Wooseung Jang, James S. Noble, Na Deng
University of Missouri
With the increasing competitions in global trades, many US companies purchase parts and finished products overseas in a just-in-time and low-inventory fashion, which makes shipment consolidation be a cost-effective strategy to transport shipments in international supply networks. This project addresses an integrated multi-commodity consolidation problem in the global supply chain, where overseas suppliers, one overseas consolidation center, one US deconsolidation center, and multiple US manufacturing plants and distribution centers are included.
The problem in this project is described as follows. A manufacturing company operates several manufacturing factories in US. Each factory purchases parts and finished products from China according to a given replenishment policy, which frequently orders small-volume shipments to keep low inventory. The parts and finished products are not homogeneous and have different sizes and shapes. The commodities ordered by each factory are collected and consolidated into ocean containers in a consolidation center located in China. Currently, items are packed into containers as much as possible to save the ocean transportation cost. They are then shipped to the US deconsolidation center, where commodities are separated and delivered to their final destinations by road transportations. This practice requires extensive shipment handling such as sorting and packing at the deconsolidation center and more frequent LTL deliveries. In addition, items might have to be stored at the center for the arrival of next ocean containers to have larger road shipments transportation, incurring unnecessary inventory costs.
The goal of our project is to develop a proactive consolidation strategy to transport shipments in the global network. Different from current practices, our approach consolidates items at the early stage in China considering inland transportations to final destinations in US. Consequently, once ocean containers arrive at US, commodities already grouped in China could be directly reloaded into trucks for final delivery based on the pre-determined distribution plan. No additional sorting or storage procedures are needed, and hence, the delivery operation can be performed even without the US deconsolidation center. This eliminates operation costs such as handling and storage costs, which could be significant at the expensive US deconsolidation sites. Furthermore, it saves transit time and ensures timely delivery to the final destinations. Therefore, an effective and proactive order consolidation could achieve significant cost savings compared to current practices.
The objective is to minimize the total costs involved in the global supply chain, including ocean container costs, handling costs, TL and LTL costs. Ocean container costs are the costs of shipping containers from China to US. Handling costs are incurred during unloading/loading shipments from containers onto the trucks. Inland transportation costs consist of both TL costs and LTL costs. The decisions to be made for this problem include: (1) the number of ocean containers used, (2) the assignment of multi-commodities to the ocean containers, and (3) the TL and LTL mode selection of each shipment for final deliveries.
In this project, we investigated a shipment consolidation problem in a global supply chain network, which is a common practice in the international companies, especially in the context of globalization. A proactive consolidation strategy was proposed and a mathematical formulation was developed to model the procedure with the objective of minimizing the total costs involved in the international network, as the sum of ocean container costs, handling costs, and TL and LTL costs. Our model considered multi-commodity flows, and combined two difficult combinatorial optimization problems, such as a mode selection problem and a 3BPP. Two approximation methods were developed: one performed best both in terms of solution quality and solution time for small-size shipments and the other was an effective and efficient approach for big-volume shipments. These algorithms were used to develop software to aid other companies interested in international shipment consolidation.
This project resulted in the mathematical model and optimization software, which provide shipment consolidation plans. Specifically, the software computes shipment loading plans and inland transportation plans with all the associated costs. In order to run the software correctly, various information such as current order information, TL and LTL rate tables, and shipping and handling costs should be provided. See the enclosed software manual for details.