In the wake of record flooding in Thailand, one of the world's leading suppliers of hard drives and data storage solutions, felt it was time to re-design the air-frieght based supply chain. A holdover fro an earlier period when when ard drive and storage solutions were part of a rpidl evolving marketplace that put a premium on product changes and need to direct ship tocustomers, 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 werequestions. Would the same model work for both the United States
and Europe? Where shouldthe hubs be located? Which carriers would be the best to handle distribution? How would the
new network handle reverse logistics?
The company engaged an supply chain specialists to help them answer their supply chain design questions.Using Supply Chain solutions a baseline model of the existing direct to customer network was built. Then various scenarios were examined where different amounts of the company’s US 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 theservice levels, adaptability, and the additional inventory costs associated with each potential
design and distribution partner. Finally, product and customer segmentation analysis highlightedthe areas of highest impact associated with the various scenarios.
The new supply chain network design chosen by the company for implementation only shiftshalf of their current volume to ocean freight. This enabled them to retain a large degree offlexibility by keeping a large amount of direct shipping air capacity, while still generating savings
of $66M dollars per year, 24% of their annual transportation and distribution costs. Thissavings of $0.85 per unit is net of increased inventory carrying costs and the costs to rentdistribution centers in Europe and the US. In addition, even though the whole supply chain is
longer, because of the locations of the distribution centers and the additional inventory heldat them, the time from order to delivery for the customers is actually shortened.