Case Study

Manufacturer uses network optimization model for weekly rail car optimization and long-term rail car lease decision-making

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Using Supply Chain Modeling Technology for Rail Car Optimization

Challenge

A large global manufacturer relies upon its own fleet of rail cars for storage of solid product following production. These “portable storage” rail cars are on long-term leases—mostly 40 years—and are in large and small sizes. Storage location and deployment of cars is dependent on rail track restrictions. The company surmised that using more of the larger rail cars would be preferred, as fewer trips are required with greater capacity. However, certain customers restrict use to a certain size and type of car, and both up-front and lease payments are higher for larger cars. Smaller cars have a lower lease
fee and more flexibility in locations they can go, but hold less product and require more frequent trips.

Given its reliance on rail cars, the multiple variables to optimize and the high cost of leases and storage, the company wanted to put in place a process to determine the optimal short-term utilization of cars—including size and location—and the best go-forward strategy for new car acquisition as leases end.

Solution

The company partnered with LLamasoft consultants to build a LLamasoft® Supply Chain Guru® network optimization model that would identify, given current demand and production plan, which rail cars should be used and how. The model needed to analyze the continuous “loop” of inbound and outgoing rail cars. Some cars en route back will be available for immediate use and some needed to be projected for use weeks out. The model established the fleet of rail cars as independent products within a bill of materials (BOM). Each size and type of car with a different finished product was built into the model as an individual product.

The first model identifies, given current inventory of cars and production plan for the next three weeks, which product should be stored in which rail cars.

The second model looks at the long-term time horizon using generic demand, in order to plan the best way to align rail cars as leases come up for renewal.

Results

Today, non-technical dispatchers run this repeatable-use model once a week to give a rolling three-week snapshot of how to best utilize cars. These plans are used directly by the production planning team to determine which cars should be allocated upcoming production.

In the short term, critical decisions are how to allocate the small cars. Since the costs are truly fixed with signed leases, large cars receive preferential treatment, but it is important to allocate them to the highest turn customers to increase their number of trips per year. The strategic model is refreshed and run several times a year with updated freight and lease rate assumptions to help dictate to the lease management team which sizes of rail cars are projected to be the most cost efficient with the need to balance out fixed lease costs and variable trip costs.

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