Identify location for multi-facility regional distribution center

No part of it may be circulated, quoted, or reproduced for distribution outside without prior written approval from Hamilton Sundstrand and Team Kim

ISyE 6203 Term Project

December 3, 2009

Team Kim

H. Milton Stewart School of Industrial and Systems Engineering

Georgia Institute of Technology

Identify location for multi-facility regional distribution center

2

Agenda

I Initiate

II Analyze

III Envision

IV Design

V Recommendation

VI Appendix

3

I. Initiate > Project Members

Hamilton Sundstrand Project Representative

Dang Huynh – Global Logistics Manager Marc A. Bartos – Global Logistics Analyst

ISYE 6203 Project Group ‘Team Kim’

Hangil Kim Prabhkar N Navjyot Kaur Youngbin Park Jungbin Yim

4

I. Initiate > Project Timeline

Overall Preview for what we have done and where are we, and what we are going to do

Project Objectives & Goals

Project Timeline

Best practice benchmark

Initiate Analyze Envision

W1 W2 W3 W4 W5 W6 W7 W8 W9 W10

Project Assignment

Design

Class Presentation

Design Detailed To-Be Structure

Possible Scenarios

Future Scope

Find optimal consolidation schedule and location

Sensitivity Analysis

Gaining reliable data

Consolidation Methodology

Net benefit calculation

Hamilton Sundstrand: 1. Have bi-weekly conference call (or E-mail) if needed 2. Report Status

- four conference calls so far, fifth one is scheduled on Nov. 13th

- three presentations delivered so far

Quality Assurance: Dr. John Vande Vate

Final Delivery1st

Conference Call2nd

Conference Call3rd

Conference Call4th

Conference Call

5thConference

Call(scheduled)

Timely Communication

Agenda

I Initiate

II Recommendation

III Analyze

IV Envision

V Design

VI Appendix

6

II. Recommendation > Result

10%

90%

Shipment wt. for other routesShipment wt. for frequent routes

Ship all shipments on the following routes on

Wednesday and Friday

• SINGAPORE,ROCKFORD-Singapore• CO CLARE,MIRAMAR-Ireland• SINGAPORE,WEST HARTFORD-Singapore• WOLVERHAMPTON,SAN DIEGO-England• HALEY,ROCKFORD-Canada• FRACC IND B JUAREZ QUERETARO,SAN DIEGO-Mexico• LAVAL,ROCKFORD-Canada• SAINT-LAURENT,WINDSOR LOCKS-CANADA• HAMBURG,SAN DIEGO-Germany• RENFREW,SAN DIEGO-Canada• ZHUZHOU,SAN DIEGO-China

Top 11 frequent routes

In top 11 frequent routes,

No. of Vendors on these routes: 22

No. of Hamilton Sundstrand Co. on the routes: 7

II. Recommendation > Route Composition

0

40

80

120

160

Total

Total

# of shipments

II. Recommendation > Implementation Recommendation

In top 11 frequent routes,

There are 7 routes that only have a single supplier

– RENFREW,SAN DIEGO HALEY INDUSTRIES– ZHUZHOU,SAN DIEGO ZHUZHOU SOUTH AEROENGINE – HAMBURG,SAN DIEGO LUFTHANSA TECHNIK LOGISTIK (DE) – FRACC IND B JUAREZ QUERETARO,SAN DIEGO TURBORREACTORES SA DE

CV– WOLVERHAMPTON,SAN DIEGO HS MARSTON AEROSPACE – CO CLARE,MIRAMAR Hamilton Sundstrand – HALEY,ROCKFORD HALEY INDUSTRIES

Single supplier routes

Can be implemented right away!

9

II. Recommendation > Detailed Implementation

– LAVAL,ROCKFORD- Canada

– HAMBURG,SAN DIEGO-Germany

– COCLARE,MIRAMAR-Ireland

– SINGAPORE,ROCKFORD

– SINGAPORE,WEST- HARTFORD-Sin-gapore

Routes run by DHL USA Inc.– SAINT-LAURENT, WINDSOR LOCKS-

Canada

– HALEY,ROCKFORD-Canada

– RENFREW,SAN DIEGO-Canada

– LAVAL,ROCKFORD-canada

– SINGAPORE,ROCKFORD-Singapore

– SINGAPORE,WEST- HARTFORD-Singapore

Routes run by UPS SPS– WOLVERHAMPTON,SAN DIEGO

– HAMBURG,SAN DIEGO

– FRACC IND B JUAREZ QUERETARO,SAN DIEGO

– SAINT-LAURENT, WINDSOR LOCKS

Routes run by FedEx corp.

Possible Routes Consolidated

• WOLVERHAMPTON,SAN DIEGO -England• HAMBURG,SAN DIEGO-Germany• COCLARE,MIRAMAR-Ireland• FRACC IND B JUAREZ QUERETARO,SAN DIEGO

Consolidate by DHL USA Inc.• SAINT-LAURENT, WINDSOR LOCKS-Canada• HALEY,ROCKFORD-Canada• RENFREW,SAN DIEGO-Canada• LAVAL,ROCKFORD-Canada• SINGAPORE,ROCKFORD-Singapore• SINGAPORE,WEST- HARTFORD-Singapore

Consolidate by UPS SCS

European carrier consoli-dation Canada carrier consolidation

DHL USA INC UPS SCS

II. Recommendation > Carrier Composition

33.134

65.304

1.250 0.009 0.227 0.008 0.069

FEDERAL EXPRESS CORP DHL EXPRESS USA INCUPS SUPPLY CHAIN SOLUTIONS INC DSV AIR AND SEA INCEXPEDITORS INTL EAGLE GLOBAL LOGISTICBAX GLOBAL EAGLE GLOBAL BROKERAGE

CEVA LOG CEVA FREIGHT

EXPEDITORS INTL

IMMEDIATE WORLDWIDE TRANSPORTATION

EMO TRANS INTER-NATIONAL FREIGHT

EAGLE GLOBAL LOGISTIC

DHL EXPRESS USA INC

BAX GLOBAL

FEDERAL EXPRESS CORP

SCHENKER INC

UPS SUPPLY CHAIN SO-LUTIONS INC

II. Recommendation > Carrier Composition

Reduction in Transportation Cost

Reduction in No. of Shipments

Reduction in CBF, MPF

Original number of shipments

Shipments after New schedule

0

500

1000

1500

2000

2500

Current Wed-Fri Shipment

# of shipment

12

Agenda

I Initiate

II Recommendation

III Analyze

IV Envision

V Design

VI Appendix

13

III. Analyze

We analyze data with this procedure. In this phase, we firstly validate the raw data and make the basic consolidation model based on Hamilton Sundstrand’s suggestion

Initiate Analyze Envision Design

ComparingNet Benefit

of Consolidation

3Gaining

Reliable Data

1 Developing Basic Consolidation

Model

2

Initiate Analyze EnvisionInitiate Analyze

14

III. Analyze > 1. Gain Reliable Data

Regularize the data1-1

14

Shipper Company

BOMBARIDER AEROSPACE

BOWMILL ENGR

BOWMILL ENGR

BRADKEN

BRADKEN

BRADKEN

BRADKEN

BRUSSELS AIRLINES NV-SA


…


C & D AEROSPACE CANADA CO

C &D AEROSPACE CANADA CO

Shipper Company

BOMBARDIER AEROSPACE

BOWMILL ENGR

BOWMILL ENGR

BRADKEN

BRADKEN

BRADKEN

BRADKEN

C&D AEROSPACE CANADA CO

C&D AEROSPACE CANADA CO

1. Delete Airlines

2. Identify Names

(Correct Typo)

Delete data whose supplier is Airline

Emergency orders (Mostly for repairs)

Infrequent shipments

Will be used for

Macro

The raw data provided by HS had problems of the reliability - typos, lack of informa-tion, and weak linkages between files. Therefore, we cleaned raw data by following steps

15


Clean up the data1-2

JMR, DGF (Carriers’ Data)

Bill Numbe

r

Weight, Pieces

Vessel Name

Supplier

Country Export

Total Duty/ Fee

…

- DGF: 6,632 lines / JMR: 5,187 lines

- Delete data which are not matched with ‘USD YTD’ data

- Delete data whose supplier is Airline

Reliable Data

DGF: 2,388 lines

JMR: 3,028 lines

Will be used to get

Current # of

Shipments

Total Duty & Fees

before and after

Con-solidation

: Duty + Custom’s Brokerage Fee

: Supplier Identifier with US YTD

The raw data provided by HS had problems of the reliability - typos, lack of information, and weak linkages between files. Therefore, we cleaned raw data by following steps

16


Clean up the data (Cont.)1-2

US YTD (HS’s Data)

…

- YTD: 4,036 lines

- Delete data whose supplier is Airline

Reliable Data

US YTD: 4,013 lines

Will be used to get

Latitude & Longtitude

of

Suppliers/Consignees

Traffic Route

: Custom’s Brokerage Fee: Supplier Identifier with DGF/JMR

Carrier

Name

Client ID

Shipper

Name

Shipper Address

Shipper City

Shipper Zip

code

Consignee Address

The raw data provided by HS had problems of the reliability - typos, lack of informa-tion, and weak linkages between files. Therefore, we cleaned raw data by following steps

17

III. Analyze > 2. Develop Basic Consolidation Model

As-Is To-Be

Understand HS’s Basic Consolidation Concept2-1

As-Is To-Be

18

Vis

ual B

asic

for

Excel M

acro

III. Analyze > 2. Develop Basic Consolidation Model

We run the Excel Macro to calculate the reduced number of shipment according to one to seven days consolidation strategy of identical supplier, country of origin and date of shipment

Supplier NameCountry of

OriginDate of ShipmentIndex

233268293313314332338340365366367369412428430449450451524525530

A J WALTERS AVIATIONA J WALTERS AVIATIONA J WALTERS AVIATIONA J WALTERS AVIATIONA J WALTERS AVIATIONA J WALTERS AVIATIONA J WALTERS AVIATIONA J WALTERS AVIATIONA J WALTERS AVIATIONA J WALTERS AVIATIONA J WALTERS AVIATIONA J WALTERS AVIATIONA J WALTERS AVIATIONA J WALTERS AVIATIONA J WALTERS AVIATIONA J WALTERS AVIATIONA J WALTERS AVIATIONA J WALTERS AVIATIONA J WALTERS AVIATIONA J WALTERS AVIATIONA J WALTERS AVIATION

CACACACACACACACACACACACACACACAGBGBGBGBGBGB

09-Jan-0909-Jan-0912-Jan-0913-Jan-0913-Jan-0914-Jan-0914-Jan-0915-Jan-0915-Jan-0915-Jan-0915-Jan-0916-Jan-0920-Jan-0921-Jan-0921-Jan-0922-Jan-0922-Jan-0922-Jan-0928-Jan-0928-Jan-0929-Jan-09

268

314

338

367367367

430

451451

525

531

Consol.Index

ShipmentDecision

Don't Ship SeparatelyShipShip

Don't Ship SeparatelyShip


Don't Ship SeparatelyDon't Ship SeparatelyDon't Ship Separately

ShipShipShip


Don't Ship SeparatelyDon't Ship Separately

ShipDon't Ship Separately

ShipDon't Ship Separately

1. Same supplier

2. Same CoO 3. Same Date of Ship.

(1-7 days option)

Develop the basic consolidation methodology2-2

1919

III. Analyze > 3. Compare Net-benefit

Cost Reduction by Consolidation3

1 day

2 day

3 day

4 day

5 day

6 day

7 day

-

50,000

100,000

150,000

200,000

250,000

300,000

Customer Brokerage Fee

1 2 3 4 5 6 70

50000

100000

150000

200000

250000

300000

Maintenance Processing Fee

1 2 3 4 5 6 7 -

50,000

100,000

150,000

200,000

250,000

300,000

Total Saving1)

2)

It is possible to delay the shipments by no more than four days without losing net

benefit under the assumption that

- delayed shipments imply the holding cost of vendor capital and reduce the net benefit of

strategy

1) : $ per shipment2) : shipments delay options* : 1 implies shipment on the same day and 2 implies delayed by one day and so on.

*

20

Agenda

I Initiate

II Recommendation

III Analyze

IV Envision

V Design

VI Appendix

21

IV. Envision

We envision the detailed consolidation model based on previous analysis. We reflect possible and critical constraints into the basic model

Initiate Analyze Envision DesignInitiate Analyze EnvisionInitiate Analyze

Reflect the Adjusted Fee of Carriers2

Reflect the Cost of Capital Investment1

…

2222

IV. Envision > 1. Cost of Capital Investment

We need to take into account the inventory holding cost to the model because of in-creased inventory at carrier’s place

Delayed daysSame day

1 day 2 days 3 days 4 days 5 days 6 days

Total invoice spend ($)

56,267,348

56,267,348

56,267,348

56,267,348

56,267,348

56,267,348

56,267,348

Period (Days) 180 180 180 180 180 180 180

Total invoice spend/day

312,596

312,596

312,596

312,596

312,596

312,596

312,596

Holding cost ($) -

46,889

93,779

140,668

187,558

234,447

281,337 # of shipments in

period

3,054

3,054

3,054

3,054

3,054

3,054

3,054 Holding

cost/Shipment - 15 31 46 61 77 92

Savings ($) over period

101,504

123,463

138,240

149,677

153,121

153,129

154,008

Savings ($)/day 564 686 768 832 851 851 856

Savings ($)/shipment 33 40 45 49 50 50 50

`

Net Savings = (Reduced CBF + Reduced MPF) – Inventory Holding Cost (i=15%)

23

IV. Envision > 1. Cost of Capital Investment Sensitivity Analysis

By Changing the value of interest rate, we get different net-savings shown as below, the conflict between the delay shipment strategy and cost of capital holding, would yield an upper limit on the interaction.

Case 1. Set i=15%

Even if 7 days consolidation provides the largest saving, due to the holding cost, it is not the optimal period of consolidation

Case 3. i=20%Case 1. Set i=15% Case 3. i=20%Case 1. Set i=15% Case 2. i=10%

: Savings/Shipme

nt

: Holding cost/Shipment : Net Savings/Shipment

1)

2)

2)

1) : $ per shipment2) : shipments delay options* : 1 implies shipment on the same day and 2 implies delayed by one day and so on.

*

24

Agenda

I Initiate

II Recommendation

III Analyze

IV Envision

V Design

VI Appendix

25

V. Design

We locate the consolidation points in some country

Initiate Analyze Envision DesignInitiate Analyze EnvisionInitiate Analyze

Example: Carrier Consolidation in Europe2

Location of Consolidation Points1

Future scope for Consolidation of shipment 3

26

V. Design > 1. Location of Consolidation Points

In addition to the principles of the basic consolidation model, we firstly concentrate on establishing consolidation point to the country where the shipments occurs more often

Current shipper scenario

Canada32%

Eu-rope23%

etc.45%

no. of shipments

Canada

20%

Eu-rope42%

etc.38%

Invoice value

Top freight sources 55% of shipments

62% of invoice value are from

Canada

Europe

Option 1. Consolidate Carriers

Focused on reduction of freight cost by increasing share of business to top carriers

Option 2. Find possible consolidation points for Cross dock

Focused on freight cost, MPF, and CBF

Future scope

1. # of Shipments

2. Invoice Value

27

V. Design > 2. Example: Carrier Consolidation in Europe

In addition to the principles of the basic consolidation model, we firstly concentrate on establishing consolidation point to the country where the shipments occurs more often

Top 4 shipper countries in Europe

GB IE FR DE

22

12

4.4 3.3

invoice(%)

GB IE FR DE

6

11

2.61.8

shipment(%)

Top 2 carriers chosen for

consolidation based on

# of shipments

Total invoice amount

Total duty/fees

Top 2 carriers chosen for

consolidation

Federal Express

Lufthansa

The net increase in business for

these carriers 20% of the current

size of business with Hamilton

Sundstrand

28

V. Design > 3.Futurescope for Consolidation of shipments

Sunday Monday Tuesday Wednesday Thursday Friday Saturday

87

219

343

545

461

297

436

136 145

306 327

604

393

477

97

293248

278

450506 516

121176

453

211

387359

681

154

259

328

407

328 331

581

128

341

413

280

526

289

411

97

242

536

395439

399

280

1-DAY 2-DAY 3-DAY 4-DAY 5-DAY 6-DAY 7-DAY

From the current consolidation strategy to delay shipments, the distribution of

shipments over the week is still spread over all the seven days of the week. So there is

still opportunity to improve the savings by consolidating the shipments

days within the week. (i.e. ship only Monday or Tuesday or Monday &

Tuesday)

The upper limit on the interaction is still four days as per our earlier analysis

# of Ship-ments

29

Thank you

30

Agenda

I Initiate

II Recommendation

III Analyze

IV Envision

V Design

VI Appendix

31

Appendix.

1. Macro codes

32

Appendix.

2. Excel works

1 DAY 4-DAY

Row Labels Sum of Invoice value Row Labels Sum of Invoice value

1 1932504.13 1 3406935.67

2 7289085.88 2 7542407.39

3 10303304.63 3 20457990.87

4 23714597.35 4 7322334.41

5 19498828.74 5 11515823.03

6 11064280.93 6 11387655.93

7 20370059.94 7 32539514.3

(blank) (blank)

Grand Total 94172661.6 Grand Total 94172661.6

2 DAY 5-DAY


1 5416171.92 1 5508167.62

2 5278973.19 2 12229606.32

3 8725797.05 3 10883684.07

4 10307653.92 4 20469974.62

5 26410491.77 5 9325334.08

6 16561329.33 6 10656385

7 21472244.42 7 25099509.89

(blank) (blank)


3-DAY 6-DAY


1 2972062.58 1 2848829.3

2 15104461.53 2 16843027.05

3 6339727.27 3 17812951.06

4 9999776.48 4 10254050.89

5 16436892.7 5 23508235.33

6 20576098.34 6 8896763.81

7 22743642.7 7 14008804.16

(blank) (blank)


33

Appendix.

2. Excel works

Ship-per coun-try

MEX MEX MEX MEX MEX MEX MEX MEX MEX MEX MEX MEX MEX MEX MEX

Ship-per city

SALTILLO

SANTA CATARINA

APO-DACA

APO-DACA

AR-VADA

CI-DAD 635-2 ZONA IND EL PO-TOSI

ES-COBEDO

FRACC IND B JUAREZ QUERETARO

MEX-ICO

MONTER-REY

QUERETARO

SAN LUIS PO-TOSI

SAN LUIS PO-TOSI

WINDSOR LOCKS

SAN SAL-VADOR

Lati-tude 25.36 25.683

3325.766

6725.766

67 39.88 23 18.91667 23 23 25.666

6720.625

56 22.15 22.15 41.92917 13.7

longi-tude

-100.98

-100.46

7-100.2 -100.2 -

105.11 -102-

97.1167

-102 -102-

100.317

-100.37

2

-100.98

3

-100.98

3

-72.627

8

-89.216

7

Shipper name No of shipments

In-voice value

Shipper country Shipper city Latitude Direc-

tionlongi-tude

PARKWAY PRODUCTS DE ME-XICO S DE RL 5 5138.

53MEX SALTILLO 25.36N -100.98 0 62.816

590.368

6690.368

661659.6

91282.07

69819.38

98282.07

69282.07

6974.792

29530.10

96356.93

59356.93

593182.1

711786.8

61

FUNDICION AGUILAS SA DE CV 1 920.6

1MEX SANTA CATARINA 25.683333N

-100.46

7

62.8165 0 28.274

6528.274

651636.5

21336.37

82827.46

64336.37

82336.37

8215.146

23562.48

25396.38

14396.38

143119.8

941776.2

82

EZI METALES SA DE CV 87 359081MEX APODACA 25.76666

7N -100.2 90.36866

28.27465 0 0 1634.2

76357.58

03824.94

96357.58

03357.58

0316.132

22571.93

53409.95

26409.95

263093.9

231764.8

12PROCESOS TERMICOS Y ES-PECIALES 28 20279

.9MEX APODACA 25.766667N -100.2 90.368

6628.274

65 0 0 1634.276

357.5803

824.9496

357.5803

357.5803

16.13222

571.9353

409.9526

409.9526

3093.923

1764.812

SUNDYNE CORP 2 1633.12MEX ARVADA 39.88N -

105.111659.6

911636.5

211634.2

761634.2

76 0 1899.664

2453.546

1899.664

1899.664

1642.045

2187.919

2009.679

2009.679

2722.983

3298.878

TIGHITCO LATINOAMERICA SA DE CV 2 19275MEX CIDAD 635-2 ZONA IND

EL POTOSI 23N -102 282.0769

336.3782

357.5803

357.5803

1899.664 0 680.52

06 0 0 342.0562

312.9715

140.8167

140.8167

3438.133

1698.103

TECNOLOGIA PROCESOS Y MAQUINAR 1 330.7

2MEX ESCOBEDO 18.916667N

-97.116

7

819.3898

827.4664

824.9496

824.9496

2453.546

680.5206 0 680.52

06680.52

06819.48

12390.02

9539.73

2539.73

23447.7

791023.0

25

TURBORREACTORES SA DE CV 87 22540

9MEX FRACC IND B JUAREZ QUERETARO 23N -102 282.07

69336.37

82357.58

03357.58

031899.6

64 0 680.5206 0 0 342.05

62312.97

15140.81

67140.81

673438.1

331698.1

03

TIGHITCO LATINOAMERICA SA DE CV 1 1089.

76MEX MEXICO 23N -102 282.0769

336.3782

357.5803

357.5803

1899.664 0 680.52

06 0 0 342.0562

312.9715

140.8167

140.8167

3438.133

1698.103

METALIZADOS Y MAQUINA-DOS DE MX 2 1043.

12MEX MONTERREY 25.666667N

-100.31

7

74.79229

15.14623

16.13222

16.13222

1642.045

342.0562

819.4812

342.0562

342.0562 0 560.57

45396.86

16396.86

163110.0

531764.6

16

TURBORREACTORES SA DE CV 6 14747

.9MEX QUERETARO 20.62555555N

-100.37

2

530.1096

562.4825

571.9353

571.9353

2187.919

312.9715

390.029

312.9715

312.9715

560.5745 0 180.94

35180.94

353515.0

61412.4

74

HAMILTON SUNDSTRAND (MX) 1 479.4

3MEX SAN LUIS POTOSI 22.15N-

100.983

356.9359

396.3814

409.9526

409.9526

2009.679

140.8167

539.732

140.8167

140.8167

396.8616

180.9435 0 0 3432.6

61558.3

21

TIGHITCO LATINOAMERICA SA DE CV 12 22125

.5MEX SAN LUIS POTOSI 22.15N-

100.983

356.9359

396.3814

409.9526

409.9526

2009.679

140.8167

539.732

140.8167

140.8167

396.8616

180.9435 0 0 3432.6

61558.3

21

HAMILTON SUNDSTRAND DOCK J BLD (MX) 1 578.1

4MEX WINDSOR LOCKS 41.9291667N

-72.627

8

3182.171

3119.894

3093.923

3093.923

2722.983

3438.133

3447.779

3438.133

3438.133

3110.053

3515.06

3432.66

3432.66 0 3522.8

53

OXIGENOS Y GASES DE 1 449.29MEX SAN SALVADOR 13.7N

-89.216

7

1786.861

1776.282

1764.812

1764.812

3298.878

1698.103

1023.025

1698.103

1698.103

1764.616

1412.474

1558.321

1558.321

3522.853 0

Documents

Identify location for multi-facility regional distribution center