sustainable growth of eaton’s electrical sector optimization of the distribution network 1...
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Sustainable Growth of EATON’s Electrical Sector
Optimization of the Distribution Network
Krannert School of Management
Purdue University
2 2014 Case Competition
What Are We Covering?
StarTrek Consulting Team
Problem Statement
Recommendation
Analysis
Summary
Q&A
Purdue University
3 2014 Case Competition
Dane Snyder
MBA 15Operations and
Finance
Tiepoint Consulting Team
Nick Grady
MBA 15Operations and
Finance
Brian Fish
MBA 15Finance and Operations
Ayush Goel
MBA 15Operations and
Business Strategy
Purdue University
4 2014 Case Competition
Current Situation
Nick Grady
• 16 Customer Manufacturing Solution Centers• Over 10 Components Manufacturing Sites
5 2014 Case Competition
Problem Statement
Nick Grady
• High inventory level
• Increased premium freight
• Questionable sustainability
6 2014 Case Competition
Recommendation
Nick Grady
• Construct new warehouse in Wichita, KA
• Decreased overall inventory
• Decreased premium freight
• Strategic placement for future growth
7 2014 Case Competition
Current Cost Analysis
Nick Grady
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
0.11369
0.88631
Standard Trucking
Premium Freight
Shipping Modes as a Percentage of Total Orders for Selected Sites
$5,189,791
$590,049
Shipping Costs:
• Standard Trucking• Premium Freight
8 2014 Case Competition
Current Cost Analysis
Nick Grady
Shipping Cost CalculationOrder Destination
Order Origin Distance Weight of Orders Average Cost/mile/lb
Total Transportation Cost
Chicago, IL Fayetteville, NC 828 mi 50,290 $.000304 $12,659
Site
Premium Freight as a 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%
4 Sites Considered:
Total Annual Shipping Cost of Selected Sites: $2,385,434
9 2014 Case Competition
Inventory Reduction Analysis
Dane Snyder
• Chicago-SAT• Chicago-SVC• Dallas-SAT• Dallas-SVC• Los Angeles-SAT• Los Angeles-SVC• San Francisco-SAT
50% of Total Premium
Orders
Location-product combinations to pool
Chicago-SA
T
Chicago-SV
C
Dallas-S
AT
Dallas-S
VC
Los A
ngeles-SAT
Los A
ngeles-SVC
San fr
ancisco
-SAT
0%
5%
10%
15%
20%
25%
30%
% Premium Order of Total Order-By-Site
% Premium Order of Total Order-By-Site
10 2014 Case Competition
Inventory Reduction Analysis
Dane Snyder
Chicago-SA
T
Chicago-SV
C
Dallas-S
AT
Dallas-S
VC
Los A
ngeles-SAT
Los A
ngeles-SVC
San fr
ancisco
-SAT
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
$1,800,000
$2,000,000
Inventories of Common Stock-out CMSC's
Mean Safety Stock
11 2014 Case Competition
Inventory Reduction Analysis
Dane Snyder
Total Individual Inventory Pooled Inventory$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
Safety Stocks of Individual vs. Pooled Inventory
Safety Stock
12 2014 Case Competition
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
13 2014 Case Competition
Cost Savings Analysis
Ayush Goel
Warehouse selection criteria:
• 300K Population• A positive growth rate region• Near to CMSCs with 50%
premium freight
Sensitivity Analysis:
• Three locations shipping costs were calculated
• Wichita, KS was lowest costing with highest growth rate in population
Phoenix Vegas Witchita $-
$200,000.00
$400,000.00
$600,000.00
$800,000.00
$1,000,000.00
$1,200,000.00
$1,400,000.00
$1,600,000.00
$1,800,000.00
$2,000,000.00
Shipping Cost
Shipping Cost
14 2014 Case Competition
Cost Savings Analysis
Ayush Goel
Current Distribution Network
• Shipping cost are $2.4M• Frequent stock outs• High Days-On-Hand (DOH)
New Warehouse at Wichita, KS
• 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
Current Network New Network0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
Shipping Costs
Shipping Costs
15 2014 Case Competition
Financial Feasibility Analysis
Brian Fish
16 2014 Case Competition
Summary
Brian Fish
17 2014 Case Competition
Have Doubts!
18 2014 Case Competition
Appendix
Shipping Cost Savings
Transport Cost Phoenix Vegas WitchitaReceiving from Warehouse $ 1,293,434.30 $ 1,294,952.20 $ 1,236,312.58 Receiving at Warehouse $ 538,942.33 $ 567,155.76 $ 309,437.73 Net $ 1,832,376.63 $ 1,862,107.96 $ 1,545,750.30