You are on page 1of 61

Case

Case Study:
Study:
PDQ
PDQ Office
Office Products
Products
U.S.
U.S.Distribution
DistributionStrategy
Strategy

Peach State Integrated Technologies


www.peachstate.com

1
Contact information

For any questions about this case study or other

Peach State capabilities please feel free to contact us.

Peach State Integrated Technologies

3005 Business Park Drive

Norcross, GA 30071

(678) 327-2000

2
Table of Contents

ÿ Project Overview
ÿ Demand Analysis
ÿ Customer Locations
ÿ Network Model and Baseline
ÿ Scenario Evaluation
ÿ Summary and Recommendation

ÿ Appendix

3
Project Overview

4
Project Background

PDQ Corporation is seeking a Distribution Network plan that

will deliver high service levels during a period of growth.

ÿ Existing Facilities - PDQ currently has a single distribution center (DC)


located in central NJ. All customers in the United States receive their
shipments directly from this DC.
ÿ Expansion - PDQ initially targeted the New York metro area and the

northeastern states. A large untapped market exists in the rest of the

country, and PDQ must consider how to serve these customers.

ÿ Service Levels - TPDQ’s promise of quick delivery is central to the


philosophy of the company. In Europe, most customers can expect 24 hour
delivery. The goal of this study is to explore several service level scenarios
for the US market and show the type of distribution network that would be
required to achieve each target.

5
Project Objectives

Peach State and PDQ agreed on the following project goals and
objectives to ensure success.
ÿ Examine the historical demand: Build profiles of typical customer orders to understand the
current network.
ÿ Project future demand: Identify key markets that will be served in the future.
ÿ Rate the current network: Detail the service levels that can be achieved with the existing
facility.
ÿ Design a network for the following scenarios:
ÿ Baseline – Central NJ only
ÿ How many DC’s to reach 100% of the US in 24 hours?
ÿ Best 1, 2, and 3 DC networks (3 scenarios)
ÿ Best Central NJ + 1 DC network
ÿ Best Central NJ + 2 DC network
ÿ Identify service levels: With each scenario, calculate how many customers can be served in
1 day, 2 days, or more.
ÿ Review existing warehouse: Make recommendations around space efficiency and process
improvements.

6
Project Approach & Methodology

Peach State used historical shipment data and information about


target markets to build a model of PDQ’s network.
ÿ Input Data: PDQ provided detailed information about products, order activity, and shipment
methods. The sample data provided covered June 2001 to June 2002.
ÿ Demand Analysis: Peach State examined the data and built profiles of the typical customer
order, daily order activity, and shipment method. This data was also used to do a product
velocity study which identified the fastest moving products.
ÿ Customer Location: PDQ provided the BPIA buying power index which describes the
population of office workers in each U.S. county. This data was used to identify the largest
metropolitan areas in the U.S. which are important strategic targets for PDQ.
ÿ Network Modeling: A detailed model of the network was built using the data profiles.
Using this model, Peach State located facilities to meet customer demand. This approach
minimizes distance to the customer base and meets service level targets.
ÿ Scenario Analysis: A baseline scenario was compared with several other alternatives.
Detailed maps and service levels are provided for each scenario. These will provide PDQ
with a strong foundation for strategic expansion.

7
Demand Analysis

“What does the typical order look like?”

8
Demand Analysis

Peach State used historical data to build profiles of PDQ’s

shipping activity and customer demand.

Data was used to answer key questions:


ÿ How many orders are received each day?
ÿ Are sales levels increasing over time?
ÿ How many shipments are sent via LTL carrier? Parcel carrier?
ÿ What does the average order look like? How many products?
Average sizes? Total weight?
ÿ Which products are the fastest moving? What percentage of activity
do they represent?

9
Orders per Day

The number of orders processed per day fluctuates, but it is most

common to ship 55 to 65 orders per day.

10
Shipment Volumes

January 2002 marked a step increase in shipment volumes.

11
Activity Levels Per Day

Though total volumes

have increased, the

spread of daily orders

has remained constant.

12
Shipment Mode
Parcel shipments constitute the majority of all shipments - more
than 60%.

13
Lines Per Order Profile

More than 50% of all orders were a single line only. Order

picking can be designed to leverage this for increased efficiency.

Lines Per Order Distribution


96% 97% 98% 98% 99%
7000 93% 95% 100%
89%
84% 90%
6000
74% 80%

Cumulative Percent of Orders


5000 70%
Number of Orders

4000 60%
53%
50%
3000
40%
84% of all
2000 orders have 3 30%

lines or less. 20%


1000
10%

0 0%
1 2 3 4 5 6 7 8 9 10 11

Lines

14
Units and Weight Per Order

Line, weight, and unit per order profiles can be examined to

define the most suitable order fulfillment methodologies.

15
Product Movement Profile

Order activity was analyzed for each product to distinguish

fastest moving items from the slower moving ones.

Velocity Profile
100%
80%
% Orders

60%
40%
20%
0%
1 192 383 574 765 956 1147 1338 1529 1720 1911 2102 2293 2484
# Products

Product Movement # SKU's Picks % SKU's % Picks


Fastest Movers 869 17,712 33% 80%
Medium Movers 870 3,324 33% 15%
Slow Movers 930 1,109 35% 5%
Total 2,669 22,145 100% 100%
16
Product Movement Profile

Using the product velocity profile, Peach State was able to

identify operational improvements PDQ should consider.

ÿ An overview map of the


1616 1617 1618
A
C
B

1619
A
A
A C
A
A C
B C C A C
C
1601 1602
A A A A
B
B
A A C BA B
A
A A
A A A A A A A A A A A
A A B A B
1603
A
1604
A B
1605
A A A A
A B
A B
A A
1606
A B C A
A A A C
A A A A
A B C
A C B C
B B
A A A A A C A B
A B
1607
A B B B B
1608
B

1609
A A C
B C
A A
C

1610
A A
A A
A B
A A B A A A
A A
A A

1611
B
A A
A
A
A A B
A C A
B A A
A B A
A AA B A B
A A C A A A A A A A A
A A A A A
1612 1613
A A B A
1614 1615

warehouse was developed


1515 1516 1517

A A
C
1501 1502
A B C C
A C C A A B
A C
A
A
B C C B C
1503

C C C B C C B C
1504
B B B
A B B A A
C
B
1505
A A B A B C B C
B
A
1506
A A

A B C
A
C A
C
C
A
1507
A A
A A
B
A B
B C A B
1508
A
A
A
A
B
1509
A
C
A
B
A
B
1510
A A A A
A C
A
A
C
A
1511
B
B B
A A
B
A
A
B
A
1512
B
B
B
1513
A A
B B C
A B
A A A
B B A
A
B
B
B
A
1514
B
C
B C
C

which shows where


A
C
C C
A
C B
C C C
C
C
C C C C C C B B
C C
A
A
C
B C
B B
C
B
C C
B
B C
C C BA C
B C A
A C
B B A
B
A A B B C C B
C C
B A
B
B C
B
C
B C
A
B B
C B
A A
A B
B
B B
B
A
C
A
A
B
B
A
A
A C A B
C
C C
A
C
A
B
C
B
C
A A
A
A C
A
A
B B
B
C
A
A
C
A
A B
A
A
B
A
B
A A
A
A A
B C A B
B B
B A
A
A
C
A
A
B
A
A

Receiving, Packing, Shipping Area


1415 1416 1417 1401 1402 1403 1404 1405 1406 1407 1408 1409 1410 1411 1412 1413 1414

products are stored.


C
C
1315
C C B
C C C
1316
B CC C
C
1317
A C C A
1301
A C
B
A
A
1302
A C C C A
C
C
1303
A CCA B AA
1304
A B B
A C B
A
1305
B A B A
1306
B C
A
A A
C C A
1307
A A
1308
A B
C
A
1309
A B
C A
A
1310
C B C B
1311
A B B C C
C B
B
1312
B C C
B
A
B
1313
C
B C A
1314
B B
B C C
A C
C
C C
C A B C A
A C
B C
A CB C
B B B B C C A
B A C B B A A A C B B A C B A A B
A B C A A C C A A A A A A B A A A B A A B A A A B B

ÿ Fastest moving items are

B B A C A B
B
A B A B A
A B B B A A B AA B B C C C C
C CC A B
C B
B B C A A C B B
A A B B A
B B B B B B
B C B C A B A B
B C C
A C C A A
A B A A C B A A B B B B B C C C C B B C A A B A B BB A
A C B
A B B C C A A B B C B B B B C C C A B B A B B C B C A B B
C C B C C B B C B C C A C C C B B C A A B A B B A B
1215 1216 1217 1201 1202 1203 1204 1205 1206 1207 1208 1209 1210 1211 1212 1213 1214

shown in red, and are


A
B
A
1115

B B
A A
B
B
B
A
A
A
1116
C C
C
B
A
A
A
A
1117
B
A C A
C
A
B
B
1101
A B
A C
B
C
A
B A
B
B C
1102
A B B
C B
1103
B C
A C
B
B C
B
C
1104
A C
A B
A
A
B
1105
C A
B C
C B C
A
1106
A B
B C
B
C
C
A
A
1107
A C
B B
A
A
C
B
B
C
B
1108

A B
B A
A A
B
1109
A B
A
B A
A
B
B
B
C
B
C
C
A
A
A
1110
C
B C B
A
A
B
1111

B A
A
C
A
C A A
1112

A B
A A
C
B
1113
B C
A B
A
C
B
C B
A
1114
A B
A B
A
B
C C
B
B

evenly distributed in the


A

A C
1015
A
A
A
A
B
B
C
C C
1016
A
A
A
C
B
A
A
B
C
C C
1017
A B
B
C C
C A
C B
B

1001
B A
A B B A
B A
C A
A A A A
1002
A A B
B C
B B B
1003
A
B
A B
A A
A
B
B C
1004
C
C B A
B
A B
C A
C
A B
A B C C
1005
B
B A
A C
B
B C C B
1006
B
B B B
C C
C
B

1007
B B
A B C A
A C

1008
A C
B C
A A
A
A

1009
B
C
B
A
B
B
A
B
C
A B
B B B
A
A B A A
A A A B C B
C
1010 1011
A C
B B B
1012
C
C
B
B
A
C
C C
A A
A
A
B
1013
C C
A C
C B B
B C
A B C
A

1014
C
C

warehouse.
0915 0916
A
A
B
C
A
0917
B
C
B B A
0901
B A
A B A A
A A A A A A
A A
0902
C C A A
A A
A A
A B
A
A
A B
A
B
0903
A A
A B
A B
A B
A
C
A
A A
A
0904
A C
A B
A
A
A
B
A
C
B
A A
B A
0905
A B
A A
A C
B
A C
B C
A
A
B
B
B
B
A
A
A
0906
B
B
B
A
B
A
A
B A
A
0907
A A
A C
A
B
A
B
0908

C A C C A
C A A B B
0909
A C
B C
A C
B C A

B B B
0910
A C

A C
A
B B C B
B C C
0911
B B B B
A B
C
A
0912
B C
A B
A C
B
B
B B
C
A
B
0913

B B
A B
C
A
C
C B
0914
B B
B B
C B
A C
C
A
B
C
B

ÿ A revised approach to

A B A
A C A
A B B A B A
B A B A A
B A B BB A
A A B B
A A B A A A A A B
A
B A
B B B
A C A A
A A A A
A A B B C
B C B C A
A A B BC C
A A C A B
A C C A B B B B CB A
A C B C B B
A C A C
B A A B
A C A A B B A C C B
B C C A
A C B C A
A A B BB A A C A C A B A A A A A A A AB A
A B C A B A A A
A A B C
A C A A A B A B C
0815 0816 0817 0801 0802 0803 0804 0805 0806 0807 0808 0809 0810 0811 0812 0813 0814

0715 0916 0916 0701 0702 0703 0704 0705 0706 0707 0708 0709 0710 0711 0712 0713 0714

product storage could


A
A
B
A
A
A
A
A
B
C C
B
A A B
C
A
C A
A A
A A
A
A
B C
A
B
A
A
A
C
B
A
B
B
A
A C
B
A C
A
A
A B
A
A C
B
B B B
A
A C
B
A
A A
A C
A B
A
B A B
A
A C
A B
B
A
A A
A A
B A
A A
A
A
B
B A B
A
A A B A
A
B
A B
A C
A
A A
B
A
A
A
B

C
A
C
A
B A
B A
A
A A
A
A
A A
A
B
C
B
B
B
A
C
B
B
C
B
C
C
B B C A
B
A B A C
A A B A
B
A B
C B
B C
A C
A A
C
A
A
B A
B
B B
C A
A B
A A
B
A B
A A
B C
A C
A
A
A B
B
A
A B C
A A A A
B
A C
B
C
A C
A A
C
B
B
A
C
C
C
A
A B
A
A
A B
A C
B B A
A A A
A B B
A A
C
A A
A C
A
C
B
C
A
A
C
B

A C B
A

decrease labor costs and

C C C A A A B A A A A B A A A A A B B C B C A B A B C A A
A C C BB B A B C C A A C B A A B A A C C A B C A A A A B C A A B A A B B B C A A A
B B B C B A B A A B B C C A A
0615 0816 0816 0601 0602 0603 0604 0605 0606 0607 0608 0609 0610 0611 0612 0613 0614

0501 0502 0503 0504 0505 0506

shorten order cycle times.


A
A A
A

A A
B
A
A B C B
A
A A
A
A C
A
B
A A
A
B
B A
C
B
A A
A
A A
A
A
C
A
A
A
A
A
A
A
A
B
B
A A A
B
A
B
B B C
B
A A
A A
A
A B

A C
A
A B
A B C
A
A
A
A
A
A
A
A
A
A
A
A
A
C
A
B
A
A
A
B
A
B
B
A A A A A B A A A A A A A A A A A A
A
A A B A C
A C A A C
A A
A A
A A
A A
A A
A A A A
A A C A A
A A
A A
B
0401 0402 0403 0404 0405 0406

OFFICE 0107 0101


0301
0201

0102
0302
0202

0103
0303
0203
0304
0204

0104 0105
0305
0205

0106
0306
0206

A A A A
A A A AA A
A A A AA A
A A B AB A A
A A AA A
A A B AB A
A A A AB
A A
A A A A A A AA A A A BA A A A A A
A A A AA A
A B A CA
A B B A A A A
A
A A A
A A A
A A AA A A
A B A A
A A A A A
A A A BA

Total
Facings
= Future Addition 987 A = Fastest Moving Items
604 B = Medium Moving Items
= Current 422 C = Slowest Moving Items

17
Space and Process Improvements

Peach State recommended the following enhancements for the

existing warehouse, based on a one day site assessment:

ÿ Slotting -
ÿ Zone the warehouse by velocity—“A”, fast moving items = front, “B” movers = middle, “C” & “Dogs” = back.
ÿ Keep fastest moving items toward the dock & on the floor; opportunity exists to re-slot the warehouse.
ÿ Putaway – store and putaway receipts of product by velocity zone; use first part of shift to replenish floor/forward slots from reserve.
ÿ Allocate the right amount of product to a forward location; i.e., don’t tie up 3 floor slots with same product if slots
would be better served with other, fast moving SKU’s.
ÿ Continue to store items that ship together close to one another.

ÿ Operations
-
ÿ Adjust workstation layout for packing to minimize travel time between work table, terminal, printers & UPS manifest.
ÿ Evaluate increasing the size of the UPS waves to create more efficient picking tours; update system parameters as
needed.
ÿ Storage -
ÿ Rack out remaining floor space with selective pallet rack, minus space required for staging.
ÿ Creating deeper bays for longer products will only offer marginal space improvements.
ÿ Use dense storage for small cube items (e.g., more half pallet locations, bin shelving, &/or case rack).
ÿ Put mezzanine over shipping docks; returns or small cube items could be processed on mezzanine.
ÿ Rack out over dock doors to store packing materials and empty pallets.
ÿ Consolidate dead items on pallet, inventory, ID, and put in back of warehouse.
ÿ Possibly use floor storage for high cube, stackable items.

Detailed slotting will yield the greatest operational


benefits to PDQ.
18
Summary of Demand

The observations of the demand analysis were used to model

PDQ’s U.S. distribution network.

ÿ For the purposes of the network study, we assume that customers behave the same no matter
where they live in the U.S. The order size, order value, frequency, and return rates all follow
the typical customer profile.
ÿ The number of daily orders can fluctuate over a wide range. The distribution network must be
flexible to allow for this variability.
ÿ Sales have been steadily increasing in the U.S. and this trend should continue as PDQ enters
new markets. The distribution network must be able to handle this future growth.
ÿ Parcel shipments account for over 60% of the customer orders. This has been consistent over
time, and is dependent on product type. PDQ must be equally capable of meeting service
targets with both parcel and LTL shipments.
ÿ More than half of the orders are for a single product only, and 80% of the volume is driven by
the “fastest” one third of products. PDQ should examine its shipping operations to build in
efficiency. For example, single line orders could be batch picked to reduce travel time. Even
small improvements in order fulfillment methodology could yield significant results.

19
Customer Locations

“Where are the largest markets?”

20
Geographic Analysis of Demand

PDQ provided BPIA data which shows the population of office


workers in the United States, divided into 3,109 counties.
ÿ Office workers
are PDQ’s target
customers.
ÿ The data includes
workers in large,
small, and home
offices.
ÿ Alaska and
Hawaii were
excluded from
the study: this
was only 0.12%
of the total
population.

21
Demand Aggregation
To speed calculations, Peach State grouped demand into large
metro areas made up of several counties.
ÿ 302 Metro areas are
defined by the U.S.
Census Bureau.
ÿ 86 percent of U.S.
office workers live
in these areas.
ÿ Style conscious
consumers tend to
live in these metro
areas also.
ÿ Marketing can be
easily focused on
these dense areas.

22
Analysis of Demand
The largest 50 metro areas are used in the network study. These
areas represent 58 percent of U.S. office workers.
ÿ The network model
will focus on the
largest cities first.
ÿ This level of
aggregation allows
faster modeling
results but does not
affect validity.
ÿ Final results will be
reported using the
full 3,109 county
list and 100% of the
population.

23
Analysis of Demand

Customer orders and returns should follow the same geographic


distribution as the population of office workers in the U.S.
ÿCalifornia, New York, and Texas have the largest concentration of office workers.
ÿThe central area of the U.S. is sparsely populated compared to the coasts.

24
Network Model and Baseline
“What service can PDQ provide with its existing distribution
center in central NJ?”

25
Network Model

Peach State built a model of PDQ’s network based on the

following assumptions.

ÿ The network model calculates actual road distances between distribution


centers and customers.
ÿ All customers are assigned to the closest DC.
ÿ LTL shipments travel 500 miles per day on average.
ÿ Parcel delivery times are based on UPS Ground service and are quoted in
business days.
ÿ The model locates each distribution center to minimize average distance to
the customers.
ÿ Return shipments follow the same pattern as outbound shipments. We
assume there is a fixed percentage of all orders that will be returned.

26
Baseline Network
With just one distribution center located in New Jersey, PDQ will
not be able to meet its service targets nationwide.

27
Baseline Network

The first
scenario
includes only
the existing
facility in
central NJ.
This scenario
was used as
the index to
rate all other
scenarios.

28
Baseline Network
PDQ uses both LTL and Parcel shipments. With the existing
network, some customers can expect to wait a week for delivery.
This chart
LTL
LTL Service
Service Levels
Levels shows how long
LTL shipments
Within 99.7%
77
Within
Within 11 Day
Day Within
Within 22 Days
Days Within
Within 33 Days
Days Within 44 Days
Days Within
Within 55 Days
Days Within
Within 66 Days
Days 99.7% 100% take to reach
100%
the customer.
Customers

85%
of Customers

82%
82% 85% 90%
90%
66
73%
73% 80%
All calculations
80%
55 70% are based on 10
56% 70%
56%
60%
hours at 50
44 60%
50%
miles per hour,
50%
Percent of

33 29%
29% 40%
40%
for 500 miles
per day.
Percent

22 30%
30%
20%
20%
11
10%
10%
00 0%
This chart shows
0%
how long Parcel
11 33 55 77 99 11
11 13
13 15
15 17
17 19
19 21
21 23
23 25
25 27
27 29
29 31
31 33
33 35
35 37
37 39
39 41
41 43
43 45
45 47
47 49
49 51
51 53
53 55
55 57
57 59
59 61
61 shipments can
Hours
Hours from
from DC
DC to
to Customer
Customer take to reach the
Drivers travel 500 miles per day, based on a 10 hour shift at 50 mph. customer. The
source data
assumes UPS
If PDQ starts marketing to Parcel
Parcel Service
Service Levels
Levels Ground shipment.
100%
Customers

35 100% 100%
of Customers

the entire United States, 35


30
30
100%

78% 80%
80%
only 29% of LTL volume 25
25 66%
66%
78%

20 60%
60%
and 20% of parcel volume 20
Percent of

15
15 31%
31%
35% 40%
40%
will be within a one day 35%
Percent

10 20% 22%
22%
10 20%
20%
20% 15%
15% 12% 20%
20%
55 12%
service area from the 00 0%
0%
existing facility. 11Days
Days 22Days
Days 33Days
Days 44Days
Days 55Days
Days
Business
BusinessDays
Daysin
inTransit
Transit
Based on quoted duration of UPS Ground service.

29
Scenario Evaluation

“How many distribution centers does PDQ need?”

“Where should they be located?”

30
Scenario Overview

Several different scenarios were considered using the model.

Each was compared to the baseline to rank its performance.

ÿ One day service nationwide: How many distribution centers are needed
to reach 100% of the United States in 24 hours?
ÿ Best 1 DC network: If PDQ only has one DC, where should it be?
ÿ Best 2 DC network: Where should 2 DC’s be located? How is service
improved?
ÿ Best network with Central NJ + 1 other DC: If PDQ added one new DC
to its existing facility, where should it be placed?
ÿ Best 3 DC network: Where should 3 DC’s be located? What are the
additional benefits?
ÿ Best network with Central NJ + 2 other DCs: In addition to the existing
facility, where should two new DCs be located?

31
Scenario: One Day Service
When 10 DCs are placed to minimize cost, one day service
nationwide is still not possible.

32
Scenario: One Day Service

Distribution

centers are

located near

major

metropolitan

areas to

reduce the

overall cost of

the network.

33
Scenario: One Day Service

With 10 facilities nationwide, service levels would be very high.


The operating costs would also be extremely high.
LTL
LTL Service
Service Levels
Levels
Within
Within One
One Day
Day Within
Within Two
Two Days
Days 100%
100% Within
Within Three
Three Days
Days 100%
100%
Most of the country
95%
95%
25
25 100%
100% receives 1 day service.
Customers
of Customers

90%
90%
20
20 80%
80%
70%
Large geographic areas
70%
15
15 60%
60% of the country receive 2
50%
50%
day service, but the
Percent of

10
10 40%
40%
Percent

30%
55
30%
20%
20%
number of customers in
00
10%
10%
0%
0%
these areas is very small.
11 22 33 44 55 66 77 88 99 10
10 11
11 12
12 13
13 14
14 15
15 16
16 17
17 18
18 19
19 20
20 21
21 22
22 23
23 24
24 25
25 26
26 27
27 28
28 29
29 30
30
Hours
Hours from
from DC
DC to
to Customer
Customer
Drivers travel 500 miles per day, based on a 10 hour shift at 50 mph.

Most parcel shipments will Parcel


Parcel Service
Service Levels
Levels
99.5% 100%
Customers

80 99.5% 100% 100%


of Customers

reach customers in one 80


70
70
100%

80%
80%
business day. 60
60
50
70%
70%
50 60%
60%
40
40
Percent of

69%
69%
30 40%
40%
30
Percent

20
20
30%
30% 20%
20%
10
10 0.5%
0.5%
00 0%
0%
11Days
Days 22Days
Days 33Days
Days
Business
BusinessDays
Daysin
inTransit
Transit
Based on quoted duration of UPS Ground service.

34
Scenario: Best 1 DC
Because most of the population lives in the eastern half of the
country, a single facility would be located centrally.

35
Scenario: Best 1 DC
Distribution
activities are
roughly 16-20%
more efficient than
the baseline
scenario. This
location was
chosen to reduce
the total network
cost, but some
customers will
have slower
service.

36
Scenario: Best 1 DC

This scenario cannot reach either of the largest markets in one


day, but achieves higher overall service than the baseline.
LTL
LTL Service
Service Levels
Levels
100%
100%
Within
Within 11 Day
Day Within
Within 22 Days
Days Within
Within 33 Days
Days Within
Within 44 Days
Days Within
Within 55 Days
Days
88 100%
100%
86%
Customers

86%
of Customers

82%
82% 90%
90%
77
73%
73% 80%
80%
66
70%
70%
55 60%
60%
44 50%
50%
Percent of

31%
31%
33 40%
40%
Percent

30%
30%
22
20%
20%
11 10%
10%
00 0%
0%
11 33 55 77 99 11
11 13
13 15
15 17
17 19
19 21
21 23
23 25
25 27
27 29
29 31
31 33
33 35
35 37
37 39
39 41
41 43
43 45
45 47
47 49
49
Hours
Hours from
from DC
DC to
to Customer
Customer
Drivers travel 500 miles per day, based on a 10 hour shift at 50 mph.

The UPS parcel network Parcel


Parcel Service
Service Levels
Levels
100%
Customers

50 100% 100%
of Customers

usually follows the same 50 100%

40
40 78% 80%
80%
behavior as the LTL road 78%

30
30 58%
58% 60%
60%
network. 47%
Percent of

47%
20
20 40%
40%
Percent

10
10 20%
20% 22%
22% 20%
20%
12%
12% 12%
12%
00 0%
0%
11Days
Days 22Days
Days 33Days
Days 44Days
Days
Business
BusinessDays
Daysin
inTransit
Transit
Based on quoted duration of UPS Ground service.

37
Scenario: Best 2 DCs
By adding a second DC, the network is able to serve both coasts
with one day service, and reach most of the country within 3 days.

38
Scenario: Best 2 DCs
Distribution
activities are
more efficient
than with a single
DC. Based on
customer
percentages, the
eastern facility is
much larger than
the second center.

39
Scenario: Best 2 DCs

Virtually all of the country can be reached in 3 days from the two
locations in this scenario.
LTL
LTL Service
Service Levels
Levels
Within
Within One
One Day
Day Within
Within Two
Two Days
Days Within
Within Three
Three Days
Days 100%
Although there is a small
100%
14
14 100%
100% area of southern Texas
Customers

83%
of Customers

83% 90%
12 90%
12
10
80%
80%
70%
that receives 4 day
10 70%
88 49%
49%
60%
60% service, the population
50%
50%
there is minimal.
Percent of

66 40%
40%
Percent

44 30%
30%
20%
20%
22
10%
10%
00 0%
0%
11 22 33 44 55 66 77 88 99 10
10 11
11 12
12 13
13 14
14 15
15 16
16 17
17 18
18 19
19 20
20 21
21 22
22 23
23 24
24 25
25 26
26 27
27 28
28 29
29 30
30
Hours
Hours from
from DC
DC to
to Customer
Customer
Drivers travel 500 miles per day, based on a 10 hour shift at 50 mph.

92% of the nation would Parcel


Parcel Service
Service Levels
Levels
100%
Customers

60 100% 100%
of Customers

receive a parcel shipment 60


50
92%
92%
100%

50 80%
80%
within 3 business days. 40
40 67%
67%
60%
60%
30
30 56%
Percent of

56%
40%
40%
20
Percent

20
25%
25% 20%
20%
10
10
11% 11%
11% 11% 8%
8%
00 0%
0%
11Days
Days 22Days
Days 33Days
Days 44Days
Days
Business
BusinessDays
Daysin
inTransit
Transit
Based on quoted duration of UPS Ground service.

40
Scenario: Central NJ + 1 DC
Adding a second DC to the current network has very similar
results compared with the “Best 2 DC” scenario.

41
Scenario: Central NJ + 1 DC
The existing
site is not the
optimal
location for a
DC, but the
efficiency of
the network is
not reduced
significantly.
Relocating
the original
DC should be
done only if
other needs
arise.

42
Scenario: Central NJ + 1 DC

A small section (3%) of the country receives only 4 day service in


this scenario. Houston is the only metro area in this region.
LTL
LTL Service
Service Levels
Levels
100%
100%
99
Within
Within One
One Day
Day Within
Within Two
Two Days
Days Within
Within Three Days 97%
Three Days 97% Within
Within Four
Four Days
Days 100%
100%

Customers
of Customers

88
90%
90%
73%
73% 80%
77 80%
70%
70%
66
60%
60%
55
42%
42% 50%
50%
Percent of

44
40%
40%
Percent

33
30%
30%
22 20%
20%
11 10%
10%
00 0%
0%
11 22 33 44 55 66 77 88 99 10
10 11
11 12
12 13
13 14
14 15
15 16
16 17
17 18
18 19
19 20
20 21
21 22
22 23
23 24
24 25
25 26
26 27
27 28
28 29
29 30
30 31
31 32
32 33
33 34
34 35
35 36
36 37
37 38
38 39
39 40
40
Hours
Hours from
from DC
DC to
to Customer
Customer
Drivers travel 500 miles per day, based on a 10 hour shift at 50 mph.

Overall, service is only Parcel


Parcel Service
Service Levels
Levels
99.8% 100%
Customers

40 99.8% 100% 100%


of Customers

slightly lower than the 40


35
35 86%
86%
100%

80%
80%
scenario with the Best 2 30
30
25
25 60%
60%
DC network. 20
20 49%
49% 37%
Percent of

37%
15 40%
40%
15 26%
Percent

26% 23%
10
10 27%
27% 23%
13% 20%
20%
55 13%
0.2%
0.2%
00 0%
0%
11Days
Days 22Days
Days 33Days
Days 44Days
Days 55Days
Days
Business
BusinessDays
Daysin
inTransit
Transit
Based on quoted duration of UPS Ground service.

43
Scenario: Best 3 DCs

Adding a third DC brings the national service level even higher.

44
Scenario: Best 3 DCs
This may be
a good long
term plan for
growing
PDQ’s
distribution
network. A
more
detailed
second study
could
identify the
expected
costs of this
scenario.

45
Scenario: Best 3 DCs

Most of the nation could receive 2 day service with a 3 DC


network. Shipments can reach the largest markets in only 1 day.
LTL
LTL Service
Service Levels
Levels
Within
Of the 50 largest U.S.
Within One
One Day
Day Within
Within Two
Two Days
Days 94%
94%
Within
Within Three
Three Days
Days100%
100%
10
10 100%
100% metro areas only Seattle,
Customers
of Customers

99 90%
90%
88
77 65%
65%
80%
80%
70%
Miami, and Fort
70%
66 60%
60% Lauderdale would not
55 50%
50%
receive at least 2 day
Percent of

44 40%
40%
Percent

33 30%
22
30%
20%
20%
service.
11 10%
10%
00 0%
0%
11 22 33 44 55 66 77 88 99 10
10 11
11 12
12 13
13 14
14 15
15 16
16 17
17 18
18 19
19 20
20 21
21 22
22 23
23 24
24 25
25 26
26 27
27 28
28 29
29 30
30
Hours
Hours from
from DC
DC to
to Customer
Customer
Drivers travel 500 miles per day, based on a 10 hour shift at 50 mph.

All customers could receive Parcel


Parcel Service
Service Levels
Levels
100%
Customers

60 100% 100%
of Customers

parcel shipments within 3 60


50 84%
84%
100%

50 80%
80%
business days. 40
40
60%
60%
30
30 55%
Percent of

55% 40%
40%
20
Percent

20 30%
30%
29%
29% 20%
20%
10
10 15%
15%
00 0%
0%
11Days
Days 22Days
Days 33Days
Days
Business
BusinessDays
Daysin
inTransit
Transit
Based on quoted duration of UPS Ground service.

46
Scenario: Central NJ + 2 DCs

This scenario is almost identical to the “Best 3 DC” scenario since the existing DC is
within 50 miles of the optimal location.

47
Scenario: Central NJ + 2 DCs
The
performance of
this scenario is
statistically
identical to the
“Best 3 DC”
solution.

48
Scenario: Central NJ + 2 DCs

Again, this solution provides the the same service as the

“Best 3 DC” scenario.

LTL
LTL Service
Service Levels
Levels
Within
Within One
One Day
Day Within
Within Two
Two Days
Days Within
Within Three
Three Days
Days 100%
The 2 day service level is
93%
93% 100%
12
12 100%
100% only 1% less than the
Customers
of Customers

90%
90%
10
10
66%
66%
80%
80%
70%
previous scenario.
88 70%
60%
60%
66 50%
50%
Percent of

40%
40%
Percent

44 30%
30%
20%
20%
22
10%
10%
00 0%
0%
11 22 33 44 55 66 77 88 99 10
10 11
11 12
12 13
13 14
14 15
15 16
16 17
17 18
18 19
19 20
20 21
21 22
22 23
23 24
24 25
25 26
26 27
27 28
28 29
29 30
30
Hours
Hours from
from DC
DC to
to Customer
Customer
Drivers travel 500 miles per day, based on a 10 hour shift at 50 mph.

Parcel
Parcel Service
Service Levels
Levels
100%
Customers

60 100% 100%
of Customers

60 100%
89%
89%
50
50 80%
80%
40
40
60%
60%
30
30 57%
Percent of

57%
40%
40%
20 32%
Percent

20 32%
32%
32%
20%
20%
10
10
10%
10%
00 0%
0%
11Days
Days 22Days
Days 33Days
Days
Business
BusinessDays
Daysin
inTransit
Transit
Based on quoted duration of UPS Ground service.

49
Summary and Recommendation

50
Scenario Summary - LTL
This chart shows the performance of the LTL distribution network
under each scenario in the study.

51
Scenario Summary - Parcel

This chart shows the performance of the parcel distribution

network under each scenario in the study.

52
Recommendations

Peach State recommends the following implementation plan for


PDQ during their period of growth in the U.S. market.
ÿ Existing Facilities: The existing facility was placed in an important strategic location. It is
not necessary to relocate this facility to increase customer service. However, relocation may
be necessary for operational reasons, such as outgrowing the current facility.
ÿ New Facilities: Adding a second distribution center near Los Angeles would achieve three
day service levels for 97% of the target customers. Based on the population, shipments from
this facility would only represent 25-30% of total U.S. sales volume.
ÿ Additional Expansion: If higher service levels are required or if sales volumes increase, a
third facility could be added to the network. With a third facility, PDQ could provide 2 day
service to 93% of the country.
ÿ Detailed Cost Analysis: A more in depth study would provide a view of PDQ’s actual
distribution costs. This analysis should consider the transportation, inventory, and operating
costs of PDQ’s distribution network. PDQ should consider all relevant costs to determine
whether a new facility can be justified economically.
ÿ Inbound Shipments: Without actual cost data, it is not possible to identify the best ports to
bring products into the U.S. Peach State can provide a framework for these decision for PDQ
to use in the future.

53
Recommendations

Appendix

ÿ Scenario: Central NJ & Reno


ÿ Scneario: Central NJ & Las Vegas
ÿ BPIA Data: 50 Top Metro Areas

54
Scenario: Central NJ & Reno
Instead of placing a second DC in California, PDQ could locate
in Reno, NV to share space with its sister company.

55
Scenario: Central NJ & Reno

This network is
less efficient than
other scenarios
with 2 distribution
centers. However,
it is still a
significant
improvement over
the baseline
network.

56
Scenario: Central NJ & Las Vegas
Based on distribution alone, Las Vegas is not the best city for a
second DC. However, other factors may outweigh transportation.

57
Scenario: Central NJ & Las Vegas
PDQ’s facility
costs may be
less expensive
in Las Vegas
than in the Los
Angeles area.
Residents of
California
would not have
to pay sale tax,
possibly
providin an
increase in
sales.

58
Scenario: Central NJ & Las Vegas
Service levels in this scenario are similar to other options.

59
BPIA Data: Top 50 Metro Areas
Peach State used the top 50 metro areas to design the U.S. network.

60
BPIA Data: Top 50 Metro Areas
Peach State used the top 50 metro areas to design the U.S. network.

61

You might also like