Delphi, headquartered in Alaska, USA, produces deep-sea fish oil and various health products. Although it has always maintained its advantages in product design and development, Delphi is facing a decline in profits because of its complex, expensive and inefficient logistics system. Delphi found that too many carriers and systems are causing a total loss of management control. In order to regain control, Delphi had to reorganize its logistics operations. The implementation of Delphi's new logistics structure began with its transfer of all logistics operations to a branch of Federal Express, the commercial logistics company. The task of commercial logistics companies is to reconstruct, improve and manage every aspect of the flow of goods and information in Delphi's supply chain.
before the reorganization, the company had 6 large warehouses, 8 most important carriers and 12 independent management systems. As a result, there is a long time, huge inventory and too many shortages between customer ordering and customer delivery. If a customer asks a warehouse in Germany for a product that sells quickly, he will be told that the product is out of stock and new supplies will have to wait for several months to arrive. At the same time, the goods are overstocked in a warehouse in Wales. On average, 16% products in all production lines are out of stock in retail stores.
Delphi recognizes that it needs to re-analyze the location of its existing facilities. Its suggestion is to close all warehouses in the United States except one, and they will change from serving only local customers to serving global customers. A single location is located near the manufacturing plant site in the United States, which has become a worldwide "processing center" and acts as the product German logistics exchange of Delphi Company. Although this concept of a single German center may cost higher transportation costs, Delphi believes that this cost will be compensated by increased efficiency. In the past, unexpected demand problems led to higher inventory to make up for uncertainty and maintain customer service.
the company knows that a single service location will have more predictable flow compared with several small service locations, and now random demand will be widely shared in the whole market field, so that the improvement of one field will reduce the demand level in another field.
transportation costs are covered by the turnover rate of inventory. In fact, Delphi found that the single center system actually reduced the transportation cost by reducing the total amount of cross-shipment. From the American warehouse to the retail store immediately, although the lead time from ordering to delivery is roughly the same, the products only need to be shipped once, instead of being shipped and handled in many different locations.
Delphi has gained more knowledge than just reducing costs. The company is aiming at opportunities to increase service and flexibility, and it plans to resupply to stores anywhere in the world within 24-48 hours. Advanced systems and communications will be used to monitor and control the worldwide inventory. FedEx's global carrier network will ensure that the goods arrive at their destination in time. Delphi is also planning to launch a mail order service, which features the delivery of goods to the door of end customers anywhere in the world within 48 hours. Its current $1 million mail order business has become more and more powerful, but until now, the company must limit its development because it is difficult to keep up with the expanding orders. The new superior location network will make this development possible and profitable.
2. Inventory management
Case 2
DRP: An application sample
MMH has three distribution centers in the United States and a central supply facility in a manufacturing plant in Quebec, Canada. This paper introduces how their distribution resource planning (DRP) system works in an eight-week period.
the Boston distribution center has a safety reserve level of 55 units of gadgets. When the reserve drops below this level, the distribution center will issue an order to supply more than 5 gadgets. The lead time for shipment from the central supply facility to the Boston distribution center is 2 weeks.
according to the DRP of Boston distribution center, there are eight-week demand forecasts, which are called total demand. At the beginning, the existing inventory surplus was 352 gadgets, and the distribution center predicted that there would be only 42 gadgets in the fifth week (122 gadgets in the existing inventory minus 8 gadgets in the total demand).
this will be lower than the safety reserve level, so DRP will start the planned order of 5 gadgets within three weeks (the fifth week minus the lead time of 2 weeks). As predicted, as soon as the goods were ready, the distribution center returned to the safe operation level.
gadgets are high-selling goods in Chicago, so the total demand of Chicago distribution center is higher than that of Boston distribution center. It orders more gadgets at a time.
DRP of Chicago distribution center shows that 8 gadgets are already in transit (received regularly) and should arrive within one week. They arrived as scheduled, and arranged the order for the next 8 gadgets in the sixth week, which has dealt with the upcoming situation below the safety reserve in the eighth week.
based on experience, the San Diego distribution center expressed its safety reserve as safety time (2 weeks).
according to the DRP, the distribution center in San Diego understands that if no replenishment is made, there will be 3 gadgets (6 minus 3) left in the fifth week, 5 gadgets (3 minus 25) left in the sixth week, and the balance on hand in the seventh week will be-1 (5 minus 15). Therefore, the San Diego distribution center started the planned order number, that is, 15 gadgets, from the third week to the seventh week by reducing the safety time and then reducing the lead time (a total of four weeks).
the total demand of central supply facilities is contributed by each distribution center. The distribution centers in Boston and San Diego generated demand for 65 gadgets in the third week, while the distribution center in Chicago generated demand for 8 gadgets in the sixth week. The central supply facility found that the existing inventory balance will be negative in the sixth week. Therefore, in the third week, it launched a master plan with an order quantity of 2,2 gadgets to make up for the shortage.
iii. transportation management
case 3
partnership in glass transportation
nowadays, when looking for transportation suppliers, shippers pay more attention to cost and service. LOF is a manufacturer of building and automobile glass, and its challenge is to handle and transport a large number of difficult products. LOF company's commitment to customers makes it need such a carrier, which has both competitive prices and superior logistics services. These service demands require LOF to find innovative carriers and powerful channel partners.
in the past, LOF company used as many as 534 carriers for inward and outward transportation. Glass transportation often requires the use of specialized equipment to minimize glass damage. However, if specialized equipment is used, it means that LOF company can't provide products for return transportation. Therefore, the carrier either takes the return transportation products at competitive low prices or LOF company pays the no-load return fee.
fortunately, LOF solved this problem through the alliance with two carriers. All the inward and outward LTL shipments are arranged to be undertaken by Rodway Logistics Service Company. Although the company is responsible for all the daily business, tracking and payment related to shipment, it does not need to transport all the goods. This arrangement enables LOF to provide its suppliers with free telephone numbers and cooperate with all inward shipments. This "etiquette route" system selects the lowest cost transportation mode and carrier for both inward and outward shipments. The system has reduced the transportation budget of $3 million by $5, and eliminated 7, pieces of paper work. In addition, Case Logistics Company provides third-party payment services and is responsible for processing all billing information by electronic means.
although cost is a factor to be considered by LOF alliance, there is still a strong sense of quality in the whole vehicle transportation of architectural glass. Schneider National's specialized truck operation needs 18 months of trial operation before it is approved as one of the carriers of LOF. Don Snyder, president of Schneider National, claims that this is one of the most rigorous censorship he has ever experienced. Schneider National has a partnership with Wabash Nation, a trailer manufacturer. They applied for a patent for a professional trailer, which is specially used to transport LOF's glass. This trailer is an A-shaped design, which changes the structure of standard flatbed trucks and eliminates the problems caused by specialized equipment, but it is not suitable for the return transportation of other goods. The exclusive arrangement among LOF, Schneider National and Wabash Nation ensures that all the equipment can be used by the three partners, and no company will bear the risk of disorderly development or financial risk. Due to the unique transportation partnership, these three companies enjoy their respective competitive advantages in their respective industries.
in addition to technology, LOF company has also set very high service expectations and requirements in other commitments. LOF company is not using price to stimulate business, but is committed to reducing the total cost. Although LOF recognizes that its partners must have sufficient returns in business, it believes that excessive profits will harm the partnership. LOF maintains extensive communication with partners at all organizational levels, which helps to further understand the value and status of partnership. LOF believes that in the handling of this partnership, it will create great value for its customers.
iv. procurement and supply