Merloni Elettrodomestici SpA:The Transit Point Experiment

Saurabh Dubey (G09033)Jaspal Singh (G09062)Neeraj Agarwal (G09068)Ranjay Singh (G09077)Santosh Sahoo (G09084)

Founded in 1930 by Aristide Merloni

Started with Weighing Instruments

In 1970s consisted of Four separate manufacturing

divisions Domestic Appliances Bath & Heating Products Industrial Products Built-in Kitchen and bath furniture

Company History

Created “Ariston” brand name for its products

Total Group Sales in 1984 was 626 billion Lire

Exports comprised to 60% of Sales

20% Average increase in Sales from 1980 to 1984

Company History

Served both the Freestanding & built-in appliance markets

5 plants -each dedicated to manufacture a single product line

1 Central warehouse & 17 Regional warehouses Each plant have its own Warehouse for Raw

material, components & finished products

Production

65% of Freestanding product sales through Company’s Regional warehouse network

No Built-in appliance distributed through Regional warehouse

Each Regional warehouse coupled with Regional sales office

Employed 3 independent drivers for daily local deliveries

Distribution

Distribution

PlantCentral

Warehouse“Fabriano”

Regional Warehouse

Plant

Plant

Plant

Plant

Regional Warehouse

Regional Warehouse

Regional Warehouse

Regional Warehouse

Regional Warehouse

Regional Warehouse

Direct Customers

Ware

hou

se

Man

ag

erOrder

Products from Central Warehouse

Cen

tral W

are

hou

se Shipment sent through Truckload when enough order accumulated

Reg

ion

al

Ware

hou

seTruckload received each week ( Range 2 to 10 as per demand)

Distribution

24-hour delivery from Regional warehouse

2-6 days if shipped from Central warehouse

Shipment delay is very common

Stock out impact more to small retail customer Most Retail stores closed in August causing sharp

decline in Sales during that month and then sharp rise in next month.

Retailers

After Sales Services is a Major function within the company

Total 145 Service centers

350 repair Technicians, 230 Vans

21000 different spare parts

Total Inventory of 5 million parts

Guaranteed services within 24 to 48 hours

Service Centre

Analysis

Inventory Policy

Inventory Classification

InventoryTarget

A 2 weeks

B 4 weeks

C 0 weeks

1) Decentralized (own stocks goals, informal replenishment method) to Centralized

2) Classification of SKU into A, B & C class3) Separate and central inventory target for each SKU as per

classification

4) Comprehensive information system – centralized inventory planning

Production planning◦ Eight weeks – four weeks◦ Distribution resource planning

Shorter production run◦ Low set up time

Better inventory policy and Improvement in Production planning & Control lead to 74% invetory reduction

Production Planning & Control

Various level of inventory

Factories

(5) CDC17

RDC’s

12.6 Days 26.2 Days 8.5 Days

Plant Product Inv. at Plant Days Plant Inv. at CDC Days DCD Combined

             

Albacina Stoves 8,557 22.3 14,094 36.8 59.1

Acerra Refrigerators 3,567 7.7 14,300 31.0 38.7

Melano Frezzers 940 7.0 6,033 44.9 51.8

Comunanza Washers 4,480 6.8 7,830 11.8 18.6

Bonferraro D-Washers 3,506 79.5 1,996 45.3 124.8

             

Total   21,050 12.5 44,253 26.2 38.7

Transit Point Experiment

The Transit Point experiment utilizes the concept of "cross-docking" (X-Dock) and is equivalent to Just In Time (JIT) in manufacturing.

In cross-docking, goods are received on one dock and are immediately shipped through another, without the need for storage.

Products arriving on trailers from the central warehouse and plants would then be transferred directly to smaller local delivery trucks. 

The Transit Point

Distribution

PlantCentral

Warehouse“Fabriano”

Retailer

Plant

Plant

Plant

Plant

Retailer

Retailer

Retailer

Retailer

Retailer

RetailerDirect

Customers

INVENTORY

•It eliminates inventory stocks at the regional warehouses, it does nothing to reduce the overall required inventory levels.

•It does not alleviate any of the constraints that determine inventory levels such as reducing production set up times or production lot sizes

INFRASTRUCT

URE

•Reduce operational costs at the regional warehouses. ( space, utility, and labor usage )

•But facilities needed for cross-docking as well as temporary storage of units

CENTRAL

WAREHIOUSE

•It simply pushes inventories upstream to the central warehouse

•The cost of modifying the central warehouse would further offset the potential cost savings realized at the regional warehouses.

Effects of Transit Point

Transportation

•Low demand-variance and relatively close distribution distances are critical success factors for cross docking.

•For example, the average demand for the free-standing products can jump from about 1,000 units in August to over 12,000 in September.

Customer Servi

ce

•Currently, over 65% of products are delivered within 24 hours, directly from the regional warehouses.

• Only 35% of products are shipped from the central warehouse with a two to six day delivery times.

• Eliminating inventories at regional warehouses may increase the delivery time for all products to two to six days.

Effects of Transit Point

After careful analysis of the primary issue and the critical factors, the recommendation is not to deploy the transit point concept across all the regional offices.

• Doing so will increase average product delivery times and can adversely affect customer satisfaction.

• The cost-savings realized from conversion of warehouses to

transit points may be offset by higher costs of transportation, costs of modifying the central office, and cost of lost sales due to customer dissatisfaction.

Recommendation