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McGraw-Hill/Irwin
McGraw-Hill/Irwin
McGraw-Hill/Irwin
Spectrum of location decisions exists but chapter focus is on selecting warehouse locations
Transportation services link locations into an integrated logistical system Selection of individual locations represents competitive and cost-related logistical decisions
Manufacturing plant locations may require several years to fully deploy Warehouses can be arranged to use only during specified times Retail locations are influenced by marketing and competitive conditions
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Warehouse requirements
Warehouses exist to lower total cost or improve customer service Warehouses specialize in supply or demand facing services
Facilities used for inbound materials are supply facing warehouses Facilities used for customer accommodation are demand facing warehouses
Procurement drivers help purchase materials and components at the lowest total inbound cost
Limited number of deeper relationships with suppliers Life cycle considerations
E.g. material purchase, reclamation, and disposal of unused materials
Debundling of value-added services leading to new structural relationships with suppliers Seasonality of selected supplies Opportunities to purchase at reduced prices Rapid accommodation of manufacturing spikes Facilities placing more emphasis on sorting and sequencing materials
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Manufacturing drivers help consolidate finished product for outbound customer shipment
Provide customers full-line product assortment on a single invoice at truckload transportation rates Choice of manufacturing strategy is primary driver
Make to plan (MTP)
Requires substantial demand facing warehousing
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Market-based ATO situations using decentralized warehouses Size of market served by warehouse based on
Number of suppliers Desired service speed Size of average order Cost per unit of local delivery
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Warehouse justification is based on providing a service or cost advantage from their location
Must achieve freight consolidation with warehouse positioning
Inventory storage to support customized orders Mixing facilities to support flow-through and crossdock sorting
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Components linked together in a balanced system will produce greater end results than possible through individual performance
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Transportation economics
Two basic principles for economical transportation
Quantity principle is that individual shipments should be as large as the carrier can legally transport in vehicle Tapering principle is that large shipments should be transported distances as long as possible
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Options
Direct ship to customer = $36.40 per average shipment Ship to market at volume rate and distribute locally
Total rate = $3.75 per cwt $18.75 per average shipment
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Generalized relationship
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Inbound
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Results
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Serving the same market area by adding warehouses will increase uncertainty since each facility has its own replenishment cycle
Therefore, more safety stock is needed
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Inventory summary
Base stock determination is independent of number of market facing warehouses In-transit stock will typically decrease with the addition of warehouses to the network Safety stock increases with number of warehouses added to the network
New performance cycle requires additional safety stock
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Trade-off relationships
Minimal total cost point for the system is not at the point of least cost for either transportation or inventory
McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Minimize the cost of your logistics network without compromising your service levels
$90 $80
Cost (millions $)
10
Number of Warehouses
McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
DCs
Dover Des Moines
Plants
Dover Des Moines
DCs
Dover Des Moines
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Formulating logistical strategy requires evaluating alternative customer service levels and costs General approach to finalizing a logistical strategy
Determine a least-total-cost network
Measure service availability and capability for this network
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Result of a customer service availability analysis is shown in Figure 12.7 for warehouses X, Y and Z
Based on distribution of an average order Delivery time is estimated on the basis of distance Transit inventory estimated based on delivery time
Management can make basic customer delivery commitments of the basic service platform
Use an estimate of expected order cycle time
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Service sensitivity analysis uses the threshold service level to evaluate potential changes Basic service capabilities of a network change with variations in
Number of warehouses
Adding warehouses increases fixed costs
Performance cycles
E.g. web-based ordering, premium transportation Typically increases variable costs
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Variations in the number of warehouse locations is illustrated in Table 12.5 in the text
Key points from this table
Incremental service is a diminishing function High degrees of service are achieved much faster for longer performance intervals than for shorter intervals Total cost increases dramatically with each location added to the logistical network
Portfolio effect is the relationship between uncertainty and required inventory Portfolio effect can be estimate using the square root rule
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Finalizing strategy requires evaluating the incremental service cost vs. incremental revenue
Figure 12.9 illustrates an example
Marketing proposes
2% improvement in inventory availability 36-hour improvement in delivery capability
Incremental total cost to achieve proposed option = $400k per year Incremental revenue needed to break even = $4million per year
Assumes 10% profit margin
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Figure 12-8 Comparative total cost for 5- and 12-distribution point systems
Figure 12.8 Comparative Total Cost for 5- and 12- Distribution-Point Systems
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Delivery in small quantities Select products Tracking of individual behavior Individual focused strategies
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Wal*Mart
Low cost product Shift inventory management to vendor Collaborative forecasting
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Total Cost
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1 CPU Plant
CPU Warehouse
Store
Back Room Shelf
C&S Vision
ES3 Warehouse
CPU Plant C&S Case Pick
Store Aisle
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2012
Demand Sustainability
Energy Labor Political
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2012
Demand Sustainability
Energy Labor Political Regulations Debtors Supplier relationships Commodity availability Cross-sale requirements
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