Krannert School of Management
Sustainable Growth of EATON’s
Electrical Sector
Optimization of the Distribution
Network
Purdue University
1
What Are We Covering?
StarTrek Consulting Team
Problem Statement
Recommendation
Analysis
Summary
Q&A
Purdue University
2014 Case Competition
2
Tiepoint Consulting Team
Nick Grady
Ayush Goel
Dane Snyder
Brian Fish
MBA 15
Operations and
Finance
MBA 15
Operations and
Business Strategy
MBA 15
Operations and
Finance
MBA 15
Finance and
Operations
Purdue University
2014 Case Competition
3
Current Situation
• 16 Customer Manufacturing Solution Centers
• Over 10 Components Manufacturing Sites
Nick Grady
2014 Case Competition
4
Problem Statement
• High inventory level
• Increased premium freight
• Questionable sustainability
Nick Grady
2014 Case Competition
5
Recommendation
• Construct new warehouse in Wichita, KA
• Decreased overall inventory
• Decreased premium freight
• Strategic placement for future growth
Nick Grady
2014 Case Competition
6
Current Cost Analysis
Shipping Modes as a Percentage
of Total Orders for Selected Sites
Shipping Costs:
$5,189,791
1
• Standard Trucking
• Premium Freight
0.9
0.8
Standard Trucking
0.7
0.6
0.88631
Premium Freight
0.5
0.4
$590,049
0.3
0.2
0.1
0.11369
0
Nick Grady
2014 Case Competition
7
Current Cost Analysis
4 Sites Considered:
Shipping Cost Calculation
Premium
Freight as a
Site
Percentage of
Total Orders
Chicago-SAT
7%
Chicago-SVC
12%
Dallas-SAT
3%
Dallas-SVC
17%
Los Angeles-SAT
10%
Los Angeles-SVC
9%
San francisco-SAT
24%
Order
Order Origin
Destination
Distance
Weight of Orders Average
Cost/mile/lb
Total
Transportation
Cost
Chicago, IL
828 mi
50,290
$12,659
Fayetteville, NC
$.000304
Total Annual Shipping Cost of Selected Sites: $2,385,434
Nick Grady
2014 Case Competition
8
Inventory Reduction Analysis
Location-product combinations to pool
% Premium Order of Total Order-By-Site
30%
25%
20%
15%
•
•
•
•
•
•
•
Chicago-SAT
Chicago-SVC
Dallas-SAT
Dallas-SVC
Los Angeles-SAT
Los Angeles-SVC
San Francisco-SAT
10%
5%
50%
0%
of Total Premium
Orders
% Premium Order of Total Order-By-Site
Dane Snyder
2014 Case Competition
9
Inventory Reduction Analysis
Inventories of Common Stock-out CMSC's
$2,000,000
$1,800,000
$1,600,000
$1,400,000
$1,200,000
$1,000,000
$800,000
$600,000
$400,000
$200,000
$0
Chicago-SAT
Chicago-SVC
Dallas-SAT
Mean
Dane Snyder
Dallas-SVC
Los Angeles-SAT Los Angeles-SVC San franciscoSAT
Safety Stock
2014 Case Competition
10
Inventory Reduction Analysis
Safety Stocks of Individual vs. Pooled Inventory
$1,600,000
$1,400,000
$1,200,000
$1,000,000
$800,000
$600,000
$400,000
$200,000
$0
Total Individual Inventory
Pooled Inventory
Safety Stock
Dane Snyder
2014 Case Competition
11
Cost Savings Analysis
Assumptions:
•
•
Shipping cost is average of costs provided @ $0.304/1000 miles/Lb
After risk pooling LTL can be negotiated to FTL
– Sensitivity analysis of the cost assessed by varying between 75% - 100% of the LTL cost
Ayush Goel
2014 Case Competition
12
Cost Savings Analysis
Shipping Cost
Warehouse selection criteria:
$2,000,000.00
• 300K Population
• A positive growth rate region
• Near to CMSCs with 50%
premium freight
$1,800,000.00
$1,600,000.00
$1,400,000.00
$1,200,000.00
$1,000,000.00
Sensitivity Analysis:
$800,000.00
$600,000.00
$400,000.00
$200,000.00
$Phoenix
Vegas
Shipping Cost
Ayush Goel
Witchita
• Three locations shipping costs
were calculated
• Wichita, KS was lowest costing
with highest growth rate in
population
2014 Case Competition
13
Cost Savings Analysis
Shipping Costs
Current Distribution Network
3,000,000
2,000,000
• Shipping cost are $2.4M
• Frequent stock outs
• High Days-On-Hand (DOH)
1,500,000
New Warehouse at Wichita, KS
1,000,000
• Shipping cost just $1.5M, half of
older network
• Low Days-On-Hand (DOH),
uncertainty in demand is pooled
• New growth region, opportunity
for new CMSCs in central US
2,500,000
500,000
0
Current Network
Shipping Costs
Ayush Goel
New Network
2014 Case Competition
14
Financial Feasibility Analysis
Brian Fish
2014 Case Competition
15
Summary
Brian Fish
2014 Case Competition
16
Have Doubts!
2014 Case Competition
17
Appendix
Shipping Cost Savings
Transport Cost
Receiving from Warehouse
Receiving at Warehouse
Net
$
$
$
Phoenix
1,293,434.30 $
538,942.33 $
1,832,376.63 $
Vegas
1,294,952.20 $
567,155.76 $
1,862,107.96 $
2014 Case Competition
Witchita
1,236,312.58
309,437.73
1,545,750.30
18