American Lighting Product Case

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Daniele Francescon
Stephane Nicolay

AMERICAN LIGHTING PRODUCTS
Case Study

Business Logistics
November 2008

TABLE OF CONTENTS
Preface3

Analysis of the situation3

Physical flow of goods3
Organisational structure3
Information management: order processing and demand forecasting4 Performance4
Costs5

Identification of major issues and problems6

Incipit6
Initial consideration: need to redesign the system6

Generation of alternative solutions7

First solution: centralization for the west area7
Second solution: LOC for consumer products8

Further considerations and conclusions9

List of references10

Appendix 1 – Calculations12

Preface

The purpose of the following essay is to analyse the firm, trying to propose solutions based on mathematical evidence, and provide some critical judgement about the company’s actual system based on our knowledge. We won’t spend too many words to describe the company, since a good and concise description is already given by the text, the approach is intended to be critic rather than descriptive. An appendix attached to this paper will provide detailed information about the calculations made and the reasoning behind them.

Analysis of the situation

Physical flow of goods

ALP warehouses its finished goods inventory in eight master distribution canters (MDCs) located throughout the United States, each servicing sales for its entire region. The whole flow of goods can be represented as a flow chart as the one shown in figure below. It can be taken as an assumption that each MDC is serving the close region. No information is given on the method followed when selecting the location, but the proximity to the customer base is likely to be the driver to such a decision.

Organisational structure

ALP is belonging to a larger corporation, American Electric Products (AEP), which produces many other consumer and industrial products. Both ALP plants are situated in Ohio: in Cleveland and Columbus. The Cleveland plant mainly produces the high-volume four-foot lamps and the Columbus plant the low volume types. Altogether, ALP offers over 700 product line items, covering three main sales channels: commercial and industrial (C&I), consumer, and original equipment manufacturers (OEM). Each division of AEP is managed as an independent business. ALP is a mature industry that provides AEP with a steady income from its operations.

Information management: order processing and demand forecasting

The flow of information and the order processing system can be represented as in figure. Despite the clear process, no steps have been taken toward and integration of the system. It is also quite difficult to state the effectiveness of such a system given the information of the text. What can be noticed is that there is a fundamental lack of electronic technology that can benefit the various activities from order preparation to product delivery, allowing to undertake some tasks simultaneously and to reduce errors. A great influence of the manual activity is clearly noticeable, with consequences on the speed and the accuracy of the whole process. The demand is forecasted basing on the last three years’ data, and it is adjusted when a known abnormality is expected. It has proven that actual sales might be unexpectedly different from the expectations. This result can be expected when dealing with forecasting techniques that are too simple and rely exclusively on historical data. Developing out forecasts through different techniques and increasing the complexity in such conditions can reduce the forecast error.

Performance

ALP measures its performance by first-time delivery rate, known at ALP simply as customer service. First-time delivery is defined as the proportion of line items delivered to the customer by the requested date. If an item is delivered from a source other than the assigned source, it...
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