The transshipment model involves the addition of an intermediate node to the path of a shipment.  Nodes are usually added in order to increase flexibility and add a dynamic layer to shipment design.  By incorporating nodes, shipments can be consolidated or split up at the intermediate destination in order to better accommodate demand point or final destination requirements.  Operations managers or logistics planners may further regulate or better control flow based on strategic drivers such as supply chain disruptions, commodity shortages, weather or even regional disasters.

If we re-visit my previous post RE: the expanding motorsports parts company in New Mexico, we can apply the transshipment model to optimize their inbound parts shipments.  Bartz Motorsports Parts and Accessories (BMPA) has two retail sites; one in Las Cruces, NM and an expansion retail site in El Paso, TX. 

Scenario:

Over the past six months, BMPA has been unable to stock a sufficient supply of its fast moving parts and accessories.  This is likely due to Supply chain disruptions brought about by the global pandemic and the poor national response to the supply chain disruptions.  In an effort to increase throughput and overcome supplier challenges, BMPA seeks out and successfully contracts a secondary parts supplier in Houston, TX.  The secondary supplier in Houston has the capability to successfully augment BPMA’s primary supplier in Dallas, TX and thus alleviate the gap in part availability and depth of stock. 

Meanwhile in El Paso, BMPA’s retail expansion site has exceeded expectations.  The West Texas market for specialized motorsports parts is booming as a growing semi-professional motocross competition circuit has driven demand to unprecedented levels.  Sales for the El Paso retail site nearly matched the main store in Las Cruces where BMPA dominates the regional market.  It’s a good problem to have, but BMPA is now concerned that it may not be able to ensure the 24 hour delivery of its special order kits, lean jet kits and carbon fiber brake systems.  Or can it?  We know that BMPA already employs best practices in inventory management by managing an authorized stockage list that factors in highly variable demand parameters.  Other best practices ensure that it meets demand under normal conditions, but what about during the current supply chain disruption?

The addition of the secondary supplier in Houston will pave the way for the depth of stock needed to support BMPA’s two booming retail stores.  Working with a 3PL, BMPA sets up two transshipment points or nodes in the city of San Antonio that would be a node for the Houston supply lane and another in Midland-Odessa for the Dallas supply lane.  These nodes are especially useful in Texas where vast distances of travel are required between East and West Texas.  By segmenting the journey, additional opportunities are provided for Trans loading, splitting and consolidating shipments; flexible transportation is always a preferred methodology.  Most importantly, the transshipment points empower BMPA planners through their 3PL to completely regulate inbound parts shipments.  They have chosen adequate warehouse space in San Antonio and Midland-Odessa that provides storage capability for up to 50 pallet positions (48” x 40”) at each location.  Now, BMPA will have added storage capacity for the fast moving lean jet kits, carbon fiber brake systems and any other highly specialized parts that it deems necessary to retain in depth.  Furthermore, the two node warehouse annexes are closer to their respective retail stores and located in more affordable areas of Texas. 

BMPA benefits the most from 1) fully regulating inbound parts flow and 2) the newly acquired emergency reserve parts (uncommitted).  As previously mentioned, this allows BMPA to regain its lost power due to unforeseen circumstances such as the disruptions brought about by the pandemic.  These countermeasures may also protect product flow during weather events, especially as Dallas and much of East Texas resides in tornado alley.  The flow plan should be reviewed and revised at least monthly in order to best utilize the transshipment model.  The transshipment problem should be solved along with each monthly review and analysis.

There are many ways to solve the transshipment problem, where the supply and demand is balanced overall at 700 units/week, the distribution by retail site is not balanced to align with the corresponding supply point.  In this example, the assignments are less relevant as all shipments have to be routed to their retail sites along the shared interstate 10 through El Paso, geography matters.  The primary purpose of balancing the distribution is to meet the varying demands of the retail sites, but another important reason is to control the costs of shipping and maintain efficiency throughout the transshipment sequence.

Admin. note: the best way to solve transshipment problems is simply in excel using the “solver” add-in.  If you don’t already have this add-in, it just takes a minute to install, simply follow this file path in excel: File – Options – Add Ins – Excel Add-Ins – Solver – Go.  As an aside, data scientists and people living in academia also solve transshipment problems and they love to use the high performing MATLAB language and proprietary computational software.  For transshipment problems, using MATLAB is kind of like flying a supersonic jet from Los Angeles to San Bernardino to save time…it’s a bit much, very impressive platform.

Build a diagram showing the shipment flow for context and then build a work area for the arcs and the nodes to break up the work a bit.  First compute the decision for how much to ship for each shipping lane in the arc work area.  I only added the primaries for this example; suppliers to final destinations. In D22, the objective function cell use formula “=SUMPRODUCT (Ship, Cost) with named ranges instead of cell references for ease.  Enter your values and determine your total transportation cost.  Next move over to the nodes, which are meant to represent what is coming to the node and what is leaving the node, again, I abbreviated the example here.  This is where the balancing is computed and solved for us.  The inflow and outflow can be computed using the =SUMIF(To,Node Reference,Ship) function in excel.  Specifically, this would be =SUMIF(To,G17,Ship)-SUMIF(From,G17,Ship).  In excel solver, set your objective as the total transportation cost (D22) – make sure you set to “minimize; min.  Next enter your changing variable cells as your shipping range, that’s A17 – A20 or $A$17:$A$20 specifically.  Lastly, add your constraints, in the drop down which are = to the supply demand as they are balanced.  The constraint entry should look like this: $G$17 = $G$18.  Finally, check the box for “make unconstrained variables non-negative and your solving method should be “simplex LP”, LP = linear programming.  Solver will populate your A17-A22, G17, and G18 and provide a total transportation cost.  The answer or A17-A20 will tell you how many units to ship from each supply point. 

I sketched some broad strokes with this simple example but you can get an idea of how to optimize using transshipments and stay balanced and optimized as conditions change using solver.  Excel is a very powerful tool with the solver and the data analysis tool pack that seem to be underutilized.  The play by play explanations in a blog post are not as helpful as a video explanation in Adobe Presenter.  I will put a video together and talk this through in much greater detail in a future post.  It may be interesting to solve a transportation problem, then expand the problem by adding nodes and solve a transshipment problem in the same presentation.  Reach out for corrections, questions or general commentary.

This scenario will attempt to demonstrate how a properly monitored logistics plan should be continually revised in the interest of expansion of the transportation network and the supply chain.  A fictional small business: Bartz Motorsport Parts and Accessories (BMPA) reaches a point where standard market drivers intersect with logistics drivers and the small business is presented with overwhelming evidence in support of expansion. Any market analysis should always be eclectic and fluid with inclusion of a transportation optimization plan (as applicable) along with supply chain enhancements. This notional example reveals how BMPA learned a lot about how it manages its operations and at least one aspect of its supply chain.  Having a complete understanding of transportation management at the macro level is helpful in the design of an optimization plan that will likely have second and third order effects.  For the purpose of this notional exercise, it is important to build out the profile of the company, it’s background, and relevant market analysis as a contributing factor driving optimization.

Company Information and Background:

Bartz Motorsport Parts & Accessories (BMPA)

Established: June 15, 2015 Location: Retail Store: 1423 Las Tablas Road, Las Cruces, NM., Storage Annex: 3780 Alta Vista Drive, Las Cruces, NM.

Description: BMPA provides the greater Las Cruces and Southern New Mexico region with same day availability of motocross and dual sport parts and accessories.  BMPA prides itself on its ability to provide same day availability seven (7) days a week for all motocross and dual sport parts and accessories.  BMPA partners with a major parts distributor (Dallas, TX) and two 3PL organizations (El Paso, TX, Albuquerque, NM) operating throughout the Southwest and West Texas to ensure this promise.  BMPA operates one retail store in the expanding East Las Cruces area and maintains one 10K sq. ft. parts annex on the South side of town.  BMPA employs 10 people expanding to 16 with temp hires during trials week and holidays.  It’s 2018 earnings reached $1.4M before interest, taxes, depreciation, and amortization ($1.4M EBITDA) (Inc.com, 2021).

Specialization: OEM and aftermarket parts and accessories for Honda, Yamaha and Kawasaki 125cc, 250cc, 450cc dirt bikes and Kawasaki series KLR 250 and 650 Dual Sport

Featured Products: big bore kits, camshafts, CDI boxes, master links, 4-stroke exhausts, 2-stroke exhausts, fork adjusters, fork and shock springs, front tires, rear tires, brake pads, brake lines, axle pulls, bearings, chain and sprocket kits, batteries, lights and electrical, fuel tanks, fuel control, brake pedals, caliper guards, axle blocks, seats, graphic kits, trim decals, helmets, gloves, rider apparel + much more.

Public Relations: BMPA is the most respected off-road parts distributorship in Southern New Mexico and is well known for its customer centric attitude and commitment to quality.  BMPA maintains a positive relationship with both powersports dealerships and sponsors one little league baseball team and one pop warner football team.

Expansion and Growth:  BMPA is ready to expand as it has the capital reserve and VC commitment to add an additional retail facility.  An initial assessment reveals an underutilized market is awaiting in neighboring El Paso.  Local powersports dealerships in Las Cruces are underutilized as BMPA currently has no strategic partnerships. 

Market Analysis

Demand is outstripping the capability of dealerships and larger distributorships to supply the local economies with motocross parts throughout North America.  This enables small scale retail sales in communities across North America and especially the desert Southwest.  Regionally, Southern New Mexico has seen unprecedented growth in this market with transient sales from Mexico up 20% and transient sales from Texas up 25%, largely due to the lower tax rate that New Mexico offers and the availability of stock versus larger markets such as El Paso.  A 2018 Q3 study revealed that 60% of sales within the Las Cruces, NM area were special order kits, mostly parts for special modification jobs and some special-order accessories.  Lean jet kits topped the list followed closely by carbon fiber brake systems and finally double strength master links, all of which included very specific manufacturer instructions.  BMPA is one of the primary sources for highly specialized parts and special-order kits in the Las Cruces area.  It is strongly recommended that BMPA continue and further invest in an expansion of this capability.  There is a growing motocross competition circuit in the region that will continue to drive the growing requirement for specialized parts and special-order kits.  BPMA is the only provider that can guarantee 24-hour delivery of an estimated 50% of special-order kits and 40% of specialized parts.  The first part of any expansion must include a revitalized and optimized transportation plan that will accommodate increased inbound throughput (Upcounsel, 2020).

Parts Stockage

BMPA conducts two daily milk runs from El Paso, TX to the retail store and annex in Las Cruces, NM.  This is sufficient to maintain a 40% stockage rate for depth but not always sufficient to maintain a good breadth of kits and parts.  The breadth aspect is concerning because as the market grows, so do new innovations and new technologies in motorsport engineering.  BMPA will want to stay well ahead of the technology curve by ensuring that it always has the greatest range of parts, kits and accessories for it’s customer base.  It is further advised that BMPA implement the use of a formal authorized stockage list (ASL) that is reviewed quarterly and updated to ensure market relevance.  There are tools available in most warehouse management systems (WMS) to accommodate and help manage inventories with highly variable demand parameters (APA, 2016).  Most importantly, a quarterly ASL review should be conducted and bounced off of market research quarterlies, internal sales trends, and dollar cost banding (DCB) parameters (inc.com, 2020).  It is important to note that increasing breadth by adding small, inexpensive items is beneficial in markets that rely heavily upon special parts and kits and have larger geographical considerations to measure.

Expand and Optimize Concurrently

Las Cruces does not have an airport, the El Paso International Airport is the primary inbound shipment point for BMPA’s parts flow and special orders along with fast turn fulfillments.  The two daily milk runs are sufficient to meet demand but there are inefficiencies inherent in the random drop ships that are becoming more and more frequent.  BMPA’s prime vendor has a distributorship in Dallas, TX that ships twice daily at 0500CST and 0800 concurrently with drop ships usually between 1300 and 1400CST.  At a distance of 67 miles from Las Cruces to El Paso, the milk runs are putting a minimum of 402 miles a day or 2,010 miles a week on the three box trucks owned by BMPA.  This chase strategy of replenishment is wasteful and too variant for the growing company as it has the capital to expand.  The company is ready to move to a hub and spoke model for parts distribution (Rodrigue, 2021).  With the capital available, BMPA may acquire a small supply annex (5-7K sq. ft.) with conservative retail space for El Paso customers to utilize.  This will reduce the daily transportation requirement, distribute operations to facilitate growth, increase throughput, contribute to a healthier ASL, and reach the El Paso market directly as 40% of BMPAs customers have El Paso addresses.  Half of BMPA’s small labor pool resides within the El Paso metropolitan area, incentivizing a transfer for employees that want to reduce their commute time to and from work. A separate analysis covers the cost benefits inherent in the decision along with location considerations, it’s important to discuss some factors for location in this analysis.

El Paso is the obvious choice for an expansion location due to several key factors:

• Leverages a much larger market (El Paso population 700,000)
• Relieves BMPA of daily milk runs from Las Cruces (saves miles, hours, labor)
• Convenience and immediate delivery for 40% of it’s customer base
• Ensures that BMPA can maintain its same day promise on all parts (depth increase)
• Co-located with a major International Airport and USPS hub
• Enables an optimized hub and spoke model for distribution of operations
• Officially enter West Texas market, largest motocross market outside of Arizona
• El Paso is second largest port of entry to Mexico (large motocross market in Chihuahua)
• Reduces the daily dependence on Dallas, TX distributorship
• Eliminate 3PL services required during surge periods (trials, holiday season)
• Leverages a vastly larger talent pool for temp hires, business development associates

     If this expansion proposal is chosen, a re-organized business plan must follow that addresses several fundamental operational changes.  Initial planning should address the ability to strategically manage three locations with considerations for the plethora of considerations that follow establishing retail sites in dual municipalities.  An operational transition to a hub and spoke model for distribution has multiple implications for staffing, overhead, retail, logistics, and of course supply chain management modifications.  Another major planning effort would include the re-alignment of labor and staffing to transition from a chase strategy to a level strategy for resource allocation (Rodrigue, 2021).   A heuristic approach is the implied model to follow with managing this transition, smaller companies will likely not have the expertise and resources to address all aspects of their first expansion.  Doubling up on planning means formulating a plan that rolls up market trends, logistics, SCM and centered on the customer.  It’s easy to get lost in the plan, the metrics and the deep analytics, start with the customer and work backwards, a methodology that Jeff Bezos has done rather well with.

The point of this exercise was to demonstrate that the transportation plan is a dynamic and integral part of the supply chain that should always be included in the business plan (Texas A&M, 2021).  A complete analysis of your organization’s transportation network can best serve your business needs and help you to optimize what should be a living component of the business plan.  There are always opportunities for optimization and improvement and sometimes an improved plan can lead to expansion and growth.  Understanding transportation network architecture, the principles of supply chain management and their linkages can help you sustain, optimize and even expand your current business model(s). 

The transportation of hazardous materials is not just about slapping a placard on the side of the truck.  The transportation of hazardous materials requires that one be well versed in the governing national and international regulations as well as have in-depth knowledge of the nine classes of hazardous materials.  Other required knowledge areas include compatibility of classes, shipping documents, marking, labeling, packaging, placarding and emergency response information.  These are fundamental to managing the transportation of hazardous materials but much more will be needed if a planner or manager chooses to also certify hazardous materials for transportation.  Let’s discuss all of the above and find out why planning for the transportation of hazardous materials is not as simple as commonly thought.

Hazardous materials are defined as “a substance or material, including a hazardous substance, which has been determined by the Secretary of Transportation to be capable of posing an unreasonable risk to health, safety or property when transported in commerce, and which has been so designated.”  The classes of hazardous materials are as follows: 1) Explosives, 2) Gases, 3) Flammable Liquids, 4) Flammable Solids, Spontaneously Combustible & Dangerous when wet, 5) Oxidizer and Organic peroxide, 6) Toxic Substances and Infectious Substances, 7) Radioactive, 8) Corrosive, 9) Miscellaneous.  These primary classes are further subdivided into divisions that specify the hazard of each class.

Class 1 Explosives

Division 1.1: Mass Explosive Hazard

Division 1.2 Projection Hazard

Division 1.3 Fire and/or Minor Blast Hazard

Division 1.4 Minor Explosion Hazard

Division 1.5 Very Insensitive with Mass Explosion Hazard

Division 1.6 Extremely Insensitive; No Mass Explosion Hazard

Class 2 Gases

Division 2.1 Flammable Gases

Division 2.2 Nonflammable Gases

Division 2.3 Toxic Gases

Class 3 Flammable Liquids

Division 3.1 All Flammable Liquids

Division 3.2 All Combustible Liquids

Class 4 Flammable Solids

Division 4.1 Flammable Solids

Division 4.2 Spontaneously Combustible

Division 4.3 Dangerous when wet

Class 5 Oxidizing Substances and Infectious Substances

Division 5.1 Oxidizing Substances

Division 5.2 Organic Peroxides

Class 6 Toxic Substances and Infectious Substances

Division 6.1 Toxic Substances

Division 6.2 Infectious Substances

Class 7 Radioactive Material

Class 8 Corrosive

Class 9 Miscellaneous Hazardous Materials

Guidance governing the transportation of hazardous materials in the United States is found primarily in 49 CFR or the 49 Code of Federal Regulations (CFR) Subchapter C.  The Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA) regulates the transport of hazardous materials through the use of 49 CFR, Subchapter C.

Part 172.101 of subchapter C includes the Hazardous Materials Table which is the principle means for researching special requirements for all hazardous materials.  A thorough understanding of how to decipher the displayed information is critical for planners and transporters as this table is a central part of the research process.

The hazardous materials table identifies the hazard class of each identified element, provides the proper shipping name(s), as well as to specify labeling and packaging requirements for the mode of transportation to be utilized.    Quantity limitations and vessel stowage requirements are also displayed in the table’s 9^th and 10^th columns.

If we look at one element from the table we can determine the following information for the element Methyl Chloroformate.

1. Methyl chloroformate is the proper shipping name
2. Methyl chloroformate is classified as a toxic substance
3. It has a UN number of 1238, the international packaging code
4. It has a packing group class of “I” this packing group indicates “great” danger
5. The label codes are 6.1, 3 and 8 meaning, these three distinctive labels and placards should be used to identify this element for all transport.
6. Multiple special provisions govern this element:
   1. 1: the material is poisonous by inhalation
   1. B9: bottom outlets are not authorized for packaging
   1. B14: Bulk packaging must be insulated
   1. B30: DOT 412, DOT 51 portable tanks must be made of stainless steel.  Thickness of stainless steel must be greater than 7.62mm or the thickness required for a tank with a design pressure at least equal to 1.5 times the vapor pressure of the lading at 46 degrees Celsius.
   1. N34: Aluminum construction materials are not authorized for any part of a packaging which is normally in contact with the hazardous material.
   1. T22: For portable tanks, the organic liquid must have a flash point above 50 degrees Celsius.
   1. TP2: The maximum degree of filling must not exceed the degree of filling determined by the applicable formula established in 49 CFR.
   1. TP13: self-contained breathing apparatus must be provided when this hazardous material is transported by sea.
   1. TP38: Each portable tank must be insulated with an insulating material so that the overall thermal conductance at 15.5 degrees Celsius is no more than 1.5333 kilojoules per hour per square meter degree Celsius temperature differential.
   1. TP44: Each portable tank must be made of stainless steel, except that steel other than stainless steel may be used in accordance with the provisions of part 173.24b of subchapter C.

Emergency Response Guidebook