Classic Network Design Case Study With a Twist for Air Shipments

When locating a warehouse, there is usually a trade-off between the number of warehouses and service level.  That is, as you add more warehouses, are you are closer to your customers.

However, if you can ship your product via air (like with UPS), there is a twist to this trade-off.  You have the choice to pay for much more expensive air services, but you can avoid the extra cost of warehouses and inventory.  For light, high-value items, it may make perfect sense to ship via air services.

I was able to publish a nice case study on this with Jim Morton (then of UPS).  Click here for the article.

Top Three Reasons Supply Chain Models Can Go Wrong (From SC Digest)

Dan Gilmore of Supply Chain Digest has written a few articles on the value of supply chain modeling this year.  Then, a reader asked “if the fear of bad models leading to terrible supply chain decisions wasn’t a key factor in some companies avoiding modeling.”

This was a great topic that comes up enough to address.  You can check out the full response in my blog post at SC Digest.  But, here are the top three reasons a model can go wrong:

  1. The results come in, but do not suggest a change
  2. You never get results and have to cancel the modeling project
  3. You implement the results and they turn out to be wrong

It is good to understand these reasons so you can avoid them.

Going Beyond Traditional Network Design at Ahold

I was recently reminded of a talk that Ahold and IBM gave in 2011 at the Material Handling Conference in Park City Utah.

It is a good network design case.  Here the details from the IBM blog site:

Ahold is an international retailing group based in the Netherlands.  Ahold had revenues of 29.5B Euros in 2010.   Ahold USA is a wholly owned subsidiary of Ahold.  Ahold USA operates Stop & Shop, Giant, and Giant Martin’s stores as well as the on-line grocer Peapod.

The title of the talk is “Beyond the Traditional Network Analysis.”

So you are challenged with managing a large portfolio of products and a complex set of vendors, customers and distribution locations. How do you make sense of this all and streamline your supply chain? This session takes you beyond the pin-on-a-map network analysis and examines factors such as sourcing strategies, inventory optimization, route planning and more. We will also review a grocery case study that involved the analysis of sourcing effectiveness, evaluation of DC investment opportunities, and relocation of legacy facilities to get the most out of their supply chain network. “



Book Reviewed by Crabtree Analytics

Andrew Gibson at Crabtree Analytics recently reviewed our network design book:

Here are a few quotes from the review:

I’ve done a lot of  supply chain network design projects and consider myself to be an expert. Had I had this book from the start, I may have got to expert status a lot faster…


…What attracted me was that it goes beyond the theory and has lots of details around project execution:.  the need for sensitivity analysis; the difficulty of getting reliable transportation rates ; sensible data aggregation strategies; why you must have an optimized “baseline”; and numerous others.  These are all areas that analysts get wrong – as I did.  Some learn from the experience, others send out the results anyway…


…If you have a network design project in mind and a plane journey coming up – make the investment.”

Network Design at Schwan’s Home Services

Inbound Logistics ran an article on network design at Schwan’s Home Services.

Schwan’s Home Services runs a direct to consumer delivery business for food products.  Before network optimization, they served 90% of the continental US with 475 company owned depots.  The depots each had around 10 to 15 trucks to make the deliveries.  The depots were replenished from their central warehouse in Marshall, MN.

According to their VP of Supply Chain, Jeff Modica, their fixed costs were too high and their supply chain was outdated.  They needed “a lower cost to serve” and “had to be more flexible.”

They used Deloitte Consulting to help with the modeling and to bring and outside perspective.

The article does a nice job in explaining the unique nature of Schwan’s Home Services’s labor and sales intensive business.  It also does a nice job of pointing out the the fact that the network modeling team had to communicate and get the buy-in from many different stakeholders within the company.   These projects are always a mix of quantitative analysis (and they used IBM’s LogicNet Plus) and qualitative factors.

Deloitte initially recommended closing a dozen facilities to start– to get some quick wins (always a good idea in projects like this).  Eventually, the closed 54 sites.  And, they changed the structure of their supply chain:

Additionally, Schwan’s has migrated to a hybrid model that uses existing company-owned depots, master depots with hub-and-spoke shuttle systems, and 3PL-managed facilities. As the company removes and/or re-tasks nodes, the network continues to change—setting the stage for further optimization in 2013.

The article doesn’t tell us the savings, but it does mention:

While the financial impact of Schwan’s network optimization is under wraps, it achieved marked operational and asset appreciation savings, in addition to avoiding some cost and gaining revenue from the sale of assets.

The article is worth a read.  This is a nice case study of a network design project.