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Distribution Centers

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OutlineOutline

the call for distribution centers warehouses versus distribution centers types of distribution centers examples of distribution centers

Foxconn, Wal-mart, Shiseido

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Old Days:Old Days:Point-to-point TransportationPoint-to-point Transportation

Suppliers

1

Retailers

I

1

J

………

………

…

11

1J

…

I1

IJ

…

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Recent Days: DRecent Days: Distribution Centreistribution Centre

DC

Suppliers

1

Retailers

I

1

J

………

………

…

11

1J

…

I1

IJ

shorter transportation distance, more complex

co-ordination

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AmazonAmazon

Fulfillment by Amazon

Amazon serving as the fulfilling center for retailers

Amazon Warehouse's processing

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Differences Between Differences Between a Warehouse & a Distribution Centera Warehouse & a Distribution Center**

* The material is from the book “A Stitch in Time: Lean Retailing and the Transformation of Manufacturing – Lessons from the Apparel and Textile Industries ”.

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Differences Between Differences Between a Warehouse & a Distribution Centera Warehouse & a Distribution Center

Warehouse DC

purpose

cost

equipment

personnel

throughput

time in store

…

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Differences Between Differences Between a Warehouse & a Distribution Centera Warehouse & a Distribution Center

objective warehouse: primarily for storage distribution center: primarily for consolidating goods from

suppliers (vendors, shippers) to retailers (buyers, consignees)

throughput: in general DC larger than warehouse time in site: in general DC shorter than warehouse operations in a distribution center:

60% to 70% cross docked and 30% to 40% reopened, repackaged more value-added services to lessen operations in retailers

minimum quality and quantity check on retailers practically shelf ready goods for retailers

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Differences Between Differences Between a Warehouse & a Distribution Centera Warehouse & a Distribution Center

equipment more automated equipment in DC: automatic

identification, storage, retrieval, distributing, sorting, unitizing systems

cost (in 1997) a warehouse: US$8 to US$10 million a distribution center: US$60 to 70 million to convert a warehouse to a DC: US$10 to 25 million

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Differences Between Differences Between a Warehouse & a Distribution Centera Warehouse & a Distribution Center

personnel a warehouse: more, especially male, on traditional

operations such as loading, unloading, receiving and inspection, putaway, picking and packing, moving goods around

a distribution center less traditional workers by the help of electronics, electrical,

and mechanical equipment more personnel on information technology and equipment

maintenance

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The Call for Distribution CentersThe Call for Distribution Centers**

* Material is from the book “A Stitch in Time: Lean Retailing and the Transformation of Manufacturing – Lessons from the Apparel and Textile Industries ”.

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Largest U.S. Retail Chains on the 2012 Global Powers of Retailing List Wal-Mart (1st. US$446.95 B

(2012))The Kroger Company (5th;

US$ 90.374 B (2012)) Costco (7th; US$ 99.1 B (2012))

Home Depot (8th; US$ 70.395 B (2012))

Walgreens (9th; US$ 71.633 B (2012); drug store)

Target (11th; US$ 69.865 B; discount department stores)

CVS Caremark (13th; US$ 107.10 B (2011); drug stores)

Best Buy (19th; US$ 50.70 B (2012); consumer electronics)

Lowe's (20th; US$ 50.2 B (2012); home improvement & appliances)

Sears Holdings (22nd; US$ 41.567 B (2012); department stores,

discount stores)

Safeway (24th; US$ 43.63 B (2011); supermarkets)

Amazon.com (28th; US$ 61.09 B (2012)[)

SuperValu (31st; US$ $36.1 B (2012); supermarket, grocery)

Rite Aid (33th; US$ 25.2 B (2011); drug store)

Publix (35th; US$ 27.178 B (2011); …)

Macy's (36th; US$ 24.892 B (FY2009); department store)

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ChangesChanges

retailers of mid 20th century: Macy’s, Sears, …

as late as 1991, Sears: 1st retailer in the world

retailers of the 21st century: Wal-mart, ..

reasons for the change?

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Societal DevelopmentSocietal Development first transcontinental railway of US in 1869

early days

late 19th to early 20th century railway system for long distance transportation

in large volume telegraph (1844) and later telephone (1876) for

quick information flow for long distance development in material technology and

electro-mechanical equipment

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Societal DevelopmentSocietal Development improvement in in production and transportation

(though still slow in today’s standard)

development of cities shopping of the era: department stores, for middle to

upper class a venue with large variety of products on one hand and the

elegant European boutiques feel on the other hand successful formula: low cost by economies of scale,

marketing to attract shoppers, pricing at the right amount examples: Macy’s, Sears, etc.

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Societal DevelopmentSocietal Development

effect on retailing: apparels as an example

traditional apparel retailing before mid 20th century relative long range forecast

large volume, low frequency

successful formula: merchandising - right product mix to provide affordable, desirable goods

formula no longer work after mid 20th century

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Recent News Recent News for Department Storesfor Department Stores

Macy’s filed for Bankruptcy in 1992, but …

Web headings for Sears 2009 Aug 4” Why Sears will (and should) End up in

Bankruptcy?

2011 Dec 29: Is Sears Headed for Bankruptcy?

2012 Jan 12: Tears for Sears: American Icon in Trouble.

Why?

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Societal DevelopmentSocietal Development

starting mid 20th century quicker in transportation

development of the automobile industry and the highway systems

possibility of moving medium amount of goods for a couple of hundred miles by trucks

containerization communization of air transport

computer for information flow and processing moving of residents from downtown to suburban

areas

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Societal DevelopmentSocietal Development

shopping of the era: discount stores in suburban areas

daily necessities for suburban residents

successful formula: economies of scale, convenience, low cost by simple decoration, efficient logistics, and advanced information technology

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Problems for Problems for Traditional Apparel Retailing Since Traditional Apparel Retailing Since

mid 20mid 20thth Century Century product proliferation : hard to predict actual demand

accurately change of customer behavior leading to many styles

over capacity, e.g., increasing in retail space per capita 5.3ft2 (1964) 9ft2 (1974) 16ft2 (1988) 19ft2 (1996) (Mexico 0.3ft2)

reduction in consumer expenditure $1710 (1992) $1698 (1994); 14.3 (1967) 28.7 garments (1995)

expensive costs in markdowns, stock-outs, and inventory holding estimate in 1985: $14 billion on markdowns, $6 billion on loss of sales,

and $5 billion on inventory holding

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The Call for Lean RetailingThe Call for Lean Retailing

traditional retailing model being out of date

the needs for quick response retailing universal numbering system of goods

automatic identification

standards across firms

information flow and processing

modern distribution centers

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Different Types of Different Types of Distribution CentersDistribution Centers**

* The material is from the book「物流中心的規劃技術」 .

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Different Types Different Types of Distribution Centersof Distribution Centers

classified by different methods by temperature: by operator:

by goods:

by functionality:

ambient, refrigerated, freezing manufacturers, retailers, perishables, import

traders, wholesalers, 3-party logistics service providers, truckers, couriers, sea freight service providers, air freight service providers

food, daily necessarity, medicine, cosmetics, electrical appliances, 3C products, books, apparels, shoes, auto parts

regional, front, cross docking

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Different Types Different Types of Distribution Centersof Distribution Centers

operations and equipment changed with nature of DC

case in, item out

pallet in, case out

pallet in, pallet out

% of order picking

# of SKU

Discount StoreSupermarketConvenience

Store

---30%70%

60%60%30%

40%10%---

10,0006,0003,000

forin DC

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Different Types Different Types of Distribution Centersof Distribution Centers

operations & equipment changed with nature of DC examples

DC for food and vegetables temperature control: air conditioning 15C to 18C; refrigerated

0C to 5C; freezer -25C cross-docking mode for fresh food special design trucks

DC of manufacturers smaller number of SKU in larger quantity

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Different Types Different Types of Distribution Centersof Distribution Centers

operations & equipment changed with nature of DC

examples DC of 3-party logistics service providers

consolidation of multiple types of goods

more building up and breaking down services

value added services

….

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The The ee-Hub of Foxconn-Hub of Foxconn**

* Part of the material is from the book「郭台銘與富士康」 .

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The Distribution Center of The Distribution Center of Foxconn for DellFoxconn for Dell

Foxconn one of the best 3C-product manufacturers

services including design, development, and after-sales services in addition to manufacturing and assembling

performance in 2010 revenue: US$116 billion profit: US$2.74 billion profit margin: 2.36%

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The Distribution Center of The Distribution Center of Foxconn for DellFoxconn for Dell

Dell: one of the best among direct sales and e-business designing and selling computers and their peripherals providing before- and after-sales services for her

products

performance in fiscal year 2011 revenue US$61.5 billion net profit: US$3.1 billion (number changed with the accounting system)

profit margin: 5%

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The Distribution Center of The Distribution Center of Foxconn for DellFoxconn for Dell

the fast growing Dell (50% annually) required flexibility from its suppliers demand: a target, but possible to adjust upwards components: possible to change with the ever expanding market capacity of supplier

not taken up fully by Dell and possible to expand quickly

vendor managed inventory suppliers responsible for inventory (component value reduced by

0.5% to 1% per week) only parts and components sent to factories for assembly being paid

by Dell

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The Distribution Center of The Distribution Center of Foxconn for DellFoxconn for Dell

e-Hub of Foxconn a distribution center with information processing capability beside

the manufacturing and assembly plants full information on production schedule and statue inventory

“zero” for manufacturing and assembly plants less than 2 days for e-Hub

accurate forecasting of demands by e-Hub 100 containers of parts and components per week

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Distribution Centers of WalMartDistribution Centers of WalMart**

* The material is from the book “Sam Walton: Made in America”.

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Distribution Centers of WalMart Distribution Centers of WalMart

by 1992 20 distribution centers, total area 18,000,000 sq ft 4 distribution plans running by WalMart’s fleet all stores

within one day drive from a distribution center placing orders in computer

80K SKU, providing 86% goods (competitors: 50% to 65%)

lead time 2 days (competitors: 5 days) transportation cost 3% (competitors: 4.5% to 5%)

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Distribution Centers of WalMart Distribution Centers of WalMart

a typical distribution center 1.1 million sq ft (23 foot fields; 150 acres 60.7 hect.) 200,000 boxes every day by 600 to 800 persons docks: 135 incoming and 30 outgoing 24 hours per day technologically advanced

computerized system real-time status and location information for all items 8.5 miles lazer directed conveyor belts

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Distribution Centers of WalMart Distribution Centers of WalMart

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A Distribution Center of ShiseidoA Distribution Center of Shiseido

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ShiseidoShiseido

the oldest and the 4th largest cosmetics company in the world

40,563 employees worldwide at 2011

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Products of Shiseido Products of Shiseido –– Old Days Old Days

toothpaste, vitamin tablet, ice cream, skin care products, face powders, hair tonic, cold cream, fragrances, lotion

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Products of Shiseido Products of Shiseido - Nowadays- Nowadays

skin care make-up fragrance body care sun care hair care men

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StatisticsStatistics

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The Challenge faced The Challenge faced by a Distribution Centerby a Distribution Center

serve several hundred franchised stores many products, of small sizes minimal inventory in stores each store

multiple orders per day multiple deliveries per day

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The Challenge Faced The Challenge Faced by a Distribution Centerby a Distribution Center

economies of scale in delivery full truckloads by consolidating goods for

stores challenges: to store, pick, sort the small

items

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Schematic Diagram of the Schematic Diagram of the Distribution CenterDistribution Center

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In the Distribution Center In the Distribution Center

boxes to hold small pieces for transportation

automatic storage, transportation, and sorting

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In the Distribution Center In the Distribution Center

automatic storage, transportation, and sorting

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In the Distribution Center In the Distribution Center

automatic storage, transportation, and sorting

computerized control

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A Distribution Center of AmazonA Distribution Center of Amazon