In the wake of record flooding in Thailand, one of the world’s leading providers of hard drives and data storage solutions felt it was time to re-design their air freight-based supply chain. A holdover from an earlier period when hard drives and storage solutions were part of a rapidly evolving marketplace that put a premium on product changes and the need to direct ship to customers, the company suspected the supply chain was needlessly expensive.
Since the market for memory storage products has matured, the company wanted to examine different transportation modes and hub-and-spoke models for distribution. But there were questions. Would the same model work for both the united states and europe? Where should the hubs be located? Which carriers would be the best to handle distribution? How would the new network handle reverse logistics?
The company engaged LLamasoft to help them answer their supply chain design questions. Using Supply Chain Guru®, a baseline model of the existing direct-to-customer network was built. Then various scenarios were examined where different amounts of the company’s U.S. and European volume were allowed to travel by oversea routes and then trucked to end-users. Consideration in the analysis was given not only to cost-to-serve, but also to the service levels, adaptability, and the additional inventory costs associated with each potential design and distribution partner. Finally, product and customer segmentation analysis highlighted the areas of highest impact associated with the various scenarios.
The new supply chain network design chosen by the company for implementation only shifts half of their current volume to ocean freight. This enabled them to retain a large degree of flexibility by keeping a large amount of direct shipping air capacity, while still generating savings of $66 million per year, 24 percent of their annual transportation and distribution costs. This savings of $0.85 per unit is net of increased inventory carrying costs and the costs to rent distribution centers in europe and the U.S. in addition, even though the whole supply chain is longer, because of the locations of the distribution centers and the additional inventory held at them, the time from order to delivery for the customers is actually shortened.