The Bis Corporation

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Logistics Network Configuration

Designing & Managing the Supply Chain Chapter 2 Byung-Hyun Ha

 Case: Bis Corporation  What is logistics network configuration?  Methodology  Modeling  Data Aggregation  Validation

 Solution Techniques

Case: the Bis Corporation
 Background
          Produce & distribute soft drinks 2 manufacturing plant 120,000 account (retailers and stores), all over the US 3 existing warehouse (Chicago, Dallas, Sacramento) 20% gross margin $1,000 for each SKU (stock-keeping unit) for all products

 Current distribution strategy (designed 15 years ago)
Produce and store at the manufacturing plant Pick, load, and ship to a warehouse/distribution center Unload and store at the warehouse Pick, load, and deliver to store

Case: the Bis Corporation
 You, consulting company
 Proposal as reengineering the sales and distribution functions  First phase, identifying 10,000 direct delivery account, based on • • • • • • • • Dock receiving capabilities Storage capability Receiving methodologies Merchandising requirements Order-generation capabilities Delivery time window constraints Current pricing Promotional activity patterns

Case: the Bis Corporation
 Redesign distribution network
 Grouped accounts into 250 zones, products into 5 families  Data collected • • • • • Demand in 1997 by SKU per product family for each zone Annual production capacity at each manufacturing plant Maximum capacity for each warehouse, new and existing Transportation costs per product family per mile for distributing Setup cost for establishing a warehouse

 Customer service level requirement
 No more than 48 hours in delivery

 Additionally,
 Estimated yearly growth, variable production cost, cost for increasing production capacity, …

Case: the Bis Corporation
 Issues
     How can the Bis Corporation validate the model? Impact of aggregating customers and products Number of established distribution centers and their locations Allocation of plant’s output between warehouses When and where should production capacity be expanded?

The Logistics Network
 The Logistics Network consists of:
 Facilities: Vendors, Manufacturing Centers, Warehouse/Distribution Centers, and Customers  Raw materials and finished products that flow between the Customers, facilities demand Sources: plants vendors ports Regional Warehouses: stocking points Field Warehouses: stocking points centers sinks


Inventory & warehousing costs Production/ purchase costs Transportation costs Inventory & warehousing costs Transportation costs

The Logistics Network
 Strategic Planning: Decisions that typically involve major capital investments and have a long term effect  Determination of the number, location and size of new plants, distribution centers and warehouses  Acquisition of new production equipment and the design of working centers within each plant  Design of transportation facilities, communications equipment, data processing means, etc.

Network Design
 Key Issues
 Pick the optimal number, location, and size of warehouses and/or plants  Determine optimal sourcing strategy • Which plant/vendor should produce which product

 Determine best distribution channels  Which warehouses should service which customers

 The objective is to balance service level against
    Production/ purchasing costs Inventory carrying costs Facility costs (handling and fixed costs) Transportation costs

Network Design
 Tradeoffs
$90 $80

Cost (millions $)

$70 $60 $50 $40 $30 $20 $10 $Total Cost Transportation Cost Fixed Cost Inventory Cost







Number of Warehouses

Network Design DSS: Major Components
 Mapping
 Mapping allows you to visualize your supply chain and solutions  Mapping the solutions allows you to better understand different scenarios  Color coding, sizing, and utilization indicators allow...
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