Logistics Network Configuration
Designing & Managing the Supply Chain Chapter 2 Byung-Hyun Ha bhha@pusan.ac.kr
Outline
Case: Bis Corporation What is logistics network configuration? Methodology
Modeling Data Aggregation Validation
Solution Techniques
Case: the Bis Corporation
Background
Produce & distribute soft drinks 2 manufacturing plant 120,000 account (retailers and stores), all over the US 3 existing warehouse (Chicago, Dallas, Sacramento) 20% gross margin $1,000 for each SKU (stock-keeping unit) for all products
Current distribution strategy (designed 15 years ago)
Produce and store at the manufacturing plant Pick, load, and ship to a warehouse/distribution center Unload
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Place the aggregated point at the center of the zone In this case, the error is typically no more than 1%
Testing Customer Aggregation
Experimental results: cost difference < 0.05%
Considering transportation costs only Customer data
• Original Data had 18,000 5-digit zip code ship-to locations • Aggregated Data had 800 3-digit ship-to locations • Total demand was the same in both cases
Total Cost:$5,796,000 Total Customers: 18,000
Total Cost:$5,793,000 Total Customers: 800
Data Aggregation: Product
Product aggregation
Hundreds to thousands of individual items in production line
• Variations in product models and style • Same products are packaged in many sizes
Collecting all data and analyzing it is impractical
Aggregation by distribution pattern
Place all SKU’s into a source-group
• A source group is a group of SKU’s all sourced from the same place
Aggregate the SKU’s by similar logistics characteristics
• Weight • Volume • Holding Cost
Aggregation by product type
Data Aggregation: Product
Aggregation by distribution pattern
70.0
60.0
50.0
Weight (lbs per case)
40.0
30.0
20.0
10.0
0.0 0.000
0.010
0.020
0.030
0.040
0.050
0.060
0.070
0.080
0.090
0.100
Volume (pallets per case)
Test Case for Product Aggregation
Setting
5 Plants 25 Potential Warehouse Locations Distance-based Service Constraints Inventory Holding Costs Fixed Warehouse
Production- only found in in manufacturing businesses such as; Heinz. Receives deliveries, though previously going by Just IN Time knowing when to order based on the amount of stock in store and by their loses in stocks. These are usually for making and selling the product. Many automated systems including robotics and other machines
Innovations in transportation and telecommunications have introduced a number of opportunities for companies of all sizes and types to optimize their transportation networks. This paper provides a description concerning the design of a logistics network that consists of only one warehouse. A discussion concerning what steps will need to taken in order to design the optimal network is followed by a description of the information and data that is needed to make this determination. Finally, an assessment of the strategy will be employed in this network is followed by a summary of the research and important findings concerning these issues in the conclusion.
Answer 2- If there should be a single location for all three companies the inventory holding cost will reduce because the product is placing at one location instead of different three locations. Moreover, by doing this the insurance and misplacing of product of cost reduce but in transit of inventory will increase because the shipments are truck load and the distance between customers and distribution centre is far. Furthermore, with this the service level improved which means order fulfilment process improved too. In addition to this, the
Different retailing businesses have very different distribution methods based on the types of product that they sell, some arguably more effectively than others.
Since the Lemonade business depends on lemon and sugar, our company will have to keep an eye on the stock needed and the availability of the two item locally and internationally. Even though the business will be at the peak in summer and will slow down in winter, a close monitoring on the international prices is a must. The future plan of the company is to expand in other continents by giving out franchise. So if it winter in US we generate business revenue from countries like Australia and New Zealand where they would have summer. To keep standard pricing and profit margin for the franchises, a detailed costing would be required. The things that are needed to be considered would be Cost of Lemon, Cost of Sugar, Cost of water, Cost of container, 10% overheads (labor, rent, utilities, etc), 5% franchising fee and 7% profit margin. In addition to this pricing 2% price fluctuation will be added to the cost. With this calculation the company and the franchises should make enough money to survive in the competitive market.
This option requires a separated bonded warehouse facility, it is costly and very difficult to administer. Outsourcing this project can reduce initial investment costs, reduce operational costs and can be terminated easily. A logistic company will provide the warehouse, the manpower, the equipment and will be responsible for shipping the goods in and out.
Based on performance indicators for picking and order preparation, central distribution centers provide a more cost efficient option. Performance for picking and order preparation efficiency is specified by accurate, cost efficient, and timing on picking and preparing the orders. Picking and order preparation efficiency in a store is low and endures high labor costs per order (Agatz, 2009). With a higher volume demand, distribution centers provide a high picking efficiency, whereas stores provide only a low picking efficiency (Boyer & Hult, 2005).
In addition, I would design a strategic transportation plan that coordinates inbound and outbound shipments to reduce transportation costs and improve service levels. The warehouse will be designed
Locating a central distribution center will increase the control over inventory for Consolidated. Having small point of operations will reduce the amount of inventory that will be maintained at the sites. Each location will have different needs and only stocking the immediate customer needs at each location will reduce overall costs. The purchasing discount will be easier to maintain if all shipments come to one location which will also save the company money. Having a couple small vans deliver to regional locations within an hour is less costly than ordering extra just to meet the minimum purchase discount. The cost of shipping to small locations will be minimal and will save the company and customers money in the long term. If the contractors know of items that they will need for a job they can inform Consolidated and the special items can be delivered to the job site or picked up at the regional office. Communication is key and willing to provide the best service in a timely manner will reduce cost and increase profit.
 Good distribution concepts with no one store more than 6 hrs. away from warehouse.
To perform a break-even analysis, we have made the following assumptions: (a) retail margin= 60%, (b) the additional fixed cost of production per flavor, including advertising, bottling run and sundries, is $10 million and this is assumed to be an annual cost, except the bottling run, (c) a conservative estimate of percentage share of market figure is derived by multiplying the market segment percentages, as well as the age segment percentage for the category > 40 yrs. The percentage = 74% x 62% x 85% x 40% = 16%. We first determine the retail
Our approach was to facilitate the demand with respect to the market. We penetrated the market by building factory in Fardo and building warehouses to the respective regions, Caleopeia, Sorange, Entworpe, Tyran. Another component that we had to consider was finding the optimal cost to increase market share and increase our profit margin. Discussion on the logistics will be discussed thoroughly, which affected our decision points and our overall outcome. There are a few questions we needed to answer before we built a road map to our strategy i.e. figuring out where to build the factory and warehouse, estimate the demand of the four regions and Fargo region, should we change capacity, adjust ordering point with respect to quantity, and also
1. Relative to the U.S. distribution network, calculate the cost associated with running the existing system. Assume that 40 percent of the volume arrives in Seattle and 60 percent in Los Angeles and the port processing fee for federal processing at both locations is $5.00 per CBM. Assume that everything is transferred to the Kansas City distribution center by rail, where it is unloaded and quality checked. Assume that all volume is then transferred by truck to the nine existing warehouses in the United States.
The organization in this study, a multi-billion dollar warehousing and distribution company, has been housed in an old building and will be moved to a new state-of-the-art facility. This move involves the planning, organizing, staging and moving of products from one location to the other. Included in planning needs are signage, warehouse racking placement, warehouseman selector choosing routes, freezer, cooler and dry product placement. Incorporated into this move will be the necessity to deal with contractors who are completing the building as well as contacting all vendors and suppliers to inform them of the change of location and service changes during the two-day transition period. The actual moving of all products will require 16 hours, 30 employees on two shifts at two different locations.
The most recommended distribution network suited for highly differentiated products would be drop-shipping network. It is the process where shipping avoids the retailers, meaning the retailer isn’t informed to hold any type of inventory for the customers, and instead, the products are directly delivered to the end customers from the manufacturers. In this network, the supply chain can divert and expand low level of inventory to a higher level of availability. It also gives an opportunity for manufacturers to reschedule the customization when necessary. This is excellent for sellers that are able to build to order, and for end customers who wants highly-differentiated products that are in low-demand but are highly valued and are willing to wait for delivery.