Optimizing a Retailer's Containerized Import Supply Chain

An economic optimization model of waterborne containerized imports from Asia to the USA for a retailer is described. The retailer's imports are allocated to alternative ports and logistics channels so as to minimize total transportation and inventory costs. Goods may be shipped via the logistics channel of direct shipment of marine containers via truck or rail to retail distribution centers, or via transportation to cross-docking facilities in the hinterlands of the ports of entry and trans-loading goods from marine containers into domestic trailers or containers. A previous model has been built for a retailer employing a single optimal importing strategy, specifying the allocation of each retail distribution center to its optimal port of entry and the choice of direct shipment or trans-loading, uniformly applied across the importer's entire product portfolio./nHere we describe a methodology to extend this model to allow for a retailer that can employ multiple optimal strategies, applied to different classes of goods within its product portfolio segmented by inventory holding cost rate. We find that for the retailer's cost minimization problem, it is provably optimal to generate sub-problems by splitting goods into consecutive valuation partitions. By doing so, the retailer's multi-strategy problem becomes computationally tractable. We examine the impact of less-than-container shipments on the optimal set of strategies. This allows us to more accurately estimate the transportation cost./nWe collected data, including origin-destination transportation rates and lead times, from a top five national big-box retailer to test both single and multiple strategy methodologies. Using these parameters, we found that our case study retailer could potentially reduce their total supply chain cost by over 2.1% by using an optimal single strategy, and over 2.6% by using different optimal strategies for the various goods in their portfolio. We then examine the optimal single strategy and set of multiple strategies for retailers of various importing volumes and declared goods valuation distributions. The optimal single strategy for a retailer generally shows direct shipping for the lowest value goods and lowest demand volume retailers, trans-loading at three to four ports for slightly higher value of goods and demand volume, and trans-loading at fewer and fewer ports as the good value and volume continue increasing. For our tested parameter set, the cost reduction generated by allowing multiple strategies for a single retailer can further reduce the total supply chain cost by up to 1%./nLastly, we analyze the value of building redundancy into the supply chain to mitigate the cost of disruptions. We note that many retailers utilize more ports than our model would recommend as optimal. We have found that there is value in a retailer always utilizing at least two ports of entry to protect against supply chain disruptions at any single port. However, for those retailers whose optimal port usage already includes at least two ports, disruption mitigation would not provide enough benefit to justify the additional infrastructure investment. We hypothesize that there exist other factors such as institutional inertia and negotiation leverage that contribute to the use of these additional ports of entry.

Advisor: Leachman, Robert C.