Part1: Case Study Logistics Optimization in a Major Shipping Company (CSAV) Introduction Compania Sud Americana de Vapores (CSAV) is a shipping company headquartered in Chile, South America, and is the sixth largest shipping company in the world. Its operations in over 100 countries worldwide are managed from seven regional offices. CSAV operates 700,000 containers valued at $2 billion. Less than 10 percent of these containers are owned by CSAV. The rest are acquired from other third-party companies on lease. At the heart of CSAV's business operations is their container fleet, which is only second to vessel fuel in terms of cost. As part of their strategic planning, the company recognized that addressing the problem of empty container logistics would help reduce operational cost. In a typical cycle of a cargo container, a shipper first acquires an empty container from a container depot. The container is then loaded onto a truck and sent to the merchant, who then fills it with his products. Finally, the container is sent by truck to the ship for onward transport to the destination. Typically, there are transshipments along the way where a container may be moved from one vessel to another until it gets to its destination. At the destination, the container is transported to the consignee. After emptying the container, it is sent to the nearest CSAV depot, where maintenance is done on the container. There were four main challenges recognized by CSAV to its empty container logistics problem: Imbalance. Some geographic regions are net exporters while others are net importers. Places like China are net exporters; hence, there are always shortages of containers. North America is a net importer, it always has a surplus of containers. This creates an imbalance of containers as a result of uneven flow of containers. Uncertainty. Factors like demand, date of return of empty containers, travel times, and the ship's capacity for empty containers create uncertainty in the location and availability of containers. Information handling and sharing. Huge loads of data need to be processed every day. CSAV processes 400,000 container transactions every day. Timely decisions based on accurate information had to be generated in order to help reduce safety stocks of empty containers. Coordination of interrelated decisions worldwide. Previously, decisions were made at the local level. Consequently, in order to alleviate the empty container problem, decisions regarding movement of empty containers at various locations had to be coordinated. Methodology /Solution CSAV developed an integrated system called Empty Container Logistics Optimization (ECO) using moving average, trended and seasonal time series, and sales force forecast (CFM) methods. The ECO system comprises a forecasting model, inventory model, multi-commodity (MC) network flow model, and a Web interface. The forecasting model draws data from the regional offices, processes it, and feeds the resultant information to the inventory model. Some of the information the forecasting model generates are the space in the vessel for empty containers and container demand. The forecasting module also helps reduce forecast error and, hence, allows CSAV's depot to maintain lower safety stocks. The inventory model calculates the safety stocks and feeds it to the MC Network Flow model. The MC Network Flow model is the core of the ECO system. It provides information for optimal decisions to be made regarding inventory levels, container repositioning flows, and the leasing and return of empty containers. The objective function is to minimize empty container logistics cost, which is mostly a result of leasing, repositioning, storage, loading, and discharge operations. Results/Benefits The ECO system activities in all regional centers are well coordinated while still maintaining flexibility and creativity in their operations. The system resulted in a 50 percent reduction in inventory stock. The generation of intelligent information from historical transactional data helped increase efficiency of operation. For instance, the empty time per container cycle decreased from a high of 47.2 days in 2009 to only 27.3 days the following year, resulting in an increase of 60 percent of the average empty container turnover. Also, container cycles increased from a record low of 3.8 cycles in 2009 to 4.8 cycles in 2010. Moreover, when the ECO system was implemented in 2010, the excess cost per full voyage became $35 cheaper than the average cost for the period between 2006 and 2009. This resulted in cost savings of $101 million on all voyages in 2010. It was estimated that ECO's direct contribution to this cost reduction was about 80 percent ($81 million). CSAV projected that ECO will help generate $200 million profits over the next 2 years since its implementation in 2010. QUESTIONS: (4 Marks, 2 for each) 1. Explain why solving the empty container logistics problem contributes to cost savings for CSAV. 2. Perform an online search to determine how other shipping companies handle the empty container problem. Do you think the ECO system would directly benefit those companies