Summary Report on the Transfer of the Main Warehouse
Problem Definition
Customers in the northern and eastern central regions of the US have been complaining of delays in their shipments. With the weakening of the defense sector, there had been a boom in the commercial aviation sector and the suppliers are also having a hay day. The two largest plane makers Boeing and Airbus had orders of 10,000 planes since 2014 which can last them up to 2014.
One reason for the boom was attractiveness of the financing rates at that time and coincided with the state of the aging planes of both. The other reason is the skyrocketing demand for air travel in the world. Even if the oil prices are still relatively high, the development of composite materials for planes has made them lighter and more economical in fuel consumption. Consequentially, the industry is expanding with new players coming out from Canada, Japan, China and Russia. The surge in demand was so steep that it is estimated that it would take 10 years for parts suppliers to catch-up with the volume and the new technologies. It is a good problem for aeronautical suppliers but it will be stressful. There will be pressures in all aspects, from production to delivery. It will also be more competitive for suppliers as the plane makers are also competing intensely among themselves. 100% on-time deliveries is critical to survive. (Schwartz, 2014)
Expedited deliveries from FedEx Air have also proven to be expensive. FedEx has two express delivery services in the US. One is overnight delivery and the other is just within hours. To illustrate, the new warehouse will be in Austin, Texas which is 1,100 miles from Chicago. For a 500 lb package, the rate for FedEx SameDay is $9.35 per lb (FedEx Rate Tools, n.d). For a regular delivery, that will only be $1.95 which is only 20.8% of express. In a boom period, volumes will be high but margins can be negotiated down.
Impacts on Competitive Advantages
Our competitive advantage is our hard-earned reputation as the best-performing supplier in the industry and that includes on-time deliveries. We are considered as the most dependable supplier in the market and we had taken great pains to maintain that even if we incur expedient delivery costs. The surging customer demands of the industry have eroded our performance, specifically in timely delivery. The industry practically runs on flight schedules. All services and management are geared towards meeting announced flight schedules. Airline reputations are quickly downgraded by change or delay of schedules. These demands translate to expectations with suppliers of aircraft parts and services. For example, American airlines places the most points on turn time and parts availability in its supplier scorecard. It assigns a weight of 45% which is higher than quality or customer service. (Trebilcock, 2014)
Competition has grown more intense in the aircraft making business with the entry of several players from China, Russia and Japan. In the medium-range sector, the third global player to emerge is the Commercial Aircraft Company from China (COMAC). COMAC (Zhang, 2015) can push prices down for the Big Two who in turn will do it to their suppliers.
Another factor is that more suppliers are entering the market which makes it easy for the plane makers to change suppliers anytime. With a few mistakes, we can lose our competitive advantage of hard-earned reputation if it does not stay sharp.
Delivery Standards
The current problem of late deliveries can just be a symptom for inefficiencies in the whole production system. One strategy to make sure that our operations will be aligned to the aircraft maker’s supplier expectations is to align our production standards to the aircraft maker’s supplier standards.
Boeing intends to cut down suppliers and retain only the very best ones. We must understand the selection criteria in-depth to ensure so it can adjust its operations processes to meet Boeing’s expectations. Boeing conducts Lean workshops and conferences and encourages executive partnerships dedicated to the supplier relation. It would do well for us to participate regularly.
Boeing has also introduced a supplier measuring tool that would greatly benefit suppliers. It is called the Supplier Performance Measurement Report (Horton, 2007) which advices suppliers on their performance and on opportunities where they can get more business. It also allows Boeing to look into the supplier’s operations to assess if they are supportive of Boeing’s standards.
The objective is to transfer the main warehouse Austin, Texas to another city where the company can have a better balance in terms of distance to its clients. The company is serving all of the US market but is having delivery problems in the Midwest. The new location should be a major city where there are many flights to airports all over the country. It should be within the center of the US but closer to the Midwest states. The ideal location would be the city of St. Louis, Missouri where there is the Lambert–St. Louis International Airport (LSLI) which is the 32nd busiest airport in the United States.
(Map of Major Airports in Canada and the United States, n.d)
As you can see, St. Louis fits the requirements for a more central location. It is the largest urban center which is closest to the population center of the country which is Texas County, Missouri and is near the geographic center which is Lebanon, Kansas. It has three cargo delivery services: DHL Aviation, FedEx Express and UPS Airlines.
There are many advantages in setting up a major warehouse near LSLI airport. It is the third largest rail center in the country. For long delivery schedules, this would a cheaper alternative to air travel. It is also the country’s third largest inland port which offers another economical means of cargo transportation. It is within 3 hours by air to most cities in North America. The labor cost is also advantageous as the median hourly wage of $13.83 is below the national figure of $14.06. The operating costs of warehousing are the 6th lowest in the country. It has no inventory tax and is 6th lowest for property tax. It is also 8th lowest for income tax. (Advantages of St. Louis Warehouse Facilities, n.d.)
Local Warehouses
12 states comprise these problematic regions and their populations are as follows:
The choice of location would also follow the criteria of the main warehouse. In this case, the most central city of the area with an international airport will be selected and those would be:
For Area A: Kansas City, Missouri (Kansas City International Airport)
For Area B: Minneapolis, Minnesota (Minneapolis-St.Paul International Airport)
For Area C: Detroit, Michigan (Detroit Metropolitan Airport)
Fedex operates in all of the three airports and it is our preferred courier but if there will be waiting time, we will have a canvassing procedure to other local couriers who can deliver at the time we need.
Project Management
The central regions problem will be treated as a project until the delays have gone down to acceptable levels. A project manager will be assigned to handle all production and deliveries tracking for this group of customers. He will also coordinate with these customers when deliveries are in progress. The expected outcome of this project is the customization of delivery procedures for the central regions which will normalize delivery performance. Once this is achieved, the project manager will turn over responsibilities to our service manager.
Warehousing
Storage Lay-out
In the set-up of the new warehouse, some considerations must be taken to directly address the current problem at hand which is the delayed deliveries to the central region. Customization will be done for the central regions in that an exclusive area for their most ordered parts will be allocated. The idea is to limit all the movements within the facility to within the smallest area possible nearest to the unloading dock. This will shorten the times for picking, packaging, releasing, moving to dock and loading.
Releasing
Automatic identification and computer systems will also implemented to enable random stocking for fast stocking and picking. In anticipation of expedited requests, we can process and package shipments ready for loading into trucks 1 month before the due date.
Order Fulfilling
The order fulfilling process should be abbreviated for the center regional regions until the time when all late delivery issues have been resolved. Critical checkpoints in the process should be retained to the minimum as possible. There would be a post-delivery documentation that would complete the normal process.
Order fulfillment can be time consuming because it will involve warehousing, inventory, accounting and delivery. The use of IT can hurdle this challenge with the use of order fulfillment software applications. One cause of delays is lost items due to encoding errors during storage. These can be prevented with the use of bar codes and scanners. (Order Fulfillment Software, n.d.)
Transportation
Expediting Arrangements with Freight Movers
Company Vehicles
At least two transport vehicles will be parked in each warehouse for delivery to customers. Assured availability of company vehicles would require regular vehicle maintenance. Local vehicle lenders should also be contacted as a fallback if company vehicles become unavailable.
Managing Risks during Transport
There is probability of the company truck breaking down in the middle of the trip which would cause instantly the two problems of delay and security. The security issue has to be resolved first. We will arrange with private security agencies who will immediately respond to reports of vehicle breakdown. The agency will send armed security guards to secure the vehicle and its cargo until the time that the back-up vehicle arrives.
The back-up vehicle will come from a truck rental company who can respond on call. Business arrangements will need to be made for two or more of these rental companies.
In the case of the small chance that the cargo mover will incur a delay, we can dispatch our own vehicles as an alternative. The original cargo will just be recalled from the cargo mover.
Inventory Management
The main inventory will be housed the main warehouse in St. Louis while carefully estimated inventories will be maintained in the three Central Region warehouses. We will work closely with the aircraft makers to jointly make accurate demand forecasts and lead-time information for the three warehouses. Depending on the shortest delivery time, the main office in St.Louis will decide from what warehouse the orders will be pulled out.
Collaboration with the customers will be crucial for the delivery problems to be solved. There will be a weekly review of demand estimates that will determine the stocking levels of the three warehouses as early as one week ahead. Information can be exchanged through secured private networks with the customer.
A more advanced way is to eliminate delivery time entirely is to deliver parts as soon as they have been completed. This means that batches for delivery would be made smaller. There would be extra cost overall but if these parts are critical and have a tendency to be urgent, then these can be acceptable. Arrangements for delivery and billing have to be agreed with the customer.
Strategic buffering for the central regions will be practiced at the main warehouse which will serve as a back-up in case customer demand exceeds the inventory at the three warehouses.
In the long run, strategic partnering must be established the aircraft makers so that longer term contracts can be secured that will maintain a high level of inventory. Order fulfillment for the industry are mostly engineer-to-order or make-to-order which takes a long period of time. Long-term commitments can secure more reliable supply and faster deliveries.
Work Design
In all of the warehouses and until demand forecasting has been fine-tuned with the customers; there will a red alert when an order has been placed by customers. At least two designated staff will drop anything they are doing and attend to this order until completion. At least two in warehouse will undergo job rotation so they can appreciate all the procedures and challenges that the company undergoes for emergency orders. They can monitor and interact more effectively if their jobs have been expanded and commensurate training had been provided.
This will be a emergency response team in every three warehouses. If necessary, personnel can drive a land vehicle to make the delivery. Abbreviated approvals. contingency work plans, organization and resources must be available to handle urgent orders.
Scheduling
Scheduling delivery scenarios would require the knowledge of all possible transport options in case of sudden changes. The latest dates and times of cargo delivery from all preferred couriers should be at hand at all times.
Coordination with the customers regarding demand forecasts and other issues should also be part of the scheduling work of operations. Rotation of emergency team assignments should also be done as these are 24/7 jobs that will be ready to handle customer emergencies including pending deliveries.
The customer sometimes will request for a delivery date earlier than was agreed. We must be ready to have a contingent work scheduling and resource allocation plan for major customers in the central regions. Qualified manpower and additional equipment for lease must be available on demand from reliable suppliers.
Reliable Supplier Chain
All suppliers involved for the customers in the central regions would be advised that lead times and prompt delivery would be given the highest premium for supplier performance. Assurance can be done via regular audits of supplier procedures. The company should be transparent with the suppliers regarding the problem situation in the central regions. It should be stated that this is a test of reliability and a measure for the relationship.
The availability of materials from suppliers should also be checked that they match with the products that are being required by the aircraft makers. This is especially important for unplanned and urgent orders. The practices to assure availability by the aircraft makers should also be mirrored into our own suppliers.
References
Schwartz, L. (2014, April 14). Booming Commercial Aviation Industry Presents Supply Chain Challenges -- and Opportunity. IndustryWeek. Retrieved May 14, 2016 from http://www.industryweek.com/supply-chain/booming-commercial-aviation-industry-presents-supply-chain-challenges-and-opportunity?page=2
FedEx Rate Tools. (n.d.). FedEx. Retrieved May 14, 2016 from http://www.fedex.com/ratetools/RateToolsMain.do
Trebilcock, B. (2014, October 29). American Airlines’ Approach To Examining Supplier Performance. Aviation Week & Space Technology - MRO Edition. Retrieved May 14, 2016 from http://aviationweek.com/mro-enterprise-software/american-airlines-approach-examining-supplier-performance
Zhang, B. (2015, November 2). China's answer to Airbus and Boeing has arrived. Business Insider. Retrieved May 14, 2016 from http://www.businessinsider.com/chinas-answer-to-airbus-and-boeing-has-arrived-2015-11
Horton, A. (2007 July). Stronger links. Boeing Frontiers, Supplier-Side Solutions. Retrieved May 14, 2016 from http://www.boeing.com/news/frontiers/archive/2007/july/mainfeature.pdf
Map of Major Airports in Canada and the United States. (n.d). Nations Online. Retrieved May 14, 2016 from http://www.nationsonline.org/oneworld/map/google_map_major_US_and_Canadian_Airports.htm
Advantages of St. Louis Warehouse Facilities. (n.d.). FW Warehousing. Retrieved May 14, 2016 from http://www.fwwarehousing.com/advantages-of-st-louis-warehouse-facilities/
