hub and spoke system
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Hub and Spoke System. Cameron Stevens Brigham Young University. Things to consider. What is it? Processes that can use a hub and spoke model How it works Benefits: Why use hub and spoke? Drawbacks Example: Lowes Application . What is a “Hub and Spoke” model?. - PowerPoint PPT PresentationTRANSCRIPT
Cameron StevensBrigham Young University
Hub and Spoke System
Things to consider• What is it?• Processes that can use a hub and spoke model• How it works• Benefits: Why use hub and spoke?• Drawbacks• Example: Lowes• Application
What is a “Hub and Spoke” model?
•Logistics term used to describe a transportation network of routes connecting origins to destinations
•Its name is derived from the hub and spoke model of a wheel
What is a “Hub and Spoke” model?
• Companies centralize large distribution centers which essentially do three things– receive goods/information coming from many suppliers– consolidate goods/information according to the location where they are to be shipped– ship them individually to their final destination.
Processes that use Hub and Spoke
• Manufactured goods:– e.g. Retail
• Services: – e.g. Airlines
Processes that use Hub and Spoke
• Information: – e.g. Financial Services
• Technology: – e.g. Business Software systems
How it Works
• Pure Hub and Spoke vs. Hybrid Hub and Spoke
How it Works• Hub and Spoke vs. Point to Point
– One model consists of centralized transportation while the other model consists of many routes that are decentralized
– Hub and spoke design simplifies the network of routes
How it Works
• Inter-hub (primary routes)
• Spokes (secondary routes)
How it Works• Design methods – various models
– weighted factor analysis– centroid method– linear models– single and multiple allocation p-hub median
problems
Benefits: Why use a Hub and Spoke System
• A hub and spoke distribution has several advantages that fall under these general areas– efficiency/ effectiveness– economies of scale– cost reduction
Benefits: Why us a Hub and Spoke System
• Efficiency and effectiveness
• ensures that most routes are full or close to full
• reduces the amount of deliveries lost in transit
Benefits: Why use a Hub and Spoke System
• Economies of scale– By having larger loads, you take advantage of
lower per unit costs
Benefits: Why use a Hub and Spoke System?
• Transportation cost reduced• There is less time spent in transport which directly
reduces the cost of the activity
• Management costs• Management specialists generally focus on one location
for distribution logistics
Drawbacks
• Disruption at the hub
• Bound by hub capacity
• Increased bureaucracy
Example: Lowes• How to create competitive advantage in
distribution logistics• Goals –
– gain market share– higher profit margins
Example: Lowes• Logistics and transportation costs take up a
large portion of the cost of goods sold
• Implementing the Hub and Spoke reduced transportation and distribution costs
Example: Lowes• The longer your assets are in transit, the
higher your acquisition costs
• The key was reducing cycle time so that goods were being delivered at a quicker rate
Example: Lowes• Idle inventory can create problems with
turnover and lower return on assets• The key was decreasing the days in
inventory by – reducing inventory levels – saving on holding costs
Application• Finding an efficient method for designing a
hub and spoke network– You have a situation where you have operation
around a geographic area and you want to know where to locate a hub with respect to two factors-
• relative distances?• importance (load amount) of routes?
Application• Designing a hub and spoke model is only an
advantage if designed properly• To illustrate a design method, we will use
the centroid method• This is a method used to find the best
location for a distribution center
Application• You are a sporting goods retail chain and
are seeking to build a distribution center to serve your local operations around the intermountain west rather than having vendors deliver directly to local stores.
• 8 spokes or local branches exist within the geographic range you are looking to serve.
Application• Their respective coordinates are
– (100,165), (205, 300), (296,267), (371, 400), (445, 457), (526, 500), (600, 185), (634, 616)
• Their respective volume loads in tons per month are (000,000)– 25, 100, 560, 320, 1200, 420, 1520, 690
– Where do we locate a new distribution center?
Summary• What a Hub and Spoke model is and how it
works• Identified benefits and drawbacks to
implementing the system• Real world example• Ideas on how to design one
Suggested Readings• Hudson, Scott, “Success with Hub and Spoke distribution”, Supply Chain Cooperative
– NC State University. March 14, 2003.• Pirkul, “An Efficient Procedure for Designing Single Allocation Hub and Spoke
Systems”, Management Science, 44:12 (1998) -Part-2 pg:S235 -S242• Elhedhli, Samir . "Hub-And-Spoke Network Design With Congestion ." Computers
and Operations Research 32.6 (2005): 1615-1632.
Suggested Readings• Yaman, Hande . "Allocation strategies in hub networks."European
Journal of Operational Research16 June 2011, Pages 442-451 211.3 (2011): 442-451.
• Horner, Mark W. . "Embedding economies of scale concepts for hub network design."Journal of Transport Geography 9.4 (2001): 255-265.