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Identify location for multi-facility regional distribution center

Identify location for multi-facility regional distribution center. December 3, 2009 Team Kim H. Milton Stewart School of Industrial and Systems Engineering Georgia Institute of Technology. Agenda. I. Initiate > Project Members. Hamilton Sundstrand Project Representative

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Identify location for multi-facility regional distribution center

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  1. Identify location for multi-facility regional distribution center December 3, 2009 Team Kim H. Milton Stewart School of Industrial and Systems Engineering Georgia Institute of Technology

  2. Agenda 1

  3. I. Initiate > Project Members • Hamilton Sundstrand Project Representative • Dang Huynh – Global Logistics Manager • Marc A. Bartos – Global Logistics Analyst • ISYE 6203 Project Group ‘Team Kim’ • Hangil Kim • Prabhkar N • Navjyot Kaur • Youngbin Park • Jungbin Yim 2

  4. I. Initiate > Project Timeline • Overall Preview for what we have done and where are we, and what we are going to do 5th Conference Call(scheduled) Project Assignment Class Presentation Final Delivery 3rd Conference Call 1st Conference Call 4th Conference Call 2nd Conference Call Envision Design Initiate Analyze • Project Objectives & Goals • Project Timeline • Best practice benchmark • Gaining reliable data • Consolidation Methodology • Net benefit calculation • Find optimal consolidation schedule and location • Sensitivity Analysis • Design Detailed To-Be Structure • Possible Scenarios • Future Scope Timely Communication • Hamilton Sundstrand: 1. Have bi-weekly conference call (or E-mail) if needed 2. Report Status - four conference calls so far, fifth one is scheduled on Nov. 13th - three presentations delivered so far • Quality Assurance: Dr. John Vande Vate 3

  5. Agenda

  6. II. Recommendation > Result • Ship all shipments on the following routes on • Wednesday and Friday Top 11 frequent routes • SINGAPORE,ROCKFORD-Singapore • CO CLARE,MIRAMAR-Ireland • SINGAPORE,WEST HARTFORD-Singapore • WOLVERHAMPTON,SAN DIEGO-England • HALEY,ROCKFORD-Canada • FRACC IND B JUAREZ QUERETARO,SAN DIEGO-Mexico • LAVAL,ROCKFORD-Canada • SAINT-LAURENT,WINDSOR LOCKS-CANADA • HAMBURG,SAN DIEGO-Germany • RENFREW,SAN DIEGO-Canada • ZHUZHOU,SAN DIEGO-China 5

  7. II. Recommendation > Route Composition • In top 11 frequent routes, • No. of Vendors on these routes: 22 • No. of Hamilton Sundstrand Co. on the routes: 7 # of shipments

  8. II. Recommendation > Implementation Recommendation In top 11 frequent routes, There are 7 routes that only have a single supplier Single supplier routes • RENFREW,SAN DIEGO HALEY INDUSTRIES • ZHUZHOU,SAN DIEGO ZHUZHOU SOUTH AEROENGINE • HAMBURG,SAN DIEGO LUFTHANSA TECHNIK LOGISTIK (DE) • FRACC IND B JUAREZ QUERETARO,SAN DIEGO TURBORREACTORES SA DE CV • WOLVERHAMPTON,SAN DIEGO HS MARSTON AEROSPACE • CO CLARE,MIRAMARHamilton Sundstrand • HALEY,ROCKFORD HALEY INDUSTRIES Can be implemented right away!

  9. II. Recommendation > Detailed Implementation Possible Routes Consolidated Consolidate by DHL USA Inc. Consolidate by UPS SCS Routes run by DHL USA Inc. Routes run by FedEx corp. Routes run by UPS SPS • WOLVERHAMPTON,SAN DIEGO -England • HAMBURG,SAN DIEGO-Germany • COCLARE,MIRAMAR-Ireland • FRACC IND B JUAREZ QUERETARO,SAN DIEGO • LAVAL,ROCKFORD- Canada • HAMBURG,SAN DIEGO-Germany • COCLARE,MIRAMAR-Ireland • SINGAPORE,ROCKFORD • SINGAPORE,WEST- HARTFORD-Singapore • SAINT-LAURENT, WINDSOR LOCKS-Canada • HALEY,ROCKFORD-Canada • RENFREW,SAN DIEGO-Canada • LAVAL,ROCKFORD-Canada • SINGAPORE,ROCKFORD-Singapore • SINGAPORE,WEST- HARTFORD-Singapore • WOLVERHAMPTON,SAN DIEGO • HAMBURG,SAN DIEGO • FRACC IND B JUAREZ QUERETARO,SAN DIEGO • SAINT-LAURENT, WINDSOR LOCKS • SAINT-LAURENT, WINDSOR LOCKS-Canada • HALEY,ROCKFORD-Canada • RENFREW,SAN DIEGO-Canada • LAVAL,ROCKFORD-canada • SINGAPORE,ROCKFORD-Singapore • SINGAPORE,WEST- HARTFORD-Singapore 8

  10. European carrier consolidation II. Recommendation > Carrier Composition Canada carrier consolidation UPS SCS DHL USA INC

  11. II. Recommendation > Carrier Composition Reduction in No. of Shipments Reduction in Transportation Cost # of shipment Wed-Fri Shipment Current Reduction in CBF, MPF

  12. Agenda 11

  13. Gaining Reliable Data 1 2 Developing Basic Consolidation Model 3 Comparing Net Benefit of Consolidation III. Analyze • We analyze data with this procedure. In this phase, we firstly validate the raw data and make the basic consolidation model based on Hamilton Sundstrand’s suggestion Envision Envision Design Initiate Initiate Initiate Analyze Analyze Analyze 12

  14. III. Analyze > 1. Gain Reliable Data • The raw data provided by HS had problems of the reliability - typos, lack of information, and weak linkages between files. Therefore, we cleaned raw data by following steps 1-1 Regularize the data • Delete data whose supplier is Airline • Emergency orders (Mostly for repairs) • Infrequent shipments • Will be used for Macro 1. Delete Airlines 2. Identify Names (Correct Typo) 13 13

  15. : Duty + Custom’s Brokerage Fee : Supplier Identifier with US YTD III. Analyze > 1. Gain Reliable Data The raw data provided by HS had problems of the reliability - typos, lack of information, and weak linkages between files. Therefore, we cleaned raw data by following steps 1-2 Clean up the data • JMR, DGF (Carriers’ Data) • Reliable Data • DGF: 2,388 lines • JMR: 3,028 lines • Will be used to get • Current # of Shipments • Total Duty & Fees before and after Con-solidation … • DGF: 6,632 lines / JMR: 5,187 lines • Delete data which are not matched with ‘USD YTD’ data • Delete data whose supplier is Airline 14

  16. : Custom’s Brokerage Fee : Supplier Identifier with DGF/JMR III. Analyze > 1. Gain Reliable Data • The raw data provided by HS had problems of the reliability - typos, lack of information, and weak linkages between files. Therefore, we cleaned raw data by following steps 1-2 Clean up the data (Cont.) • US YTD (HS’s Data) • Reliable Data • US YTD: 4,013 lines • Will be used to get • Latitude & Longtitude of Suppliers/Consignees • Traffic Route … • YTD: 4,036 lines • Delete data whose supplier is Airline 15

  17. III. Analyze > 2. Develop Basic Consolidation Model 2-1 Understand HS’s Basic Consolidation Concept As-Is As-Is To-Be To-Be 16

  18. III. Analyze > 2. Develop Basic Consolidation Model We run the Excel Macro to calculate the reduced number of shipment according to one to seven days consolidation strategy of identical supplier, country of origin and date of shipment Don't Ship Separately Ship Ship Don't Ship Separately Ship Don't Ship Separately Ship Don't Ship Separately Don't Ship Separately Don't Ship Separately Ship Ship Ship Don't Ship Separately Ship Don't Ship Separately Don't Ship Separately Ship Don't Ship Separately Ship Don't Ship Separately 2-2 Develop the basic consolidation methodology Visual Basic for Excel Macro Index Supplier Name Country of Origin Date of Shipment Consol. Index Shipment Decision 233 A J WALTERS AVIATION CA 09-Jan-09 268 268 A J WALTERS AVIATION CA 09-Jan-09 293 A J WALTERS AVIATION CA 12-Jan-09 313 A J WALTERS AVIATION CA 13-Jan-09 314 314 A J WALTERS AVIATION CA 13-Jan-09 332 A J WALTERS AVIATION CA 14-Jan-09 338 338 A J WALTERS AVIATION CA 14-Jan-09 340 A J WALTERS AVIATION CA 15-Jan-09 367 365 A J WALTERS AVIATION CA 15-Jan-09 367 366 A J WALTERS AVIATION CA 15-Jan-09 367 367 A J WALTERS AVIATION CA 15-Jan-09 369 A J WALTERS AVIATION CA 16-Jan-09 412 A J WALTERS AVIATION CA 20-Jan-09 428 A J WALTERS AVIATION CA 21-Jan-09 430 430 A J WALTERS AVIATION CA 21-Jan-09 449 A J WALTERS AVIATION GB 22-Jan-09 451 450 A J WALTERS AVIATION GB 22-Jan-09 451 451 A J WALTERS AVIATION GB 22-Jan-09 524 A J WALTERS AVIATION GB 28-Jan-09 525 525 A J WALTERS AVIATION GB 28-Jan-09 530 A J WALTERS AVIATION GB 29-Jan-09 531 3. Same Date of Ship. (1-7 days option) 1. Same supplier 2. Same CoO 17

  19. III. Analyze > 3. Compare Net-benefit 3 Cost Reduction by Consolidation 1) 2) * 1) : $ per shipment 2) : shipments delay options * : 1 implies shipment on the same day and 2 implies delayed by one day and so on. It is possible to delay the shipments by no more than four days without losing net benefit under the assumption that - delayed shipments imply the holding cost of vendor capital and reduce the net benefit of strategy 18 18

  20. Agenda 19

  21. IV. Envision • We envision the detailed consolidation model based on previous analysis. We reflect possible and critical constraints into the basic model Envision Envision Design Initiate Initiate Initiate Analyze Analyze Analyze 1 Reflect the Cost of Capital Investment 2 Reflect the Adjusted Fee of Carriers … 20

  22. IV. Envision > 1. Cost of Capital Investment We need to take into account the inventory holding cost to the model because of increased inventory at carrier’s place Net Savings = (Reduced CBF + Reduced MPF) – Inventory Holding Cost (i=15%) ` 21 21

  23. IV. Envision > 1. Cost of Capital Investment Sensitivity Analysis By Changing the value of interest rate, we get different net-savings shown as below, the conflict between the delay shipment strategy and cost of capital holding, would yield an upper limit on the interaction. : Savings/Shipment : Holding cost/Shipment Case 1. Set i=15% Case 1. Set i=15% Case 1. Set i=15% Case 2. i=10% Case 3. i=20% Case 3. i=20% 1) * 2) : Net Savings/Shipment 2) 1) : $ per shipment 2) : shipments delay options * : 1 implies shipment on the same day and 2 implies delayed by one day and so on. Even if 7 days consolidation provides the largest saving, due to the holding cost, it is not the optimal period of consolidation 22

  24. Agenda 23

  25. V. Design • We locate the consolidation points in some country Envision Envision Design Initiate Initiate Initiate Analyze Analyze Analyze 1 Location of Consolidation Points 2 Example: Carrier Consolidation in Europe 3 Future scope for Consolidation of shipment 24

  26. V. Design > 1. Location of Consolidation Points • In addition to the principles of the basic consolidation model, we firstly concentrate on establishing consolidation point to the country where the shipments occurs more often Current shipper scenario • Top freight sources 55% of shipments 62% of invoice value are from • Canada • Europe 1. # of Shipments Option 1. Consolidate Carriers Focused on reduction of freight cost by increasing share of business to top carriers Option 2. Find possible consolidation points for Cross dock Focused on freight cost, MPF, and CBF 2. Invoice Value Future scope 25

  27. V. Design > 2. Example: Carrier Consolidation in Europe • In addition to the principles of the basic consolidation model, we firstly concentrate on establishing consolidation point to the country where the shipments occurs more often Top 4 shipper countries in Europe • Top 2 carriers chosen for consolidation based on • # of shipments • Total invoice amount • Total duty/fees • Top 2 carriers chosen for consolidation • Federal Express • Lufthansa • The net increase in business for these carriers 20% of the current size of business with Hamilton Sundstrand 26

  28. V. Design > 3.Futurescope for Consolidation of shipments # of Shipments From the current consolidation strategy to delay shipments, the distribution of shipments over the week is still spread over all the seven days of the week. So there is still opportunity to improve the savings by consolidating the shipments days within the week. (i.e. ship only Monday or Tuesday or Monday & Tuesday) The upper limit on the interaction is still four days as per our earlier analysis 27

  29. Thank you 28

  30. Agenda 29

  31. Appendix. • 1. Macro codes 30

  32. Appendix. • 2. Excel works 31

  33. Appendix. • 2. Excel works 32

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