P an American A lliance for S upply I mprovement: Beverly Kris Jaeger Alejandro MacCawley

Pan American Advanced Studies InstituteSimulation and Optimization of Globalized Physical Distribution Systems

Santiago, Chile August, 2013

Pan American Alliance for Supply Improvement: Beverly Kris Jaeger

Alejandro MacCawley Marie-Eve Rancourt

Carlos Solorio-Magana Shanthi Muthuswamy

PASI Project: Case #2

There’s a challenge to be met …

Agenda Introduction

Current State The Mission

Methods Models & Paths Calculations & Computations

Solution Options Implications Further considerations

PASI Objectives

Interpretations & Assumptions

Problem Overview: Case 2

What do we ‘know’?Introduction

Problem Overview

6 Manufacturing Plants Newark NJ, St Louis MO, Springfield MO Memphis TN, Fort Worth TX , & Mexicali

5 Current Distribution Centers Canada: Toronto USA: Salt Lake, Tulsa OK Allentown PA, Atlantic City, NJ

2 Candidate DCs• Oakland CA• Los Angeles

DC

Introduction

?

Problem Overview

DC Leases Expiring in 18 months:• Toronto• Salt Lake City

Customers • Retailers across US and Canada• US Customers must be serviced

by a US-based Distribution Center

Introduction

DC

Mfg Loc

DC Ex

DC Poss.

Cust. Base

Mfg

DC

To

Tu

SL

AT

NWAL

SL

SP

MC

MP

FW

O

LA

?

C

CC

CU

Introduction

Problem Formulation

Decisions

Active/open DC (yj)

Size of new DC (S)

Outbound flows (xjk)

• Inbound flows given (% from each plant)

Objective

Minimize: Fixed & variables costs

for the active DC(s)• The fixed cost of new

DC is a function of S Transportation costs

• Inbound and outbound

Introduction

What is our mission?

Measurable challenges• Reduce total supply chain costs • Reduce delivery times

Introduction Solution(s)Solution(s)

The Challenges, Q1 & Q2

Q1: ID optimal location in Western NA Salt Lake City (SL) Los Angeles (LA) Oakland (O)

Q2: ID optimal location serving Western CAN• Salt Lake City• Toronto (T)• LA or O

Introduction

Q1 & Q2: Global Approach

Salt Lake City USA (as is currently) CAN

Oakland USA (candidate) CAN

Los Angeles USA (candidate) CAN

Introduction

O

LA

SL

Salt Lake City USA Toronto CAN

Oakland USA Toronto CAN

Los Angeles USA Toronto CAN

Introduction

O

LA

SL T

T

T

Q1 & Q2: Global Approach

The Challenges, Specific

For location serving Western North America: Sizing of DC for peak inventory Impact to inventory, freight, transit time, & DC costs

For location serving Western CAN:• Sizing of DC to support customer demand• Associated costs for DC

Introduction

Our Approach as a Team

Method

Fundamental Phases

Plant to DC

Within DC

DC to Customer

Method

DC

DC

DC

Fundamental Phases

Plant to DC

Within DC

DC to Customer

Method

DC

Plant to DC

Method

DC

Plant to DC

Method

DC

Shipping distance & rates/mile

Plant to DC

Given factors:• Truck can drive 500

miles/day• Average of 40K

lbs/shipment• Ship combination of TL &

LTL• 100% of freight paid by

Plant

Assumptions:• Only ground freight usedMethod

DC

Plant to DC: Inbound Trans.

Method & Model

Fundamental Phases

Plant to DC

Within DC

DC to Customer

Method

DC

DC

DC

Fundamental Phases

Plant to DC

Within DC

DC to CustomerDC

Method

DC to Customer

Method

DC

DC to Customer

Method

DC

DC to Customer

Given factors:• Truck can drive 500 miles/day• Average of 25,000 lbs/shipment• Ship combination of LTL &TL• 100% OB freight paid by Plant• US DC serves US customer

Assumptions• No stop charges• Pallet weight includes tare & product

Method & Model

DC

DC to Customer Model:

Method & Model

Fundamental Phases

Plant to DC

Within DC

DC to Customer

DC

DC

DC

Method & Model

Fundamental Phases

Plant to DC

Within DC

DC to Customer

DC

Method & Model

Existing DC Costs

Method

DC

Size and costs for the two new candidates, LA and Oakland???

DC “Costs”

Given factors:• Average 11 sq ft /pallet stored• Averages 1,500 lbs of product

per pallet in DC inventory• Average 9 turns/year for the

network ~40 days of Supply• Peak Inventory levels up to 12%

over the average level• Toronto is 100% utilized now• Candidate DC space costs for

LA & Oakland are given

Method & Model

DC

{ $6.25 per square foot for fixed{ $0.095 per lb for variable cost

Size for the new DC inventory DC

Modeling warehouse capacity

Warehouse capacity (fast movers)

Convert in squared feet: Sf = 11/1,500 qf

Warehouse capacity (s l o w m o v e r s)

Convert in squared feet: Ss = 11/1,500 qs

DC Design & Justification

Unknowns, affecting stacking height:• Height of packed goods• Fragility of packed goods Stack a max of 3 high with block stacking

Unknowns, affecting configuration• Perishable items• ABC Control Breakdown • Slow vs. fast mover profile Block stacking for fast, Pallet rack for slow

Method & Model

DC Facility Sizing Convention

40% Bulk/Reserve + Fast Pick • Fast movers – block stacking; Slow movers – pallet racks

60% Other storage support• Clearance, Aisles, Shipping/Receiving, Pallet & Vehicle Stow

Method & Model

Slow movers

Fast movers 3

3

S* = 246,000

Toronto Extra Capacity Calculation

Method Options

Toronto is currently at full capacity Extra DC size calculated in sq ft: 44,554

DC fixed and variable costs calculated using only the extra space added to serve West CAN

Salt Lake City New Option

Current DC size at SLC in sq ft: 500,000 New DC size calculated in sq ft: 246,000

Lease expires in 18 months SLC new option: Rent only ½ the current space

Advantages• No new hiring, training• No new scoping required• CODB known, unchanged• Laws and regulations known

Method Options

OutcomesMethod & Model

Outcomes: Total Landed Costs

Outcomes

Outcomes: Total Landed Costs

Outcomes: Total Landed Costs by number of DCs

Outcomes

Outcomes for Service Time

Outcomes

Computed Demand: 84% from US customers, 16% from Canadian customers

Outcomes for ROI

Outcomes

Summary

Computed Landed Costs Computed Service Times Two Options:

• LA US, Toronto Canada• SLC New US, Toronto Canada

“Solutions”

Mfg Loc

DC Ex

DC Poss.

Cust. Base

Mfg

DC

To

Tu

SL

AT

NWAL

SL

SP

MC

MP

FW

O

LA

?

C

CC

CU

Introduction

Mfg Loc

DC Ex

DC Poss.

Cust. Base

Mfg

DC

To

Tu

SL

AT

NWAL

SL

SP

MC

MP

FW

O

LA

?

C

CC

CU

Introduction

SL

Considerations & Recommendations

Product life cycles and turnover Safety stock and demand variability

Load consolidation opportunities Other transportation alternatives

Opportunities for DCs in other locations Investigation into additional landed cost factors

External factors: workforce, unions, government, political unrest, regulations, CODB …

Considerations & Recommendations

Size and orientation of racks and shelving Storage configuration profile: Selective racks,

push-backs, drive-through, block stacks, combo

Number and width and orientation of aisles Clearance height available within the building

Fast-pick areas, Storage and retrieval systems Special support areas, regional consideration

PASI & Project Objectives

Apply concepts practically• Real-world problem• With interpretations assumptions & considerations

Collaborate across:• Cultures & Universities• Backgrounds & Perspectives

Experience & Enjoy!

PASI & Project Objectives

Apply concepts practically• Real-world problem• With interpretations assumptions & considerations

Collaborate across:• Cultures & Universities• Backgrounds & Perspectives

+ Experience & Enjoy!

Thank You

Alice, Jorge

& PASI!!

PASI Case 2 Data by PASIs