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August, 2013 – Case 1 Case Study Developed By: Dave Wheeler Principal, Supply Chain Strategy

Pan American Advanced Studies Institute Simulation and Optimization of Globalized Physical Distribution Systems Santiago, Chile. August, 2013 – Case 1 Case Study Developed By: Dave Wheeler Principal, Supply Chain Strategy St Onge Company York, PA. Case Study 1.

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August, 2013 – Case 1 Case Study Developed By: Dave Wheeler Principal, Supply Chain Strategy

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  1. Pan American Advanced Studies InstituteSimulation and Optimization of Globalized Physical Distribution SystemsSantiago, Chile August, 2013 – Case 1 Case Study Developed By: Dave Wheeler Principal, Supply Chain Strategy St Onge Company York, PA

  2. Case Study 1 • US based retailer with operations in the US and Mexico • Experiencing significant growth in stores, sales, and items • SKU proliferation causing issues within the DC in terms of slotting and inventory carrying • Expected to accelerate due to industry • Extremely long tail on item pareto. (i.e. large number of items contribute small amount to sales) • Several DCs with storage capacity constraints, while others have excess capacity • Currently 5% of product imported from Asia, expecting to grow to 12% • Competition migrating to highly responsive supply chain • Increasing fuel cost applies pressure to freight budget

  3. US Supply Chain Description • 4,616 stores in 2012, growing to 5,660 in 2018 • 8 Full-line distribution centers • $4m annual fixed cost for each DC • Deliveries to stores from DCs • via multi-stop truckloads (private fleet); ≈4 stops/load • Stores receive 1 delivery/week • Vendor to DC shipments • 90% of shipments from vendors paid for by vendor as component of COGs • 10% company paid, including all import • Imports shipped from vendors mainly in China, directly to each DC in full FEUs • US DCs currently do not ship cross-border into Mexico

  4. Stores

  5. DCs

  6. Imports

  7. Supporting Data – Store Growth

  8. Supporting Data – Stores

  9. Supporting Data - DCs

  10. US Issues to be Addressed • Determine if the current DC network is appropriate given the future store growth, DC capacities, increasing fuel costs • If additional DCs are needed, determine the: • appropriate location and relative size of each additional DC • impact on the current DCs throughput, inventory, and service area • impact to DC to store freight • impact to transit time to stores • impact to DC costs (fixed and variable) • the impact to network inventory • if the changes to the network financially justified based on a reasonable return-on-investment (ROI)

  11. US Issues to be Addressed • Given the migration to incremental import product • How will inventory be impacted if current direct to DC approach is continued • What alternative import methodologies should be considered • For each methodology considered, determine the: • impact to inventory • impact to facility costs • impact to freight • impact to store service

  12. Mexico Supply Chain Description • Full Line DC in Monterrey • Monterrey DC has 360 store capacity • Cross-docks located in Mexico City & Mexicali serviced from Monterrey DC • 200 fast moving/high cube items stored at DC and both cross-docks • ≈330 stores in 2012 • 220 direct from Monterrey • 70 via Mexico City cross-dock • 40 via Mexicali cross-dock • DC to Store freight • Delivered via multi-stop common carrier truck of various size depending on market • On average a truck load from DC to a cross dock serves 8 stores • On average a truck load from DC to stores serves 4stores • On average a truck load from a cross dock to stores serves 3stores • Stores receive 1 delivery per week

  13. Mexico Supply Chain Description • Vendor inbound freight • Majority of product ships from vendors in US to Mexico via freight forwarder in Laredo, TX • ≈1500 loads/year; $285/load • Product stored at cross-docks ships direct from vendors; vendor paid freight • Growth Plan • 150 stores in Mexico (75% in Mexico City region) • 46 stores in Central America • Product imported from China utilizes US ports and ships via Laredo, TX

  14. DCs

  15. Growth

  16. Mexico Issues to be Addressed • Determine if the current DC network is appropriate given the future store growth, DC capacities, increasing fuel costs • If an alternative DC configuration is to be considered, then determine the: • appropriate location and relative size of each additional DC • impact on the current DCs throughput, inventory, and service area • impact to DC to store freight • impact to transit time to stores • impact to DC costs (fixed and variable) • the impact to network inventory • if the changes to the network financially justified based on a reasonable return-on-investment (ROI) • If alternative DC configuration is not justified, then identify improvements to the current configuration and flow of product from vendors through the DC and cross-docks to the stores

  17. Mexico Issues to be Addressed • Given the migration to incremental import product • How will inventory be impacted if current direct to DC approach is continued • What alternative import methodologies should be considered • For each methodology considered, determine the: • impact to inventory • impact to facility costs • impact to freight • impact to store service • Should the Mexico and US methodology be synchronized?

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