Distribution Network for Michael's Hardware
Download as PPTX, PDF1 like2,181 views
Michael's Hardware is a leading provider of arts and crafts products in North America. It currently operates 64 stores across Illinois and Arizona, sourcing products from 8 suppliers in each region. The current distribution network relies on direct shipping, which has high transportation and inventory costs. To reduce costs as the business grows, the assistant recommends implementing milk run distribution for Illinois and cross docking for Arizona. This could save up to $4.6 million and $21,800 annually respectively by consolidating shipments and reducing inventory holdings. As the markets continue expanding, the network may need to scale operations through additional distribution centers.
Distribution Network for Michael's Hardware
- 1. Distribution Network for Michael’s Hardware Presented by Md. Rezwan, Raisul Haque Department of MPE,AUST 1
- 2. Open Hardware association NorthAmerica's largest provider of arts, crafts, framing, wall décor Sells a variety of arts and crafts products, including beading, knitting, rubber stamping, home decor items Michael’s Hardware 215-02-07-066
- 3. 3 1973 Micahel J. Dupey found Michaels in Dallas 1982 MJ Designs is founded 1984 The Michaels Companies formed, with 16 stores 1994 The company bought several arts & crafts stores Acquires Aaron Brothers Holdings Inc., an art supplier store 1995 2008 The company unveiled its 1000th store 2018 The company had 1251 stores in 49 out of 50 states in USA Overview 15-02-07-066
- 4. The Company 64 Stores • First Location • 8 Suppliers • Strong Sales • 50,000 units/ Supplier/Year • 400000 units/Store/Ye ar Illinois • 5 years in the Market • 8 Suppliers • Growing Every day • 10,000 units/Supplier /Year • 80000 units/Store/Y ear Arizona 415-02-07-066
- 5. Transportation Mode Truck • TL • LTL 515-02-07-067
- 6. Transportation Network Direct Shipment S B 615-02-07-067
- 7. High Transportation Cost High Inventory Cost Less Efficient Problems in Present SCM 715-02-07-072
- 8. Distribution Alternatives Milk Run Cross Docking S BS B DC Illinois • Direct Shipping With Large Truck • Milk Run with Both Small & Large Truck Arizona • Direct Shipping With small Truck • Milk Run with Small Truck • Cross Docking 815-02-07-072
- 9. Questions answer-1 What is the annual distribution cost of the current distribution network? Include transportation and inventory costs. Direct Shipping Using Small Tuck Illinois(TL) Arizona(LTL) Unit Sold 50000 10000 Transportation Capacity 10000 500 Shipment 50000/10000=5 ………. Cost Per Truck $450 ………. Cost Per Unit ……. $.5/unit Total Transportation cost 5×450×8×32=$5,76,000 8×32×10000×.5=$12,80,000 Holding cost/Unit $1 $1 Total Holding cost (10000/2)×8×32=$12,80,000 (500/2) ×8×32=$64,000 Total Annual Cost $576000+$1280000=$18,56,000 $1280000+$64000=$13,44,000 915-02-07-073
- 10. Questions answer-2 How should Ellen structure distribution from suppliers to the stores in Arizona? What annual savings can she expect? Illinois Initial With Larger Truck Milk Run 1 Milk Run 2 Unit Sold 50000 50000 50000 50000 Transportation Capacity 10000 40000 40000 10000 Shipment 5 50000/40000=1.25 50000/10000=5 50000/2500=20 Cost Per Truck $450 $1150 1000 400 Total Transportation cost $5,76,000 1.25×1150×8×32 =$3,68,000 5×8×32×((1000/4)+150) =$5,12,000 $12,80,000 Holding cost/Unit $1 $1 $1 $1 Total Holding cost $12,80,000 20000×8×32=51,20,000 (10000/2)×8×32=12,80,000 $320000 Total Annual Cost $18,56,000 $54,88,000 $17,92,000 $16,00000 Savings ………. $64,000 $2,56,000 10 Batch Size ………. ………. 40000/4=10000 10000/4=2500 15-02-07-073
- 11. Questions answer-3 How should Ellen structure distribution from suppliers to the stores in Illinois? What annual savings can she expect? Arizona Initial With smaller Truck Milk Run Cross Docking Unit Sold 10000 10000 10000 10000 Transportation Capacity 500 10000 10000 10000 Shipment ………. 10000/10000=1 10000/2500=4 1 Cost Per Truck ………. $2050 2000 $250 Cost Per Unit $.5/unit …….. …………. 0.10 Total Transportation cost $12,80,000 1×2050×8×32 =$5,24,800 4×8×32×((2000/4)+50) =$5,63,200 1×8×4150+250×32+ 10000×0.10=$42200 Holding cost/Unit $1 $1 $1 $1 Total Holding cost $64,000 5000×8×32=$12,80,000 (2500/2) ×8×32=3,20,000 (10000/2)×8×32= 12,80,000 Total Annual Cost $13,44,000 $18,04,800 $8,83,200 $1322200 Savings ……… $4,60,800 $21,800 11 Batch Size …… ………. 10000/4=2500 …… 15-02-07-074
- 12. The best options for Michael’s Hardware is continuing Direct shipment with Both Milk Run and Cross Docking Questions answer-4 What changes in the distribution network (if any) would you suggest as both markets grow? 12 Conclusion Its neighboring competitors are Michael’s competitors include Hobby Lobby, Ben Franklin, Jo-Ann Stores. For capturing the market share it should be Responsive and Bring cost efficient product 15-02-07-074