Title: Inventory management system for reducing overall warehouse and pipeline inventory
Abstract: A computer system for use in reducing overall pipeline inventory within a distribution network that includes a central warehouse that is: (1) adjacent a transportation hub; and (2) configured to store sufficient component parts to provide a regular stream of parts to each of a plurality of manufacturing facilities. The computer system is preferably configured for coordinating the transportation of a regular stream of parts to each of the manufacturing facilities by transporting component parts from the central warehouse to the manufacturing facilities primarily via an expedited delivery service performed using the transportation hub. The expedited delivery service may include, for example, guaranteed delivery within one or two days. This reduces the overall pipeline and warehouse inventory within the distribution network by reducing the average transit time for each part, and by reducing the amount of safety stock that is needed to support the operations of the manufacturing facilities.
Patent Number: 7,016,764 Issued on 03/21/2006 to Penkar, et al.
| Inventors:
|
Penkar; Rajan C. (Alpharetta, GA);
Johnson; Michael D. (Alpharetta, GA);
Hanlon; Larry A. (Alpharetta, GA);
Reulbach; Raymond A. (Lawrenceville, GA);
Jones; Gina L. (Roswell, GA);
Castagno; Tony R. (Alpharetta, GA)
|
| Assignee:
|
United Parcel Service of America, Inc. (Atlanta, GA)
|
| Appl. No.:
|
387154 |
| Filed:
|
March 11, 2003 |
| Current U.S. Class: |
700/214; 700/216; 700/219; 700/95; 705/28 |
| Current Intern'l Class: |
G06F 7/00 (20060101); G06F 19/00 (20060101); G06F 17/60 (20060101) |
| Field of Search: |
700/213,214,216,219,95,99
235/375,385
705/28,29
|
References Cited [Referenced By]
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Other References
Ken Cottrill, e-Strategies, Fringe Benefits, magazine, Aug. 4, 2003, p. 13, traffic
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Jennifer Baliko Shah, Special Report Companies to Watch: UPS Logistics Becomes
Hub of Activity, Retrieved from Internet Site http://www.ebonline.com/suppchain/analysis/storyOEG2001121450057,
Dec. 17, 2001, pp. 1-3, EBN, EBTN Network.
|
Primary Examiner: Crawford; Gene O.
Attorney, Agent or Firm: Alston & Bird LLP
Parent Case Text
CROSS REFERENCE TO RELATED APPLICATION
This application claims the benefit of U.S. Provisional Application Ser. No.
60/363,604, which was filed on Mar. 11, 2002, and which is hereby incorporated
herein by reference.
Claims
What we claim is:
1. A method of distributing parts, said method comprising the steps of:
providing a central warehouse adjacent a transportation hub;
maintaining sufficient parts within said central warehouse to provide a regular
stream of parts to each of a plurality of manufacturing facilities;
providing a regular stream of parts to each of said manufacturing facilities
by transporting component parts from said central warehouse to each of said manufacturing
facilities primarily via an expedited delivery service performed using said transportation
hub, said step of providing said regular stream of parts comprising transporting
a particular part from said central warehouse to a particular one of said manufacturing
facilities; and
after said particular part has been assembled into a finished product a said
particular manufacturing facility, transporting said finished product back to said
central warehouse via said transportation hub.
2. The method of claim 1, wherein said expedited delivery service includes guaranteed
delivery within two days.
3. The method of claim 1, wherein said expedited delivery service includes guaranteed
delivery within one day.
4. The method of claim 1, wherein said expedited delivery service comprises air delivery.
5. The method of claim 1, wherein said regular stream of parts is sufficient
to supply at least one of said manufacturing facilities with at least about sixty
percent of said manufacturing facility's needed supply of a particular kind of
component part.
6. The method of claim 1, wherein said regular stream of parts is sufficient
to supply at least one of said manufacturing facilities with at least about eighty
percent of said manufacturing facility's needed supply of a particular kind of
component part.
7. The method of claim 1, wherein said transportation hub is an air hub.
8. The method of claim 1, wherein said transportation hub is a ground hub.
9. The method of claim 1, wherein said central warehouse is used to supply a
regular stream of parts to each manufacturing facility within a nationwide network
of manufacturing facilities.
10. The method of claim 1, further comprising the step of, after transporting
said finished product back to said central warehouse via said transportation hub,
sending said finished product to a customer via said transportation hub.
11. The method of claim 1, further comprising the step of, after transporting
said finished product back to said central warehouse, performing a value added
service on said finished product at said central warehouse.
12. The method of claim 11, wherein said value added service is labeling said product.
13. The method of claim 11, wherein said value added service is assembling said
finished product into a kit.
14. A method of distributing parts, said method comprising the steps of:
providing a central warehouse adjacent a transportation hub;
maintaining sufficient parts within said central warehouse to provide a regular
stream of parts to each of a plurality of manufacturing facilities;
providing a regular stream of parts to each of said manufacturing facilities
by transporting component parts from said central warehouse to each of said manufacturing
facilities primarily via an expedited delivery service performed using said transportation
hub, wherein:
said component parts comprise one or more electronic components; and
said method further comprises the step of loading software onto said one or more
electronic components at said central warehouse.
15. The method of claim 14, said one or more electronic components comprise one
or more computer chips.
16. The method of claim 14, wherein said expedited delivery service includes
guaranteed delivery within two days.
17. The method of claim 14, wherein said expedited delivery service includes
guaranteed delivery within one day.
18. The method of claim 14, wherein said expedited delivery service comprises
air delivery.
19. The method of claim 14, wherein said regular stream of parts is sufficient
to supply at least one of said manufacturing facilities with at least about sixty
percent of said manufacturing facility's needed supply of a particular kind of
component part.
20. The method of claim 14, wherein said regular stream of parts is sufficient
to supply at least one of said manufacturing facilities with at least about eighty
percent of said manufacturing facility's needed supply of a particular kind of
component part.
21. The method of claim 14, wherein said transportation hub is an air hub.
22. The method of claim 14, wherein said transportation hub is a ground hub.
23. The method of claim 14, wherein said central warehouse is used to supply
a regular stream of parts to each manufacturing facility within a nationwide network
of manufacturing facilities.
24. The method of claim 14, wherein said one or more electronic components comprises
a plurality of electronic components.
25. The method of claim 14, further including the step of assigning at least
a particular one of said electronic components a part number in response to said
step of loading software onto said particular one of said electronic components.
26. The method of claim 25, wherein said part number indicates the functionality
of said particular one of said electronic components.
27. The method of claim 14, wherein said method further comprises the steps of:
assigning a first part number to a particular one of said one or more electronic
components;
updating a database to associate said first part number with said particular
electronic component;
receiving an indication that software has been loaded onto said particular electronic
component;
in response to receiving said indication, assigning a second part number to said
particular electronic component; and
updating a database to associate said second part number with said particular
electronic component.
28. The method of claim 27, wherein said method further comprises maintaining
a history of one or more part numbers that were formally associated with said particular
electronic component.
29. The method of claim 27, wherein said method further comprises maintaining
a history of substantially all part number that have been associated with said
particular electronic component since said particular electronic component entered
said central warehouse.
Description
FIELD OF THE INVENTION
This invention relates to systems and methods for coordinating the delivery
of items (such as component parts) from a supplier to a manufacturer. This system
and method is discussed below in relation to delivering component parts from a
supplier of electronics components (or "parts") to an electronics manufacturer.
However, as will be understood by one skilled in the art, the concepts described
below may be applied to coordinating the delivery of other items, such as mechanical
parts or finished consumer items.
BACKGROUND OF THE INVENTION
One important aspect of manufacturing is maintaining a reliable and predictable
supply chain of components from suppliers to manufacturers. A typical supply chain
requires the involvement and coordination of several different participants. These
participants typically include one or more of each of the following: (1) suppliers;
(2) third party logistics providers (3PL's); (3) contract manufacturers; and (4)
Original Equipment Manufacturers (OEM's). These different participants are discussed
briefly below.
OEM's are manufacturers and distributors of products. OEM's have traditionally
manufactured at least some of their products in-house, but there is a trend to
outsource more manufacturing work to contract manufacturers. Dell and Compaq are
examples of OEM's.
Suppliers typically manufacture component parts that are needed to produce
a larger product. An example of a well-known component supplier is Intel, a company
that produces microprocessors and other components that are used within larger
electronic devices, such as personal computers and servers.
Third party logistics providers are third party companies (such as UPS Supply
Chain Solutions) that coordinate the shipping of parts from suppliers to manufacturers.
These "3PL's" often maintain warehouse facilities (such as proximity hubs) for
storing components before the components are needed by manufacturers.
Contract manufacturers are manufacturers who perform manufacturing work
on a contractual basis. These contract manufacturers have historically produced
sub-assemblies for use in larger products, but now also commonly produce finished
products (such as personal computers and servers) for OEM's, which then distribute
the products. Solectron, Flextronics, and Celestica are examples of contact manufacturers.
Ideally, a supply chain would be coordinated so that a dependable stream
of parts would be shipped from a supplier to a manufacturer (for example, a contract
manufacturer or OEM) so that parts would always arrive at the precise moment that
the parts are needed at the assembly line. This ideal supply chain would also be
structured so that the manufacturer would always have sufficient parts to manufacture
products at the manufacturer's desired rate without interruption.
Of course, due to the realities of the manufacturing and logistics worlds, such
an idealized situation would be difficult, if not impossible, to achieve. This
is due, in part, to fluctuations in supply and demand for both the component parts
produced by the supplier and for the finished items produced by the manufacturer.
The unpredictability typically associated with shipping parts over long distances
has also made it difficult to attain the idealized logistics situation described above.
These real-world uncertainties have resulted in unpredictable supply streams
in which it is difficult to determine exactly when parts will arrive at a given
manufacturing plant (or at a local storage facility, such as a proximity hub, associated
with the manufacturing plant). Accordingly, to avoid any interruption in manufacturing
production due to lack of parts, manufacturers typically maintain a stockpile of
parts called "safety stock" at a local storage facility (such as a proximity hub)
close to the manufacturing plant.
As will be understood by one skilled in the relevant field, the amount of safety
stock that a manufacturer needs to have available near a manufacturing facility
(e.g., a manufacturing plant) in order to assure uninterrupted operation of their
manufacturing facilities is directly related to the predictability of the supply
of products to the manufacturing facility (or a warehouse close to the manufacturing
facility). For example, if a manufacturer can rely on needed parts to arrive within
a two day delivery window, the manufacturer may only need to keep a two to three
day safety stock of parts on hand. However, if the manufacturer can only rely on
needed parts to arrive within a seven day delivery window, the manufacturer would
need to keep a significantly larger safety stock on hand to assure uninterrupted
operation of the manufacturing facilities.
In recent years, demand for electronic components has been relatively low. This
has provided manufacturers with increased market power in negotiating the terms
of supply agreements with component manufacturers. As a result, manufacturers have
begun to demand that suppliers enter into Vendor Managed Inventory (VMI) agreements
(also known as Supplier Managed Inventory (SMI) agreements) in which the supplier
maintains a sufficient safety stock of the supplier's parts in a warehouse (called
a proximity hub, or a VMI) within a short distance of each of the manufacturer's
manufacturing facilities.
Under the terms of a typical VMI agreement, the supplier must maintain an amount
of safety stock within each proximity hub that is sufficient to assure that operations
at the neighboring manufacturing facility will not be interrupted due to lack of
the supplier's parts. Typically, ownership of these parts is not transferred from
the supplier to the manufacturer until the manufacturer requests (or "pulls") the
parts from the supplier. This forces the suppliers to bear the cost and risk of
maintaining the manufacturer's safety stock (and of maintaining this inventory
on their books), and to dedicate an often unnecessarily excessive amount of stock
to a single manufacturing facility.
Current VMI arrangements are advantageous to manufacturers because: (1) there
is a significant reduction in component inventory because the supplier is forced
to maintain this inventory; and (2) the close proximity of the proximity hubs to
the factory ensures production continuity and upside protection. Current VMI arrangements
provide at least one advantage to suppliers in that they allow for "actual usage"
visibility, which improves inventory forecast accuracy for the supplier.
Understandably, because current VMI practices are unfavorable to
suppliers, very few suppliers are willing to agree to such arrangements. In addition,
it is expected that, as demand for component parts increases, even fewer (if any)
suppliers will be willing to agree to these prior art VMI arrangements.
One particular disadvantage of current VMI systems is lack of visibility. It
is currently common for a given supplier to supply parts to proximity hubs that
are run by many different 3PL companies. These 3PL companies can range in sophistication
from large, sophisticated 3PL providers to small, local, unsophisticated 3PL providers.
As a result, suppliers have difficulty obtaining information on the status and
allocation of their parts while the parts are stored at the proximity hubs, and
manufacturers have difficulty obtaining information regarding their current allocation
of parts and the shipping status of these parts. As will be understood by one skilled
in the relevant filed, this, along with unpredictable variations in demand, has
contributed to the undesirable "bullwhip effect", which causes manufacturers to
request that excessive numbers of parts be maintained at their proximity hubs.
This lack of visibility has also made it difficult for suppliers to quickly and
effectively re-allocate parts from one manufacturer to another in response to changing
market conditions.
The following is a list of selected disadvantages associated with current VMI arrangements:
- 1. They result in an excessive amount of inventory being stored at the
various proximity hubs. This inventory is essentially only available for purchase
by those manufacturers nearby. Thus, manufacturers monopolize the inventory, but
have no commitment to buy it. Furthermore, manufacturers often over-order to make
absolutely sure that they will always have the components that they need. Thus,
this situation is not advantageous for the supplier.
- 2. Revenue realization is delayed for the supplier because ownership
of the supplier's goods is not transferred until the goods are "pulled" for use
by the manufacturer.
- 3. The supplier's inventory is fragmented into multiple proximity hubs
that are typically run by multiple (small) 3PL organizations. This increases the
risk that certain parts may go unused.
- 4. There is typically no unified inventory visibility once parts are
consigned to proximity hubs.
- 5. It is difficult, using prior art VMI systems, to reallocate consigned
inventory based on changes in demand.
- 6. The demand fragmentation at a large number of proximity hubs reduces
forecast accuracy.
- 7. It is difficult and expensive to aggregate parts using current VMI systems.
- 8. The overall visibility available according to current, prior art
VMI arrangements is typically very low. As a result, even if a supplier had extra
parts at one proximity hub, and needed parts at another proximity hub, the supplier
would have no way of knowing this.
- 9. The lack of visibility within current VMI systems leads to a lack
of trust by the manufacturers that their parts will arrive on time. This is a further
incentive for manufacturers to order more parts from the supplier than they really
need, which results in unnecessarily high inventory costs.
- 10. Because large stockpiles of safety stock are maintained at the VMI,
suppliers are exposed to the risk that the stored products will become obsolete
while in storage. This is a significant risk in industries, such as the electronics
industry, in which parts tend to become outdated quickly.
SUMMARY OF THE INVENTION
The present invention provides an improved logistics system. In one embodiment
of the invention, the system is configured for tracking items, such as component
parts, within a central warehouse. In this embodiment of the invention, the system
is configured for: (1) assigning a first identification indicia to an item within
the central warehouse; (2) updating a database to associate the first identification
indicia (such as a first part number) with the item; (3) receiving a request to
reallocate the item from a first entity to a second entity; (4) in response to
receiving the request, reallocating the item from the first entity to the second
entity; (5) in response to the item being reallocated from the first entity to
the second entity, assigning a second identification indicia (such as a second
part number) to the item; and (6) updating the database to associate the second
identification indicia with the item.
A system according to another embodiment of the invention is configured for tracking
parts at a central warehouse. More particularly, this system is configured for:
(1) assigning a first part number to a part within the central warehouse; (2) updating
a database to associate the first part number with the part; (3) receiving an indication
that the part has been modified; (4) in response to receiving the indication, assigning
a second part number to the part; and (5) updating a database to associate the
second part number with the part. In one embodiment of the invention, the step
of receiving an indication that the part has been modified comprises receiving
an indication that the part has been loaded with a particular type of software.
In this embodiment, the second part number preferably corresponds to a part that
has been loaded with the particular type of software loaded onto the part.
The system is preferably configured for maintaining a history of one or more
part numbers that were formally associated with the part. In one embodiment of
the invention, the system is configured for maintaining a history of substantially
all of the part numbers that have been associated with the part since the part
initially entered the central warehouse.
A method of distributing parts according to an embodiment of the invention comprises:
(1) providing a central warehouse adjacent a transportation hub, such as an air
or ground hub; (2) maintaining sufficient parts within the central warehouse to
provide a regular stream of parts to each of a plurality of manufacturing facilities;
and (3) providing a regular stream of parts to each of the manufacturing facilities
by transporting component parts from the central warehouse to each of the manufacturing
facilities primarily via an expedited delivery service performed using the transportation
hub. The expedited delivery service may include, for example, guaranteed delivery
within one or two days.
In one embodiment of the invention, the above-referenced step of providing a
regular
stream of parts to each of the manufacturing facilities is sufficient to supply,
via an expedited delivery service, at least one of the manufacturing facilities
with at least about sixty percent, or at least about eighty percent, of the manufacturing
facility's needed supply of a particular kind of component part. In a particular
embodiment of the invention, the central warehouse is used to supply a regular
stream of parts to each manufacturing facility within a nationwide network of manufacturing facilities.
A method according to a further embodiment of the invention includes the additional
steps of: (1) transporting a particular part from the central warehouse to a particular
one of the manufacturing facilities; and (2) after the particular part has been
assembled into a finished product at the particular manufacturing facility, transporting
the finished product back to the central warehouse via the transportation hub.
This method also may include the step of performing a value added service on the
finished product at the central warehouse. This value added service may include,
for example, labeling the product or assembling the finished product into a kit.
In one embodiment of the invention, after the finished product is transported to
the central warehouse via the transportation hub, the finished product is sent
to a customer via the transportation hub.
In one embodiment of the invention, the component parts include one or more electronic
components (such as computer chips), and the inventive method comprises the step
of loading software onto the electronic components at the central warehouse. One
embodiment of the invention includes the step of assigning at least a particular
one of the electronic components a part number in response to the step of loading
software onto the particular one of the electronic components. This part number
preferably indicates the functionality of the programmed computer chip.
A method according to yet another embodiment of the invention includes the steps
of: (1) storing a plurality of parts in a central warehouse; and (2) allowing a
user to reallocate (preferably simultaneously) the plurality of parts from a first
entity to a second entity without requiring the plurality of parts to be physically
moved from the central warehouse. This method preferably further comprises the
step of allowing a user to reallocate the plurality of parts from a second entity
to a third entity without requiring the plurality of parts to be physically moved
from the central warehouse.
A method according to another embodiment of the invention includes the additional
steps of: (1) storing the plurality of parts in the central warehouse for a first
period of time during which the plurality of parts are allocated to a first entity;
(2) after the step of storing the plurality of parts in the central warehouse for
the first period of time, receiving a request to reallocate the plurality of parts
from the first entity to the second entity; (3) in response to receiving the request,
reallocating the plurality of parts from the first entity to the second entity;
and (4) after reallocating the plurality of parts to the second entity, continuing
to store the plurality of parts in the warehouse. In one embodiment of the invention,
the method includes the additional steps of: (1) after reallocating the plurality
of parts to the second entity, receiving a second request to reallocate the plurality
of parts from the second entity to a third entity; (2) in response to receiving
the second request, reallocating the plurality of parts from the second entity
to the third entity; and after reallocating the plurality of parts to the third
entity, continuing to store the plurality of parts in the warehouse.
In a preferred embodiment of the invention, the method further comprises the
step
of providing a computer system that is configured to allow a user to use a "drag-and-drop"
technique on a display screen to perform the step of reallocating (preferably simultaneously)
the plurality of parts from the first entity to the second entity. The system is
preferably configured to reallocate the plurality of parts from a first entity
to a second entity without changing a physical position of the plurality of parts
within the central warehouse.
BRIEF DESCRIPTION OF THE DRAWINGS
Having thus described the invention in general terms, reference will now be
made to the accompanying drawings, which are not necessarily drawn to scale, and wherein:
FIG. 1 is a graphical depiction of a typical inbound distribution flow of electronic
parts under a prior art VMI system.
FIG. 2 is a schematic depiction of a prior art electronics manufacturing supply chain.
FIG. 3 is a graphical depiction of the distribution flow of a "Direct Replenishment
Model" logistics system according to one embodiment of the invention.
FIG. 4 graphically depicts how value added services preferably occur at the
LTC, and how these value added services affect a part's part number according to
one embodiment of the invention.
FIG. 5 is a graphical depiction of the distribution flow of a "Regional Replenishment
Model" logistics system according to one embodiment of the invention.
DETAILED DESCRIPTION OF THE INVENTION
The present invention now will be described more fully hereinafter with reference
to the accompanying drawings, in which preferred embodiments of the invention are
shown. This invention may, however, be embodied in many different forms and should
not be construed as limited to the embodiments set forth herein. Rather, these
embodiments are provided so that this disclosure will be thorough and complete,
and will fully convey the scope of the invention to those skilled in the art. Like
numbers refer to like elements throughout.
As will be appreciated by one skilled in the art, the present invention may be
embodied as a method, a data processing system, or a computer program product.
Accordingly, the present invention may take the form of an entirely hardware embodiment,
an entirely software embodiment or an embodiment combining software and hardware
aspects. For example, the present invention may be embodied in a computer system
that is configured to coordinate, preferably in an automated manner, the methods
described below.
Furthermore, the present invention may take the form of a computer program
product on a computer-readable storage medium having computer-readable program
code embodied in the storage medium. More particularly, the present invention may
take the form of web-implemented computer software. Any suitable computer-readable
storage medium may be utilized including hard disks, CD-ROMs, optical storage devices,
or magnetic storage devices.
Turning to the enclosed figures, FIG. 1 shows a typical inbound distribution
of electronic parts under a prior art VMI system. In prior art electronics VMI
supply chains, electronic components are typically shipped directly from suppliers
in Asia to a location on the West Coast, such as San Francisco. The parts are then
routed, for example, via standard delivery from this location to the various proximity
hubs. As shown in FIG. 2, under this system, it takes from 7 to 15 days to execute
the logistics processes needed to transport parts from the suppliers (i.e., the
component manufacturers) to the contract manufacturers. As discussed above, the
variability in time that it takes to deliver components from the suppliers to the
manufacturers makes it necessary for manufacturers to maintain additional safety
stock of components near their manufacturing facilities (usually at a proximity
hub near their plants).
In a preferred embodiment of the current invention, components are shipped directly
from the supplier to one or more central warehouses called a Logistics and Technology
Centers (LTC's). Each LTC is used to supply parts to multiple proximity hubs (i.e.,
"VMI's"). In a preferred embodiment of the invention, each LTC is located a short
distance from a transportation hub, such as an air or ground hub. For example,
in a preferred embodiment of the invention, each LTC is located within 30 miles,
and preferably within 5 miles of a transportation hub. In a preferred embodiment
of the invention, each LTC is located a short distance from a transportation hub
from which it is possible to make expedited shipments to a wide geographical range
of locations and preferably to a nationwide network of manufacturing facilities.
In a preferred embodiment of the invention, at least one LTC is located within
30 miles, and preferably within 5 miles of an air transportation hub.
The VMI logistics system of the present invention can preferably be customized
to suit the needs of the particular situation at hand. However, there are currently
two preferred embodiments of the system. In the first preferred embodiment, called
the direct replenishment model (an example of which is depicted in FIG.
3),
an LTC is provided directly next to an air hub. (Such an LTC is often referred
to an "end of runway facility".) Parts are shipped directly from suppliers to the
LTC, and the parts are shipped from the LTC to the individual proximity hubs (or
directly to individual manufacturing plants) as the parts are requested by particular manufacturers.
Because the LTC is located directly next to an air-hub shipping facility,
it is possible to reliably ship components from the LTC to a large number of proximity
hubs within 24 hours. In a preferred embodiment of the invention, a single LTC
is provided in Louisville, Ky. directly next to an air hub transportation facility.
This LTC may preferably be used to supply parts to proximity hubs throughout North
America. The logistics network is preferably configured so that parts can be reliably
delivered from the LTC to any proximity hub supplied by the LTC within 48 hours
of the part being requested. The logistics network is also preferably configured
so that the parts may be delivered from the LTC to any of the various proximity
hubs supplied by the LTC via next day or same day delivery, as necessary.
Stated generally, one method associated with the direct replenishment model
includes the steps of: (1) providing a central warehouse adjacent a transportation
hub; (2) maintaining sufficient parts within the central warehouse to provide a
regular stream of parts to each of a plurality of manufacturing facilities; and
(3) providing a regular stream of parts to each of the manufacturing facilities
by transporting component parts via an expedited delivery service that is performed
using the transportation hub. The parts are transported either directly from the
central warehouse to various manufacturing facilities, or to regional warehouses
(e.g., proximity hubs) associated with the manufacturing facilities. In one embodiment
of the invention, the regular stream of parts provided by the central warehouse
is sufficient to supply at least one of the manufacturing facilities with at least
about sixty percent (or at least about 80 percent) of the manufacturing facility's
needed supply of a particular kind of component part.
The advantage of the "direct replenishment model" described above is that it
makes it possible, when supply and demand variability are considered, to store
most of the safety stock required for multiple proximity hubs at a central storage
facility (e.g., an LTC). This dramatically reduces the need to store parts at remote
proximity hubs close to individual manufacturing plants.
One key aspect of the current system is the fact it uses expedited delivery (such
as guaranteed one-day or two-day delivery) from the central warehouse (e.g., LTC)
to the various proximity hubs to produce a very predictable and reliable stream
of deliveries to the proximity hubs. Because this delivery stream is so predictable,
it is only necessary to store a relatively small number of parts at the individual
proximity hubs. For example, in one preferred embodiment of the system, using the
logistics system described above, it would only be necessary to store less than
a day's worth of safety stock at each proximity hub. This is a dramatic improvement
from the 6-7 days worth of safety stock that must be stored at each proximity hub
using prior art VMI systems, and an even more dramatic improvement from the 30
days worth of safety stock that many manufacturers require in light of the uncertainties
associated with prior art VMI systems.
There are many advantages associated with the logistics system described above.
First, centralizing safety stock for multiple plants in a central location reduces
the total safety stock that must be kept on hand to assure that each plant within
the network has sufficient parts to maintain normal operations. This is due to
a known logistics principle called Maister's theory. According to Maister's theory,
provided that each plant that is supported by a single warehouse is using common
parts, the amount of additional safety stock (of the common parts) that must be
stored at the warehouse to support an additional plant is significantly less than
the amount of safety stock that would be required to support the plant if the safety
stock were stored near the plant and dedicated only to that plant.
In addition, according to Maister's theory, the amount of additional safety stock
that must be stored at the warehouse to support each plant decreases as the number
of plants supported by the warehouse increases. Thus, the safety stock per plant
ratio decreases as additional plants are added to be supported by the central warehouse.
Another advantage of centralizing the stock of multiple plants in an LTC
is that it makes tracking inventory much easier than if the parts were stored in
multiple, remote proximity hubs. This is due to the fact that a single 3PL and
a single inventory management system can be used to track all of the inventory
within the LTC. As discussed in more detail below, this can lead to enhanced management
capabilities and visibility for both suppliers and manufacturers.
A further advantage of centralizing the stock of multiple plants (regardless
of
whether the plants are owned by a single or multiple manufacturers) in an LTC is
that it makes reallocating parts from one plant to another (and/or from one manufacturer
to another) substantially easier than if the parts were stored in multiple proximity
hubs. In prior art VMI systems, in order to reallocate a part from one plant to
another, it is necessary to identify a suitable part at another plant's proximity
hub (which is difficult due to the limited visibility associated with prior art
systems). If such a part is located, the part must then be physically shipped from
its current proximity hub to the proximity hub associated with the plant to which
the part was being reallocated. This process is time consuming, and expensive.
Because, in a system according to the present invention, the majority of
safety stock is stored at a single LTC, reallocating parts from one plant to another
is simply a matter of updating a database to indicate the change in allocation.
Because all of the parts allocated for all of the various plants in the network
are maintained at the same location, there is no need to ship a part from one proximity
hub to another to execute a reallocation of the part. However, in some circumstances,
it may be desirable to relocate particular parts within the LTC after the parts
have been reallocated in order to facilitate later shipping of the reallocated parts.
In a preferred embodiment of the invention, the system includes a relational
database
that stores information regarding the current allocation of each part that is located
at the LTC. To reallocate a part from one plant to another, a user simply updates
this database to reflect the new reallocation. The user may be, for example, a
3PL employee who is processing a reallocation request received from a manufacturer.
It should be understood that parts may be freely allocated between different
plants
owned by a single contract manufacturer or OEM. (For example, if Dell's production
facility in Florida experiences spike in demand for a particular part, and Dell's
production facility in Oregon experiences decrease in demand for that part, parts
from Dell's Oregon facility may be reallocated to Dell's Florida facility to accommodate
the spike in demand.)
Furthermore, parts may also be freely allocated between different plants
owned by different contract manufacturers or OEM's. (For example, if Dell's production
facility in Florida experiences a spike in demand for a particular part and Compaq's
production facility in Texas experiences a decrease in demand for the part, the
supplier can simply reallocate parts from Compaq's Texas facility to Dell's Florida
facility.) A supplier's ability to perform such re-allocations will, of course,
depend upon the terms of the supplier's current agreements with the individual
contract manufacturers and OEM's. In one embodiment of the invention, in order
to assure that reallocations are made only by properly authorized individuals,
all reallocations will be made by 3PL employees, such as 3PL business analysts.
Thus, using an LTC is advantageous because it provides a large stockpile of
inventory in a single location and any particular component within that stockpile
may be re-allocated from one manufacturing plant to another (and/or from one manufacturer
to another) without physically moving the part. This presents a huge advantage
in the common situation in which a supplier is supplying the same component to
many different manufacturing facilities. As demands change, the supplier can quickly
change allocations to satisfy demand without shifting the physical location of
components. This aspect of the LTC is also advantageous because it reduces overall
pipeline inventory throughout the supply chain.
Value-Added Services
Another aspect of the present invention is that the LTC's may be configured
for performing value-added services on parts while the parts are being stored at
the LTC. This eliminates the need to ship the parts to an outside facility to have
these services completed. Such value-added services may, for example, include labeling
services, programming services, and kitting services. Typical labeling services
include stamping parts with an appropriate part name and/or part number. Typical
programming services include loading software onto component parts, such as computer
chips. Typical kitting services include assembling several individual parts into
a kit.
Providing such value added services at an LTC further increases opportunities
to aggregate parts at the LTC. This is due to the existence of "parent parts",
which are parts that may be used in several different products, either with or
without modification. For example, a single type of computer chip may be used in
a particular model of Dell computer, a particular model of Compaq computer, and
a particular video game system offered by Microsoft. In such a situation, a stockpile
of the parent part can be maintained at the LTC and appropriately labeled at the
LTC when it is determined that the product will shipped to a certain manufacturer.
Similarly, a single parent part (such as a computer chip) may be programmed
to perform different functions within a single product, or within several different
products. For example, a single computer chip may be programmed to perform a first
function in a Compaq computer or a second function in the same Compaq computer.
Similarly, the same computer chip may be programmed to perform a entirely different
third function in a Dell computer. In such a situation, a stockpile of the parent
part can be maintained at the LTC and appropriately programmed and labeled at the
LTC when the ultimate function and manufacturer is identified for the computer chip.
According to Maister's theory, the fact that a single parent part may be
used to satisfy an order for several different individual parts reduces the amount
of safety stock that must be maintained to assure a proper supply of the different
individual parts. Thus, for example, under certain circumstances, it may be necessary
to maintain a safety stock of 1000 items of part A, and 1000 items of part B if
a common parent part may not be used to fulfill orders of both parts A and B. However,
under these same circumstances, it may only be necessary to maintain a safety stock
of 1700 parent parts if the parent parts may be used to fulfill orders for both
parts A and B.
Accordingly, equipping an LTC with the ability to customize parent parts
to satisfy the orders for many different parts further increases aggregation opportunities
at the LTC. This, in turn, further reduces the amount of total inventory needed
for safety stock and reduces the overall logistics costs associated with the system.
FIG. 4 generally depicts the flow of how value added services would preferably
occur at the LTC. First, parent parts would arrive at the LTC. (Such parts are
depicted in the left-hand block shown in this figure.) When these parts arrive
at the plant they are associated with a parent part number that is provided by
the component supplier (CS) that manufactures the part.
Once the system determines which manufacturing facility will receive the part,
the part is labeled with the appropriate brand name and manufacturing facility
label. This labeling process can be initiated manually, automatically by the system,
or in any other manner known in the art. (After this labeling process, the part
is associated with a new part number that reflects the fact that the part has been
labeled for use by the particular contract manufacturer. Parts that have undergone
a first value-added service, such as labeling are indicated by the middle block
within FIG. 4.)
Next, after the system determines how the parent part is to be configured for
operation, the part is configured at the LTC in the appropriate manner. For example,
at this stage, a computer chip may be loaded with the appropriate software. The
part may also be labeled at this stage to indicate the functionality of the part
(which may correspond to the functionality of the software loaded onto the part)
with a unique part number.
Like the labeling process, the configuration process can be initiated manually,
automatically by the system, or in any other manner known in the art. (After this
configuration process, the part is associated with a new "Child Part Number" that
reflects the fact that the part has been configured for a particular use. Parts
that have undergone a second value-added service, such as configuration, are indicated
by the right-most block within FIG. 4.) The part is then distributed to the manufacturer.
It is important to note that similar techniques may be used to perform only a
single value-added service on a part before the part is shipped to a manufacturer,
or no value added services before a part is shipped to a manufacturer. Similarly,
while the example described above is described as including label and part configuration
as value-added services, any of a wide variety of different value-added services
may be performed in the place of either or both of these value added services.
In a preferred embodiment of the invention, any value-added services are performed
on the parent parts shortly before they are shipped to the manufacturer for use.
This preserves the generic nature of the parent parts as long as possible, which
maximizes the amount of time that it possible to easily reallocate the parts to
other plants and/or manufacturers.
Regional Replenishment Model
It should be understood that the "direct replenishment" model described above
includes somewhat increased transportation costs. These transportation costs are
incurred because expedited shipping is used to transport components from the LTC
to the individual proximity hubs. However, the slightly increased transportation
costs associated with the system of the present invention are offset by the increased
savings in inventory-related costs, provided the cost of each component part is
above a certain level. Thus, the "direct replenishment" model is generally cost-effective
for high-cost parts (e.g., parts that cost over $4 each). In one example, in which
each part costs $25, the reduction in logistics-related costs associated with a
"regional replacement" logistics model is over 30%.
For mid-priced parts (e.g., parts that cost around $3.50), the reduced inventory
costs provided by the system described above may be offset by the higher transportation
costs associated with expedited shipping. Thus, the model described above may not
be cost-effective for some mid-priced parts. However, as discussed in greater detail
below, the direct replenishment model may be modified to use the principles described
above in a cost-effective manner for transporting mid-priced parts by using a modified
version of the direct replenishment model called the "regional replenishment model".
A graphic depiction of an example of such a model is shown in FIG.
5.
As may be understood from FIG. 5, the "regional replenishment model" operates
in much the same way as the "direct replenishment" model described above, except
that additional LTC's are added, and each LTC covers a reduced delivery area. In
this model, each LTC is still preferably located close to a shipping hub. In one
embodiment of the invention, one or more of the shipping hubs is a ground hub rather
than an air hub. Because each LTC only supplies proximity hubs within a limited
geographic area, expedited air delivery between the LTC and the proximity hubs
is not normally necessary. However, because the LTC is preferably located at the
shipping hub, and because the distance between the LTC and each proximity hub is
preferably relatively short, it is still possible to provide fast, reliable deliveries
between the LTC and the proximity hubs, even without expedited air delivery.
However, because the transportation time between the LTC's and the proximity
hubs is not as fast as the direct replenishment model, it is necessary to maintain
a larger safety stock at the individual proximity hubs. This fact, combined with
the fact that the costs of the parts involved in this model are less than that
in the "direct replenishment" model discussed above, results in inventory-related
savings that are less than the savings associated with the "direct replenishment"
model. Thus, although the shipping costs associated with this model are reduced
somewhat, the inventory-related savings achieved by implementing this model are
also reduced. As a result, the total savings associated with implementing this
"regional replacement" model are generally less than the total savings associated
with implementing the "direct replenishment model. In one example, the reduction
in logistics-related costs associated with a "regional replacement" logistics model
is about 16%.
It is important to note that for some very inexpensive products, even the "regional
replacement" model may not be cost effective. For example, for products that cost
less than one cent, the inventory-related saving associated with using one or more
LTC's may not offset the additional logistics costs associated with implementing
the LTC's.
Transporting Finished Parts from Manufacturer
It is important to note that, while the system is described above in relation
to transporting component parts from a supplier to a manufacturer, once the system
is in place, it may also be used to efficiently transport and distribute finished
products from the manufacturer.
For example, after vehicles arrive near the proximity hubs with a load of parts
from the LTC and unload these parts, the vehicles can be re-loaded with finished
products from the manufacturer. The vehicles may then transport the finished products
to the LTC for storage and/or distribution. This is especially efficient, because,
as noted above, the LTC's are preferably located directly adjacent a transportation
hub, which may be used to both: (1) transport parts or other items from the LTC
to a manufacturing facility, and (2) transport parts, sub-assemblies, finished
products or other items from the manufacturing facility back to the LTC. In another
embodiment of the invention, the transportation hub may also be used to ship finished
products to customers. Thus, the transportation hub may be used to expedite shipment
of a finished product from the manufacturing facility to an end customer.
The LTC's may also be equipped to perform value-added services on the finished
products, such as labeling or kitting the products before shipping. This allows
manufacturers to minimize the time it takes to deliver its completed products to market.
Summary of the Selected Advantages Associated with the Use of LTC's
Below is a summary of the advantages of using a centralized LTC to sup
