A Firm-Based Freight Demand Modeling Framework: Qi Gong and Jessica Guo, PhD. Transportation and Urban Systems Analysis Lab Civil and Environmental Engineering

A Firm-Based Freight Demand Modeling Framework:

Qi Gong and Jessica Guo, PhD.Transportation and Urban Systems Analysis

Lab

Civil and Environmental Engineering

University of Wisconsin – Madison

Capturing Intra-firm Interaction and Joint Logistic Decision Making

Outline

IntroductionStudy objectivesLogistics management frameworkIntra-firm interactionModeling frameworkConclusion

Introduction

Freight transportation as derived demand Need to incorporate supply chain

concepts in freight demand models Limitation shared by existing supply-chain

based models: Business establishments are treated as

separate and independent decision-making agents

Inter-establishment interactions considered only between agents of different roles in the supply chain

Interactions among establishments within a firm not accounted for

Introduction

Prevalence and implication of multi-establishment firms on freight movement

Source: Statistics of Small Business, 2007

Employment Size of Firm

1-19 20-99 100-499 500+

All Industries

Number of Firms 5,410,367 532,391 88,586 18,311

Number of Establishments 5,466,985 723,385 355,853 1,158,795

Average Establishment-to-Firm Ratio 1.01 1.36 4.02 63.28

Total Sales Receipts ($1,000) 3,975,109 3,792,921 3,612,050 18,366,661

Manufacturing Industry

Number of Firms 213,074 55,603 13,945 4,079

Number of Establishments 213,509 59,596 23,030 35,220


Total Sales Receipts ($1,000) 197,171 440,740 634,738 4,019,587

Wholesale Trade Industry

Number of Firms 286,873 36,783 7,907 3,113

Number of Establishments 292,554 53,305 28,337 60,268


Total Sales Receipts ($1,000) 872,353 899,444 771,807 3,442,613

Current Study Objectives

Objectives: To capture the philosophies in logistics

management To better represent the decision-making

paradigms of establishments and firms This study proposes a firm-based freight

demand modeling framework: Incorporates supply chain concepts Accounts for the interdependency of

establishments within a firm

Logistics Management Framework

Freight transportation demand is derived from business logistics management needs

Freight patterns are determined from various business operation and logistics decisions falling within different planning areas

Planning Area Effect of Decisions on Freight TransportationCustomer Demand and Service

Origin/Destination (OD) of shipments, temporal characteristics

Facility Structure and Location

OD, shipment temporal characteristics

Inventories OD, shipment frequency, shipment size

Purchasing Mode, route and shipment size

Transportation OD, shipment frequency, shipment size


Customer Demand and Service

Facility Structure and Location Business Economic Activity Boundary (S)Facility number (S)Facility size (S)Facility location (S)

Transportation

Inventory

Just-in-time/forward buying (S)Inventory deployment (S)Replenishment quantity (T)Replenishment frequency (T)

Purchasing

Make-or-Buy (S)Supplier selection (S)Sourcing points (T)Purchasing quantities (T)

•Kanban system/MRP•Push/pull approach•Economic order quantity•Reorder point model•Periodic review model

•Transaction cost theory•Auction sourcing•Optimization for sourcing points

•Profit maximization

•Optimization of capital and transportation cost •Spatial interaction

Customer service level (S)Inventory level (S)

Carrier selection (S)Mode choice (T)

Vehicle routing and scheduling (O)

•Carrier requirements minimization•Traveling salesman•Inventory routing

Logistics Planning Area

Key Decisions (Planning Level)

Decision Making Principles

(S): Strategic decision (T): Tactical decision (O): Operational decision



Transportation

Inventory


Purchasing


















Transportation

Inventory


Purchasing

















Transportation

Inventory


Purchasing

















Transportation

Inventory


Purchasing

















Transportation

Inventory


Purchasing














Intra-Firm Interaction

Facility Structure and Location In the wholesale/retail industry, consumer

demand is the key determinant driving the location of retail outlets. The location decision is also affected by cannibalization and; market expansion

In the manufacturing industry, facility structure and location decisions depend largely on the production scheme adopted by a firm product plant strategy market area plant strategy process plant strategy general purpose plant strategy


Purchasing Centralized purchasing strategy (e.g.,

adopted by Whirlpool, General Motors, Dells, Wal-Mart and IBM)

Decentralized purchasing Centralized pricing with decentralized

purchasing Supplier selection for centralized

purchasing scenario Firm iPlant

Scenario A: Supplier selection of single-plant firm

SupplierFirm b

Firm jPlant

SupplierFirm a

Supplier Firm b

Firm iPlant i1

Firm iPlant i2

Scenario B: Centralized purchasing of multi-establishment firm

SupplierFirm a


Inventory Push/Pull approach Vendor-managed inventory (VMI)

Inventory replenishment behavior

Firm a

Firm b Firm c

Scenario B: Push approach by multi-establishment firm

Supplier i

Firm iPlant 1

Firm iPlant 2

Firm iPlant 3

Firm iWarehouse

Scenario A: Pull approach by single-establishment firms


Transportation A firm owning multiple establishments has

more opportunities of vehicle consolidation during goods movements

The combined shipment size may also make a mode such as rail more attractive

Modeling Framework

A hybrid of longitudinal and latitudinal simulation

Modeling Framework

Four major modules:

Firm Creation

Purchasing

Inventory & Ordering

Transportation

Firm Creation

Creates a collection of firms and member establishments located within the study region

Accounts for the effects of production scheme Analysis unit: A firm and all its

member establishments

Purchasing

Determines annual amounts of commodities to be moved between all pairs of establishments

Assumes centralized purchasing strategy Considers the possibility of using in-

house sources

Inventory and Ordering

Determines the order quantity happened on an average day throughout a year

Based on the economic order quantity theory widely adopted in logistics management

Transportation Assigns shipments with modes, consolidation

location, vehicles, and routes Follows the transport chain concept developed

by de Jong and Ben-Akiva (2007)

Conclusion

The intra-firm interdependency in logistics decision-making is captured in the proposed framework Explicitly represent firm-establishment

structures Consider possibility of internal sourcing within

a firm Apply the popular strategy of centralized

purchasing Consider joint ordering across establishments

of the same firm Part of this modeling system has been

calibrated using readily available public data

Conclusion

Remaining models to be estimated using data from ongoing firm-based surveys in Wisconsin

Limitations resulted from certain simplifications and assumptions that are incorporated in framework to assure its operational ability: The ignorance of horizontal alliance across

single-establishment firms Implicit consideration of price policy A constant demand pattern assumed for the

modeling of ordering behavior

Thank You

Documents

A Firm-Based Freight Demand Modeling Framework: Qi Gong and Jessica Guo, PhD. Transportation and Urban Systems Analysis Lab Civil and Environmental Engineering