Case Study: PDQ Office Products - MIT OpenCourseWare · Case Study: PDQ Office Products U.S. Distribution Strategy Peach State Integrated Technologies 1. Contact information For any

Case Study:

PDQ Office ProductsU.S. Distribution Strategy

Case Study:

PDQ Office Products U.S. Distribution Strategy

Peach State Integrated Technologies www.peachstate.com

1 1

Contact information

For any questions about this case study or other

Peach State capabilities please feel free to contact us.

Peach State Integrated Technologies

3005 Business Park Drive

Norcross, GA 30071

(678) 327-2000

2

Table of Contents

ÿ Project Overview ÿ Demand Analysis ÿ Customer Locations ÿ Network Model and Baseline ÿ Scenario Evaluation ÿ Summary and Recommendationÿ Appendix

3

Project Overview

4

Project Background

PDQ Corporation is seeking a Distribution Network plan thatwill deliver high service levels during a period of growth.

ÿ Existing Facilities - PDQ currently has a single distribution center (DC) located in central NJ. All customers in the United States receive their shipments directly from this DC.

ÿ Expansion - PDQ initially targeted the New York metro area and thenortheastern states. A large untapped market exists in the rest of thecountry, and PDQ must consider how to serve these customers.

ÿ Service Levels - TPDQ’s promise of quick delivery is central to the philosophy of the company. In Europe, most customers can expect 24 hour delivery. The goal of this study is to explore several service level scenarios for the US market and show the type of distribution network that would be required to achieve each target.

5

Project Objectives

Peach State and PDQ agreed on the following project goals and objectives to ensure success. ÿ Examine the historical demand: Build profiles of typical customer orders to understand the

current network.

ÿ Project future demand: Identify key markets that will be served in the future.

ÿ Rate the current network: Detail the service levels that can be achieved with the existing facility.

ÿ Design a network for the following scenarios:

ÿ Baseline – Central NJ only

ÿ How many DC’s to reach 100% of the US in 24 hours?

ÿ Best 1, 2, and 3 DC networks (3 scenarios)

ÿ Best Central NJ + 1 DC network

ÿ Best Central NJ + 2 DC network

ÿ Identify service levels: With each scenario, calculate how many customers can be served in 1 day, 2 days, or more.

ÿ Review existing warehouse: Make recommendations around space efficiency and process improvements.

6

Project Approach & Methodology

Peach State used historical shipment data and information about target markets to build a model of PDQ’s network.

ÿ Input Data: PDQ provided detailed information about products, order activity, and shipment methods. The sample data provided covered June 2001 to June 2002.

ÿ Demand Analysis: Peach State examined the data and built profiles of the typical customer order, daily order activity, and shipment method. This data was also used to do a product velocity study which identified the fastest moving products.

ÿ Customer Location: PDQ provided the BPIA buying power index which describes the population of office workers in each U.S. county. This data was used to identify the largest metropolitan areas in the U.S. which are important strategic targets for PDQ.

ÿ Network Modeling: A detailed model of the network was built using the data profiles. Using this model, Peach State located facilities to meet customer demand. This approach minimizes distance to the customer base and meets service level targets.

ÿ Scenario Analysis: A baseline scenario was compared with several other alternatives. Detailed maps and service levels are provided for each scenario. These will provide PDQ with a strong foundation for strategic expansion.

7

Demand Analysis“What does the typical order look like?”

8

Demand Analysis

Peach State used historical data to build profiles of PDQ’sshipping activity and customer demand.

Data was used to answer key questions:

ÿ How many orders are received each day?

ÿ Are sales levels increasing over time?

ÿ How many shipments are sent via LTL carrier? Parcel carrier?

ÿ What does the average order look like? How many products? Average sizes? Total weight?

ÿ Which products are the fastest moving? What percentage of activity do they represent?

9

Orders per Day

The number of orders processed per day fluctuates, but it is mostcommon to ship 55 to 65 orders per day.

10

Shipment Volumes

January 2002 marked a step increase in shipment volumes.

11

Activity Levels Per Day

Though total volumeshave increased, thespread of daily ordershas remained constant.

12

13

Parcel shipments constitute the majority of all shipments - more

Shipment Mode

than 60%.

Lines Per Order Profile

More than 50% of all orders were a single line only. Orderpicking can be designed to leverage this for increased efficiency.

74%

84% 89%

93% 95% 96% 97% 98% 98% 99%

53%

0

1000

2000

3000

4000

5000

6000

7000

1 2 3 4 5 6 7 8 9 10 11

Lines

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Lines Per Order Distribution

Num

ber

of O

rder

s

Cum

ulat

ive

Per

cent

of

Ord

ers

84% of all orders have 3 lines or less.

14

Units and Weight Per Order

Line, weight, and unit per order profiles can be examined todefine the most suitable order fulfillment methodologies.

15

Product Movement Profile

Order activity was analyzed for each product to distinguishfastest moving items from the slower moving ones.

0%

20%

40%

60%

80%

100%

1 192 383 574 765

Picks 869 17,712 33% 80% 870 3,324 33% 15% 930 1,109 35% 5%

Total 2,669 22,145 100% 100%

Velocity Profile

956 1147 1338 1529 1720 1911 2102 2293 2484

# Products

% O

rder

s

Product Movement # SKU's % SKU's % Picks Fastest Movers Medium Movers Slow Movers

16

Product Movement Profile

Using the product velocity profile, Peach State was able toidentify operational improvements PDQ should consider.

ÿAn overview map of thewarehouse was developedwhich shows whereproducts are stored.ÿ Fastest moving items are

shown in red, and areevenly distributed in thewarehouse.ÿA revised approach to

product storage coulddecrease labor costs andshorten order cycle times.

A A A A A A A A C A A A A A A B C A A A A C A A A A A A A A A A AC A B A B B B B A C A A B B C C C A A A A C B B B A A BB A C A C B A A A A A A A A B C B B B C A B B A A A A A A A BB C C A C A A A A A A A A A A A A A A A A C A B A A B A A A A A C A A A A A A A AC A A B A B A A B A A A B A B B B B A A A A A A A A A A A B A

A B B B A A A A A A A B B B A A A BC A B C C A A B A B C B C C A A A A A A A A A B A B B B C B CA C C A A B A B B A A B C B A C A A B B A B A B B B CA C B C C B C C A C A B A A B C B A A A B CA A A C C C B C C B C B A B C A B C A B B A C A A A A B B A A

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A B B B A B A C A A B A B A A B A B C C C B C C B BB B B C C A B C A B B A B B C C C C A C A C C A B B C B A B B C A C CB B A A A A C B C B B C B C A C A B B A B C B A A B BA A C A C B C C A C A B C B B B A B B C A A B C A A B AA A A B A A A A B B B A B B C B C A B B A A A A B A A A A A A A C A B A B B

A A B A A A B B B A B B A A B A B C B C B B B B B A B C A A B A A A B A A C A A C A AA A A B A A A C B B B A A B A B B C B A C B B B A B C C CA A B C C B B A C A B B A C B C A C B C C B C B A C C C C C B B CA C C C C A B C A A A B B B A B C A B C B C C C A A B A A A A B C B B B A B B B C CA C B C C B C C C A A A A C A C B A B C B B B A A A C

A B B C C A B A A A B B C B A A B A B C A A B B C B B BA C A A A A A A A A A A A A A A A B B B A B A C A C B B B B B B A B C B B BB B B A B A A A A A C C A B B A A C A C C B C B B C A B A B B C C B CC A A B A B A A C A B A C C B C B C C C A C B B C B C CA A A A A A A A A B C A B B A B B A B B A A A A B A B B A B C A B C A A A A B

A A A A A B A A A A A AA B A A A B B A B C B A B A A A A A B A A B A A B A A A A A BA A B A A C A A A A B B C A B C C A B B B B B A B B B A C B C A A BB B B C A A A A B B C C A A B A A C A B C C A B B B C A B C A B B A CA C A A B A C C B C C A B C A B B A A C A A B A A A A A B A B C A A A A B CA B B A C A A B C A C A A A A A A B A B B A A C

A B C A A A A C A A A B B B A B A B A A A A B C C A B A A AA C C A B C A A A A A A A B A B B B C C A B B B B C A A C C A B B A A AB A A B B B C A C C A A A A B B B C C C B B B B B B C A C C CA B A A A A C A A B A B B C A B B B B C C C C A B A B C C A B A A BA A A B A B B B B B A A A A A C A B A A B A A A A C A C A B A A A A BA A CA A A B A A B A B A A A A A A A B BA A A B A A B A A B A A A A C A A B A A A A A A A A A A A A B A CA C B C A B C A B A A A C A A C B A A B A B B A A A C B CC C C A A A B A A A A B A A A A A B B A C C B C A B A B C A AA C C B B A B C A A C A A B A C C A B C A A A A B C A A B A A B B B C A A AB C B A B B B C B A B A A B B C C A A

A A A A B A A A A A A A AA B A A B A A A A AA A A B A A A A A A AB C C A B A B A A BA B C A A A A A A A A A B A C A B A A A A B B A B A A AA A B B B C C C A B BA A A A C B A A A A BA A A A A B A A A A A A A A A A A A

A A C A C C A A A A A A A A A A A AA A B A A A A A A A A A A C A A B

A A A A A A A A A A B B A A A A B B A A BA A A A A A A A A A A A A A A A A AA A A A A A A A A A A A A A A A A AA A A A A A A B A A A A A A A B CA B B A A A A A A B A A A A BA A A A A A A A A A A A A A A

= Future Addition A = Fastest Moving Items B = Medium Moving Items

= Current C = Slowest Moving Items

1601 16021616 1617 1618 1619 1607 1608 1610

1510

1609

1509

1603 1604 1605 1606 1611 1612 1613 1614 1615

1517 1501 1502 1503 1504 1505 1506 1507 1508 1511 1512 1513 1514

1417 1401 1402 1403 1404 1405 1406 1407 1408 1409 1411 14121410 1413 1414

0917 0901 0902 0903 0904 0905 0906 0907 0913 0914

0817 0801 0802 0803 0804 0805 0806

0908

0813 08140807 0808 0809 0810

1315 1316 1317 1301 1302 1303 1304 1305 1306 1307 1308 1309 1310 1311 1312 1313 1314

1215 1216 1217 1201 1202 1203 1204 1205 1206 1207 1208 1209 1210 1211 1212 1213 1214

1115 1116 1117 1101 1102 1103 1104 1105 1106 1107 1108 1109 1110 1111 1112 1113 1114

1015 1016 1017 1001 1002 1003 1004 1005 1006 1013 10141007 1008 1009 1010

0703 0704

1011 1012

0811 0812

09120909 0910 0911

0709 07100705 0706 0707 0708

0613 06140603 0604 0605 0606 0607 0608

0713 07140711 0712

0505 0506

0609 0610

0501 0502 0503 0504

0611 0612

0406

0107 0101 0102 0103 0104 0105 0106

0301

0401

0203 0204

04050402 0403 0404

0305 0205 0206

1515 1516

1415 1416

0302 0201

0303 0304

0715 0916

0615 0816

0915 0916

0815 0816

Re

ceiv

ing

, P

ack

ing

, S

hip

pin

g A

rea

0916

0816 0601 0602

0701 0702

OFFICE 0306 0202

987

604 422

Total Facings

17

Space and Process Improvements

Peach State recommended the following enhancements for theexisting warehouse, based on a one day site assessment:ÿ Slotting -

ÿ Zone the warehouse by velocity—“A”, fast moving items = front, “B” movers = middle, “C” & “Dogs” = back. ÿ Keep fastest moving items toward the dock & on the floor; opportunity exists to re-slot the warehouse.

ÿ Putaway – store and putaway receipts of product by velocity zone; use first part of shift to replenish floor/forward slots from reserve.

ÿ Allocate the right amount of product to a forward location; i.e., don’t tie up 3 floor slots with same product if slots would be better served with other, fast moving SKU’s.

ÿ Continue to store items that ship together close to one another.ÿ Operations -

ÿ Adjust workstation layout for packing to minimize travel time between work table, terminal, printers & UPS manifest.

ÿ Evaluate increasing the size of the UPS waves to create more efficient picking tours; update system parameters as needed.

ÿ Storage -

ÿ Rack out remaining floor space with selective pallet rack, minus space required for staging.

ÿ Creating deeper bays for longer products will only offer marginal space improvements.

ÿ Use dense storage for small cube items (e.g., more half pallet locations, bin shelving, &/or case rack).

ÿ Put mezzanine over shipping docks; returns or small cube items could be processed on mezzanine.

ÿ Rack out over dock doors to store packing materials and empty pallets.

ÿ Consolidate dead items on pallet, inventory, ID, and put in back of warehouse.

ÿ Possibly use floor storage for high cube, stackable items.

Detailed slotting will yield the greatest operational benefits to PDQ.

18

Summary of Demand

The observations of the demand analysis were used to modelPDQ’s U.S. distribution network.

ÿ For the purposes of the network study, we assume that customers behave the same no matter where they live in the U.S. The order size, order value, frequency, and return rates all follow the typical customer profile.

ÿ The number of daily orders can fluctuate over a wide range. The distribution network must be flexible to allow for this variability.

ÿ Sales have been steadily increasing in the U.S. and this trend should continue as PDQ enters new markets. The distribution network must be able to handle this future growth.

ÿ Parcel shipments account for over 60% of the customer orders. This has been consistent over time, and is dependent on product type. PDQ must be equally capable of meeting service targets with both parcel and LTL shipments.

ÿ More than half of the orders are for a single product only, and 80% of the volume is driven by the “fastest” one third of products. PDQ should examine its shipping operations to build in efficiency. For example, single line orders could be batch picked to reduce travel time. Even small improvements in order fulfillment methodology could yield significant results.

19

Customer Locations“Where are the largest markets?”

20

21

ÿOffice workers

customers. ÿ The data includes

workers in large,

offices. ÿAlaska and

Hawaii were excluded from the study: this

of the total population.

workers in the United States, divided into 3,109 counties.

Geographic Analysis of Demand

are PDQ’s target

small, and home

was only 0.12%

PDQ provided BPIA data which shows the population of office

22

ÿdefined by the U.S. Census Bureau.

ÿ 86 percent of U.S. office workers live

ÿconsumers tend to live in these metro areas also.

ÿeasily focused on these dense areas.

To speed calculations, Peach State grouped demand into large metro areas made up of several counties.

Demand Aggregation

302 Metro areas are

in these areas.

Style conscious

Marketing can be

23

ÿ The network model will focus on the largest cities first.

ÿ This level of aggregation allows faster modeling results but does not affect validity.

ÿ Final results will be reported using the full 3,109 county list and 100% of the population.

areas represent 58 percent of U.S. office workers.

Analysis of Demand

The largest 50 metro areas are used in the network study. These

Analysis of Demand

Customer orders and returns should follow the same geographic

distribution as the population of office workers in the U.S. ÿCalifornia, New York, and Texas have the largest concentration of office workers.

ÿThe central area of the U.S. is sparsely populated compared to the coasts.

24

Network Model and Baseline “What service can PDQ provide with its existing distribution

center in central NJ?”

25

Network Model

Peach State built a model of PDQ’s network based on thefollowing assumptions.

ÿ The network model calculates actual road distances between distribution centers and customers.

ÿ All customers are assigned to the closest DC.

ÿ LTL shipments travel 500 miles per day on average.

ÿ Parcel delivery times are based on UPS Ground service and are quoted in business days.

ÿ The model locates each distribution center to minimize average distance to the customers.

ÿ Return shipments follow the same pattern as outbound shipments. We assume there is a fixed percentage of all orders that will be returned.

26

27

Baseline Network

With just one distribution center located in New Jersey, PDQ will not be able to meet its service targets nationwide.

28

The first scenario includes only the existing facility in central NJ. This scenario was used as the index to rate all other scenarios.

Baseline Network

29

If PDQ starts marketing tothe entire United States,only 29% of LTL volumeand 20% of parcel volumewill be within a one dayservice area from theexisting facility.

Parcel Service Levels

20%15%

31%

12%

22%

78%

100%

20%

35%

66%

0

5

10

15

20

25

30

35

1 Days 2 Days 3 Days 4 Days 5 Days

Business Days in Transit

Per

cent

of

Cus

tom

ers

0%

20%

40%

60%

80%

100%


20%15%

31%

12%

22%

78%

100%

20%

35%

66%

0

5

10

15

20

25

30

35



Per

cent

of

Cus

tom

ers

0%

20%

40%

60%

80%

100%

LTL Service Levels

29%

56%

73%82% 85%

99.7%

0

1

2

3

4

5

6

7

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61

Hours from DC to Customer

Per

cent

of

Cus

tom

ers

0%10%

20%

30%

40%50%

60%

70%80%

90%

100%Within 2 Days Within 3 DaysWithin 1 Day Within 4 Days Within 5 Days Within 6 Days

LTL Service Levels

29%

56%

73%82% 85%

99.7%

0

1

2

3

4

5

6

7

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61


Per

cent

of

Cus

tom

ers

0%10%

20%

30%

40%50%

60%

70%80%

90%

100%Within 2 Days Within 3 DaysWithin 1 Day Within 4 Days Within 5 Days Within 6 Days

Baseline Network

PDQ uses both LTL and Parcel shipments. With the existingnetwork, some customers can expect to wait a week for delivery.

This chartshows how longLTL shipments

take to reachthe customer.

All calculationsare based on 10

hours at 50miles per hour,for 500 miles

per day.

This chart showshow long Parcelshipments can

take to reach thecustomer. The

source dataassumes UPS

Ground shipment.

Drivers travel 500 miles per day, based on a 10 hour shift at 50 mph.

Based on quoted duration of UPS Ground service.

Scenario Evaluation“How many distribution centers does PDQ need?”

“Where should they be located?”

30

Scenario Overview

Several different scenarios were considered using the model.Each was compared to the baseline to rank its performance.

ÿ One day service nationwide: How many distribution centers are needed to reach 100% of the United States in 24 hours?

ÿ Best 1 DC network: If PDQ only has one DC, where should it be?

ÿ Best 2 DC network: Where should 2 DC’s be located? How is service improved?

ÿ Best network with Central NJ + 1 other DC: If PDQ added one new DC to its existing facility, where should it be placed?

ÿ Best 3 DC network: Where should 3 DC’s be located? What are the additional benefits?

ÿ Best network with Central NJ + 2 other DCs: In addition to the existing facility, where should two new DCs be located?

31

32

Scenario: One Day Service

nationwide is still not possible. When 10 DCs are placed to minimize cost, one day service

Scenario: One Day ServiceDistributioncenters arelocated nearmajormetropolitanareas toreduce theoverall cost ofthe network.

33

Scenario: One Day Service

With 10 facilities nationwide, service levels would be very high. The operating costs would also be extremely high.

LTL Service Levels

100%100% 95%

0

5

10

15

20

25

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30


Per

cent

of

Cus

tom

ers

0% 10%

20%

30%

40% 50%

60%

70%

80% 90%

100% Within Two Days Within Three DaysWithin One Day

LTL Service Levels

100%100%95%

0

5

10

15

20

25

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30


Per

cent

of

Cus

tom

ers

0%10%

20%

30%

40%50%

60%

70%

80%90%

100%Within Two Days Within Three DaysWithin One Day Most of the country

receives 1 day service. Large geographic areas of the country receive 2 day service, but the number of customers in these areas is very small.

reach customers in one business day.


Most parcel shipments will Parcel Service Levels

69%

30% 0.5%

70%

99.5% 100%

0

10

20

30

40

50

60

70

80

1 Days 2 Days 3 Days


Per

cent

of

Cus

tom

ers

0%

20%

40%

60%

80%

100%


69%

30%0.5%

70%

99.5% 100%

0

10

20

30

40

50

60

70

80



Per

cent

of

Cus

tom

ers

0%

20%

40%

60%

80%

100%


34

35

Because most of the population lives in the eastern half of the

Scenario: Best 1 DC

country, a single facility would be located centrally.

36

Distribution activities are roughly 16-20%

the baseline scenario. This location was chosen to reduce the total network

customers will have slower service.

Scenario: Best 1 DC

more efficient than

cost, but some

100%

31%

100%

Scenario: Best 1 DC

This scenario cannot reach either of the largest markets in one day, but achieves higher overall service than the baseline.

LTL Service LevelsLTL Service Levels

88 Within 1 DayWithin 1 Day Within 2 DaysWithin 2 Days Within 3 DaysWithin 3 Days Within 4 DaysWithin 4 Days Within 5 DaysWithin 5 Days 100%

100%100%

77 73%73%

82%82% 86%86%90%90%


The UPS parcel network

0

1

2

3

4

5

6

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49


Per

cent

of

Cus

tom

ers

0%

10%

20% 30%

40%

50%

60% 70%

80%

31%

0

1

2

3

4

5

6

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49


Per

cent

of

Cus

tom

ers

0%

10%

20%30%

40%

50%

60%70%

80%


12%

47%

22%20% 12%

58%

78%

0

10

20

30

40

50

1 Days 2 Days 3 Days 4 Days


Per

cent

of

Cus

tom

ers

0%

20%

40%

60%

80%

100%


12%

47%

22%20%

100%

12%

58%

78%

0

10

20

30

40

50



Per

cent

of

Cus

tom

ers

0%

20%

40%

60%

80%

100%usually follows the same behavior as the LTL road network.


37

38

Scenario: Best 2 DCs

By adding a second DC, the network is able to serve both coasts with one day service, and reach most of the country within 3 days.

39

Distribution activities are more efficient than with a single DC. Based on customer percentages, the eastern facility is much larger than the second center.


100%


Virtually all of the country can be reached in 3 days from the two locations in this scenario.

LTL Service Levels

100%

83%

49%

0

2

4

6

8

10

12

14

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30


Per

cent

of

Cus

tom

ers

0% 10%

20%

30%

40% 50%

60%

70%

80% 90%


LTL Service Levels

100%

83%

49%

0

2

4

6

8

10

12

14

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30


Per

cent

of

Cus

tom

ers

0% 10%

20%

30%

40%50%

60%

70%

80%90%

100%Within Two Days Within Three DaysWithin One Day Although there is a small

area of southern Texas that receives 4 day service, the population there is minimal.

receive a parcel shipment within 3 business days.


92% of the nation would Parcel Service Levels

11%

56%

25% 8%11%

67%

92%

0

10

20

30

40

50

60



Per

cent

of

Cus

tom

ers

0%

20%

40%

60%

80%

100%


11%

56%

25%8%

100%

11%

67%

92%

0

10

20

30

40

50

60



Per

cent

of

Cus

tom

ers

0%

20%

40%

60%

80%

100%


40

41

Scenario: Central NJ + 1 DC

Adding a second DC to the current network has very similar results compared with the “Best 2 DC” scenario.

42

The existing site is not the optimal location for a DC, but the

the network is not reduced significantly.

the original DC should be done only if other needs arise.


efficiency of

Relocating

100%

27%

49%

86%

42%

100%


A small section (3%) of the country receives only 4 day service in this scenario. Houston is the only metro area in this region.

LTL Service LevelsLTL Service Levels

100%97%97%Within One DayWithin One Day Within Two DaysWithin Two Days Within Three DaysWithin Three Days Within Four DaysWithin Four Days

99 100%100%

88 90%90%73%73%

80%80%77

Per

cent

of

Cus

tom

ers

Per

cent

of

Cus

tom

ers

70%70%66 60%60%

55 42% 50%50%

44 40%40%

33 30%30%22 20%20%11 10%10%

00 0%0%

22 44 66 88 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 4011 33 55 77 99 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40

Hours from DC to CustomerHours from DC to Customer


Overall, service is only Parcel Service Levels

26% 23%

37%

13% 0.2%

99.8%

0

5

10

15

20

25

30

35

40



Per

cent

of

Cus

tom

ers

0%

20%

40%

60%

80%

100%


26%23%

37%

13%0.2%

100%99.8%

27%

49%

86%

0

5

10

15

20

25

30

35

40



Per

cent

of

Cus

tom

ers

0%

20%

40%

60%

80%

100%slightly lower than the scenario with the Best 2 DC network.


43


Adding a third DC brings the national service level even higher.

44

45

This may be a good long term plan for growing PDQ’s distribution

A more detailed second study could identify the expected costs of this scenario.


network.

100%


Most of the nation could receive 2 day service with a 3 DC network. Shipments can reach the largest markets in only 1 day.

LTL Service Levels

65%

94%

0 1

2

3

4 5

6

7

8 9

10

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30


Per

cent

of

Cus

tom

ers

0% 10%

20%

30%

40% 50%

60%

70%

80% 90%


LTL Service Levels

65%

94% 100%

0 1

2

3

4 5

6

7

8 9

10

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30


Per

cent

of

Cus

tom

ers

0% 10%

20%

30%

40%50%

60%

70%

80%90%

100%Within Two Days Within Three DaysWithin One Day

Of the 50 largest U.S. metro areas only Seattle, Miami, and Fort Lauderdale would not receive at least 2 day service.

parcel shipments within 3 business days.


All customers could receive Parcel Service Levels

29%

55%

15%

30%

84%

100%

0

10

20

30

40

50

60



Per

cent

of

Cus

tom

ers

0%

20%

40%

60%

80%

100%


29%

55%

15%

30%

84%

100%

0

10

20

30

40

50

60



Per

cent

of

Cus

tom

ers

0%

20%

40%

60%

80%

100%


46

Scenario: Central NJ + 2 DCs

This scenario is almost identical to the “Best 3 DC” scenario since the existing DC is within 50 miles of the optimal location.

47

48

The performance of this scenario is statistically identical to the

solution.


“Best 3 DC”


Again, this solution provides the the same service as the“Best 3 DC” scenario.

LTL Service Levels

100%93%

66%

0

2

4

6

8

10

12

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30


Per

cent

of

Cus

tom

ers

0% 10%

20%

30%

40% 50%

60%

70%

80% 90%


LTL Service Levels

100%93%

66%

0

2

4

6

8

10

12

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30


Per

cent

of

Cus

tom

ers

0%10%

20%

30%

40%50%

60%

70%

80%90%

100%Within Two Days Within Three DaysWithin One Day The 2 day service level is

only 1% less than the previous scenario.



32%

57%

10%

32%

89% 100%

0

10

20

30

40

50

60



Per

cent

of

Cus

tom

ers

0%

20%

40%

60%

80%

100%


32%

57%

10%

32%

89%100%

0

10

20

30

40

50

60



Per

cent

of

Cus

tom

ers

0%

20%

40%

60%

80%

100%


49

Summary and Recommendation

50

51

This chart shows the performance of the LTL distribution network under each scenario in the study.

Scenario Summary - LTL

Scenario Summary - Parcel

This chart shows the performance of the parcel distributionnetwork under each scenario in the study.

52

Recommendations

Peach State recommends the following implementation plan for PDQ during their period of growth in the U.S. market.

ÿ Existing Facilities: The existing facility was placed in an important strategic location. It is not necessary to relocate this facility to increase customer service. However, relocation may be necessary for operational reasons, such as outgrowing the current facility.

ÿ New Facilities: Adding a second distribution center near Los Angeles would achieve three day service levels for 97% of the target customers. Based on the population, shipments from this facility would only represent 25-30% of total U.S. sales volume.

ÿ Additional Expansion: If higher service levels are required or if sales volumes increase, a third facility could be added to the network. With a third facility, PDQ could provide 2 day service to 93% of the country.

ÿ Detailed Cost Analysis: A more in depth study would provide a view of PDQ’s actual distribution costs. This analysis should consider the transportation, inventory, and operating costs of PDQ’s distribution network. PDQ should consider all relevant costs to determine whether a new facility can be justified economically.

ÿ Inbound Shipments: Without actual cost data, it is not possible to identify the best ports to bring products into the U.S. Peach State can provide a framework for these decision for PDQ to use in the future.

53

Recommendations

Appendix

ÿ Scenario: Central NJ & Reno

ÿ Scneario: Central NJ & Las Vegas

ÿ BPIA Data: 50 Top Metro Areas

54

55

Instead of placing a second DC in California, PDQ could locate

Scenario: Central NJ & Reno

in Reno, NV to share space with its sister company.

Scenario: Central NJ & Reno

This network is less efficient than other scenarios with 2 distribution centers. However, it is still a significant improvement over the baseline network.

56

57

Based on distribution alone, Las Vegas is not the best city for a second DC. However, other factors may outweigh transportation.

Scenario: Central NJ & Las Vegas

58

Residents of

possibly

increase in sales.


PDQ’s facility costs may be less expensive in Las Vegas than in the Los Angeles area.

California would not have to pay sale tax,

providin an

59

Service levels in this scenario are similar to other options.


60

Peach State used the top 50 metro areas to design the U.S. network.

BPIA Data: Top 50 Metro Areas

61

Peach State used the top 50 metro areas to design the U.S. network.

BPIA Data: Top 50 Metro Areas

Documents

Case Study: PDQ Office Products - MIT OpenCourseWare · Case Study: PDQ Office Products U.S. Distribution Strategy Peach State Integrated Technologies 1. Contact information For any