Optimized Motor Carrier Selection at Westvaco1

A typical paper mill might produce 1200 tons of paper per day to fill orders from 250 customers One hundred truc!load shipments per day "ould not #e unusual for a mill served #y 20 motor carriers $he carriers "ill generally accept shipments to any destination that they serve% su#&ect to daily volume commitments and e'uipment availa#ility (ach carrier has a different and some"hat comple) rate structure *iven a pool of orders that must #e shipped on a given day% the mill+s pro#lem is to assign truc!loads to carriers to minimize its total shipping cost

Westvaco Company Overvie"

(ach year Westvaco sells over ,2 #illion "orth of manufactured paper% paper#oard% and specialty chemicals -roduction occurs at five domestic paper mills and four chemical plants .n addition% Westvaco has many converting locations% "hich manufacture li'uid pac!aging% envelopes% folding cartons% and corrugated #o)es Some of Westvaco+s products include /ine papers% often used in printing applications 0magazines and annual reports1 2leached paper#oard% used in pac!aging 0mil! and &uice cartons% freezer to oven entrees% and so forth1 3raft paper% used for corrugated #o)es and decorative laminates 0such as /ormica1 Chemicals% including activated car#on printing in! resins

$ransportation /unction
$he corporate transportation function has a dual role at Westvaco .t supports the operating locations #y negotiating freight rates and service commitments "ith rail% truc!% and ocean carriers .n addition% it serves as an internal consulting group for revie"ing operations in the field and ma!ing recommendations on streamlining tas!s% ma!ing organizational changes to support changing customer re'uirements% and supporting the implementation of ne" technology 4ocal traffic departments are responsi#le for day5to5day operations of mills and plants% including carrier assignments% dispatching% and s"itching lists for the railroads

/rom -ractical Management Science 02nd ed % Winston and Al#right% 2001 6u)#ury -ress% pp 27152781

-roduction Overvie"
$he production cycle is summarized in /igure 1

Customer Service9 Orders :eceived

6elivery9 Order 6elivered to Customer

Scheduling9 Orders Scheduled to Meet 6elivery 6ate

6istri#ution9 4oads assigned to truc! carriers% rail% and ocean vessels

Manufacturing9 Orders -roduced on -aperma!ing Machines /igure 19 -roduction Cycle Overvie"

4oad -lanning9 4ess5than5$ruc!load ;uantities Consolidated

Orders $he ma&ority of paper orders are for rolls% "here customers re'uest a specific grade and size of paper 0diameter and "idth1% amount 0pounds% or linear or s'uare feet1% and delivery date $he orders typically range in "idth from < to 70 inches With greater emphasis on &ust5in5time production #y Westvaco+s customers% delivery dates are sometimes specified in half5hour time "indo"s Orders that arrive #efore or after the time "indo" are not accepted Scheduling Once orders are received% they are scheduled on paper machines up to 200 inches "ide $he paper #usiness is heavily capital intensive9 ne" machines can cost over ,=00 million each Machines usually run 2= hours a day and scheduling is done to minimize "aste "hile meeting shipping date re'uirements After production of a >parent> roll% the orders are cut on a re"inder into the e)act order size Load Planning (ach morning a load planner must revie" the previous day+s production to divide large orders and consolidate less5than5truc!load 04$41 orders into truc!load 'uantities Special attention is necessary to ensure that delivery re'uirements are met for orders that are consolidated Orders typically "eigh #et"een 1000 and 150%000 pounds A truc! can generally pull a trailer "ith =?%000 to =<%000 pounds of paper 6epending on the construction of the trailer% this is the ma)imum "eight limit that can #e loaded "hile remaining under federal "eight limits Some care must also #e ta!en to remain "ithin a)le "eight limits $he goal of the load planner is to ma)imize the "eight on a trailer "hile determining a route that minimizes the total num#er of miles traveled per day% "ith no truc! ma!ing more than four stops 0three stops plus the final destination1 Distribution $his case focuses on the distri#ution pro#lem sho"n in the #old #o) in /igure 1 After loads are planned% they are turned over to a transportation planner to assign carriers to loads $he planner has a contract for each carrier that gives the rates to each destination served 0state or zip code range1 $he rates include a mileage charge% a stopoff charge% and a minimum charge per truc!load $he transportation planner also has a list of the trailers availa#le for each carrier $he planner "ill select a carrier for a given

2?0 2850

-rof @uran

shipment #ased on the !no"ledge of the #est carriers for a given traffic lane% su#&ect to availa#ility Some carriers have minimum daily volume commitments that must #e met After the carrier is selected for a given load% the planner updates the information in the mill+s mainframe computer and displays this information in the shipping area $he selected carrier+s trailer is spotted and #rought to the loading doc! and loading commences $he shipment information is then phoned or fa)ed to the carrier A Sample Distribution Problem $a#le 1 contains a scaled5do"n version of a typical distri#ution pro#lem faced #y a transportation planner at Westvaco+s paper mill in Wic!liffe% 3entuc!y $he load planner has determined that 82 truc!loads are needed to distri#ute last night+s production .n the shipping area there are 88 drivers from ? carriers "aiting for their truc!s to #e loaded One truc! "ill not #e needed today $he carrier -SS$ has = truc!s in the shipping area% and Westvaco has a contractual o#ligation to use all = of these truc!s today 0.n practice% it "ould not #e unusual for a transportation planner to assign 25 truc!loads to 20 carriers in a single day 1 $he mileage num#ers in $a#le 1 represent the total num#er of miles for the trip from Wic!liffe to the final destination% including any intermediate stops $he total charge is calculated as follo"s Suppose that the :oseville% Minnesota% trip is assigned to carrier .:S$ $he cost to Westvaco "ould #e ?0001 181 A 80751 B ,C08 0.f the cost calculated this "ay "ere less than .:S$+s minimum truc!load charge of ,=00% the cost to Westvaco "ould #e ,=00 1 Stop5off charges apply only to intermediate stops and not the final destination /our truc!loads are needed to go to Atlanta% *eorgia $hese truc!loads can #e assigned to a single carrier% or they can #e split among several carriers .f carrier M:S$ is assigned one of these truc!loads% the cost is ?1200 <71 B ,582

2?0 2850

-rof @uran

;uestion
/or the distri#ution data sho"n in $a#le 1% "hat is the least5cost assignment of truc!loads to carriers that meets the necessary re'uirementsD What is the cost of this distri#ution planD
Carrier 4AS$ M:S$ 1 15 1 27 1 78 1 25 0 <7 1 ?1 1 <C 2 28 F 1 8? 1 25 1 5= 850 50 7 ? 0 <7 1 8C 1 71 0 C? F 1 22 1 82 2 8C 1 20 1 8C 0 <7 1 58 800 85 7 0

6estination

State

$rips

Stops

Miles

A2C$

Atlanta *A = 0 ?12 F (verett MA 1 8 ?12 F (phrata -A 8 0 1C0 F :ivervie" M. 5 0 8<8 0 7C Carson CA 1 2 80?8 F Cham#lee *A 1 0 =2C F :oseville ME 1 8 ?00 1 2= Ganover -A 1 0 18? F Spar!s EH 2 0 2=8C F -arsippany E@ 1 1 855 F (ffingham .4 5 0 570 0 <7 3earny E@ 7 0 82= F Minimum charge per truc!load 850 Stop5off charge 50 Availa#le pulls = Commitment 1 $a#le 19 Current 6istri#ution 6ata for Westvaco Case Study

.:S $ 0 << 1 1< 8 =2 1 01 0 <0 1 28 1 18 = 7< 1 =5 1 ?2 0 <7 2 01 =00 75 < 7

E(S$ 0 C5 1 85 1 <2 0 C5 1 00 1 88 1 =1 2 2? F 1 08 0 C0 1 2< 850 50 8 0

-SS $ 1 05 1 2< 2 00 1 11 F 1 =7 1 =1 2 57 F 1 7? 1 81 1 C5 800 50 = =

Eote9 Asteris!s 0F1 indicate carrier does not travel to the destinationI rates in dollarsJmile

Epilogue Carrier selection at Westvaco "as done manually 0"ith pencil and paperK1 #y transportation planners in the past A side5#y5side test of a spreadsheet linear programming solution versus manual selection indicated daily savings in the range of 8L to ?L% and so the pro&ect "as approved With ?annual truc!ing costs of a#out ,15 million% the total savings "ith the ne" approach have #een significant .n addition to this #enefit% there have #een a num#er of serendipitous side effects $he optimization techni'ue removes the guess"or! from carrier selection% especially on "ee!ends% "here revolving coverage added significant varia#ility to the carrier selection process $he techni'ue adds accounta#ility to the transportation planner+s position and% tied to a reason code for changing the carrier% offers a clear ans"er to management 'uestions regarding carrier selection /inally% the time savings have also #een significant $he carrier assignment portion of the transportation planner+s &o# can #e done much faster than #efore 2

Ac!no"ledgment $his case "as co5authored "ith 6ave :imple% "ho identified and implemented this pro&ect at Westvaco 2?0 2850 = -rof @uran