Questions along this line is popping up with greater frequency. The following is from a recent answer I had provided on the subject of warehousing and distribution that should serve as an introduction to a sound str4ucture.
Here are a series of excerpts from an NYCTA Case Study you should find interesting. (Note: if you would like a copy of the actual study as well as a corresponding DND study please contact the author.)
Challenges
The NYCTA contract established a target SLA of 90% same day (Pick-Up
service within 1- hour, and On-Site service within 3-hours) for critical systems.
95% of all service calls required the 1-hour Pick-Up service.
Solution Mehtodology
Utilizing a consumption forecast model developed internally (Part Requirement Rate Formula or PRRF), the analysts were able to accurately estimate the frequency of consumption per device based on the current NYCTA install base.
Once consumption rates were established by device type, an Parts Compression Function (PCF) was employed to reduce the number of inventoried SKU’s without negatively impacting the established
SLA.
This resulted in a significant savings for the client as they were able to; a)
lower their investment in inventory, b) reduce warehousing costs, c) eliminate variables for field technicians i.e. device drivers, d) establish a more proficient Life Cycle Management process and, e) capitalize on volume discounting.
In an effort to effectively access inventory on a timely basis, Strategic Stocking Locations (SSL) were established which could be accessed
through a central application referred to as the Interactive Parts Ordering System (IPOS).
An advanced time zone algorithm was employed which through a real-time polling capability was able to ascertain within seconds which SSL site was best suited geographically to meet the required SLA. This innovation combined with the PCF reduced the process handling time by approximately 95%, thereby addressing a significant bottleneck.
While the establishment of the SSL sites and the corresponding deployment of the IPOS application enabled the client to meet and even surpass the 90% SLA contractual requirement in the majority of instances, the challenges associated with service calls for which the required part a) had not previously been requested or b) where past requirements were infrequent or sporadic, a process was which incorporated the utilization of Strategic Geographic Suppliers (SGS).
SGS Overview
To illustrate how the SGS process works we will reference an actual transaction.
The client had a contract to support a company’s centralized network server farm located in New York City. Critical to their day-to-day operations, the company demanded a minimum 3-hour response time.
When an essential cooling device failed the client attempted to obtain the part through normal channels including the Original Equipment Manufacturer (OEM). The best ETA the client received was 2 to 3 days (far beyond the 3-hour scope established in the contract with
the company).
While the client had close to 300 overall possible sources in the U.S. alone, they had neglected to establish strategic sources within established hot zones, re centers in which the SLA requirement called for a same day or better response/resolution time.
Through the establishment and implementation of an SGS process, the very next time the requirement for a critical component arose, the client was able to locate and satisfy the 3-hour response time.
Results
Combined with the utilization of IPOS to effectively manage SSL
consumption, the Strategic Geographic Sourcing mechanism enabled the client to consistently satisfy the SLA requirements of a demanding contract, while simultaneously reducing the associated costs of managing the large pools of inventory.
When outsourcing warehouse and distribution gets too inefficient and expensive what is the solution? - To learn more about this author, visit Jon Hansen's Website.
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