Sustainable Growth through Network Optimization Team Name ARBYs Bayu Daryanto Ronaldo Rotua Yuji Sakakibara Aurélia de Larrard Problem statement amp Agenda Aurélia de ID: 762742
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Sustainable Growth through Network Optimization Team Name: ARBY’s Bayu Daryanto Ronaldo Rotua Yuji Sakakibara Aurélia de Larrard
Problem statement & Agenda (Aurélia de Larrard)Problem statementOn 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?AgendaProblem statement RecommendationExisting SC networkRationaleStrategy & Action PlanTimetable
Supply Chain Network (Aurélia de Larrard) Customer Manufacturing Solutions Center (CMSC)PlantsDistribution Center Ware Houses
Recommendation (Aurélia de Larrard)We recommend building a major warehouse in Los AngelesBuilding a major warehouse will allow:Reduced use of air shipment on the west coastLower inventory in regional (west) CMSCs Lower utilization rate of current warehouses W34-W87 Reduce the fluctuation of the whole supply chainIncrease Service Level
Pros and Cons of the other options ( Aurélia) Build a new CMSC (option 1)ProsIncrease responsivenessReduce regional logistics costsConsincrease overall inventoryNo reduction of air shipment no improvement of warehouse capacity/high utilization rateExtend plant storage of CMSC (option 3)ProsLower investment costImprove local performance of close CMSCsConsLimited capacity to reduce air shipment Limited capacity to improve total inventory level
Rationale to focus on the west (Yuji Sakakibara) WestWest
Reducing Air shipment Cost (Yuji Sakakibara) 2 modes of transportationTruck: majority of the shipmentAir: emergency shipmentIf EATON can achieve 100% Service Level, they do not have to use air shipmentService Level (SL)= 1 – (Air shipment / Total shipment)
Analyzing Current Inventory(Yuji Sakakibara) EX) Los Angeles-SAT Air: 16% of total shipment SS = Inventory + (COGS/10cycle/2)Z = NORMSINV(SL(%)) σ = SS/Z (Standard Deviation/Month)COGSInventory Safety StockStandard deviationLos Angeles-SAT1570.01211.2Los Angeles-SVC1052.6803.9Phoenix-SAT715.1445.8Portland-SVC889.8619.8San francisco-SAT778.22828.9Seattle-SAT605.5 436.9 Standard Deviation of Demand in each city
Pooling Inventory (Bayu Daryanto)Current SystemPooling SystemStd. dev. demand at 1 location = σ Safety stock at each CMSC = z * σTotal safety stock at N RDCs = N z σStd. dev. demand at W = √N * σSafety stock at W = z * √N ∗ σ
Cost Saving Benefits (Bayu Daryanto) *) Targeted Service Level based on other regionsBeforeAfterAmount of Purchase Orders by Premium Shipping ($)3,878,4852,401,522Service Level 89 %94 % *)Portion Purchase Order by Premium Shipping11 %6 %Premium shipping saving cost (in %)10064DOH (days) - Reduce Holding Cost - Reduce Inventory Level40.0116.9
Strategy & Action Plan (Ronaldo Rotua)Short termBuild New Warehouse in Los AngelesSet Up Pooling SystemLong termPooling system in other regionsEvaluate the CMSC network based on future demand
Timetable (Ronaldo Rotua)
Issue with New Warehouse (Ronaldo Rotua ) Mitigation
Q&A (Ronaldo Rotua)Any Questions ?