Sustainable Growth through Network Optimization

Team Name: ARBY’s

Bayu Daryanto Ronaldo Rotua Yuji Sakakibara

Aurélia de Larrard

GSCMI 2013 Case Competition 2

Problem statement & Agenda (Aurélia de Larrard)

Problem statement On the short term,

how can Eaton reduce the premium freight frequency as well as the overall inventory level?

On the long term, how can Eaton ensure a sustainable growth?

Agenda Problem statement Recommendation Existing SC network Rationale Strategy & Action

Plan Timetable

GSCMI 2013 Case Competition 3

Supply Chain Network (Aurélia de Larrard)

Customer Manufacturing Solutions Center

(CMSC)

PlantsDistribution Center

Ware Houses

GSCMI 2013 Case Competition 4

Recommendation (Aurélia de Larrard)

We recommend building a major warehouse in Los Angeles

Building a major warehouse will allow: Reduced use of air shipment on the west coast Lower inventory in regional (west) CMSCs Lower utilization rate of current warehouses

W34-W87 Reduce the fluctuation of the whole supply

chain Increase Service Level

GSCMI 2013 Case Competition 5

Pros and Cons of the other options (Aurélia)

Build a new CMSC (option 1) Pros1. Increase

responsiveness2. Reduce regional

logistics costs Cons1. increase overall

inventory2. No reduction of air

shipment 3. no improvement of

warehouse capacity/high utilization rate

Extend plant storage of CMSC (option 3) Pros1. Lower investment cost2. Improve local

performance of close CMSCs

Cons1. Limited capacity to

reduce air shipment 2. Limited capacity to

improve total inventory level

GSCMI 2013 Case Competition 6

0%

5%

10%

15%

20%

25%

30%Premium Freight Frequency

Rationale to focus on the west(Yuji Sakakibara)

Atlant

a-SAT

Portla

nd-S

VC

Houst

on-S

VC

Chicag

o-SVC

Phoen

ix-SAT

Los

Angele

s...

Hartfo

rd-S

VC

San fr

ancis

co...

Houst

on-S

AT

Dallas

-SVC

Raleigh

-SAT

Chicag

o-SAT

St Lou

is-SAT

Dallas

-SAT

Los

Angele

s...

Baltim

ore-

SAT

Orla

ndo-

SAT

Denve

r-SAT

Hartfo

rd-S

AT

New J

erse

y...

Atlant

a-SVC

Denve

r-SVC

Clevela

nd-S

AT

Seattle

-SAT

0

20

40

60

80

100 Days of Holding Inventory

West

West

GSCMI 2013 Case Competition 7

Reducing Air shipment Cost (Yuji Sakakibara)

2 modes of transportation Truck: majority of the shipment Air: emergency shipment

If EATON can achieve 100% Service Level, they do not have to use air shipment

Service Level (SL)= 1 – (Air shipment / Total shipment)

0 2 4 6 8 10 12 140

200

400

600

800

1000

1200

0%

20%

40%

60%

80%

100%San Francisco

InventoryCOGSAir/Total

GSCMI 2013 Case Competition 8

Analyzing Current Inventory(Yuji Sakakibara)

EX) Los Angeles-SAT

31-Dec-2013

Inventory 1463

COGS 921

DOH 48

SL(1-Air/ Total) 0.84

SS 1,416.69

Z 1.01

σ 1,398.09

Air: 16% of total shipment

SS = Inventory + (COGS/10cycle/2)

Z = NORMSINV(SL(%))

σ = SS/Z (Standard Deviation/Month)

COGS

Inventory

　 Safety StockStandard deviation

Los Angeles-SAT 1570.0 1211.2Los Angeles-SVC 1052.6 803.9Phoenix-SAT 715.1 445.8Portland-SVC 889.8 619.8San francisco-SAT 778.2 2828.9Seattle-SAT 605.5 436.9

Standard Deviation of Demand in each city

GSCMI 2013 Case Competition 9

Pooling Inventory (Bayu Daryanto)

W

CMSC

CMSC

CMSC

CMSCW

CMSC

CMSC

CMSC

CMSC

Current System Pooling System

Std. dev. demand at 1 location = σ

Safety stock at each CMSC = z * σ

Total safety stock at N RDCs = N z σ

Std. dev. demand at W = √N * σ

Safety stock at W = z * √N ∗ σ

GSCMI 2013 Case Competition 10

Cost Saving Benefits (Bayu Daryanto)

*) Targeted Service Level based on other regions

Before After

Amount of Purchase Orders by Premium Shipping ($)

3,878,485 2,401,522

Service Level 89 % 94 % *)

Portion Purchase Order by Premium Shipping

11 % 6 %

Premium shipping saving cost (in %)

100 64

DOH (days) - Reduce Holding Cost - Reduce Inventory Level

40.01 16.9

GSCMI 2013 Case Competition 11

Strategy & Action Plan (Ronaldo Rotua)

Short term

Build New

Warehouse in Los

Angeles

Set Up Pooling

System

Long term

Pooling system in

other regions

Evaluate the CMSC

network based on

future demand

GSCMI 2013 Case Competition 12

Timetable (Ronaldo Rotua)

Year 3 Year 4 Year 5Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

1 Find location and design warehouse2 Building Warehouse3 Negotiate terms of procurement4 SOP/SOM of the pooling inventory5 Provide Human Resources for the warehouse6 Launch Beta Project7 Monitoring and record the performance8 Evaluation and feedback9 Feasibility study to implement on other regions

10 Evaluate the needs for new CMSC

Year 1 Year 2DescriptionNo

GSCMI 2013 Case Competition 13

Issue with New Warehouse (Ronaldo Rotua)

• Customer Relationship• CMSC can focus more on customer• Single Point of contact

Responsiveness

• Trade off with Lower Inventory and long term sustainability growth

• Constant annual saving from holding cost• Lower Transportation Cost

Investment Cost

• Coordination 6 month before Launch Beta Project

• Periodic Monitoring, feedback and evaluation• Information Control

Migrating to pooling system

Mitigation

GSCMI 2013 Case Competition 14

Q&A (Ronaldo Rotua)

Any Questions ?