Optimization of Eaton’s Electrical
Sector’s Supply Chain
Team Name: Team Awesome
Eric Mirro
Siyi Ren
Zhao Cui
Presentation Agenda (Eric Mirro)
Overview
Problem
Statement
Recommenda
-tion and
Alternatives
Analysis
and Risks
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Conclusion
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General Overview (Eric Mirro)
 Eaton Corporation
 $22 billion in Sales as of 2013
 Industry: Power Management
 Four Sectors: Electrical (largest), Aerospace, Vehicle,
Hydraulic
 Customer Manufacturing Solution Centers
(CMSC)
 Sixteen locations in the U.S.
 Two major plants: Sumter, SC and Fayetteville, NC
 Two major warehouses: W34 (Duncan, SC) and W87
(Los Angeles, CA)
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Problem Statement (Eric Mirro)
 How to improve overall inventory levels and
reduce premium freight costs in short term
and ensure growth for long-term?
By reducing
inventory
levels…
along with
premium
freight
costs…
Eaton will
experience
greater
growth and
profitability
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Recommendation (Eric Mirro)
Short Term
• Build new warehouse somewhere
in California similar to W87 except
dedicated to Electrical Sector
Long Term
• As demand increases, and
inventory stabilizes, build
additional CMSCs as needed
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Alternative options (Eric Mirro)
Alternatives
Pros
Build new CMSC sites
• (relatively) Easy/quick • Sites subject to
to implement
constraints
• Inexpensive
• Doesn’t address
underlying issue
• Continuous building
• Puts more pressure
on warehouses
Expand the storage of • Least expensive of
the current CMSC sites
the options
• Easier management
• Low labor cost
Cons
• Doesn’t address
underlying issue
• Expansion is limited
• Puts more pressure
on warehouses
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Assumptions (Eric Mirro)
 The Electrical Sector will continue to grow
 The demand from large tech companies such
as Google will continue to grow
 The other parts of the supply chain such as the
CSMCs, will be stable
 The risk of stockout at warehouse and CSMCs
is high
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Qualitative Analysis (Siyi Ren)
 Underlying issue: stockout risk from
warehouses and CSMCs
 This starts the cycle that leads to the other issues
mentioned
 True problem
Cycle of inventory and costs
Stockout
occurs
Inventory
level raised
to prevent
premium
costs
Premium
freight
costs
incurred
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Stockout of W87
Western sites which
are close to W87
(Siyi Ren)
Similar Amounts of Order
from W87 and W34
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High Premium Freight Frequency
& High Inventory Level (Siyi Ren)
25,000,000
160,000,000
Monthly Inventory >Monthly Sales
140,000,000
20,000,000
120,000,000
15,000,000
100,000,000
80,000,000
10,000,000
60,000,000
40,000,000
5,000,000
20,000,000
7.81% of
total sale-
-
Dollar Sales Using Total Dollar Sales
Premium Shipping
in 2013
in 2013
Average monthly Average monthly
total inventory in total sales in
2013
2013
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Location and Level of Inventory (Siyi Ren)
Premium Orders in $ by Region
East
17%
Premium Orders in $ by
Cities in West Region
Seattle-SAT
8%
Midwest
15%
PhoenixSAT
6%
Denver-SAT
12%
Portland-SVC
8%
Denver-SVC
5%
South
27%
West
41%
San
franciscoSAT
26%
Midwest: Chicago, Cleveland, St. Louis
West: Denver, Los Angelos, Phoenix,
Portland, San Franciso, Seattle
South: Orlando, Dallas, Houston
East: Baltimore, Hartford, New Jersey,
Raleigh, Atlanta
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Los AngelesSAT
20%
Los AngelesSVC
15%
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Potential CMSC Location(Siyi Ren)
Sites with growth in 2013: Chicago-SVC, Dallas-SAT, DenverSAT, Houston-SVC, Los Angeles-SVC, San Francisco-SAT,
Seattle-SAT
Regression of Dallas-SAT Sales in 2013
900,000
800,000
700,000
Sales
600,000
500,000
400,000
300,000
200,000
100,000
-
0
2
4
6
8
10
12
14
Month
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Recommended Inventory Level (Siyi Ren)
(Total Orders from Western Sites – Orders from
Western Sites to W87)*20%
=$8,189,448.29
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Implement& Plan-Short Run (Zhao Cui)
Reduce the
premium freight
frequency
Reduce the
overall
inventory level
Dedicated to
the Electrical
Sector
Consolidate
supplier
order
High Priority
for CMSC
Add KB
items
Demand
forecast
Use same
manager with
W87
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Implement& Plan-Long Run (Zhao Cui)
Improve current
CMSC
•Advance AP items:
Try to get low AP ratio
•Advance KB items: add
more bins
Set CMSC for
other sectors
Demand forecast
Sustainable
growth
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Potential Risks and Mitigation (Zhao Cui)
Decline in sales
leads to overstock
Cycle could occur to
other sectors
Enhance the relationship
with CMSC, refill CMSC
soon
Repeat procedure
for other sectors
Reduce the impact of the
risk
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Problem and Recommendation (Zhao Cui)
 How to improve overall inventory levels and
reduce premium freight costs in short term
and ensure growth for long-term?
 Build a new dedicated warehouse somewhere
in California and then, for the long run, invest
in more CMSCs as needed
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Q&A
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Appendix
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