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Department of Management Information Systems, Operations Management and Decision Sciences, University of Dayton, Dayton, Ohio 45419, [email protected] Hub Group, a North American intermodal freight rail transportation company, developed an integrated produc- tion decision support system to improve its yield management and container allocation. The system combines a suite of analytical tools, including forecasting, error distribution analysis, expected value-based heuristics, and optimization tools to improve the decision making of Hub's frontline employees. It is important to note that the production decision support system was structured to fit within Hub's existing organizational structure, business processes, and information technology systems to reduce project risk, development costs, and opera- tional disruption. In 2008, the system's first full year of use, Hub improved its revenue per load by 3 percent and increased its container velocity by 5 percent. These improvements led to a net return of $11 million in cost savings, which equals 22 times Hub's initial investment during that first year of operation. Key words: transportation /shipping; decision support systems; freight rail; heuristics; yield management. History: Published online in Articles in Advance July 21, 2010. Hub Group: Intermodal Transportation Hub Group is North America's largest intermodal marketing company, with approximately $2 billion per year in revenue. Intermodal freight transporta- tion uses two or more transportation modes, most frequently train and truck. It is the fastest-growing business segment of US freight rail, with over 12 mil- lion containers shipped in 2008 (American Association of Railroads 2009), and is second to coal in revenue produced in US freight rail (American Association of Railroads 2009). Figure 1 shows the primary rail ramps in Hub's intermodal rail network and some key origin-destination pairs (i.e., lanes). A Major Shift in the Industry During Hub's 37-year history, it has brokered and managed intermodal freight transportation shipments using a fleet of over 150,000 containers and trailers supplied by US railroads. Typical of a nonasset-based intermodal marketing company, Hub's perspective on freight shipment had traditionally been "one way," i.e., based on the profitability of the individual shipment from an origin to a destination. Rail-owned container capacity is shared among intermodal mar- keting companies, whereas container inventory man- agement is the responsibility of the owning railroad. As Figure 2 shows, asset ownership in intermodal transportation has changed dramatically in the last decade. Quickly shrinking rail-owned trailer and con- tainer fleets led Hub to acquire its own fleet of approx- imately 16,000 containers; becoming an asset-based intermodal marketing company has forced Hub to overhaul its approach. As an integrated transportation network, the company must now manage the balance and utilization of the Hub fleet of containers to avoid wasteful container idle time and repositioning and to assure sufficient container capacity. Further, because of the unique cost structure afforded by the Hub-owned fleet relative to the rail-owned containers, Hub must use them judiciously. Thus, its challenge is to find the right mix of customer traffic and the best allocation of rail-owned and Hub-owned containers to effectively and efficiently serve its customer base. Load Acceptance, Routing, and the Intermodal Shipment Process When a shipper requests service from Hub, a Hub customer service representative must determine whether the load is acceptable, taking into account both the load's profitability and the equipment capac- ity in the shipper's origin region. To provide a quick response to the customer and keep the order, the 368 This content downloaded from 213.42.182.22 on Tue, 16 May 2017 19:54:28 UTC All use subject to http://about.jstor.org/terms Gorman: Hub Group Implements a Suite of OR Tools to Improve Its Operations Interfaces 40(5), pp. 368-384, ©2010 INFORMS 369 Figure 1: Hub Group's intermodal network provides rail service in lanes between key rail ramp origins and destinations. representative must make the load accept decision in a timely fashion, usually within a few hours of the initial request. When the load has been accepted, a dispatcher must determine the equipment to use and concomitantly the railroad that will provide the service. Each container fleet can only be used on allowable railroads for that fleet, and each railroad may have a different rate in the same origin ramp- destination ramp city pair; thus, equipment choice affects Hub's cost structure for the shipment. Figure 2: As railroads have reduced their fleets of rail-owned trailers and containers, Hub has increased its fleet of Hub-owned containers, forcing the company to change its approach. This content downloaded from 213.42.182.22 on Tue, 16 May 2017 19:54:28 UTC All use subject to http://about.jstor.org/terms Gorman: Hub Group implements a Suite of OR Tools to Improve Its Operations 370 Interfaces 40(5), pp. 368-384, ©2010 INFORMS Figure 3: The intermodal process consists of five steps. Figure 3 shows the five-step intermodal shipment process. First, a drayman delivers an empty container to the shipper. The shipper loads the container, which the drayman then picks up. The drayman moves the loaded container via truck for a relatively short dis- tance from the shipper to the rail ramp (i.e., drayage), where it is transferred to a train and moves via rail for the vast majority of the miles, before finally being drayed from the destination rail ramp to the shipment's receiver. When the container has been unloaded, the customer releases it, and it becomes available for subsequent use. Hub may reuse a rail- owned container for another shipment or simply return it to the appropriate railroad; however, the company must continually manage the disposition of its own fleet by using the container for another load, placing it into storage, or repositioning it to another origin region. Early Attempts at Improvement Hub realized that its new fleet would change how it viewed its business. One-way economics would no longer be sufficient to guide decisions; load accep- tance and routing decisions on one day represented capacity and profit potential at the load destination a week or two later. Hub needed a new approach to determine how to best deploy its new fleet to max- imize its economic advantage. In 2003, Hub and I (henceforth, we) built a strategic Hub fleet allocation model (FAM) to better understand how Hub should allocate the fleet in its network to maximize profitabil- ity. As depicted in Figure 4 and described in detail in the appendix, FAM minimizes the cost of serving customer demand for one quarter, subject to a vari- ety of factors: fleet availability constraints, historical transit time, customer equipment return time, Hub fleet balance constraints, and estimated rail fleet avail- ability. Other carrier-specific rebate incentives are also included in the objective function. FAM identified a $20 million annual profit-enhancement opportunity from an improved Hub fleet deployment, primarily from improved Hub fleet allocation and reduced fleet repositioning. We developed reports on the optimal mix of Hub fleet and rail fleet containers in each origin-destination pair. However, these benefits were hard to achieve using a strategic model and static reports. FAM did Drayman brings empty < container to customer ' location ^- -^^ Container is loaded, and /^ ^- -^^ ^' drayman returns container / ^^^j^A ' to origin ramp |f| / C/É^^^ ' destination ramp V ^^^O J Drayman picks up container at '^___^x ^ 'O ^ - ^y/ ^ This content downloaded from 213.42.182.22 on Tue, 16 May 2017 19:54:28 UTC All use subject to http://about.jstor.org/terms Gorman: Hub Group Implements a Suite of OR Tools to Improve Its Operations Interfaces 40(5), pp. 368-384, ©2010 INFORMS 371 Inputs Model Outputs Historical container , traffic flows ' i Tsar L' /^-~ A »~ Repositioning ^'/ Hub fleet '/^^' ^^ Profitability costs and times y^' (FAM) / ^^^ ^* I Transit and /^ '. ./ repositioning customer ^ load times I Figure 4: FAM is a strategic model that estimates the benefits of optimization-based Hub container allocation. not mesh well with the situations that dispatchers faced daily, and dispatchers had trouble translating week pattern, which is not reflected in the more FAM recommendations into implementable instruc- tions. First, containers become available as they are released from receivers in a highly cyclical day-of- long-run, strategic FAM. Second, the recommenda- tions were based on the Hub fleet and rail fleet mix over the span of a quarter, which might not hold on a day-to-day basis. Simple "red light, green light" rules set by managers for use of the Hub fleet in lanes caused dramatic and unprofitable swings in fleet allo- cation and did not achieve the desired results. After discussing the options with Hub

which company is ther project conducted to ?

what is the main business of the company ?

which country is the companylocated at ?

Answer 1

Sol.

The project of their work is conducted Intermodal Transportation Hub Group company. The system of the companies combines a suite of analytical tools, including forecasting, error distribution analysis, expected value-based heuristics, and optimization tools to improve the decision making of Hub's frontline employees.

The main business of the Intermodal Transportation Hub Group company is rail transportation. They had developed an integrated production decision support system to improve its yield management and container allocation. With having $20 million annual profit-enhancement opportunity.

The company is located at North America.