Page 312 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Unit 13: Logistics Design and Operational Planning

13. Mixed-integer programming is the other optimization solution technique successfully Notes
applied to logistics problems.
14. The decomposition technique provides a procedure for dividing the multi-commodity
situation into a series of single-commodity problems.
15. Location analysis requires that demand be classified or assigned to a geographic area.
16. Transportation Rates defines shipment volume to each geographic area identified as a
market.

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Case Study Simulate before You Restructure

efore launching a supply chain restructuring, Tesco Ltd., Great Britain’s leading
food retailer, used a state-of-the-art simulation tool to determine whether to revamp
Bits frozen foods distribution network. This computer simulation validated corporate
plans to restructure the network and build a separate facility specifically for frozen foods
storage. Eight of Tesco’s British distribution centres carry a mixture of ambient (general
grocery and non-food items), chilled, and frozen products.
Two years ago, Tesco executives began weighing the idea of creating a stand-alone
warehouse strictly for frozen food items, which account for about 10 percent of the
company’s grocery store sales. The rationale was that a separate facility would allow the
retailer to expand its range of frozen food products and gain operational efficiencies.
Before they approached the company’s board of directors with the plan, Tesco’s distribution
executives decided to simulate the plan’s impact on distribution with a computer model.
They selected IBM’s software simulation tool, The Supply Chain Analyzer. Because it can
depict different hypothetical situations, the software gives companies a way to see the
physical, financial, and informational impact of supply chain restructuring on a distribution
network.
It took IBM consultants 6 weeks to set up and run the computer model with Tesco’s help.
Joe Galloway, Tesco’s divisional director of supply chain information technology, reports
that much of that time was spent gathering a year’s worth of detail-laden data about its
distribution centre operations to input into the model. “We were looking for data on the
actual orders that went through our supply chain by (product) line and by store,” he says.
Once the data were fed into the application, it corroborated the soundness of the model.
When Tesco executives ran the same data through the computer model to simulate a
restructured supply chain with a dedicated frozen food facility, the results supported their
assumptions. The model indicated that the food retailer could achieve distribution savings
in the range of 2 to 5 percent, depending on the actual mix of frozen food products stored
in the dedicated facility. Transportation costs would drop because Tesco could eliminate
trips between distribution centres and make more direct store deliveries. In addition to
consolidating outbound trips, Tesco also determined that it could realize some savings on
the inbound haul because it would only have to move products from suppliers to a single
point rather than to two or three warehouses. Inventory carrying costs would decline. If
all of the frozen food supplies were stored in a dedicated facility, the model showed Tesco
could actually reduce its stock holdings or even expand its mix of frozen food products
and increase store sales in this category. Tesco also would eliminate the need to construct
more facilities in the future. Moving frozen foods out of the distribution centres would
free up warehousing space for the expansion of chilled products, says Galloway.
Contd...

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