Distribution Centers 1
Outline ö the call for distribution centers ö warehouses versus distribution centers ö types of distribution centers ö examples of distribution centers ö Foxconn, Wal-mart, Shiseido 2
Old Days: Point-to-point Transportation Retailers … 1 J I 1 … 1 1 … … … 11 Suppliers … … J I IJ 3
Recent Days: Distribution Centre Retailers 11 … 1 J 1 … … … I 1 … Suppliers shorter transportation distance, more complex co -ordination DC 1 … … … J I IJ 4
Amazon ö Fulfillment ö Amazon by Amazon serving as the fulfilling center for retailers ö Amazon Warehouse's processing 5
Differences Between a Warehouse & a Distribution Center* The material is from the book “A Stitch in Time: Lean Retailing and the Transformation of Manufacturing – Lessons from the Apparel and Textile Industries ”. * 6 6
Differences Between a Warehouse & a Distribution Center Warehouse purpose cost equipment personnel throughput time in store … 7 DC
Differences Between a Warehouse & a Distribution Center ö objective ö ö ö warehouse: primarily for storage distribution center: primarily for consolidating goods from suppliers (vendors, shippers) to retailers (buyers, consignees) throughput: in general DC larger than warehouse time in site: in general DC shorter than warehouse operations in a distribution center: ö ö 60% to 70% cross docked and 30% to 40% reopened, repackaged more value-added services to lessen operations in retailers ö ö minimum quality and quantity check on retailers practically shelf ready goods for retailers 8
Differences Between a Warehouse & a Distribution Center ö equipment ö ö more automated equipment in DC: automatic identification, storage, retrieval, distributing, sorting, unitizing systems cost (in 1997) ö a warehouse: US$8 to US$10 million ö a distribution center: US$60 to 70 million ö to convert a warehouse to a DC: US$10 to 25 million 9
Differences Between a Warehouse & a Distribution Center ö personnel a warehouse: more, especially male, on traditional operations such as loading, unloading, receiving and inspection, putaway, picking and packing, moving goods around ö a distribution center ö ö less traditional workers by the help of electronics, electrical, and mechanical equipment ö more personnel on information technology and equipment maintenance 10
The Call for Distribution Centers* * Material is from the book “A Stitch in Time: Lean Retailing and the Transformation of Manufacturing – Lessons from the Apparel and Textile Industries ”. 11
Largest U. S. Retail Chains on the 2012 Global Powers of Retailing List Wal-Mart (1 st. US$446. 95 B The Kroger Company (5 th; (2012)) US$ 90. 374 B (2012)) Home Depot (8 th; US$ 70. 395 Walgreens (9 th; US$ 71. 633 B Target (11 th; US$ 69. 865 B; B (2012)) (2012); drug store) discount department stores) CVS Caremark (13 th; US$ Best Buy (19 th; US$ 50. 70 B Lowe's (20 th; US$ 50. 2 B (2012); 107. 10 B (2011); drug stores) (2012); consumer electronics) home improvement & appliances) Sears Holdings (22 nd; US$ Safeway (24 th; US$ 43. 63 B Amazon. com (28 th; US$ 61. 09 41. 567 B (2012); department stores, discount stores) (2011); supermarkets) Costco (7 th; US$ 99. 1 B (2012)) B (2012)[) Super. Valu (31 st; US$ $36. 1 B Rite Aid (33 th; US$ 25. 2 B Publix (35 th; US$ 27. 178 B (2012); supermarket, grocery) (2011); drug store) (2011); …) Macy's (36 th; US$ 24. 892 B --- (FY 2009); department store) 12
Changes ö retailers of mid 20 th century: Macy’s, Sears, … ö as late as 1991, Sears: 1 st retailer in the world ö retailers of the 21 st century: Wal-mart, . . ö reasons for the change? 13
Societal Development ö first transcontinental railway of US in 1869 ö early ö late days 19 th to early 20 th century ö railway system for long distance transportation in large volume ö telegraph (1844) and later telephone (1876) for quick information flow for long distance ö development in material technology and electro -mechanical equipment 14
Societal Development ö improvement in in production and transportation ö development of cities shopping of the era: department stores, for middle to upper class ö (though still slow in today’s standard) ö ö ö a venue with large variety of products on one hand the elegant European boutiques feel on the other hand successful formula: low cost by economies of scale, marketing to attract shoppers, pricing at the right amount examples: Macy’s, Sears, etc. 15
Societal Development ö effect on retailing: apparels as an example ö traditional apparel retailing before mid 20 th century ö relative long range forecast ö large volume, low frequency ö successful formula: merchandising - right product mix to provide affordable, desirable goods ö formula no longer work after mid 20 th century 16
Recent News for Department Stores ö Macy’s filed for Bankruptcy in 1992, but … ö Web headings for Sears ö ö 2011 Dec 29: Is Sears Headed for Bankruptcy? ö ö 2009 Aug 4” Why Sears will (and should) End up in Bankruptcy? 2012 Jan 12: Tears for Sears: American Icon in Trouble. Why? 17
Societal Development ö starting mid 20 th century ö quicker in transportation ö development of the automobile industry and the highway systems ö possibility of moving medium amount of goods for a couple of hundred miles by trucks ö containerization ö communization of air transport ö computer for information flow and processing ö moving of residents from downtown to suburban areas 18
Societal Development ö shopping of the era: discount stores in suburban areas ödaily necessities for suburban residents ösuccessful formula: economies of scale, convenience, low cost by simple decoration, efficient logistics, and advanced information technology 19
Problems for Traditional Apparel Retailing Since mid 20 th Century ö product proliferation : hard to predict actual demand accurately ö ö over capacity, e. g. , increasing in retail space per capita ö ö 5. 3 ft 2 (1964) 9 ft 2 (1974) 16 ft 2 (1988) 19 ft 2 (1996) (Mexico 0. 3 ft 2) reduction in consumer expenditure ö ö change of customer behavior leading to many styles $1710 (1992) $1698 (1994); 14. 3 (1967) 28. 7 garments (1995) expensive costs in markdowns, stock-outs, and inventory holding ö estimate in 1985: $14 billion on markdowns, $6 billion on loss of sales, and $5 billion on inventory holding 20
The Call for Lean Retailing ö traditional retailing model being out of date ö the needs for quick response retailing ö universal numbering system of goods ö automatic identification ö standards across firms ö information flow and processing ö modern distribution centers 21
Different Types of Distribution Centers* * The material is from the book「 物流中心的規劃技術 」. 22
Different Types of Distribution Centers ö classified by different methods ö by temperature: ambient, refrigerated, freezing ö by operator: manufacturers, retailers, perishables, import traders, wholesalers, 3 -party logistics service providers, truckers, couriers, sea freight service providers, air freight service providers by goods: food, daily necessarity, medicine, cosmetics, electrical appliances, 3 C products, books, apparels, shoes, auto parts ö by functionality: regional, front, cross docking ö 23
Different Types of Distribution Centers ö operations and equipment changed with nature of DC in DC for # of SKU Convenience Store Supermarket Discount Store 3, 000 6, 000 10, 000 --30% 70% 10% 60% 30% 40% 60% --- % of order picking pallet in, pallet out pallet in, case out case in, item out 24
Different Types of Distribution Centers ö operations & equipment changed with nature of DC ö examples ö DC for food and vegetables ö temperature control: air conditioning 15 C to 18 C; refrigerated 0 C to 5 C; freezer -25 C ö cross-docking ö special ö mode for fresh food design trucks DC of manufacturers ö smaller number of SKU in larger quantity 25
Different Types of Distribution Centers ö operations & equipment changed with nature of DC ö examples ö DC of 3 -party logistics service providers ö consolidation of multiple types of goods ö more ö value ö building up and breaking down services added services …. 26
The e-Hub of Foxconn* * Part of the material is from the book「郭台銘與富士康」. 27
The Distribution Center of Foxconn for Dell ö Foxconn ö one of the best 3 C-product manufacturers ö services including design, development, and aftersales services in addition to manufacturing and assembling ö performance in 2010 ö revenue: US$116 billion ö profit: US$2. 74 billion ö profit margin: 2. 36% 28
The Distribution Center of Foxconn for Dell ö Dell: one of the best among direct sales and ebusiness ö ö ö designing and selling computers and their peripherals providing before- and after-sales services for her products performance in fiscal year 2011 ö revenue US$61. 5 billion ö net profit: US$3. 1 billion (number changed with the accounting system) ö profit margin: 5% 29
The Distribution Center of Foxconn for Dell ö the fast growing Dell (50% annually) required flexibility from its suppliers ö demand: a target, but possible to adjust upwards ö components: possible to change with the ever expanding market ö capacity of supplier ö ö not taken up fully by Dell and possible to expand quickly vendor managed inventory ö suppliers responsible for inventory (component value reduced by 0. 5% to 1% per week) ö only parts and components sent to factories for assembly being paid by Dell 30
The Distribution Center of Foxconn for Dell ö e-Hub of Foxconn ö a distribution center with information processing capability beside the manufacturing and assembly plants ö full information on production schedule and statue ö inventory ö “zero” for manufacturing and assembly plants ö less than 2 days for e-Hub ö accurate forecasting of demands by e-Hub ö 100 containers of parts and components per week 31
Distribution Centers of Wal. Mart* * The material is from the book “Sam Walton: Made in America”. 32
Distribution Centers of Wal. Mart ö by 1992 20 distribution centers, total area 18, 000 sq ft ö 4 distribution plans running by Wal. Mart’s fleet ö all stores ö within one day drive from a distribution center ö placing orders in computer ö 80 K SKU, providing 86% goods (competitors: 50% to 65%) ö lead time 2 days (competitors: 5 days) ö transportation cost 3% (competitors: 4. 5% to 5%) ö 33
Distribution Centers of Wal. Mart ö a typical distribution center 1. 1 million sq ft (23 foot fields; 150 acres 60. 7 hect. ) ö 200, 000 boxes every day by 600 to 800 persons ö docks: 135 incoming and 30 outgoing ö 24 hours per day ö technologically advanced ö ö computerized system ö real-time status and location information for all items ö 8. 5 miles lazer directed conveyor belts 34
Distribution Centers of Wal. Mart 35
A Distribution Center of Shiseido 36
Shiseido ö the oldest and the 4 th largest cosmetics company in the world ö 40, 563 employees worldwide at 2011 37
Products of Shiseido – Old Days ö toothpaste, vitamin tablet, ice cream, skin care products, face powders, hair tonic, cold cream, fragrances, lotion 38
Products of Shiseido - Nowadays skin care ö make-up ö fragrance ö body care ö sun care ö hair care ö men ö 39
Statistics 40
The Challenge faced by a Distribution Center ö serve several hundred franchised stores ö many products, of small sizes ö minimal inventory in stores ö each store ö multiple orders per day ö multiple deliveries per day 41
The Challenge Faced by a Distribution Center ö economies of scale in delivery ö full truckloads by consolidating goods for stores ö challenges: to store, pick, sort the small items 42
Schematic Diagram of the Distribution Center 43
In the Distribution Center ö boxes to hold small pieces for transportation ö automatic storage, transportation, and sorting 44
In the Distribution Center ö automatic storage, transportation, and sorting 45
In the Distribution Center ö automatic storage, transportation, and sorting ö computerized control 46
A Distribution Center of Amazon 47
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