Tronspn. Res:A. Vol. ZSA. Primed in Great Brnain.

No.

6. pp.

351-362,

1991

0191.2607/91 S3.W + .OO @ 1991 Pergamon Press plc

INTERNATIONAL INTERMODAL CHOICES VIA CHANCE-CONSTRAINED GOAL PROGRAMMING

HOKEYMIN Management Science Group, 314 Hayden Hall, College of Business Administration, Northeastern University, Boston, MA 02115, U.S.A.
(Received 30 June 1990; in revisedform

16 November 1990)

Abstract-Over the years, an increasing interdependence of the world economy has led to the considerable growth of international trade. Due to the lengthy distribution channel, international trade is often characterized by intermodal shipment which moves products across national boundaries via more than one mode of transportation. Consequently, the intermodal choice is of vital importance to the success of international trade. The intermodal choice, however, has never been a simple matter for any distribution manager because it can be affected by the multitude of conflicting factors such as cost, on-time service, and risk. This article develops a chance-constrained goal programming model to aid the distribution manager in choosing the most effective intermodal mix that not only minimizes cost and risk, but also satisfies various on-time service requirements.

1. INTRODUCTION

Since the Reciprocal Trade Agreement Act of 1934 reduced tariffs and encouraged free trade for U.S. companies, there has been a tremendous increase in foreign trade volume and value. Anderson (1984) reports that overall U.S. trade as a share of GNP has doubled from 1960 to 1985, and is expected to remain at 12% through 1990. As foreign trade escalates each year, many distribution managers have realized the importance of international logistics to the companys competitiveness in the world marketplace. The importance of international logistics is evident from a recent article in Purchasing World Magazine (1987) indicating that international logistic costs account for 30 to 50% of the companys production costs. Over the past decade, the increasing awareness of international logistics has forced many companies to reassess the design of their current transportation systems. Perhaps the most significant trend toward international logistics may be utilization of intermodalism. Intermodalism is generally referred to as the movement of products from origin to destination using a mixture of various transportation modes such as air, ocean liner, barge, rail, and truck. Intermodalism is a key part of international logistics because surface transportation (truck or rail) alone cannot cross the ocean that often separates one nation from another. Therefore, with the exception of cross-border trade with Canada and Mexico, intermodalism is indispensable to international trade. Intermodalism can provide great opportunities for reducing logistics costs and improving services, but can create a lot of hassles due to a variety of complex options. lntermodalism in international environments is more complicated than intermodalism in domestic environments because of increased shipping distances, additional document preparations,
TR(A) 25:6-C

greater uncertainties in foreign regulations, and the like. Intermodalism, which commonly uses containers, can save money and time by unitizing freight, protecting goods from weather, pilferage, and damage, and simplifying loading and unloading procedures (see e.g., Mahoney, 1985). Intermodalism can also improve service by using a faster mode, that is, air versus surface, for a segment of the haul (Osswald, 1985). On the other hand, intermodalism can create problems because goods are subject to different stresses and conditions in each mode due to the different shape of each mode (Mahoney, 1985). Additionally, intermodalism through containerization can limit certain international routes because not every port in the world is equipped to handle containers, restricting possible routings through noncontainer ports (Schary, 1984; Stock and Lambert, 1987). In light of the above discussion, the main focus of this study is to set a decision rule that best combines different modes of transportation and best maintains a continuous flow of products during intermodal transfer. In so doing, the distribution manager can take advantage of the full benefits of intermodalism while minimizing its disadvantages. As a powerful tool in setting such a decision rule, we propose and develop a chance-constrained goal programming (GP) model. In the next section, the international intermodal choice problem and its related issues will be clearly defined and illustrated with a hypothetical scenario. Then, underlying assumptions and chance-constrained GP formulation will be presented with justifications for the GP formulation. Also, to illustrate the validity of modelling efforts, a hypothetical problem mimicking real-world situations will be solved by the model. Finally, the research efforts will be summarized with implications of the current research and suggestions for future research.
351

352
2. PROBLEM SCENARIO

H.

Let us consider the problem that a typical multinational firm faces in shipping goods across international boundaries via different modes of transportation. These transportation modes can be air, rail, ocean carrier, barge, and truck. Each of these modes can be combined to various intermodal mixes such as truck-rail, truck-water (barge or ocean carrier), truck-air, and rail-water. Some of these mixes have their own names (see Fig. 1). For example, truckrail combination is dubbed piggybock. Specifically, piggyback refers to trailer-on-flatcar (TOFC) or container-on-flatcar (COFC). Piggyback has been the most widely used intermodal mix in the U.S. since it was deregulated on March 23, 1981, by the Interstate Commerce Commission (ICC) (Foster, 1981). Regardless of the popularity of such a mode, the distribution manager has to make intermodal choices by considering a variety of factors affecting .the efficiency of intermodalism. Examples of these factors include speed, reliability, capacity, and freight rate of each mode involved in intermodalism, and size of cargo (freight). Unfortunately, many of these factors are conflicting against one another. For example, water transportation is slower and less frequent, but substantially cheaper than air transportation. Also, water transportation, which is larger in capacity, is more ideal for shipments of heavy and bulky cargoes than air transportation. By the same token, similar comparisons can be made among other transportation modes (rail vs. truck, rail vs. barge, truck vs. air). Refer to Table 1 for general comparisons of the modes. From Table 1, it is obvious that there is no dominant mode of transportation that is the cheapest and fastest one among the various modes. Consequently,

a cost/service tradeoff analysis is always an underlying premise for any form of intermodal problems including international intermodalism. To perform the cost/service tradeoff analysis, we need to examine all the cost/service elements involved in international intermodal choices and, if appropriate, investigate their functional relationships with each mode. The following lists represent typical cost/service elements for international intermodalism. 1. Transportation cost-This is mainly based on freight rates which are determined by the type of the mode, size of cargo, and shipping distances. 2. In-transit inventory carrying cost -This is proportional to speed of the mode and size of cargo. This cost can be computed by the following formula suggested by Bender (1985a). IICC = TT x %ICC
x UF x FS

w
AIR BIRDYBACK PIGGYBACK

53
TRUCK FISHYBACK WATER

RAIL

Fig. 1. Types of intermodal services. Source: Adapted from Coyle, J. J., Bardi, E. J., Langley, C. J., (1988), The Management of Business Logistics, 4th edition, West Publishing Co., St. Paul, MN, p. 346.

where IICC = in-transit inventory carrying cost; TT = transit time of the mode; %ICC = unit inventory carrying charge (in percent); UF = unit value of freight; FS = freight size (in unit number). 3. Packaging cost-This cost is influenced by the type and speed of the mode. As a rule of thumb, the slower the mode used, the more expensive the packing cost is (Bender, 1985a). The reason may be that slower journey requires better packaging to withstand more shocks and bumps. Also, packaging cost for less-than-truckload (LTL) or lessthan-carload (LCL) shipment is known to be higher than that for full truckload or full carload because LTL or LCL shipment is more vulnerable to physical stress and pilferage (Cox and Van Tassel, 1985). 4. Insurance cost -This cost is related to the type and speed of the mode, and the value of freight. Consequently, the slower the mode and the more expensive the freight, the higher the insurance cost. 5. Documentation cost-This is affected by the mode used. The faster the mode used, the shorter the time available to prepare documentation, therefore, the higher the document preparation cost (Bender, 1985a). 6. Miscellaneous cost -This cost includes customs duty, handling cost, and loading and unloading cost at the port. 7. Transit time-This includes the time required for pickup and delivery, for terminal handling, and for shipment between origin and destination (Coyle et al., 1988). Because longer transit time results in higher inventory and frequent stockouts, short transit time is usually desired by many cosignees. However, on-time delivery is more crucial to international intermodalism than faster delivery in two different ways. First, faster transit time has often led to the arrival of products at the port long before the arrival of documentation needed

Chance-constrained goal programmjng Table 1. General comparison of transportation modes Characteristics 1. cost 2. Market Coveraae 3. Average Length of Haul (miles) 4. Equipment Capacity (tons) 5. Speed
6. Availability 7. Reliability (delivery time variability) 8. Damage

353

Truck Moderate Point-to-point 515 IO-25

Moderate High High Low

Rail Low Terminal-to-terminal 617 50-12,000

Slow Moderate Moderate Moderate-high

Air High Terminal-to-terminal 885 5-125

Fast Moderate High Low

Barge* Low Terminal-to-terminal 376-1.367 1.OOO-60,000

Slow Low Low Low-Moderate

*Ocean carrier has similar characteristics to barge. Source: Adapted from Stock J.R. and Lambert D.M. (1987) Strategic Logistics Management, 2nd Ed, Richard D. Irwin, Inc., Homewood, IL, p. 185.

the efficiency of international intermodalism (Harrington, 1983). Second, with the increasing commitment of U.S. companies to just-in-time (JIT) systems, nearly 90% of U.S. managers surveyed by Lieb and Millen (1988) opted for on-time delivery rather than other services. usually represents the consis8 Reliability -This tency of the transit time that relates to risks of delay. Because unreliable services increase safety stock levels, reliability is one of the most important factors in choosing the mode. 9. Intermodal compatibility-Consignors may face serious difficulties in transferring goods between transportation modes operating in different interchange points such as ocean liners and rails. Accordingly, the most prevalent form of modal combinations for intermodal transfer have been the truck-rail, truck-water, and truck-air, which are compatible (accessible) to each other because of trucks point-to-point coverage (Coyle er al., 1988). In addition to the cost/service tradeoff analysis, international intermodal choice problem presents unique situations one does not encounter in domestic intermodalism due to the involvement of exporting/ importing ports and Foreign Trade Zones (FTZs) in the multilevel distribution channel shown in Fig. 2. These unique situations occur in selecting ports and utilizing FTZs. To elaborate, unlike domestic intermodalism, port selection is crucial for international intermodalism in that inefficient port operations and/or facilities may delay intermodal transfer, and, more seriously, the absence of equipment for handling containers may prevent intermodal transfer at a certain port. As opposed to domestic intermodalism that never requires customs clearance, international intermodalism can benefit from FTZs. FTZs are areas, adjacent to a port of entry, that are set aside by the government for packaging, sorting, storing, labeling,

to release them. This undermines

exhibiting, manufacturing, and reshipping imported goods without paying customs duty until the goods are sent into the domestic territory (Leenders ef al., 1989). The FTZ offers some potential benefits for international intermodal shippers because passage through customs is known to be usually faster from a FTZ than from the port of entry, and goods are more secure from pilferage in a FTZ than in a typical warehouse, thereby lowering insurance rates involved in intermodal shipments (Tansuhaj and Jackson, 1989). Undoubtedly, port selection and Foreign

Fig. 2. Typical international logistics flow. Source: Adapted with modifications from Bender P. (1988) The international dimensions of physical distribution management. In J. Robson and R. House (Eds.), The Distribution Handbook, p. 783. The Free Press, New York.

354

H. MIN pose onerous computational difficulties even for solving the moderate-sized problem. On the other hand, in GP formulation, an addition of one more objective to the problem is nothing more than an addition of one more constraint; consequently, the computational complexity of GP would not increase significantly with the number of objectives. Also, due to the special structure of GP, a new objective (in the form of a new goal constraint) can always be added to the problem without violating the feasibility requirements of a given solution [Zeleny (1982)]. For these reasons, GP can better accommodate a large number of conflicting objectives than other alternative methods. Furthermore, the chance-constrained GP model can be formulated within a standard linear programming (LP) framework. Thus, it can be solved using a variety of inexpensive and easily accessible commercial codes such as LINDO (1984). This feature of chance-constrained GP would not require extensive computer programming efforts that, otherwise, might have been needed by some generating techniques, such as the multiobjective simplex method. Prior to developing the model, we make the following underlying assumptions. 1. The term of shipping agreement is based on ex works (EXW). The term ex-works stipulates that the quoted purchasing price applies only at the point of origin (see, e.g., Coyle et al., 1988). Hence, the buyer (consignee) is fully responsible for all of the costs and risks involved in shipping goods from the origin (the door of suppliers) to the final destination (the door of a buyers company). This assumption is necessary to make the model more useful for other shipping options because other terms of shipping agreements such as F.O.B. (free on board) and C.I.F. (cost, insurance, freight) are subsets of EXW. 2. Intermodal transfers are always online transfers (moving freight between transportation modes of the same company) rather than interline transfers (between two different companies). 3. Freight rates are proportional to shipment sizes. 4. Transit time of the mode is proportional to the distance traveled by the mode. 5. There are no differing load and size restrictions for inland road and rail transport in foreign countries. 6. Consolidated shipments (e.g., TL or CL shipments) imply containerized shipments. 7. For containerization, only the 20 x 8 x 8-foot container, which is the most prominent container in use today, is considered because it can be carried out by both air and surface transportation. For example, it is very difficult to insert a larger 40 x 8 x 8-foot container into even a Boeing 747 air freight (Mahoney, 1985). 8. All the trucks considered in this study are 40 x 8 x 8-foot trailers with 2,560 cubic feet of space. 9. Distribution centers in an importing country are

Trade Zone usage constitute the important components of the international intermodal choice problem. With the above in mind, the international intermodal choice problem must tackle the following issues: 1. How to choose the most cost-service-effective transportation mode for each segment of the international distribution channel and how to blend intermodal combinations for the entire distribution channel so as to minimize disruption at interchange points? 2. How to select exporting/importing ports? More specifically, does the port have special equipment for handling containers? Does the port provide secure operations for minimizing cargo loss and damage? Does the port have greater accessibility to domestic inland transportation? Does the port provide low cargo handling charges? 3. How to utilize FTZs in an effort to strategically position imported goods in advance of quota openings or demand increases without paying customs duties?

3.MODELDEVELOPMEN.l

To help distribution managers set rational and consistent guidelines for evaluating the cost-serviceeffectiveness of intermodal choices in international environments, we develop a chance-constrained goal programming (GP) model. Generally speaking, chance-constrained GP is referred to as a multiple objective technique for determining solutions that satisfice multiple goals where there are elements of risk and uncertainty associated with parameters (technological coefficients) and/or constraints (See, e.g., Wynne, 1978). We decided to employ a chance-constrained GP approach for both practical and technical reasons. From a practical standpoint, a GP aspect of the model developed in this study reflects the diverse and conflicting nature of goals (e.g., minimizing transportation costs versus maximizing on-time delivery services) associated with international intermodalism. A chance-constrained aspect of the model reflects the dynamic and uncertain nature of constraints (e.g., just-in-time requirements) associated with international intermodalism. Hence, a chanceconstrained GP model is suitable for solving international intermodal problems. From a technical standpoint, we preferred chance-constrained GP to other multiple objective techniques because the computational complexity of GP is less severe than that of other multiobjective programming techniques (so-called generating techniques) such as weighting, constraint, noninferior set estimation (NISE), and multiobjective simplex methods. In particular, Cohon (1978) observed that the computational burden of the generating techniques increase exponentially with the number of objectives (goals). Therefore, the generating techniques can

Chance-constrained goal programming break-bulk terminals which separate consolidated shipments. Consequently, when there is only one consignee (customer), the distribution center is excluded from the international distribution channel because it is not necessary to break bulk. 10. All the importing ports considered in this study have FTZs. This assumption makes sense to us because at least 91 ports in the U.S. have the FTZs, as of February 1984. Within the aforementioned model framework, the final model formulation is presented in the Appendix.
4. MODEL APPLICATION

355 Japan, with the of the monitors. Japan, with the of the monitors. Japan, with the of the monitors.

1. Supplier 1 production 2. Supplier 2 production 3. Supplier 3 production

is located in Kobe, capacity of 500 units is located in Osaka, capacity of 400 units is located in Kyoto, capacity of 300 units

To illustrate how the proposed model works, we apply the model to a hypothetical intermodal choice problem that may occur in typical international distribution operations. 4.1 Background of the illustrative problem A multinational firm located in Needham, Massachusetts- high-tech belt area around Route 128 of Boston-manufactures and sells personal computers (PCs). Recently, increasing competition from Far Eastern countries coupled with rising labor costs in the New England area forced the company to change its product line. Rather than manufacturing all the components/parts (e.g., computer chips, video monitors, and hard disks) for the PCs, the company decided to explore the possibility of importing these high quality components/parts from some Japanese suppliers at cheaper prices. Particularly, based on the past sales record, the company estimated that 1,200 units of video monitors would be needed within the next 30 days. The company also figured that three Japanese suppliers with different locations were ready to provide a needed number of the monitors. The locations and current production capacity of these suppliers are as follows:

However, the executive group of the company worried that high distribution costs and long leadtime, resulting from the international distribution channel, might offset cost savings gained through the inexpensive international sourcing. So, the logistics division of the company initiated a comprehensive study of the companys international distribution. After the study, the distribution manager found three major issues facing the company: (a) How to choose and combine transportation modes when shipping the monitors from the Japanese suppliers to the U.S. manufacturing plant? (b) How to select exporting/importing ports? (c) How to utilize a FTZ? Prior to further analysis of these issues, the distribution manager identified the potential product flows in the international distribution network (see Fig. 3). He also prepared a list of key factors which greatly influence the international intermodal choice problem (see Fig. 4). Then, in consultation with a freight forwarder, he collected data pertinent to the problem. The volume, weight, value (purchasing price), and unit inventory carrying charge of each monitor are summarized as follows: 1. Volume of the monitor - 2 cubic feet per unit. 2. Weight of the monitor - 5 kilograms per unit. 3. Value (purchasing price) of the monitor - $100 per unit. 4. Unit inventory carrying charge of the monitor1%. Transportation, consolidation, packaging, loading, and unloading costs associated with the various modes are given in Tables 2, 3, and 4. These tables

Fig. 3. Alternative international routes.

Cost Factors size/type/ value or

freight freight shwlng rate route

ervlce translt

Factors time

Risk Factors damage/loss mode avallabillty egulpment avallablllty claims speed/type of the mode labor strikes

Intermodal compatlbllity Just-In-Time requirement loadlng/unloadlng

(distance) speed/type of the mode Consolldatlon

(LTLvsTL or LCL v-3 CL)

lnternatlonal Factor; documentation customs duty Foreign Trade Zone frelght forwarder foreign regulation license reowrement

Modal CholCe and f-11x truck rail water (barge/ ocean carrier) air PIggyback flshyback blrdyback

Port

Selection

locatlon faclllty weather oroxlmlty to local dlstrlbutlon centers transshipment quota opening

status

of US

1
I International Intermodalism

Fig. 4. Key factors of international intermodalism.

Table 3. Ocean distribution cost estimation (in $/cubic foot) Ocean Freight Charges (including insurance) Water Table 2. Export distribution cost estimation (in $/cubic foot) in Japan Freight Charges in Japan Truck (LTL) Truck (TL) Rail (CL) Kobe to Tokyo Osaka to Tokyo Kyoto to Tokyo Kobe to Nagoya Osaka to Nagoya Kyoto to Nagoya Nagoya to Yokohama 5.00 4.90 4.10 2.00 1.95 1.80 1.90 1.20 Unloading and Loading at New York Unloading and Loading at San Francisco Unloading and Loading at New Orleans Unloading and Loading at Boston FTi! Storage at New York FTZ Storage at San Francisco FTZ Storage at New Orleans FTZ Storage at Boston USA Customs Duty USA Internal Revenue Tax Import Documentation and License Fee Wharfage Charge at the Seaport Airport-Usage Charge Tokyo to New York Yokohama to San Francisco Yokohama to New Orleans (through Panama) Yokohama to Boston 6.00 6.30 6.40 Air 100

Import Storage and Handling Costs Water 5.00 4.00 4.80 0.20* 0.15. 0.25* 2.50 1.20 1.10 0.50 Air 4.00 0.30+ 2.50 1.20 3.00 0.75

Packaging and Handling Costs in Japan Truck (LTL) Truck (TL) Rail (CL) Export Packaging Storage and Consolidation at Nagoya Loading and Unloading at Yokohama Loading and Unloading at Tokyo Loss and Damage 3.50 2.50 1.00 2.00 2.50 0.20 3.20 1.10 3.00

0.10

0.30

*All FTZ storage rates are based on daily storage charges. 356

Chance-constrained

goal programming

357

Table 4. Import distribution cost estimation (in %/cubic foot) in the United States Freight Charges in U.S.

Truck (LTL) New York to Needham

San Francisco to Needham New Orleans to Needham Local Delivery from Boston Seaport to Needham 4 -

Truck (TL)
30 15 2.50

Piggyback
20 10 -

Fishyback
7 -

Birdyback
25 90 50

All the freight charges include local delivery charges, which includes costs of loading and unloading.

also provide information about other associated costs including insurance, documentation, importlicense fee, customs duty, storage, and wharfage charges. Estimates of average transit times along with transit time variability for the various modes are given in Tables 5, 6, and 7. Based on the analysis of factors and data, the distribution manager developed two major transportation strategies: Direct (LTL) shipments from the Japanese suppliers to an exporting port (e.g., Tokyo Narita airport) via trucks and overseas shipments from the exporting port to an importing port (e.g., New York Kennedy airport) via air and finally domestic shipments from the importing port to the companys plant in Needham via trucks or combinations of other modes such as birdybacks. Consolidated (TL or CL) shipments from the Japanese suppliers via trucks or piggybacks, and overseas shipments from the exporting port (e.g., Yokohama seaport) to an importing port (e.g., San Francisco seaport) via ocean carriers and finally domestic shipments from the importing port to the companys plant via trucks or combinations of other modes.

These strategies can be further complicated by taking into account the usage of a FTZ and various international shipping channels (see Fig. 5). The SUCcess of these strategies hinges on how fully the following goals of the company can be achieved. 1. Minimize all the distribution costs involved in international intermodalism. 2. Minimize delay of shipments, that is, minimize transit times to prevent stockout situations. 3. Minimize in-transit inventories at the consolidation center, exporting/importing ports, and FTZs. 4. Forbid early shipments to the fullest extent in order to satisfy the JIT manufacturing requirement. 4.2. Model test and results The base-line model using the hypothetical data listed in Tables 2 through 7 resulted in a mixed integer chance-constrained GP problem with 26 constraints and 37 variables, which include 29 zero-one integer variables. The model was tested on the VAX-l l/785 system. To solve the model, the ZOOM version of XMP mathematical programming (Marsten, 1981) was used. For an experimental purpose, the model was run 10 times by altering model parameters and reassigning goal weights. The model solution required only 0.53 through 0.94 ss of CPU time.

Table 5. Export transit time estimation (hours) in Japan Average Transit Time and Transit Time Variability Truck (LTL) Kobe to Tokyoa Osaka to Tokyoa Kyoto to Tokyo Kobe to Nagoyab Osaka to Nagoyab Kyoto to Nagoyab Nagoya to Yokohama 5.00 (2.30) 4.50 (2.00) 4.30 (1.30) 25.00 (3.00) 24.50 (2.00) 24.30 (1.00) Truck (TL) Rail (CL) 3.00 (1.00) 4.00 (3.00)

Transit times include loading/unloading and waiting time at the Tokyo (Narita) international airport. bTransit times include loading/unloading, consolidation, and storage time at the Nagoya consolidation terminal. Transit time includes loading/unloading and waiting time at the Yokohama seaport. Numbers in parentheses represent transit time variability.

358 Table 6. Ocean transit time estimation (hours)

H MIN

Average Transit Time and Transit Time Variability Water Tokyo to New York Yokohama to San Francisco Yokohama to New Orleans Yokohama to Boston Air 15 (2) -

720 (120) 1080 (168) 1200 (240)

Numbers in parentheses represent time variability. Transit time includes loading/unloading and waiting time at the port. Transit time variability includes unexpected delay at the port due to labor strikes or severe weather

conditions.

First, we carried out sensitivity analyses to examine the response of model solutions to changes of the model parameters such as freight rates, inventory carrying charges, other related distribution costs, transit times, and transit-time variability. When we supposed substantial (e.g., 100%) increases in distribution costs and then modified the related parameters such as freight rates, inventory carrying charges, packaging, handling and storage costs, the model test revealed no change in the base-line solution shown in Table 8. Further, we tested the model with dramatic changes (e.g., 100% increases) in either transit times or their variability. The model solution still remained the same. Therefore, we can conclude that the model solution was somewhat robust to even drastic changes in costs, time, and variability. From Table 8, we found that faster modes such as LTL truck, air, and piggyback were chosen over slower modes. This result could be explained in two ways. First, faster modes are not necessarily more expensive than slower modes because faster modes can save a substantial amount of in-transit carrying costs, thereby reducing total distribution costs by speedy and often safer deliveries. Second, early shipments resulting from faster deliveries can be offset by a lengthy stay in a FTZ. To be specific, Table 8 indicates that the imported monitors should be stored in the New York FTZ for approximately 28 days so that the company can not only delay the payment of customs duty until the monitors leave the zone, but also deliver the monitors just when the company needs them.

In addition, we conducted sensitivity analyses of goal weights (i.e., relative importance of goals) to explore the response of model solutions to changes of the companys business policy (e.g., costcontainment, JIT, or consistent service). When the company heavily emphasized the cost-cutting policy, the model solution is no different from the result shown in Table 8. This test was actually done by assigning a three times heavier weight for the goal of cost-minimization (i.e., W, = 3) than other goal weights. By the same token, to evaluate the robustness of the consistent delivery policy, we assigned a three times heavier weight for the goal of minimum transit time variability (i.e., W,+ = 3) than other goal weights. We still obtained the same result. However, when the prevention of early shipments was considered much more important than cost reduction or service consistency, the model resulted in a different solution summarized in Table 9. Table 9 suggests that a slower route through ocean was chosen over a faster route through air because the company might decide that early shipments were more undesirable than late shipments. Such a situation may occur when the company predicts a substantial price increase of the imported items in the near future or a temporary decrease in demand requirements. Specifically, Table 9 shows that the company may allow a minor shipping delay of about 64 h. Finally, we investigated the response of model solutions to simultaneous changes of model parameters and goal weights. Once again, changes of both model parameters and goal weights associated with transit times resulted in a different solution as shown in Table 10, whereas other changes produced the same solution. The result shown in Table 10 is virtually the same as the one shown in Table 9 with the exception of the length of shipping delay and distribution costs. The increases in shipping delay and distribution costs are due to changes in estimated transit times that, in turn, affected total transit times as well as in-transit inventory carrying costs. To sum up, the modal choice is greatly affected by the speed of a mode rather than either the freight rate or the delivery-time variability of a mode. More importantly, the companys shifts in priority of goals had much greater impact on the modal choice than parametric changes of cost, time, and variability.

Table 7. Import

transit Average

time estimation Transit

(hours) Time Variability Fishyback 192 (28) 72 (24) 144 (48) Birdyback 2 (I) 7 (2) 4 (1) -

Time and Transit Piggyback

Truck (LTL) New York to Needham San Francisco to Needham New Orleans to Needham Local Delivery from Boston Seaport to Needham Numbers in parentheses represent 4 (1) -

Truck (TL) 144 (24) 48 (12) 1 (0.5)

time variability.

Chance-constrained goal programming

Consolidation cuut Exporting Epct Importing eQd

359

Fig. 5. Alternative distribution flow.

5. CONCLUSION

During the past decade, the rapid growth of U.S.-based multinational firms has revolutionally changed the current distribution concept from domestic to international. The transfer from domestic to international distribution provides a new set of challenges and opportunities for many distribution

managers. Perhaps one of the most significant challenges and opportunities may be international intermodalism. Yet, an analytical study dealing with international intermodalism is almost nonexistent up until today. This article has made an attempt to initiate such an analytical study by developing a chanceconstrained GP model that was designed to evaluate various distribution strategies with different modal

Table 8. The result of a baseline Distribution (1) Kobe (2) Osaka Channels (3) Kyoto All LTL trucks J J 1 Chosen Modes

model Chosen Shipping Options

Direct and separate shipments

Nonconsolidated and separate shipments New York Airport t f + Usage of the New York i Cu/omsOfr \ 1 I Total days) j length of stay at the New York FTZ is 669 h (approximately 28

LTL trucks

for channel

(l), (2), and (3)

Nonconsoiidated and separate shipments

Needham Total distribution cost = $342,124 Total transit time variability = 14.6 h For the initial run, equal weights of WY = W; the company equally emphasizes the goals of minimum = W; = W; = 1 were assigned, presuming that cost, on-time delivery, and consistent delivery.

360

H.

MIN

Table 9. The model result (with emphasis on on-time delivery) Distribution Channels (1) Kobe (2) Osaka (3) Kyoto All LTL trucks Indirect and separate shipments Chosen Modes Chosen Shipping Options

Center I Yokohama Seaport

! I

TL trucks

Consolidated shipments

Ocean carrier

Consolidated shipments

San Farncisco Seaport Customs Office

Needham

TL birdyback

Consolidated shipments

Total distribution cost = $1,182,030 Total transit time variability = 129 h For this run, different weights of IV: = 1, W; = 3, W: = 2, I+: = 1 were assigned to reflect the relative importance of the on-time delivery goal. The FTZ was not used due to a shipping delay of 64 h.

Table 10. The model result (with changes in transit times and strictly forbidden early shipments) Distribution Channels (1) Kobe (2) Osaka (3) Kyoto All LTL trucks Indirect and separate shipments Chosen Modes Chosen Shipping Options

Nagoya Consolidation Center

I I I

TL trucks J Yokohama Seaport

Consolidated shipments

I San Francisco Seaport 1 Customs Office

Ocean carrier

Consolidated shipments

TL birdyback 1

Consolidated shipments

Needham

Total distribution cost = $2,087,620 Total transit time variability = 129 h For this run, different weights of WI = 1, W; = 6, I+; = 2, W; = I were assigned and all the estimated transit times were increased by 100%. The FTZ was not used due to a shipping delay of 36 d and 4 h.

Chance-constrained combinations, ments logistics channels, and service requirein uncertain (stochastic) environments. Although the model was applied to solve the hypothetical intermodal choice problem associated with importing, it has the capability to handle both importing (foreign sourcing) and exporting problems because exporting can be considered as simply a reverse flow of importing. Furthermore, considering the cost and complexity of necessary hardware and software, we have formulated the model in such a way that it can be easily solved by standard commercial software packages within a reasonable amount of CPU time. For instance, in order to overcome the computational difficulty arising from the nonlinear integer formulation, we used the deterministic equivalent form of the chance constraint (Charnes and Cooper, 1963) that did not require the nonlinear de-

goal programming

361

cision

variables.

research, however, is needed to refine the suggested model by taking into account foreign regulatory requirements and the option of a landbridge where foreign cargo crosses a country en route to another country (see, e.g., Stock and Lambert, 1987, for an idea of landbridges). Future
REFERENCES

Anderson D. L. (1984) international logistics strategies for the eighties. Proceedings of the Twenty-Second Annual Conference of the National Council of Physical Distribution Management. Oak Brook, IL, pp. 355-375. Bender P. S. (198Sa) Logistics system design. In J. F. Robeson and R. G. House (Eds.). The Distribution Handbook, pp. 143-224. TheFreePress, New York. Bender P. S. (1985b) The international dimension of physical distribution management. In J. F. Robeson and R. G. House (Eds.), The Distribution Handbook. pp. 777814. The Free Press, New York. Charnes A. and Cooper W. W. (1963) Deterministic equivalents for optimizing and satisficing under chance constraints. Ops Res., 11, 18-39.

Cohon J. L. (1978) Multiobjective Programming and Pianning. Academic Press, New York. Cox R. M. and Van Tassel K. G. (1985) The role of packaging in physical distribution. In J. F: Robeson and R. G. House (Eds.) The Distribution Handbook, pp. 737-773. The Free Press, New York. Coyle J. J., Bardi E. J., and Langley C. J. (1988) The Management of Business Logistics, 4th ed. West Publishing Company, St. Paul, MN. Foster T. A. (1981) Domestic intermodalism: Radical change, rapid progress. Distribution, 80(11), 34-38. Harrington L. H. (1983) Plugging into world market. Traffic Mgmnt., 22(10), 31-38. How PMs are going global. (July 1987) Purchasing World, 63-69. Leenders M. R., Fearon H. F., and England W. B. (1989) Purchasing and Materials Management, 9th ed. Richard D. Irwin, Homewood, IL. Lieb R. C. and Millen R. A. (1988) JIT and corporate transportation requirements. Trans. J., 27(3), 5-10. Mahoney J. H. (1985) Intermodal Freight Transportation. EN0 Foundation for Transportation, Inc., Westport, CT. Marsten R. E. (1981) The design of the XMP linear programming library. Trans. Math. Software, 7, 481-497. Osswald W. C. (1985) lntermodalism as an alternative technology. Proceedings of the Twenty-third Annual Conference of the Council of Logistics Management. Oak Brook, IL, pp. 295-303. Schary P. B. (1984) Logistic Decisions: Text and Cases. The Dryden Press, New York. Schrage L. (1984) Linear, Integer and Quadratic Programming with LINDO: Users Manual. Scientific Press, Palo Alto, CA. Stock J. R. and Lambert D. M. (1987) Strategic Logistics Management, 2nd ed. Richard D. Irwin, Inc., Homewood, IL. Tansuhaj P. S. and Jackson G. C. (1989) Foreign trade zones: A comparative analysis of users and non-users. J. Bus. Log., 10(l), 15-30. Wynne A. J. (1978) Multicriteria Optimization with Separable and Chance-constrained Goal Programming. Unpublished PhD dissertation, University of Nebraska, Lincoln, NE. Zeleny M. (1982) Multiple Criteria Decision Making. McGraw-Hill. New York.

APPENDIX

A.1. I, J K 01 CJ EP PF SJ LT FT CK

Index sets
Set of all nodes Set of all transportation modes Set of all consignors Set of consolidation centers Set of exporting ports Set of importing ports with FTZs Set of all consignees Set of LTL trucks Set of consolidated modes Set of modes compatible to the mode previous segment of a channel

u
T/k V<,1 B N M w,+ used for the w*-

W,
A.2. Parameters S l/A Shipment size (in unit number) from node i to node j via mode k Unit freight rate from node i to node j via mode k F,,A Unit packaging and handling charge from source H,,, node i to port j via mode k C Jk Unit import handling cost from port i to port j via mode k Hourly FTZ storage charge at port j G, R. Unit in-transit carrying charge (in percent) P Unit price of a good W,

Unit shipping volume (in cubic foot) of a good Estimated transit time from node i to node j via mode k Estimated transit time variability from node i to node j via mode k Desired total shipping time (random value) for ontime service Total number of consignors An arbitrarily chosen extremely large number Cardinal weight determined by relative importance of lower distribution costs Cardinal weight determined by relative importance of early shipments Cardinal weight determined by relative importance of late shipments Cardinal weight determined by relative importance of smaller transit-time variability

A.3.
X3,,, Y =, a, +

Decision variables
1, if mode k traverses 0, otherwise (0,l) dummy variable Length (in hours) of Positive deviational distribution costs (in arc (i,j)

stay in the FTZ area variable that represents dollars)

total

362
6

H. MIN Negative deviational variable that represents the degree (in hours) of early arrival of shipments Positive deviational variable that represents the length (in hours) of a shipping delay Positive deviational variable that represents the degree (in hours) of transit time variability
X,,, - N ,EO,

64.8)

4 d,

Y = 0,

jeEP kELT

(A.9)

A.4.

Formulation

Minimize

Z = W,+d,+

+ W-d,-

+ W2+dZ+ + W3+di+

1 X,,:,,- N(1 - Y) = 0,
64.1) !EOl

j E CJ
keLT

(A.lO)

Subject to

,gFZ, = 6,

(A.ll)

CCC(U.S,,,(F,,+H,,,+C,,,)+T,,,RP.S,,,)
rel

,e,

ICA

(A.12)

x,,, +

4CEP /fPf

c c c S,,,
,e*

G,

Z, - d,- = 0

(8.2)
The objective function (A.l) minimizes the weighted sum of deviations from the lowest total distribution cost, targeted on-time (JIT) requirement and the lowest transittime variability. Constraints (A.2) through (A.4) are goal constraints. Constraint (A.2) minimizes total distribution costs including handling, storage, and in-transit inventory carrying costs. Constraint (A.3) states that, given the prescribed significance level of Q, the manager is willing to have the on-time service requirement unsatisfied at most (I - a) proportion of the time. The reason is that, without some degree of uncertainty, the manager cannot estimate the desired lead time that may be affected by a variety of uncertain events such as unexpected changes in the demand level, poor weather, and labor strikes. Also, it is noted that two-side goals rather than one-side goal are set to prevent both early and late shipments because on-time shipments are crucial for the success of JIT manufacturing operations. Constraint (A.4) minimizes transit-time variability. Constraint sets (A.5) through (A.12) are system (feasibility) constraints. Specifically, constraint set (A.5) insures that every shipment should be picked up from every consignor. Constraint set (A.6) assures that any shipments leaving the consignor must be sent to either an exporting port or a consolidation center prior to the importing process. Constraint set (A.7) represents flow-continuity for the consolidated transshipment process, that is, any shipments leaving the consolidation center should be sent to an exporting port and then to an importing port via compatible modes. Constraint set (A.8) represents flow continuity for the importing process, that is, any shipments leaving an exporting port should be delivered to an importing port and then to a consignee via compatible modes. Constraint sets (A.9) and (A.lO) consider two different shipping options: direct or consolidation. If consolidation is not needed, only constraint set (A.9) holds while constraint set (A.lO) does not hold. If consolidation is required, only constraint set (A. 10) holds while constraint set (A.9) does not hold. Constraint (A. 11) counts the total length of stay of imported goods at the FTZ area. Constraint set (A.12) is introduced to nullify constraint (A. 1l), when there is a shipping delay.

+ d2- - dz = B] h (Y, Prob. .c c c 7YtX,,X i IE/ IEJ kEK

(A.3)

where an element o is a statistical significance level that is a probability measure of the extent to which the violation of constraint (A.3) is allowed. That is, it is not strictly required that constraint (A.3) always holds, but constraint (A.3) will be satisfied if it holds with a prescribed probability of o. If only the right-hand side value, B, of constraint (A.3) is uncertain and normally distributed, the deterministic equivalent form of constraint (A.3) will become (Charnes and Cooper, 1963):

where E(B) = expected value(mean) of random value B; var(B) = variance of random value B; z,, = : score value of standard normal variable with an area 01.

c c c v,,:,I
E, ,tJ kEli

X,, - A+ = 0,
I E

(A.4) (A.5)

OI

k E L7

x1*, -

rn6CK

c x,,

0,

i+h+j
i E 01 h E EPUCJ j E EPUPF kELT

(A.6)

if p f j
p E EP

(A.7)