Dispatching shipments at minimal cost with multiple mode alternatives

Journal of Business Logistics, 1994 by Bausch, Dan O, Brown, Gerald G, Ronen, David

Numerous organizations are involved in distributing goods and materials. When shipping alternatives exist, the selection of the appropriate shipping alternative (mode) for each shipment may result in significant cost savings. This paper describes a highly flexible dispatching system that selects the shipping mode to be used for each shipment while minimizing the overall shipping costs.

Multiple shipping modes must be considered when one faces economies of scale in shipping. On the one hand, combining shipments on a truck route usually results in reduced cost per shipment, but on the other hand, a common carrier alternative almost always exists. Therefore, nearly every major shipper faces shipping mode alternatives.

Generally, shipping by private (or dedicated) fleet is cheaper than other alternative modes, provided that the fleet is fully utilized. However, in order to assure full utilization, the variability in daily demand for transportation services compels operators to size their fleet below their long-term average transportation needs, and to supplement their fleet by outside (contract and/or common) carriers, as needed. The variability in demand for transportation services may stem from both internal and external sources, such as natural variability in customers' demand, which is manifested in different shipment (order) sizes, different sets of delivery/pick-up locations visited in a shift, promotions, and salesperson incentive structures. Even when an organization uses only private (or dedicated) fleet, but the fleet's truck physical characteristics and/or costs are not homogeneous, it faces a multiple mode situation. When multiple mode alternatives exist, minimizing miles, hours, or number of trucks used is deceiving. One has to minimize total shipping costs. The importance of cost minimization cannot be overstated, especially when we take into account anomalies of regulated rates.

The vast body of literature dealing with transportation routing and scheduling(1) is focused on homogeneous fleets and tries to minimize miles, hours, or number of trucks used. This focus stems from the recognition that transportation costs are neither linear nor continuous. Thus, incorporation of these costs into solvable mathematical models is hard (or even sometimes impossible), and one tends to resort to using proxy measures of effectiveness, such as miles, hours, or number of trucks used. Little published work deals with a multi-modal dispatching environment. Several works deal with the fleet size and mix problem when multiple types of trucks are available.(2) Two articles(3) deal with private fleet sizing in the presence of a common carrier alternative. Solutions to these problems set the stage for the daily dispatching environment, which is the topic of this paper. Ballou and Chowdhury and Pooley deal with modal choice in dispatching shipments, but only in a limited manner.(4) Both consider a choice between two modes only, and use heuristic procedures to solve the problem. In contrast, the system presented here accommodates any practical number of modes and gives the optimal (minimal cost) solution (dispatch).

At this point it is beneficial to clarify the terms used in this paper. A "shipment" is an "order" to be delivered or picked up from a location. The activity of delivery or pick up of an order is called a "task." A "route" is a sequence of locations to be visited by the truck between two consecutive visits to the source. A "schedule" is the work plan of a truck during one work shift. A schedule may consist of one or more routes (with reloads at the source) and includes the expected time of each activity on the routes. Later on a schedule is also called a "column." A "dispatch" is a plan how to ship the orders, which consists of a set of schedules for the available trucks, and the disposition of the orders that are not assigned to specific trucks. A "mode" is one type of transportation alternative that differs from other modes in its costs and/or its physical characteristics i.e., different types of trucks are considered different modes).

The next section describes the operational environment for which the system was developed. followed by the mathematical model used to provide the optimal solution. The various components of the dispatching system are then described in some detail, and finally, implementation experience is discussed.

OPERATIONAL ENVIRONMENT

A major U.S. corporation operates a dozen manufacturing plants in the continental United States. Each plant manufactures a common product line, which it distributes in its marketing region, and some specialty products (manufactured only by that plant), which it distributes nationwide. Adjacent to each plant is a mixing warehouse from which the products are shipped to retail outlets, industrial customers, and other plant warehouses. Thus, every plant ships both regionally and nationwide.

The products are packaged either in consumable or in reusable containers, which have to be returned to the plant. At each plant a mixed fleet of private (or dedicated) trucks is based, and that fleet is used to deliver shipments to customers, to pick up empty containers from customers, and to pick up packaging materials and materials for production from vendors. The various trucks may differ in their sizes, physical characteristics, equipment, compartments, operation rules, and cost structures (i.e., the same trip may cost differently on different trucks). The goods are shipped in box trailers, and the trucks are usually assigned multiple-stop trips. Shipment sizes vary from several pounds up to a truckload. Some of these trucks may perform more than one trip per day with reload at the plant. The private (or dedicated) fleet is usually kept within a one day radius of its plant, but in certain plants overnight trips are considered. Shipments farther away are assigned either to contract carriers (truckload or less-than-truckload), to a common carrier, or may be shipped to a pool point via linehaul, and then delivered locally by a dedicated carrier. Shipments within the operating radius of the private fleet may be carried by that fleet or assigned to a contract or common carrier. The private (dedicated) fleet operates one delivery shift per day. Due to the characteristics of the operation, there is very little overlap among the plants, and therefore each plant is dispatched separately. Table 1 presents the essential characteristics of this dispatching problem.