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Logistics Case 1
Logistics Case 1
The scope of the case involves the entire delivery process (from the
. time a vehicle comes off the production line until it is physically put in
the retailer's showroom). However, given the case objectives and the
size of the retailer network it is impractical to consider the entire
system. Therefore the scope of the case is limited to a specific group of
new Saturn retailers. The geographic dispersion of this group provides
a variety of viable strategies. In some locations, truck delivery has an
advantage over rail delivery and vice versa. In other locations there is
no clear-cut answer. In those situations the reader must delve into
qualitative issues and resolve the conflicting stakeholder requirements.
That alone will help the reader gain a greater appreciation for the
complexity of this strategic decision.
Overall, the case should foster a better understanding of logistics in
the automobile industry, carrier selection and evaluation processes, as
well as supply chain management concepts. In group settings the case
issues should promote a lively discussion regarding the key issues,
stakeholder preferences and appropriate courses of action.
Production operations
The 4.3 million fe Spring Hill production complex was officially
completed in June 1990 at a cost of approximately $1.9 billion. The first
Saturn automobile was produced in July 1990. The Saturn complex is
unlike any other automobile production facility in the United States. The
manufacturing process is managed as an integrated system from the
source of raw materials to the final customer. The intent is truly to have
customer needs and desires drive the entire Saturn operation. The highly
automated manufacturing and assembly complex consists of three major
operations: power train, body systems and vehicle systems. In the power
train plant engines and transmissions are actually produced on-site. The
second operation, body systems, includes the stamping plant, body
fabrication and the paint shop. In the final vehicle systems operation,
cars are assembled, tested and prepared for shipping. The vehicle
systems facility is strategically located between the power train plant
and the body systems plant to improve material flow.
258 Logistics and transportation cases
Current production capacity at the plant is approximately 1100 units
per day and the plant operates two 10h shifts, 6 days per week. As of
May 1995 there were 9234 people employed at the facility.
Delivery process
The Saturn delivery process also begins at event 33. At sequencing, a
copy of the order record is sent via electronic data interchange to GM's
logistics information system. The system identifies the preferred mode
(truck or rail) and route for retail delivery. This information is
transferred electronically to QAT in the form of an advance shipping
notice (ASN). Using this information, QAT builds a file for each vehicle
and begins to develop a general delivery plan.
Truck delivery planning focuses on the anticipated availability of
QAT drivers and equipment. QAT personnel analyse the ASNs by
retailer to determine the number of trucks and drivers needed. Each
QAT truck can carry 12 Saturn vehicles. Under ideal conditions, 12
vehicles are sequenced for a particular retailer, produced within a 3-4
hour window and released to QAT for a one-stop delivery. If it appears
that multiple stop loads are imminent, the QAT supervisor plans
economical delivery combinations. Other Ryder carriers are used when
QAT has inadequate capacity or when a cost-reducing backhaul opportunity is present.
Rail delivery planning focuses on the number of rail cars needed in
Spring Hill. Using the sequencing information, QAT personnel analyse
the number of vehicles destined for a particular rail ramp in the GM
network. The total is divided by 15 (the number of Saturns that fit on a
trilevel railcar) to determine the number needed. This analysis is
conducted for each of the rail ramps in the system. The overall forecast
is sent each Thursday morning to GM's central logistics operation in
Detroit, MI, which then orders rail cars from CSX.
After each vehicle is produced (event 38) it is put through emissions
testing and a final Saturn employee inspection at the 'Inspiration Point'.
If everything is acceptable the vehicle is released to the carrier (event
40). A Premier Services employee scans a bar-coded card of the VIN
into the QAT computer system and drives the vehicle out of the
assembly plant. The card also contains vehicle destination and delivery
method information.
After obtaining the freight bills, the driver and load are dispatched
(event 42). The driver makes final trip preparations and departs for the
retailer(s) on the route. Barring problems, the driver arrives at the
retailer within 24-48 hours (depending on the distance and legal
driving hours available). Vehicles can be delivered to most retailers
Monday through Friday from 7 a.m. until 5 p.m., though some are more
flexible. The driver is responsible for presenting the freight bills to the
retailer representative, unloading each vehicle and conducting a joint
inspection of the vehicles. All damages and problems are noted on the
delivery receipt and freight bills. If necessary, a freight claim is filed in
the GM logistics information system. The retail delivery process
concludes when the retailer representative signs the freight bills,
indicating receipt of the vehicle (event 50).
Under most conditions, the driver returns directly to Spring Hill
empty for another load. Until late 1995 the QAT/Transportation
Unlimited contract with the Teamsters did not contain provisions for
handling automobile backhauls. This has been changed and QAT is
working to reduce the number of empty miles. Overall, QAT provides
delivery service to Saturn retailers at an average cost per mile of $0.39.
Less than 0.5% of all QAT delivered vehicles incur damage. In addition,
more than 98% of all loads are delivered on time, with an average
transit time under 1.5 days.
Rail delivery If the vehicle coming off the line is scheduled for rail
delivery it is taken to the rail marshaling or loading yard. The vehicle
is parked in a designated lane based on its destination rail ramp
(rather than by retailer). These lanes are assigned by a Premier
supervisor on a daily basis. Parking protocols are similar to those
used in the truck staging area. CSX is responsible for delivering an
adequate supply of trilevel railcars to the Saturn plant from their
Radnor yard in the Nashville area. CSX contracts with two companies
to assist them in the preparation and dispatch of Saturn loads. One
of the contractors (Inter-rail) inspects the empty railcars for damage
and other problems (e.g. missing tie-down straps) then makes necessary
repairs prior to placing the railcars on the four spur lines at
Saturn. They also prepare the railcars for loading by opening the
doors and securing the ramps between each railcar.
The second contractor, LT.5., has five inspectors at Saturn to
monitor vehicle quality in the staging area prior to the loading
process. Any damages or problems found are referred to the QAT
yard supervisor for resolution. Minor repairs are made on the spot.
In the rare case of a major problem the vehicle is returned to the
plant. The actual loading process is performed by a special crew of
Premier employees who adjust the loading ramps and drive the
Saturn vehicles onto the railcars, starting with the top level.
Normally, 4-5 railcars are loaded at a time on a given spur line.
The loading ramps are then lowered to the second level, the railcars
filled with vehicles and so on with the first level.
Since all rail cars on a single spur line may not be destined for the
same rail ramp, correct loading sequence is critical. It is extremely
difficult and time consuming to unload vehicles that have been
improperly placed on a railcar. After the block of railcars is completely
loaded a Premier employee secures all vehicles to the railcar by using
heavy nylon wheel straps. These straps allow the vehicles to ride
naturally using their own suspension to absorb the sway and vibration
of the rail system. This is a much more effective means of securing the
vehicle than the traditional method of chaining its frame to the railcar,
which led to high levels of suspension and frame damage.
Cost control
Cost control is of the utmost importance. In the automobile industry,
inbound and outbound logistics costs are passed along to the customer
in the form of destination charges. Owing to the low price of Saturn
vehicles this destination charge has a much greater impact on the
overall purchase price than would the destination charge on a Cadillac.
Thus the Vehicle Transportation Team is inclined to use low-cost
methods of retail delivery to lessen the logistics impact on the retail
price.
Damage rates
Minimization of transportation-related vehicle damage is an ongoing
issue. Although auto manufacturers and their carriers have vastly
reduced damage incidents and costs from the levels experienced 10
years ago, opportunities for further reduction exist. Damage prevention
rather than inspection needs to be the priority, according to the Vehicle
Transportation Team.
Inspections only serve to pinpoint who caused damage to a vehicle.
This leads to accurate determination of who should pay for a damage
claim but does not necessarily indicate why the damage occurred or
prevent future incidents. On the other hand, increased training of
vehicle handlers (at the plant, carrier and retailer levels) and decreased
vehicle handling (unloading and reloading at transfer points) reduce
the likelihood of damage. Thus the Vehicle Transportation Team prefers
to work with carriers that stress employee training and whose processes
minimize vehicle transfers.
Single-dealer loads
Increasing the proportion of single-dealer deliveries is another priority.
Saturn has found that 12 unit, single-dealer truckloads result in fewer
in-transit problems and less handling-related damage than do multistop
loads. Other positive results include increased equipment utilization
and improved shipment tracking capabilities. These results translate
into lower operational costs for carriers (Le. QAT, backhaulers and
drayage companies), fewer delivery delays and receiving headaches for
retailers and fewer distractions for the Vehicle Transportation Team.
Inventory turnover
Accelerating the flow of inventory from the marshaling yard is the
other internal priority. Saturn boasts nearly 100% compliance with the
72 hour guideline for dispatching new vehicles. However, a Saturn
benchmarking study revealed that a few automakers dispatch their
vehicles within 24 hours of production. The Vehicle Transportation
Team has a strong desire to achieve comparable results, though faster
inventory turns may require more multiple dealer loads.
Cost of service
The cost of delivery is analysed on a per vehicle basis and includes all
of the expenses incurred by Saturn. The total cost includes yard
activities, line haul moves, drayage and other related expenses. Rail
and truck delivery costs are compiled independently, then compared.
Truck delivery costs are relatively easy to capture since QAT provides
the vast majority of deliveries. Transfers from the assembly plant,
inspections and marshaling activities conducted by Premier employees
average $2.50 per vehicle. All other loading, line haul, dealer delivery
and traffic management activity costs are included in the truckload
rates negotiated by Saturn with QAT. These rates are based on the
distance from Spring Hill to the retailer. On average,this cost is $0.39
per mile for each vehicle with a range of $0.29-$0.45 per mile.
Rail delivery costs are more difficult to assess because of the number
of organizations involved in the process. The yard activities conducted
by Premier employees (vehicle transfers from the assembly plant to the
marshaling yard and railcar loading) cost Saturn approximately $8.50
per vehicle. Each I.T.S. inspection of a vehicle costs $0.90. Rail line haul
cost per vehicle averages $0.32 per mile, with a range of $0.22-$0.42 per
mile. Drayage from the destination rail ramp to the retailers runs at an
average of $12 per vehicle. Table A.3 provides a comparison of
estimated truck costs with rail costs for four current retailers. It reveals
that rail holds a distinct advantage over truck as distance increases. In
all but a few unusual situations, Saturn's transportation rates increase
at a decreasing rate.
Vehicle Damages
Vehicle damages related to the delivery process are evaluated on four
different bases to provide a comprehensive picture of the problem. The
proportion of transportation claims per vehicles shipped indicate
the frequency of vehicle damages. The cost per transportation claim
measurement highlights the financial magnitude of vehicle damages.
Both measurements are analysed on a modal basis. The breakdown of
claims by damage type and by responsible party often provide valuable
insight for process redesign and damage prevention efforts.
Overall, Saturn's performance in this area is exemplary. Less than 1%
of all vehicles shipped to retailers are subject to retailer transportation
claims. Only 0.45% of all truck deliveries incur damages. In contrast,
0.92% of all rail deliveries incur damage. However, the financial impact
of claims is reversed. An average damage claim for truck deliveries is
$204, whereas the average damage claim for rail is only $119.
The majority of claims are cosmetic in nature and do not affect the
performance of the vehicle. Paint chips and scratches, finish problems
caused by rail brake dust and upholstery stains are the most common
problems. Major claims for collision damage, broken windshields and
suspension problems occur infrequently.
Transit time
Transit time measurements focus on the interval from event 42 (vehicle
dispatched) to event 50 (vehicle received by retailer). Truck transit time
begins when the load is released by QAT and clears the Saturn security
gate. Rail transit time begins when CSX pulls a block of railcars off the
Saturn property. Transit time ends when vehicles are available for
retailer inspection. On-time percentage, transit time average and transit
time variation are analysed for both modes.
Truck delivery is much faster and more consistent than is rail
delivery. This should come as no surprise given the disparity of
delivery ranges (10-500 miles for truck compared with 500-2500 miles
for rail). The truck transit time average is 1.3 days, with a standard
deviation of 0.9 days. On-time performance is 98%-99% for truck
deliveries. In contrast, the rail transit time average is 7.6 days, with a
standard deviation of 2.3 days. On-time performance ranges from
75%-80% for rail deliveries.
Analytical approach
The pros and cons for the two delivery alternatives suggest that there is
no simple solution to this problem. Each location must be reviewed
individually based on the cost and service levels highlighted in
Table A.2, the potential for damage claims and the other major
stakeholder issues discussed throughout the case. Thus the challenge at
hand is to analyse all relevant selection factors in an objective,
systematic manner before making each delivery decision.
Given the type of information available an appropriate analytical
approach would be a categorical rating system. The current and anticipated performance of the two
delivery methods in each key area would be
evaluated via a simple grading system, such as 'satisfactory', 'neutral' and
'unsatisfactory'. These grades could then be assigned scores of +1, 0 and
-1 respectively, for developing a composite evaluation of carrier
performance. This approach is inexpensive, requires minimal performance
data and lends structure to an otherwise intuitive process. With this
approach in mind and an array of performance information in hand, the
Vehicle Transportation Team can proceed with its task of selecting the
best delivery method to serve each new Saturn retailer.
A.1.2 Starting with event 38, develop flowcharts of the delivery process for
truck and rail. Develop a second set of flowcharts that streamlines the
delivery processes, removes redundant, unimportant activities and
addresses concerns related to the current process.
A.1.3 Which delivery method would you recommend for each new retailer
to minimize the outbound logistics costs per vehicle?
A.1.4 Which delivery method would you recommend for each new retailer
to minimize transit time and transit time consistency?
A.1.5 Assuming that each new retailer will sell 720 vehicles annually, which
delivery method would you recommend for each new retailer to
minimize vehicle damage?
A.1.6 What is your final recommendation (truck or rail delivery) for each
new retailer? Why? Which stakeholder groups are likely to be most or
least satisfied with your decision? In addition, map the US territory
that is likely to be served by truck delivery.
A.1.7 CSX has suggested that Saturn consolidate all deliveries for southeast
Georgia and the east coast of Florida for a once per week unit train
delivery. The total outbound cost would be $210 per vehicle and CSX
guarantees a 3 day transit time. How would this affect Saturn's
delivery methods to their retailers in Savannah, GA, and Jacksonville,
FL?