Newgistics Case Study

1
Newgistics Case Study

• 04/19/2006
• Lei Deng, Timothy Gumm, Jacqueline Jones, Adam
  Levin, Leihong Li, Yang Song

2
Agenda

• Problem Overview
• Current vs. Proposed Situation
• Pre-Modeling Issues
• The Model
• Results
• Analysis

3
Problem Statement and Goal

• Problem Statement The postal network accumulates
  and consolidates the return volumes at Return
  Delivery Units (RDU) and Return Bulk Mail Centers
  (RBMC). At some point, it becomes faster and less
  expensive to pull the consolidated volumes out of
  the postal stream and ship it directly to
  Newgistics returns centers.
• Goal Develop a model that Newgistics can use
  under changing conditions to understand where to
  best extract the returns from the postal network
• 10, 20, and 30 million volume cases

4
Pull from BMC Current State
RDU (i)
Post Office
70
Return Centers (k)
Cost by postal zone
30
10, 20, or 30 Million Packages
RBMC (j)
Cost FTL cost
Legend i 1 to 6115 j 1 to 22 k ATL, CHI,
LAX, DFW, PHY

• Constraints
• maximum density
• minimum pick-up frequency

5
Pull from RDU or BMC Possible Future State
Cost 2/parcel DDU cost

• Constraints
• Pick up at least 3 times/week
• items/bag

RDU (i)
75
70
Post Office
Return Centers (k)
Cost by postal zone
30
25
10, 20, or 30 Million Packages
RBMC (j)
Cost by FTL cost
Legend i 1 to 6115 j 1 to 22 k ATL, CHI,
LAX, DFW, PHY

• Constraints
• truck capacity
• minimum pick-up frequency

6
Issues Before Modeling.

• SUM(RDU dist) 70 lt 100, where does the other
  30 go?
• The 30 go directly to BMC from postal office
  outside of our control
• So the uncontrollable volume at a single BMC is
  30annual volumeBMC dist? Any problems?
• 30 fixed volume does not apply to an individual
  BMC!
• The right answer is
• (BMCi dist - Sum(RDUs in BMCi dist))annual
  volume

7
Issues Before Modeling.

• Truckload cost
• What if lt 3 TL/week, do we still pay for 3 FTL
  cost?
• Package and bag weight distribution
• One bag can contain 1,2,3,4,or 5 packages
• We are given weight distribution for packages lt
  10 lbs, but no distribution for packages gt10 lbs
• What distribution to assume? Exponential or
  Uniform?
• What is the bag weight distribution?
• Simulation needed!

8
DDU Bag Weight Simulation
Not realistic! Exponential is better estimate.
9
DDU Bag Weight Optimization

• Understand optimal bag configuration to determine
  the financial value in understanding cubic
  dimensions of packages
• Developed optimization model
• Results indicate that significant savings exist
  if bag configurations are optimized
• Suggestion Work with vendor to improve pricing
  contract for DDU Pickup Cost based on Bag Opt.
  Conclusions

10
The Model

• Uses Excel and GAMS (General Algebraic Modeling
  System)
• Computed costs in Excel
• Formulated problem as an Integer Program in GAMS

11
Costs of Pulling from RDU

• For 75 captured packages
• DDU cost for each RDU
• Expected DDU cost/bag with i packages
  (i1,2,3,4,5)
• Cost(i) sum (cost per pound weight
  P(weight))
• Total cost for each RDU
• Mcost(5)cost(N) 2(5MN),
• M full bags
• rounddown( packages at RDU /5)
• N packages in last bag
• packages at RDU 5M

12
Costs of Pulling from RDU

• 25 Non-captured Packages
• Expected postal cost for each RDU
• Expected postal cost by zone non-captured
  pkgs. at each RDU
• Expected postal cost for each zone
• sum over all weights (weight distribution
  the postal cost for each weight)
• Non-captured pkgs. at each RDU
• ROUND (RDU distribution total annual volume
  0.25 / 52 / 3)

13
Costs of Pulling from BMC

• Expected postal cost for each RDU
• Expected postal cost by zone pkgs. at each
  RDU
• Truckload cost
• Includes pkgs. that go from post office ? BMC and
  those that go from RDU ? BMC
• Max (3, total weekly volume at BMC / max
  density of truck) FTL cost 52

14
Model Formulation
15
Results

• Total RDUs pulled
• 10 million 5276, or 86.3
• 20 million 5574, or 91.2
• 30 million 5625, or 92

• Savings from proposed solution
• 10 million 8,294,499
• 20 million 17,800,244
• 30 million 29,618,935

16
DDU Cost Sensitivity Analysis Detroit and
Springfield
17
Postal Cost Sensitivity Analysis Detroit
18
Overall Results

• Pull from RDU except when volumes are very low
• Very low volumes increase DDU cost ? cheaper to
  go through BMC
• As annual volume increases, pull from more RDUs
• Solution is not very sensitive to small changes
  in DDU cost
• Solution can change when postal costs decrease by
  at least 20

19
Recommendations

• Start pulling packages from specified RDUs
• Understand better cubic dimensions of packages
  reduce DDU cost
• Explore possibility of paying LTL instead of FTL
  may change optimal solution

20
Questions?