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Sustainable Growth through Network Optimization. Team Name: ARBY’s Bayu Daryanto Ronaldo Rotua Yuji Sakakibara Aurélia de Larrard. Problem statement & Agenda ( Aurélia de Larrard ). Problem statement - PowerPoint PPT Presentation
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Sustainable Growth through Network Optimization
Team Name: ARBY’s
Bayu Daryanto Ronaldo Rotua Yuji Sakakibara
Aurélia de Larrard
GSCMI 2013 Case Competition 2
Problem statement & Agenda (Aurélia de Larrard)
Problem statement On the short term,
how can Eaton reduce the premium freight frequency as well as the overall inventory level?
On the long term, how can Eaton ensure a sustainable growth?
Agenda Problem statement Recommendation Existing SC network Rationale Strategy & Action
Plan Timetable
GSCMI 2013 Case Competition 3
Supply Chain Network (Aurélia de Larrard)
Customer Manufacturing Solutions Center
(CMSC)Plants
Distribution CenterWare Houses
GSCMI 2013 Case Competition 4
Recommendation (Aurélia de Larrard)
We recommend building a major warehouse in Los Angeles
Building a major warehouse will allow: Reduced use of air shipment on the west coast Lower inventory in regional (west) CMSCs Lower utilization rate of current warehouses
W34-W87 Reduce the fluctuation of the whole supply
chain Increase Service Level
GSCMI 2013 Case Competition 5
Pros and Cons of the other options (Aurélia) Build a new
CMSC (option 1) Pros1. Increase
responsiveness2. Reduce regional
logistics costs Cons1. increase overall
inventory2. No reduction of air
shipment 3. no improvement of
warehouse capacity/high utilization rate
Extend plant storage of CMSC (option 3) Pros1. Lower investment cost2. Improve local
performance of close CMSCs
Cons1. Limited capacity to
reduce air shipment 2. Limited capacity to
improve total inventory level
GSCMI 2013 Case Competition 6
0%5%
10%15%20%25%30% Premium Freight Frequency
Rationale to focus on the west(Yuji Sakakibara)
Atlanta
-SAT
Portlan
d-SVC
Housto
n-SVC
Chicag
o-SVC
Phoen
ix-SAT
Los A
ngele
s...
Hartfor
d-SVC
San fra
ncisc
o...
Housto
n-SAT
Dallas
-SVC
Raleigh
-SAT
Chicag
o-SAT
St Lou
is-SAT
Dallas
-SAT
Los A
ngele
s...
Baltim
ore-S
AT
Orland
o-SAT
Denve
r-SAT
Hartfor
d-SAT
New Je
rsey..
.
Atlanta
-SVC
Denve
r-SVC
Clevela
nd-S
AT
Seattle
-SAT
0
20
40
60
80
100 Days of Holding Inventory
West
West
GSCMI 2013 Case Competition 7
Reducing Air shipment Cost (Yuji Sakakibara)
2 modes of transportation Truck: majority of the shipment Air: emergency shipment
If EATON can achieve 100% Service Level, they do not have to use air shipment
Service Level (SL)= 1 – (Air shipment / Total shipment)
0 2 4 6 8 10 12 140
200
400
600
800
1000
1200
0%
20%
40%
60%
80%
100%San Francisco
InventoryCOGSAir/Total
GSCMI 2013 Case Competition 8
Analyzing Current Inventory(Yuji Sakakibara)
EX) Los Angeles-SAT31-Dec-2013
Inventory 1463COGS 921DOH 48 SL(1-Air/ Total) 0.84 SS 1,416.69 Z 1.01 σ 1,398.09
Air: 16% of total shipment SS = Inventory + (COGS/10cycle/2)Z = NORMSINV(SL(%))
σ = SS/Z (Standard Deviation/Month)
COGS
Inventory
Safety StockStandard deviation
Los Angeles-SAT 1570.0 1211.2Los Angeles-SVC 1052.6 803.9Phoenix-SAT 715.1 445.8Portland-SVC 889.8 619.8San francisco-SAT 778.2 2828.9Seattle-SAT 605.5 436.9
Standard Deviation of Demand in each city
GSCMI 2013 Case Competition 9
Pooling Inventory (Bayu Daryanto)
WCMSC
CMSC
CMSC
CMSCW
CMSC
CMSC
CMSC
CMSC
Current System Pooling System
Std. dev. demand at 1 location = σ
Safety stock at each CMSC = z * σ
Total safety stock at N RDCs = N z σ
Std. dev. demand at W = √N * σ
Safety stock at W = z * √N ∗ σ
GSCMI 2013 Case Competition 10
Cost Saving Benefits (Bayu Daryanto)
*) Targeted Service Level based on other regions
Before After
Amount of Purchase Orders by Premium Shipping ($)
3,878,485 2,401,522
Service Level 89 % 94 % *)
Portion Purchase Order by Premium Shipping
11 % 6 %
Premium shipping saving cost (in %)
100 64
DOH (days) - Reduce Holding Cost - Reduce Inventory Level
40.01 16.9
GSCMI 2013 Case Competition 11
Strategy & Action Plan (Ronaldo Rotua)
Short term Build New
Warehouse in Los Angeles
Set Up Pooling System
Long term Pooling system in
other regions Evaluate the CMSC
network based on future demand
GSCMI 2013 Case Competition 12
Timetable (Ronaldo Rotua)
Year 3 Year 4 Year 5Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
1 Find location and design warehouse2 Building Warehouse3 Negotiate terms of procurement4 SOP/SOM of the pooling inventory5 Provide Human Resources for the warehouse6 Launch Beta Project7 Monitoring and record the performance8 Evaluation and feedback9 Feasibility study to implement on other regions
10 Evaluate the needs for new CMSC
Year 1 Year 2DescriptionNo
GSCMI 2013 Case Competition 13
Issue with New Warehouse (Ronaldo Rotua)
• Customer Relationship• CMSC can focus more on customer• Single Point of contact
Responsiveness
• Trade off with Lower Inventory and long term sustainability growth
• Constant annual saving from holding cost• Lower Transportation Cost
Investment Cost
• Coordination 6 month before Launch Beta Project
• Periodic Monitoring, feedback and evaluation• Information Control
Migrating to pooling system
Mitigation
GSCMI 2013 Case Competition 14
Q&A (Ronaldo Rotua)
Any Questions ?