Hub and spoke system
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Hub and Spoke System. Cameron Stevens Brigham Young University. Things to consider. What is it? Processes that can use a hub and spoke model How it works Benefits: Why use hub and spoke? Drawbacks Example: Lowes Application . What is a “Hub and Spoke” model?.

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Hub and spoke system

Hub and Spoke System

Cameron Stevens

Brigham Young University


Things to consider

Things to consider

  • What is it?

  • Processes that can use a hub and spoke model

  • How it works

  • Benefits: Why use hub and spoke?

  • Drawbacks

  • Example: Lowes

  • Application


What is a hub and spoke model

What is a “Hub and Spoke” model?

  • Logistics term used to describe a transportation network of routes connecting origins to destinations

  • Its name is derived from the hub and spoke model of a wheel


What is a hub and spoke model1

What is a “Hub and Spoke” model?

  • Companies centralize large distribution centers which essentially do three things

    • receive goods/information coming from many suppliers

    • consolidate goods/information according to the location where they are to be shipped

    • ship them individually to their final destination.


Processes that use hub and spoke

Processes that use Hub and Spoke

  • Manufactured goods:

    • e.g. Retail

  • Services:

    • e.g. Airlines


Processes that use hub and spoke1

Processes that use Hub and Spoke

  • Information:

    • e.g. Financial Services

  • Technology:

    • e.g. Business Software systems


How it works

How it Works

  • Pure Hub and Spoke vs. Hybrid Hub and Spoke


How it works1

How it Works

  • Hub and Spoke vs. Point to Point

    • One model consists of centralized transportation while the other model consists of many routes that are decentralized

    • Hub and spoke design simplifies the network of routes


How it works2

How it Works

  • Inter-hub (primary routes)

  • Spokes (secondary routes)


How it works3

How it Works

  • Design methods – various models

    • weighted factor analysis

    • centroid method

    • linear models

    • single and multiple allocation p-hub median problems


Benefits why use a hub and spoke system

Benefits: Why use a Hub and Spoke System

  • A hub and spoke distribution has several advantages that fall under these general areas

    • efficiency/ effectiveness

    • economies of scale

    • cost reduction


Benefits why us a hub and spoke system

Benefits: Why us a Hub and Spoke System

  • Efficiency and effectiveness

    • ensures that most routes are full or close to full

    • reduces the amount of deliveries lost in transit


Benefits why use a hub and spoke system1

Benefits: Why use a Hub and Spoke System

  • Economies of scale

    • By having larger loads, you take advantage of lower per unit costs


Benefits why use a hub and spoke system2

Benefits: Why use a Hub and Spoke System?

  • Transportation cost reduced

    • There is less time spent in transport which directly reduces the cost of the activity

  • Management costs

    • Management specialists generally focus on one location for distribution logistics


Drawbacks

Drawbacks

  • Disruption at the hub

  • Bound by hub capacity

  • Increased bureaucracy


Example lowes

Example: Lowes

  • How to create competitive advantage in distribution logistics

  • Goals –

    • gain market share

    • higher profit margins


Example lowes1

Example: Lowes

  • Logistics and transportation costs take up a large portion of the cost of goods sold

  • Implementing the Hub and Spoke reduced transportation and distribution costs


Example lowes2

Example: Lowes

  • The longer your assets are in transit, the higher your acquisition costs

  • The key was reducing cycle time so that goods were being delivered at a quicker rate


Example lowes3

Example: Lowes

  • Idle inventory can create problems with turnover and lower return on assets

  • The key was decreasing the days in inventory by

    • reducing inventory levels

    • saving on holding costs


Application

Application

  • Finding an efficient method for designing a hub and spoke network

    • You have a situation where you have operation around a geographic area and you want to know where to locate a hub with respect to two factors-

      • relative distances?

      • importance (load amount) of routes?


Application1

Application

  • Designing a hub and spoke model is only an advantage if designed properly

  • To illustrate a design method, we will use the centroid method

  • This is a method used to find the best location for a distribution center


Application2

Application

  • You are a sporting goods retail chain and are seeking to build a distribution center to serve your local operations around the intermountain west rather than having vendors deliver directly to local stores.

  • 8 spokes or local branches exist within the geographic range you are looking to serve.


Application3

Application

  • Their respective coordinates are

    • (100,165), (205, 300), (296,267), (371, 400), (445, 457), (526, 500), (600, 185), (634, 616)

  • Their respective volume loads in tons per month are (000,000)

    • 25, 100, 560, 320, 1200, 420, 1520, 690

    • Where do we locate a new distribution center?


Summary

Summary

  • What a Hub and Spoke model is and how it works

  • Identified benefits and drawbacks to implementing the system

  • Real world example

  • Ideas on how to design one


Suggested readings

Suggested Readings

  • Hudson, Scott, “Success with Hub and Spoke distribution”, Supply Chain Cooperative – NC State University. March 14, 2003.

  • Pirkul, “An Efficient Procedure for Designing Single Allocation Hub and Spoke Systems”, Management Science, 44:12 (1998) -Part-2 pg:S235 -S242

  • Elhedhli, Samir . "Hub-And-Spoke Network Design With Congestion ." Computers and Operations Research 32.6 (2005): 1615-1632.


Suggested readings1

Suggested Readings

  • Yaman, Hande . "Allocation strategies in hub networks."European Journal of Operational Research16 June 2011, Pages 442-451 211.3 (2011): 442-451.

  • Horner, Mark W. . "Embedding economies of scale concepts for hub network design."Journal of Transport Geography 9.4 (2001): 255-265. 


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