wal-mart logistics network lt john harrop and lt aaron baker

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Wal-Mart Logistics Network LT John Harrop and LT Aaron Baker

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Wal-Mart Logistics Network LT John Harrop and LT Aaron Baker. Background (US 2010). 3708 Retail Units 117 Distribution Centers 1.8 million employees. Background (US 2010). Annual Sales $258.3 Billion Annual Operating expenses $15 Billion Annual Transportation Costs $3 Billion. - PowerPoint PPT Presentation

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Page 1: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

Wal-Mart Logistics NetworkLT John Harrop and LT Aaron Baker

Page 2: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

• Background (US 2010)

• 3708 Retail Units • 117 Distribution Centers • 1.8 million employees

Page 3: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

• Background (US 2010)

• Annual Sales $258.3 Billion• Annual Operating expenses $15 Billion• Annual Transportation Costs $3 Billion

Page 4: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

• Background

• Wal-Mart Imports $25-$30 Billion of Chinese goods annually

• More than many countries– Russia– Australia– Canada

Page 5: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

• Background• 8010 Driver Associates• 7150 Tractors• 46,650 Trailers

Page 6: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

• Background• 1 Billion Miles/Year• 1.8 Million Store Deliveries;• 1.3 Million Deliveries from Suppliers

Page 7: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

• Model Assumptions• $3 per mile Transportation Cost (includes cost

of time at 65 mph)• $83.68 per hour • $50,000 in goods, value per container• $1500, cost to ship 1 container of goods from

China to California.• Demand across network is 1317 cntrs./day

Page 8: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

• Model Assumptions (cont.)• 3 Chinese suppliers– Each with supply of 350 containers/day– Shipping cost of $1500/container

Page 9: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

• Model Assumptions (cont.)• 3 U.S. Suppliers– Each with Supply of 200 containers/day– Shipping cost of $860/container– $2000 import penalty added– Total cost $2860/container

Page 10: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

• Model Assumptions (cont.)• Vancouver added as a back up port for Mira

Loma.– Can receive imports from China if needed– Transportation cost according to actual mileage

Page 11: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker
Page 12: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

ChineseSuppliers

Port Mira Loma

Import DC

U.S. Suppliers

Sams DC6493

Vancouver

Page 13: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

• Nodes/ArcsChinese

Suppliers Port start

RDC start

RDC End

Port End

Imp DC ST

Imp DC End

Wmt St Wmt End

Attack Arcs

Supply (-)

Demand (+)

Demand (+)U.S.

suppliers

Wmt St

Wmt St

Wmt End

Wmt End

Supply (-)

Page 14: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

• Measure of Effectiveness

• Solve a Min Cost Flow model using estimated costs to find the most cost effective way to meet all demands from DCs and individual stores on a given day.

Page 15: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

• Vulnerabilities• Wal-Mart Imports $25

to $30 billion annually from china

• Protesters might try to disrupt flow from Chinese Suppliers to shift business to U.S. merchants

Page 16: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

• Results: First Run, Protest Causes 3 Hour Delay

• No Interdictions:– Total transportation cost to meet demand is $3.6

million– 1050 containers from Chinese suppliers

(Entire Supply)– 267 from U.S. suppliers

Page 17: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

• Results: First Run, Protest Causes 3 Hour Delay

• 1 Protest: – Routes unchanged– Protest location:• Port Mira Loma

– Transportation cost increases by $263,592

Page 18: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

ChineseSuppliers

Port Mira Loma

Import DC

U.S. Suppliers

Sams DC6493

Page 19: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

• Results: First Run, Protest Causes 3 Hour Delay

• 2 Protests:• Routes unch.– Protest locations:• Port Mira Loma• CA Imports DC

– Transportation cost increases by $527,184

Page 20: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

ChineseSuppliers

Port Mira Loma

Import DC

U.S. Suppliers

Sams DC6493

Page 21: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

• Results: First Run, Protest Causes 3 Hour Delay

• 3 Protests:– Routes unch.– Protest locations:

• Port Mira Loma• CA Imports DC• RDC 7033

– Transportation cost increases by $723,497

Page 22: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

ChineseSuppliers

Port Mira Loma

Import DC

U.S. Suppliers

Sams DC6493

Page 23: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

• Results: First Run, Protest Causes 3 Hour Delay

• 4 Protests:– Routes unch.– Protest locations:

• Port Mira Loma• CA Imports DC• RDC 7033• South Sams DC

– Transportation cost increases by $790,776

Page 24: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

ChineseSuppliers

Port Mira Loma

Import DC

U.S. Suppliers

Sams DC6493

Page 25: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

• Results: First Run, Protest Causes 3 Hour Delay• 5 Protests:– Routes unch.– Protest locations:

• Port Mira Loma• CA Imports DC• RDC 7033• South Sams DC• RDC 6493

– Transportation cost increases by $815,854

Page 26: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

ChineseSuppliers

Port Mira Loma

Import DC

U.S. Suppliers

Sams DC6493

Page 27: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

• Results: First Run, Protest Causes 3 Hour Delay• 6 Protests:– 45% increase in Supply

from U.S.– Protest locations:

• Port Mira Loma• CA Imports DC• RDC 7033• South Sams DC• RDC 7047

– Transportation cost increases by $847,133

Page 28: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

ChineseSuppliers

Port Mira Loma

Import DC

U.S. Suppliers

Sams DC6493

Page 29: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

Operator Resilience curve

Number of Protests

0 2 4 6 8 10 120

200,000

400,000

600,000

800,000

1,000,000

1,200,000

cost

Page 30: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

Operator Resilience curve

• Operator Resilience curve• Steady cost increases from 1 – 6 protests– Increase in cost of $200K for each protest– First two attacks were on the busiest nodes

• Port Mira Loma & Imports DC

• Costs gradually drop off as number of attacks increases because only lower value attacks are left and supply begins to shift more to U.S. suppliers.

Page 31: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

• Results: Second Run, Protest Causes 24 Hour Delay

• No Interdictions:– Same as first Run– Total transportation cost to meet demand is $3.6

million– 1050 containers from Chinese suppliers

(Entire Supply)– 267 from U.S. suppliers

Page 32: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

• Results: Second Run, Protest Causes 24 Hour Delay

• 1 Protest: – Protest location:

• Port Mira Loma– Now use China to

Vancouver Route– Only 717 containers from

China.– Transportation cost

increases by $1.97 million/day

Page 33: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

ChineseSuppliers

Port Mira Loma

Import DC

U.S. Suppliers

Sams DC6493

Vancouver

Page 34: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

• Results: Second Run, Protest Causes 24 Hour Delay

• 2 Protest: – Protest location:

• Port Mira Loma• Vancouver

– Imports from China Stopped completely.

– 16% of demand cannot be met

– Transportation cost increases by $2.1 million/day

Page 35: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

ChineseSuppliers

Port Mira Loma

Import DC

U.S. Suppliers

Sams DC6493

Vancouver

Page 36: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

Operator Resilience curve

Number of Protests

0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.51.9

1.95

2

2.05

2.1

2.15

Cost

$ Mil

Page 37: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

Operator Resilience curve

• Operator Resilience curve• After 1 protest, supply from China is reduced

from 1050 containers/day to 717.• After 2 protests, supply from China is cutoff

completely• Additional cost to use U.S. suppliers instead of

Chinese suppliers for same goods is $2 million/day

Page 38: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

Operator Resilience curve

• Alternate Model 1• Created 3 suppliers in US and 3 suppliers in

China with slightly different prices.• Reduced competitive disadvantage of US

suppliers from $2000 to an average of $1500• Changed cost of 24 hour delay from nC to just

the cost of the delayed resources (assumed longer term supply chain)

Page 39: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

Operator Resilience curve

Number of Protests

$ Mil

1 2 3 4 5 6 7 8 9 10 110.0

100,000.0

200,000.0

300,000.0

400,000.0

500,000.0

600,000.0

700,000.0

800,000.0

900,000.0

0

100

200

300

400

500

600

700

800

900

ussupcost

Tons

Page 40: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

Operator Resilience curve• Operator Resilience curve

• Steady cost increases from 1 – 6 protests– Increase in cost of $250K for each protest– First two attacks were on the busiest nodes

• Port Mira Loma & Imports DC

• US suppliers see immediate increase in demand, but run out of supply after 3 attacks. If US suppliers were available, it would reduce Walmart costs and provide more US sales.

• Jumps in cost reflect cost increases to Chinese supply, and are mitigated when US supply is available.

Page 41: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

Operator Resilience curve

Number of Protests

$ Mil

0.5 1 1.5 2 2.5 3 3.5 4 4.50.0

500,000.0

1,000,000.0

1,500,000.0

2,000,000.0

2,500,000.0

3,000,000.0

3,500,000.0

Cost

Page 42: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

Operator Resilience curve

• Operator Resilience curve• After 1 protest, supply from China is reduced

from 1050 containers/day to 717. US suppliers reach max capacity immediately

• After 2 protests, supply from China is diverted to Vancouver port.

• 3rd attack is on Vancouver, which forces supply back to Port Mira Loma, at greatly increased cost

Page 43: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

Operator Resilience curve• 2nd Alternate Model

• Added Portland port, restored average competitive disadvantage of US suppliers to $2000, increased range of supplier costs.

• With a 3 hour delay, only one US supplier overcame competitive disadvantage (max US supply was 400/600), and Portland was never used.

• With a 24 hour delay, US supply was maxed at first blockage of Port Mira Loma, and Portland was used at that point, but was second port blockaded. Then a second blockage at Mira Loma, and then Vancouver, at which point delay costs were almost $3 million

Page 44: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

Operator Resilience curve• Conclusion & Recommendations

• Port Mira Loma, Vancouver, and CA Imports DC are the most likely places to cause a major disruption.

• Goods go from Port Mira Loma to Imports DC• Coordinate with local law enforcement to ensure a protest at

the Port can be contained quickly.• Use another DC as a back up to receive import goods if the

Import DC is blocked.• Location of alternate port is less important than reliability of

network, recruiting additional US suppliers would be key to keeping costs low during a disruption.

Page 45: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

Operator Resilience curve

• Future work• Expand the network to encompass the entire

U.S.• Assess actual cost difference between US and

Chinese suppliers, and available supplier capacity.

• Develop a metric to account for the “cost” of protesting to the protesters to estimate the amount of time a disruption would last.

Page 46: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

References

• References• http://www.epi.org/publication/ib235/• Wal-Mart 2010 notice to shareholders.• http://www.etrucker.com/2009/01/05/new-

data-on-trucking-costs-available/

Page 47: Wal-Mart Logistics Network LT John  Harrop  and LT Aaron Baker

References

Questions?????????