Warehouse Location Strategy Location Strategy- SCPI.pdf · 2 0 0 8, S C P I, I n c. A l l r i g h t...

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Warehouse Location Strategy

The Impact on Overall Logistics Costs

Presented by:Sponsored by:

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Strategy For Profit - Tactics For Performance 2

Beer Industry Outlook

Fuel

Mergers

Market

‘Hurricane’ Preparedness

What must we do to prosper given our market and competition?What must we do to prosper given our market and competition?

Warehouse Location StrategyWarehouse Location StrategyDefinedDefined

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Location Strategy is…

A strategic analysis that defines the number, location, and function of networkfacilities (warehouses or cross docks), equipment and resources while maintaining

delivery service levels

When to Use Acquisition Facility Relocation Facility Consolidation Territory Redesign Brand Integration

The objective is to minimize total cost over the long term …The objective is to minimize total cost over the long term …

CostPer

Case InboundFreight

WhseCost Route

Costs

1 Many

Total Cost / Case

InventoryCarrying Cost

Number of Warehouses

CostPer

Case InboundFreight

WhseCost Route

Costs

1 Many

Total Cost / Case



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Location, Location, Location

Location drives performance

- Driving miles; access to roads

- Equipment utilization

- Volume; Operational efficiency

- Workforce

- Other costs; taxes, utilities

Advantage of fewer warehouses

- Volume to Support Automation

- Combined overhead

- Less safety stock inventory

- “Simpler” to manage

LocationStrategy

“But what is the Best Location and what will our Route Costs be…?”“But what is the Best Location and what will our Route Costs be…?”

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The Analysis Components

Simultaneously decide- Facilities; Number,

Location, and Size- Facility Territories- Route Territories

While Considering- Inbound costs- Facility costs- Outbound costs- Customer service

requirements

Combined network optimization and routing typically by Truck TypeCombined network optimization and routing typically by Truck Type

Which customers togethershould be served by a route?


Which customer to be servedby which branch?

Which customer to be servedby which branch?



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What’s So Complex About it?

CASE DEMANDv.

DELIVERYFREQUENCY

Bulk Demand

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es/W

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es/W

eek

RouteRouteRouteRoute Day 1Stops

Day 1StopsDay 1Stops

Day 1Stops

Day 2StopsDay 2StopsDay 2StopsDay 2Stops

Day 3Stops


Day 3Stops

Day 4StopsDay 4StopsDay 4StopsDay 4Stops

Day 5Stops


Day 5Stops

Analysis Must Comprehend the Complexity of Delivery FrequencyAnalysis Must Comprehend the Complexity of Delivery Frequency

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What To Look ForWhat To Look For

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Strategic Analysis v. Daily Routing

Daily routing tools aren’t built for open/close analysisand most strategic tools have difficulty modeling routes

Look for transportation optimization tools that caneffectively model multi-stop routes.

The ability to accurately model current operating costsand constraints in order to understand the impact andbenefit of both demand and supply side changes

Driver, Per Unit Lease Costs, Trailer CapacityRoutes

Per Mile Lease Costs, Fuel, Inbound TransportMiles

VariablesCost Driver

Minimizing Routes for Available Equipment Minimizes Costs!Minimizing Routes for Available Equipment Minimizes Costs!

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Typical Mistakes

1. Winging it!2. Static spreadsheet models3. Separate analysis for facility vs.

inbound vs. routes4. Using standard network

optimization tools built for fulltruck analysis (LogicTools, etc..)

5. Approximate modeling ofcustomers (grouping them beforeloading into modeling tool).

Inbound separate from Facility separate from RouteInbound separate from Facility separate from RouteNO

Approximate Costto Serve

Approximate Costto Serve NO

Full Truck ToolsFull Truck Tools

NONO

Multi-StopRoute CostsMulti-Stop

Route Costs YES

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Sum of Util by WtSum of Avg Hours

Type Bay

Route

Data

DSD Model – Route Utilization Location consolidation, in particular, will add miles and challenge

stem time rules of thumb Consolidation may provide the volume (and capital?) required to

improve route efficiency at the warehouse

High UtilizationModeling Tactics:

• Trailer Options• Stop Productivity

High UtilizationRun out Capacity

Before Time

Low Utilization;Run out Time

before Capacity

Low UtilizationModeling Tactics:

• Double Bottom• Cross Dock• Stop Productivity

Tra

iler

Util

izat

ion

Wo

rkdayU

tilization

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• Understand current route counts and costsby trailer type, prepare model data, geocode customers and prepare baseline costs.

1/3

• Cost matrix including fixed andvariable annual costs, routeattributes, inventory carryingcosts, etc… for each scenario

1/3

• Explore costs and caseloads for all candidatelocations

• Content is defined inproject startup.Examples are fuel,volume, etc…

• Current case demand & delivery frequency,modeled with actual cost structures;provides comparison for subsequent runs

• To identify short term opportunities• Optimized network flows

• Design year volumes with currentnetwork

• Optimized network flows• Basis for alternative evaluation

1/3

DSD Modeling - Typical Project Sequence & Timing

Network Recommendation

Network Alternative Models

Data Collection, Summary, and Process Review

Optimized Baseline Model

Sensitivity Analysis

Results Evaluation

Baseline Network Model

Benchmark Model

1/3

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DSD Model - Typical Data Inputs Current state data

- Actual Delivery Costs- Current Route Count, Miles

Driven

Customer Data- Location Geo Code- Customer Name & Address- Case Demand & Frequency- Delivery Format, Current

Warehouse

Item / Facility (Whse/Cross dock)- Facility Location, Capacity, Fixed

& Variable Costs, Real EstateValue

- Product Suppliers, Locations,Inbound / Transfer Costs

- Inventory Snapshots

Delivery Data- Working Hours, Fixed & Variable

Costs, Stop Times, EquipmentCapacity

Facility CustomerFleet

Inbound Costs

Product

Demand

Product Sourcing

Operating Costs

Fixed Costs Fleet Costs

Current Routes

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DSD Modeling: Fit to Capacity and Time Demand volume and frequency

is satisfied considering:- Equipment Costs & Capacity- Drive time- Stop time- Work time- Fleet capacity

Modeled with Operational-Like DetailModeled with Operational-Like Detail

Routes are not determined inadvance of the modeling; toolsutilize road data (e.g. PC Miler)to ensure accuracy of results

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DSD Model - Typical Model Outputs Multiple scenarios are run for

each analysis:- Optimize current locations- Best single candidate- Forced candidate- Drop 2, add 1 from candidates

Territories and Routes are createdsimultaneously in the software

Territories are made up of customersassigned to strategic routes

Routes are created based on cost andtime factors

Route details include average time and distance statisticsas well as sample daily routes or Trips with expected

quantity and distance considerations

Scenario outputs include:- Cases by location- Total Cost / Cost Per Case

-Route Costs-Inbound costs-Inventory carrying costs-Labor Costs-Warehouse Costs

- Route Info-Route count by trailer type-Route Miles-Average stem, travel andstop time

-Average MPH-Territories-Trailer Utilization

Scenario Outputs Compared Against BaselineScenario Outputs Compared Against Baseline

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WarehouseWarehouseRelocationRelocationCase StudyCase Study

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Background - Warehouse Relocation

Current warehouse operation was out ofspace and had inefficient layout forexpanding brands and volume.

Additional shared services operation couldn’tfit on site and required additional leasedproperty.

Employee retention would be a big factor inany relocation decision.

Questioned current use of cross docks insouthern part of territory.

What are best of candidate locations for newcombined warehouse & shared service yard?

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Location Strategy – Warehouse Relocation

Analyze fifteen potential siteswithin 30 miles radius for deliveryand shared services costs.

Determine best site for investmentbased on operating cost factorsalong with taxes and otherincentives.

Provided initial center-of-gravitylocation; proved to beoversimplified by not accountingfor dynamics of:

- Frequency- Road speed- Cross docks- Truck capacity

Two Locations Added After First Round; 10% More Effort to IncludeTwo Locations Added After First Round; 10% More Effort to Include

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Annual Cost Differences

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

Option15

Option8

Option5

Option16

Option6

Option3

Option12

Option2

Option14

Option7

Option9

Option1

Option13

Option11

Option10

Option4

Candidates(Option 1 is Current Site)

%F

rom

Cu

rren

t

Route Difference to Base ($K) Total Cost Difference ($K)

Annual Cost Differences

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

Option15

Option8

Option5

Option16

Option6

Option3

Option12

Option2

Option14

Option7

Option9

Option1

Option13

Option11

Option10

Option4

Candidates(Option 1 is Current Site)

%F

rom

Cu

rren

t

Route Difference to Base ($K) Total Cost Difference ($K)

Candidate Costs - Warehouse Relocation

Center-Of-Gravity Selection Closest to Option 7Center-Of-Gravity Selection Closest to Option 7

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22Number of Cross Docks

Analyze potential sites for total inbound, route and sharedservices costs. Determine best site for investment.

WarehouseLocationStrategy

2.7%-Annual Logistics Costs Savings

-2 / -2Base / BaseDelivery Routes / Cross Dock Routes

+2.7%BaseAnnual Delivery Miles

12Number of Delivery Warehouses/Truck Yards

Distributor volume and brand growth had exceeded thecapacity of the current warehouse operation. New locationsneeded to be considered for a new warehouse and sharedservices location.

Background

Best OptionPreviousResults

Results – Warehouse Relocation

Transportation Savings of 2¢ Per CaseTransportation Savings of 2¢ Per Case

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Integration / ConsolidationIntegration / ConsolidationCase StudyCase Study

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Background - Integration / Consolidation

Current west coast warehouse networkincluded high value real estate that wasn’tvery efficient for current operations

Additional brands had been acquired thatincluded a more efficient leased warehouseand additional fleet – warehouse was beingsought by adjacent tenant

Interest to know impact of selling othersmaller owned warehouse

Traffic and toll costs were a location factor

How much would costs increase if high valuereal estate were sold and all brands weredelivered on each route truck?

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Location Strategy – Integration / Consolidation

Analyze eight potential sites fordelivery and inbound costs.Determine best site for operatingefficiency based on operating costfactors along with gain from realestate sale.

Model integrated businessbaseline; rebalance territories

Provide insight on sensitivity tonumber of warehouses

- Drop 1- Add 1, Drop 1- Add 1, Drop 2- Etc…

Right Location Can Actually Reduce CostsRight Location Can Actually Reduce Costs

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Model current sites for integrated business baseline.Analyze eight potential sites for delivery and inbound costs.Determine best site for operating efficiency based onoperating cost factors along with gain from real estate sale.


3.8%-Annual Operating Costs Savings

-5BaseDelivery Routes


35Number of Delivery Warehouses

Minimize operating costs impact from closing and selling highvalue warehouse asset and consolidating DSD network intonew or existing facilities

Background

Best OptionPreviousResults

Analysis Results – Integration / Consolidation

Close Three, Open One with 4¢ per Case Transportation Savings!Close Three, Open One with 4¢ per Case Transportation Savings!

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Acquisition / ConsolidationAcquisition / ConsolidationCase StudyCase Study

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Background - Acquisition / Consolidation

Distributor had grown throughacquisition but had not yet consolidatedoperations.

Had new opportunity to add to currentterritory and wanted to understand costeffect of operations

- Use current warehouses- Consolidate to candidate locations

Questioned current use of cross docks.

What are best of candidate locations fornew high volume warehouse undercurrent and potential volume?

Should we continue to use cross docks?

Opportunity to Right-Size Warehouse & Consolidate OperationsOpportunity to Right-Size Warehouse & Consolidate Operations

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Location Strategy – Acquisition / Consolidation

Analyze half dozen potential sitesfor delivery and inbound costs.

Determine best site for investmentbased on operating cost factorsalong with taxes and otherincentives.

Acquisition model inputs vary1. Have customer address, case

demand and deliveryfrequency

2. Have total case demand andapproximate county/zip codecoverage

Weighted Population Data Used If No Customer Demand/FrequencyWeighted Population Data Used If No Customer Demand/Frequency

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2.5%

-3%

+4.0%

n/c

-1

Consolidated(2)

+19.7%BaseVolume Increase

Analyze both current and candidate sites to determine:(1) short term gains from territory adjustments within current locations(2) best consolidated location for current volume(3) best consolidated location for current + acquisition volume


1.6%-Annual Operating Costs Savings

+13%BaseDelivery Routes


-1BaseNumber of Delivery Warehouses

Wholesaler had grown through acquisition but had not yet consolidatedoperations. Had new opportunity to add to current territory and wanted tounderstand cost effect of operations; using current warehouses, andconsolidating to several candidate locations.

Background

Full Volume(3)

PreviousResults

Results – Acquisition / Consolidation

Short Term and Long Term Savings Identified From New LocationShort Term and Long Term Savings Identified From New Location

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FinalFinalThoughtsThoughts

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Summary

The complexity of operationalimprovements or location changesbegs for thorough evaluation

- Acquisition- Facility Relocation- Facility Consolidation- Territory Redesign- Brand Integration

The tools exists to accuratelyanalyze your costs

Take the time and do it right;putting your operations in the rightlocation will save you every day!

Thank YouThank You

CostPer

Case InboundFreight

WhseCost Route

Costs

1 Many

Total Cost / Case



CostPer

Case InboundFreight

WhseCost Route

Costs

1 Many

Total Cost / Case



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Thank YouThank YouSupply Chain Process Improvement, Inc.Supply Chain Process Improvement, Inc.

P.O. Box 29624P.O. Box 29624Atlanta, GA 30359Atlanta, GA 30359--96249624

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Kevin VaheyKevin Vahey …… [email protected]@SCPIteam.com

Warehouse Location Strategy Location Strategy- SCPI.pdf · 2 0 0 8, S C P I, I n c. A l l r i g h t...

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Transcript of Warehouse Location Strategy Location Strategy- SCPI.pdf · 2 0 0 8, S C P I, I n c. A l l r i g h t...