.91
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Consulting in Transportation
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Best Practice &
System Assessment
Mode Analysis
Procurement
Business Intelligence
What is the best mix of carriers
to service my network?
Where should we focus
improvement efforts?
vs.
Are my processes and systems
providing maximum benefit?
Can I reduce costs or improve
service using alternate shipping
strategies?
Freight Market Intelligence and Cost
Benchmarking
• 90+ Member Companies
• TL, LTL, and Ocean Market Models
• $20B+ in TL Spend (~6% of N.A. Market)
Am I paying a fair price for transportation?
Deep Capabilities and Expertise in All These Areas
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Agenda
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CHAINalytics Overview
Transportation Modes in the Supply Chain
Transportation Benchmarking
Fastenal Overview (Summer Internship)
Picking, Slotting and Cycle Counting
A little about me and Questions !
16
Fastenal Overview:
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Summer Internship
 # 2 Industrial and Construction supplier in North America (#1 being W.W. Grainger)
 ~$ 3 billion in sales (2010) & growing at 20% per quarter
 2400+ stores and 14 RDCs in the US
 Worked as an Industrial Engineer/ Warehouse consultant for 16 weeks in Summer
2010
 Worked at the Atlanta RDC serving 250+ stores
 Roughly 30000 SKUs in the warehouse
 ~9000 SKUs in the Pick Module
 Opportunities Explored:
 New system for Picking
 Changes in cycle counting
 Slotting
Floor Storage
CONVEYOR SYSTEM
FACILITY PROFILE
• ~ 200, 000 sq. feet
•Extensive use of conveyors often
making it the bottleneck.
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Agenda
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CHAINalytics Overview
Transportation Modes in the Supply Chain
Transportation Benchmarking
Fastenal Overview (Summer Internship)
Picking, Slotting and Cycle Counting
A little about me and Questions !
18
Picking
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PICK CHARACTERISTICS
• 3 floors of the pick module (9000 SKUs)
Bottom floor for fragile and small items ( Slow pick rate)
• Use of Bar Code readers
• Follows ABC ranking: 30% of the SKUs contribute 65% of the
picks
• Pickers start from 9 AM – 7 PM;
Changed it to 12 – 6 PM ( Consolidated pick window)
• Picks are downloaded every 2 hours in the system starting
at 6 AM. Emergency picks up to 5 PM
• Workers walk towards each other while picking starting at
the ends. (zig-zag path)
• Manager re-distributes workers based on work content
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PickingClick
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• Disorganized picking (workers starting at will) and lack of
discipline
• Remember: Consolidated Picking window. i.e. orders are
allowed to build before order pickers arrive
• Implemented Bucket brigades
Instantly saw about 40 - 50% improvements in CF and PF.
About 10% in Shelving
• But after 7 – 10 days, picking returned to almost normal
though slight increase in picking ( 5-10%)
•Spike was due to end of quarter (highest sales volume)
• Did not work due to very few downloads every 2 hours
which meant that after first sweep in BB, they were bumping
into each other frequently.
• But instilled a team based culture, organization and
competition.
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Slotting
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• Workers break their backs while picking from the lowest
or top most shelf of the rack
(No GOLDEN ZONE)
• Equal Space Allocation
• Follows ABC distribution: 20% of the SKUs contribute 65%
of the picks and nearly dollar sales as well.
• Focus on getting the highest flowing 2000 SKUs in
Carton Flow and Pallet Flow
• Use of Slotting software from class website
• But Problem !! No data on Carton sizes + time of
internship ending
• Measured 2000 SKUs in about 30 hours in 3 levels
of PF and CF
( Inventory check !!)
• Considered 3 levels of storage:
- PF -CF - Infinite (Shelving)
• Storage in optimal quantities could potentially
increase picking productivity by 20%
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Cycle Counting
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• Current Method
Cycle Count 35000 SKUs thrice a year @ 105,000 SKU counts
+ Everyday random counts
Proving to be highly ineffective
Also performed analysis of current errors ( mostly “B” items)
• Improved Method – Ranked based ABC method
Items responsible for the first 80% of COGS - Ranked "A" (5 times/yr)
Items responsible for the next 15% of COGS- Ranked "B" (4 times/yr)
Items responsible for the next 4% of COGS - Ranked "C" (3 times/yr)
Items responsible for the last 1% of COGS - Ranked "D“ (2 times/yr)
- Total of 55,000 SKU counts
- Savings of 50,000 SKU counts
- Increased accuracy !
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Agenda
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CHAINalytics Overview
Transportation Modes in the Supply Chain
Transportation Benchmarking
Fastenal Overview (Summer Internship)
Picking, Slotting and Cycle Counting
A little about me and Questions !
23
About
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 Favorite Subjects at GT
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Global logistics Scholar/ Seminar in Global Supply Chains (Dr. JJB and Pete Viehweg)
Supply Chain and Transportation Systems (Dr. Vande Vatte)
Revenue Mgt. (Management School under Prof. Mark Ferguson)
The project (and class) Warehousing Systems !
 Found my Internship at Fastenal through Cobb County Career Fair held in April 2010
 Found the CHAINalytics Fall Internship through (believe it or not) Linkedin (and
subsequently got the Full-Time)
 Fondest Moments at Tech
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Field trips during Global logistics scholar.
ISYE parties
Feeling of having learnt something meaningful
Not so good moments – EXAMS !!  and Black weekday – GPA time !!
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Thank You
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Replenishment
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Current operations – 50% of Max limit triggered replenishment (1 pallet load in PF OR 6
cartons in CF triggered replenishment from Overstock)
• Effects of this policy ( consider the following in Pallet Flow )
• Proposed the 14 days of supply method for replenishment
• However it was unsuitable for Pallet Flow.
• Suitable for Carton Flow (Few PF SKUs can be re-assigned their Min/Maxes)
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