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Pan American Advanced Studies Institute Simulation and Optimization of Globalized Physical Distribution Systems Santiago, Chile August, 2013. PASI Project: Case #2. P an American A lliance for S upply I mprovement: Beverly Kris Jaeger Alejandro MacCawley Marie-Eve Rancourt

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

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Pan American Advanced Studies InstituteSimulation and Optimization of Globalized Physical Distribution SystemsSantiago, Chile August, 2013

PASI Project: Case #2

Pan American Alliance for Supply Improvement:

Beverly Kris Jaeger

Alejandro MacCawley

Marie-Eve Rancourt

Carlos Solorio-Magana

ShanthiMuthuswamy


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

DC

  • Introduction


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DC

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  • Introduction


Problem Formulation

Decisions

Objective

  • Introduction

  • Active/open DC (yj)

  • Size of new DC (S)

  • Outbound flows (xjk)

    • Inbound flows given (% from each plant)

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


What is our mission?

  • Measurable challenges

    • Reduce total supply chain costs

    • Reduce delivery times

  • Solution(s)

  • Solution(s)

  • Introduction


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 AngelesUSA (candidate)CAN

SL

O

LA

  • Introduction


Q1 & Q2: Global Approach

  • Salt Lake City USA TorontoCAN

  • OaklandUSA TorontoCAN

  • Los AngelesUSA TorontoCAN

T

SL

O

T

T

LA

  • Introduction


The Challenges, Specific

  • For location serving Western North America:

    • Sizing of DC for peak inventory

    • Impact to inventory, freight, transit time, & DC costs

  • For locationserving 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

DC

DC

DC

  • Method


Fundamental Phases

  • Plant to DC

  • Within DC

  • DC to Customer

DC

  • Method


Plant to DC

DC

  • Method


Plant to DC

DC

  • Shipping distance & rates/mile

  • Method


Plant to DC

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 used

  • Method


Plant to DC: Inbound Trans.

  • Method & Model


Fundamental Phases

  • Plant to DC

  • Within DC

  • DC to Customer

DC

DC

DC

  • Method


Fundamental Phases

  • Plant to DC

  • Within DC

    DC to Customer

DC

  • Method


DC to Customer

DC

  • Method


DC to Customer

DC

  • Method


DC to Customer

DC

  • 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 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

DC

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

  • Method


DC “Costs”

DC

  • Given factors:

  • Average 11 sqft/pallet stored

  • Averages 1,500 lbs of product per pallet in DC inventory

  • Average 9 turns/yearfor the network ~40 daysof 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

  • { $6.25 per square foot for fixed

  • { $0.095 per lb for variable cost

  • Method & Model


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

Slow movers

Fast movers

3

3

  • Method & Model

S* = 246,000


Toronto Extra Capacity Calculation

  • Toronto is currently at full capacity

  • Extra DC size calculated in sqft: 44,554

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

  • Method  Options


Salt Lake City New Option

  • Current DC size at SLC in sqft: 500,000

  • New DC size calculated in sqft: 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


Outcomes: Total Landed Costs

  • Method & Model

  • Outcomes


Outcomes: Total Landed Costs

  • Outcomes


Outcomes: Total Landed Costs by number of DCs

  • Outcomes


Outcomes for Service Time

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

  • Outcomes


Outcomes for ROI

  • Outcomes


Summary

  • Computed Landed Costs

  • Computed Service Times

  • Two Options:

    • LA  US, Toronto  Canada

    • SLC New  US, Toronto  Canada

  • “Solutions”


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  • Introduction


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  • Introduction


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


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