The Hammer 4flow Vista Case Study Tasks PDF

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The Hammer_4flow Vista Case Study Tasks...

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Date of issue:

November 20 , 20 15

Date of submission:

January 07, 2016

SCM Case Study – 4flow Vista The Hammer Ltd.1

Supply Chain Management Winter Term 2015/16 Prof. Dr. - Ing. Bernd Hellingrath

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This SCM Case Study is based on the Hammer case of the 4 flow AG.

Contents Case A ...................................................................................................................................................... 3 Introduction ......................................................................................................................................... 3 The Hammer Ltd. ............................................................................................................................. 3 Customers ........................................................................................................................................ 3 Production ....................................................................................................................................... 3 Distribution ...................................................................................................................................... 4 Analysis of the Hammer Ltd. Supply Chain. ........................................................................................ 4 Case B ...................................................................................................................................................... 7 Launch of a new assortment ............................................................................................................... 7 Initial situation ................................................................................................................................. 7 Production (Hammer)...................................................................................................................... 7 Procurement (Hammer) .................................................................................................................. 7 Production and procurement (Hammer_engraved) ....................................................................... 7

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Case A Please do the following tasks with reference to Case A (Case_A_SCM_WT1516_GroupX)!

Introduction The Hammer Ltd. The Hammer Ltd. is a mid-sized company situated in Germany which is mainly developing and producing two different assortments of high-quality “Do-it-yourself-tool-kits” (“DIY-tool-kits”) (Standard Assortment and Special Assortment). The products of the Hammer Ltd. comprise metal and plastic components. Their individual weight is between 100 g and 1.55 kg. The assortment includes round about 1,000 products. Approximately 50 % of the articles (Standard Assortment) can be produced in each plant. The rest of the assortment can only be manufactured in one of the production plants (Special Assortment_Bochum, Special Assortment_Nürnberg, Special Assortment_Madrid, Special Assortment_Miskolc). The table 1 provides an overview of the different assortments of the Hammer Ltd. Location of production plant Bochum Nürnberg Madrid Miskolc

Standard Assortment Standard Assortment Standard Assortment Standard Assortment Standard Assortment

Special Assortment Special Assortment_Bochum Special Assortment_Nürnberg Special Assortment_Madrid Special Assortment_Miskolc

Table 1: Assortments of the Hammer Ltd.

Customers The customers of the Hammer Ltd. are retailers (DIY markets and specialist shops). The Hammer Ltd. delivers their products to 72 customers in eleven countries. The customers are situated in Germany, Hungary, Spain, Russia, Poland, Netherlands, United Kingdom, France, Finland, Denmark and Austria. In 2011 the average turnover of approximately 113.00 € per working day (WD) was split as follows: Austria 1%, Denmark and Finland 1%, France 5 %, Germany 55%, Hungary 15%, Netherlands 1%, Poland 4%, Russia 4%, Spain 13% as well as United Kingdom 1%. The Eastern European market increases by 10 % p.a. while the other markets have stagnated. Task 1 Please determine the sum of customer demand of Finland by using the planning data of the supply relationships of the case study.

Production The Hammer Ltd. has four production plants. The four production plants are situated in Bochum and Nürnberg (Germany), in Madrid (Spain) and in Miskolc (Hungary). The Standard Assortment is produced in each production plant of the Hammer Ltd. and hence production costs for this assortment in each plant are equivalent. The production in the four plants for the Special Assortment is carried out differently. The article groups of the Special Assortment (Special Assortment_Bochum, Special Assortment_Nürnberg, Special Assortment_Madrid, Special Assortment_Miskolc) have country specific characteristics. Such that the production costs and the unit prices of the article groups of the Special Assortment differ from plant to plant. 3

Normally, the raw materials and the components are procured from local suppliers. Every plant has its own storage area, a racking store, for the assortments within its production plant. The storage costs 2 related to the shelf compartment, amount to 0.10 Euro per load unit and day (EUR/LUd). Shelf compartment is the basic capacity unit in the storage if the storage type is a racking store. All production plants always keep an inventory of the different assortments. For outgoing relations, the Hammer Ltd. applies the sawtooth model for the inventory management 3 within production plants. This means if the inventory falls below a notification level a restocking order is issued towards production. The notification level and the safety range of the Hammer Ltd. amounts to 69 WD and the basic stock4 0 LU.

Distribution The assortments of the Hammer Ltd. are directly transported from the respective plant to the customers. The largest customer of the Hammer Ltd. (Customer Kaiserslautern) in terms of the highest turnover share is situated in Kaiserslautern. The assortments for this customer are delivered to the hub of this customer in Kaiserslautern pre-commissioned for his stores on pallets. The customer in Kaiserslautern distributes these products from his hub to his 60 stores. For all other customers the Hammer Ltd. distributes the non-pre-commissioned order quantities to the stores directly.

Task 2 a) Please determine the number of customers in each delivered country. b) Please generate an illustration of the network structure in the as-is state. c) Please analyze the design of the distribution network and explain what kinds of distribution options are currently implemented. Differentiate between the customer in Kaiserslautern and all other customers and discuss the different distribution options.

Analysis of the Hammer Ltd. Supply Chain. Mr. A. Meyer, managing director of the Hammer Ltd., is a conscientious person who has dedicated his life to his employer. Every day he is working really hard and is doing a great job. He plans to analyze the material flow and the cost structure for the estimated distribution scenario (called supply relationship scenario within 4flow vista) “Planning Horizon_2020”. Please aid Mr. Meyer in this task.

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Within 4flow vista inventory costs are divided into inventory costs, these are the costs for the physical inventory in the storage, e.g. the capital commitment costs, and storage costs [shelf compartment], these are the costs for the occupied shelf compartments. Handling costs [container] are the costs for the physical throughput of goods. Consequently, storage and handling costs within 4flow Vista are referred to as handling costs in the lecture. 3 It is called inventory calculation within 4flow vista. 4 The minimum level of stocks in container or article units.

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Task 3 a) Using the given initial network in your case study, please examine the nodes and edges for the distribution scenario “Planning Horizon_2020”. Please also determine the node and edge with maximal flow quantity. Please describe and illustrate your results, within the schematic or geographical view. b) Furthermore, please analyze the current costs of the material flow p.a. in the supply chain. How much are the total costs in the initial network and how can the costs be broken down into different categories (fixed, picking, storage, inventory, transport, and one-way container costs)? c) Please explain why the transportation costs are so high.

After having seen the results of your analysis, Mr. Meyer remembers that his best friend, a consultant at a well-known consultancy, has advised him to optimize the distribution process first in order to reduce costs. Mr. Meyer intends to analyze this process systematically. Task 4 a) Please analyze with the master data of the case study the current transports. What characteristics can you identify for their transport frequencies, and the tariff variation? b) Based on the findings of tasks 3 c) and 4 a), help Mr. Meyer and make a first proposal to optimize the distribution network without causing additional investments or changing the location structure.

Mr. Meyer is surprised about your findings. He thinks that one should consider whether the optimization of the distribution process will provide a cost advantage for the Hammer Ltd. Following a divide-and-conquer approach, he wants to keep the distribution process of the major customer in Kaiserslautern the way it is currently carried out. Therefore, it is fixed that the customer in Kaiserslautern is directly delivered once a working day5. Mr. Meyer also wants to ensure, that all other customers will receive at least one delivery per week in order to guarantee a certain service level. (These characteristics of the customer in Kaiserslautern and of all other customers are valid for the whole case study.) Task 5 Please optimize the current distribution processes without changing the location structure and compare the total costs p.a. and the different cost categories p.a. before and after the optimization.

Mr. Meyer studies your analyses and the illustration of the network. To continue the improvement of the distribution network he suggests optimizing the structure of the network further on. Unfortunately, Mr. Meyer doesn’t know methods of improving the structure of the distribution network.

5 Within 4flow vista the frequency for the transport between the respective production plant and the customer

in Kaiserslautern is 0.7123 per day.

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Task 6 Hence, it is your task to optimize the structure of the network. a) Consider different distribution structures for the network. What alternatives would make sense for improving the current situation, which you analyzed in task 2 c), and what would be the results? Please also explain their advantages / disadvantages. (Please take into account that the distribution structure for the customer in Kaiserslautern is fixed.) b) Please optimize the network structure based on the previous findings without changing the storage strategy. For the optimization, you can assume that the fixed costs amount to 8,000 EUR/mo and the handling costs amount to 4 EUR/LU for every additional location. Compare the total costs p.a. and the different cost types p.a. of your new network scenarios and the initial network. Define the optimal supply chain structure of the Hammer Ltd. and justify every decision you made. [Hint: Please only carry out a reasonable number of optimizations.] c) Please explain for one of your networks optimized in task 6 b) the differences between the initial network of the Hammer Ltd. and your suggested network. d) Please investigate your determined networks of task 6 b). Does it make sense to change the strategy to store the products at each production plant? Please optimize your network by changing the strategy of decentralized storage. For the optimization, you can assume that the safety range amount of 40 working days at each storage location. Compare the total costs p.a. and the different cost types p.a. of the new network and the suggested network in task 6 b). Which network structure would you recommend for the Hammer Ltd.? [Hint: Please only carry out a reasonable number of optimizations. The storage costs related to the shelf compartment, amount to 0.10 Euro per load unit and day (EUR/LUd).]

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Case B Please do the following tasks with reference to Case B (Case_B_SCM_WT1516_GroupXXX)!

Launch of a new assortment Initial situation The customer in Kaiserslautern, being the main customer for the Hammer Ltd., wants to improve its customer orientation by offering the opportunity to have a personal engraving on the tools they are going to buy. This offer is applicable to the tool assortment Hammer, which is specifically manufactured by the Hammer Ltd. for the customer in Kaiserslautern. Therefore, the Hammer Ltd. introduces a new assortment Hammer_engraved. This new hammer is only produced in the production plant Bochum. When a customer orders an engraved hammer in one of the retail stores of the customer Kaiserslautern a delivery time of 6 working days is promised. Production (Hammer) The Hammer Ltd. sets up a specific supply chain for these two assortments depicted in figure 1. In order to achieve a fast delivery of both assortments, the Hammer Ltd. rents warehouse space located in Darmstadt. Here the assortment Hammer is kept as inventory ensuring a high service level. If the inventory in the warehouse of this assortment falls below a certain notification level, a restocking order is issued towards the production plant situated in Bochum. In contrast, the warehouse doesn’t store any tool of the assortment Hammer_engraved because orders are based on specific customer demands. Nevertheless, the produced orders from the Hammer_engraved are shipped each day from the plant in Bochum to the warehouse in Darmstadt. From where, the Hammer and Hammer_engraved are delivered every day 6 to the customer in Kaiserslautern based on the issued orders. Procurement (Hammer) Two suppliers are delivering the basic elements of the tools for both assortments to the plant in Bochum. One supplier, which is situated in Pforzheim, delivers the wood for the hammer handle. The orders for the handles are issued by the Hammer Ltd. when the inventory of handles in Bochum falls below a certain level. The hammerheads without an engraving are directly ordered at a metal supplier situated in Dortmund. The orders for the hammerheads are also initiated when the inventory falls under a certain level at the production plant Bochum. Production and procurement (Hammer_engraved) A specific production and procurement process for the hammerheads of the Hammer_engraved has been installed for the customer specific orders. The retailer in Kaiserslautern transfers the information about the volume and the look of the specific engraving on a daily basis to the Hammer Ltd. plant in Bochum. A company, situated in Hannover, which is using simple laser-engraving equipment, carries out the engraving of the hammerheads for the Hammer Ltd. The information about the volume of the needed engraved hammerheads is sent every day to the plant in Hannover and to the metal supplier in Dortmund. Furthermore, the company in Hannover gets the information about the specific engraving. The supplier in Dortmund transfers the known volume of hammerheads the next day directly to the engraving company in Hannover, where the hammerheads are engraved and then

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Within 4flow vista the frequency for the transport between the warehouse and the customer in Kaiserslautern is 0.7123 per day.

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delivered to the Hammer Ltd. in Bochum on the next day. The tools are assembled and then delivered each day to the warehouse in Darmstadt.

Figure 1: AS-IS network of the Case B

Because of the long delivery time of 6 working days, Mr. Meyer wants to optimize the network structure in order to secure a reduced delivery time. As this is very important for Mr. Meyer, he wants to consider all possible scenarios. Please help him by proposing an optimal network structure. Task 7 a) Please determine the customer demand for the Hammer and the Hammer_engraved. b) Furthermore, please analyze the costs of the material flow in this supply chain. How much are the total costs p.a. in the AS-IS network and how do the costs can be broken down into the different cost categories (transportation, storage, inventory costs)? c) Please explain the position of the current order penetration point. Which alternatives for its location make sense and what would be the results of a changed position? d) Please optimize the order penetration point of the supply chain. Compare and analyze all costs p.a. of the networks, your optimized networks and the AS-IS network. For the optimizations please use the alternative assortment called Hammer_engraved_to_be instead of the assortment Hammer_engraved. You can assume that the customer demand of the Hammer_engraved is similar to the customer demand of Hammer_engraved_to_be. Furthermore, you can assume for the warehouse storage costs [shelf compartment] in the amount of 0.10 EUR/LUd, a safety range of 7 days and a racking store. The valid inventory model is the saw tooth model for outgoing relations.

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