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ITLS6002

Supply Chain Planning and Design

Semester 2, 2024

Due: 31^st October 2024 @ 11.59pm

The penalty for a late assignment is 5 percent of the total possible marks, per day. For example, if you are awarded a mark of 20 out of 25, but submit two days late, you will be penalised 10% of 25 marks = 2.5 marks, and receive a mark of 17.5.

 Document Version

· Version 1.0

Change Log

· Initial Release

Optimising Supply Chain Network for a National Retailer

1. INTRODUCTION

The retail industry in Australia has experienced significant changes over the past few years, driven by evolving consumer behaviours and external economic pressures. A national retailer with 25 stores across New South Wales (NSW) and the Australian Capital Territory (ACT) is seeking to optimise its supply chain network to better serve its customers and improve operational efficiency.

The recent housing crisis and the rising cost of doing business have highlighted the need for an agile and responsive supply chain. Increasing operational costs due to rising inflation have further complicated the landscape, necessitating a strategic approach to supply chain management to maintain profitability and customer satisfaction.

Currently, the retailer's supply chain is organised around a central distribution center (DC) and a network of shops that handle in-store sales. However, this setup has shown inefficiencies, particularly in managing inventory and logistics under increasing cost pressures. To address these challenges, the retailer is considering a comprehensive revamp of its supply chain network.

Your task is to design an optimised supply chain network for the retailer, focusing on the integration and efficient operation of warehouses and stores across NSW and ACT. This involves determining the optimal locations for warehouses, streamlining inventory management, and improving the overall logistics network to enhance service levels and reduce costs.

You are required to present a detailed report outlining your proposed supply chain design, supported by data analysis and modeling. Additionally, you should provide an Excel file containing your models and any supplementary data used in your analysis.

This assignment will require a thorough understanding of supply chain principles, proficiency in data analysis, and the ability to develop practical, data-driven solutions. Your recommendations will play a critical role in helping the retailer adapt to the changing market conditions and improve its competitive position.

2. THE EXISTING NETWORK STRUCTURE

Currently, stock replenishment for all shops is transported from DCs using trucks and vans. All products are imported from oversea and transported from Port Botany to these DCs using large trucks. Figure 1 gives a simple visual depiction of the current distribution network. 

Management recognises that while minimising truck kms, their current tactic of using multiple DCs and a fleet of different vehicles to fulfil shop demand cannot leverage the ‘economy of scale’ when a bigger truck and/or DC can be used to serve multiple markets.

FIGURE 1: Overview of the retailer’s current supply chain network

3. THE PROPOSED NETWORK STRUCTURE

In the proposed distribution network, how shop demands are fulfilled may differ from the current situation in two aspects. First, the retailer is considering the economic advantage of a bigger Distribution Centre vs multiple smaller DCs (see map). The company therefore plans to redesign its DC network. Secondly, the company plans to increase its market coverage by adding two more shops.

For efficiency reasons, imported goods continue to be transported from Port Botany to DC(s) using large trucks while shop replenishment will be fulfilled using medium trucks or vans. While medium trucks are more cost effective, and hence, recommended for all shops except the one in the Sydney CBD where vans must be used for delivery during business hours. All transportation capacity is kept in-house to ensure supply chain resilience. The company adopts a “no overtime policy”. The proposed network is depicted in Figure 2, which includes two new shops to be located.

FIGURE 2: Overview of proposed Woolworths distribution network

 4. NETWORK DATA

4.1. Locations of Facilities

The retailer has provided you with the data needed to perform the analysis, plus a map to help visualise the situation (see Figure 3). All data available in the Excel file named “Group_Assignment2024_S2.xlsx”.

FIGURE 3: Locations of Candidate DCs, existing stores, and candidate stores

4.2. Shop demand and fixed cost

The “shopDemandCost” worksheet contains the aggregate/total demand for each shop in NSW and ACT. The sheet includes demand for existing shops and estimated demand for candidate shops, measured in units per annum. The locations of existing and candidate shops are shown the map above as blue and orange dots, respectively.

This worksheet also contains the fixed cost (annual cost in $) for all shops and average sale price for one unit ($/item).

4.3. Distribution Centres

The “CandidateDC” worksheet details the relevant fixed costs per annum and rental cost per square metre for four DC locations. The fixed costs include staff salary, transaction costs, and interest payments while annual rental cost are fee paid to the owner of the warehouse or industrial park.

The retailer warehouse manager requires 2-months’ worth of inventory. The manager also suggests that approximately 1 m² of floorspace in the warehouse is needed for every 50 units in inventory. This helps you work out the total floorspace areas required, and hence, annual rental cost, across each and all DCs.

4.4. Distance Information

For network planning, you will need to calculate an approximation of the cost of moving goods through your distribution network. To assist you, the “distance” worksheet provides you with estimates of the distance between the candidate DCs and the stores (chain = DC2store), between Port Botany and the DCs (chain = Port2DC). These distances were generated using ArcGIS Pro’s Network Analysis and NSW road network (taught in ITLS6111). Given the proximity of many of the facilities to the major Sydney motorways (M7, M4, M5, M2, etc.), and the favourable travel conditions on these roads, these routes make extensive use of the motorways. Toll costs are not considered, nor are any costs linked to travel times. Note that the distance sheet contains all possible origin-destination pairs, including the candidate shops. Hence, you should filter only those that you need for the problem at hand.

4.5. Transportation Costs

There are a variety of available ways to convert the distances to costs. It is suggested that you base these on the capacity of the available truck fleet, and their associated costs, where these data are available on the “truck” worksheet. Heavy trucks, which are used for Port to DC shipments have a capacity of 625 units (proxy for volume), and a cost per truck km of $5.50. Medium trucks and Vans, which are used for the delivery runs from the DC to Stores, have a capacity of 250 and 75 units, respectively. The van costs $2.50 per km and the medium truck $4.00 per km. This approach requires you to work out the number of shipments per annum based on the annual demand and the truck capacities. The outbound (delivery) and return (empty truck) trip costs must be handled. 

It is noted that ITLS6002 ignores specific delivery runs to individual shops. In other words, ITLS6002 simplifies the problem by assuming that for network planning purpose, it is enough to know how goods are delivered from a DC to markets/shops, assuming a full load of truck for each shop delivery. Students who are interested in accounting for individual runs in network planning are recommended to take ITLS6111. 

5. PROJECT REQUIREMENTS

To manage workload, students are to work in groups of five (standard) to six (maximum, assigned by the lecturer).

Your group is to write a report that analyses three scenarios, answering some specific questions for each.

Scenario 1: Optimise the DC network where only existing shops are served. With four candidate DCs to be decided, the number of combinations is large (i.e.,  = 4 + 6 + 4 + 1 = 15). Thus, you should estimate a single model with decision variables for which DC to be opened and how large it should be. It is recommended to set up your spreadsheet in a way that you can easily copy and use it for other scenarios.

Scenario 2: The company management is very curious about the performance of the proposed distribution network, compared to the current network which locates the central DC at Moorebank Logistics Park NSW 2170 (DC3). Compare the total logistic cost under two distribution networks, with detailed results reported for each solution.

Scenario 3: Given the optimal network of DC(s) identified in scenario 1, locate the best candidates for two new shops by evaluating the profitability of the entire supply chain network. Estimated demand of these new shops must be met by the supply chain network proposed in scenario 1. Report detailed results for cost (fixed and variable), revenue, and profit.

All scenarios should be compared carefully. You should give a final recommendation about how the company should proceed, and what network configuration they should use.

6. GROUP COMPONENT MARKING CRITERIA

Synopsis (5%)

· The synopsis should provide a brief description of your recommendations. In effect, I/senior management would like to be able to just read your synopsis and understand what your key recommendations are. The synopsis must not be more than half a page in length.

Introduction (5%)

· You are to write a brief but professional introduction to the problem you are facing. Your report is to be written to the managing directors of the company.

Description of techniques used (15%)

· Here you are to briefly describe the methods that you used. It is essential that the reader can gain a clear understanding of what you have done. You can assume that the reader is educated and interested, but not familiar with the methods that you have used. The client is interested not just in what you recommend, but the methods you have employed.

Technical implementation (30%)

· All of the calculations should be made available in the Excel file that you submit. You will be marked based on how well the models you construct reflect the network you are trying to optimise, the correctness of your calculations, the performance of the solutions that you recommend, and the readability of your Excel workbook.

Recommendations regarding scenarios (20%)

· These marks will be awarded based on how well you critically evaluate the performance of the three scenarios, and the soundness of your final recommendation.

Report conclusion (5%)

· You are to write a brief but professional conclusion based on your findings. This section should summarise what has come before. No new material should be placed in this section. A brief summary of the recommendations should also be included.

Presentation (10%)

· 10% of grades will be devoted to the quality of the presentation of this component of the assignment, including both the report and the Excel file.

Communication and report structure (10%)

· Not only are your findings important, but the way you communicate them to management is as well. Marks are awarded for clarity, and for a logical, structured presentation of your findings.

You are also required to provide a Table of contents for the report. You are to provide a reference list (NOT a bibliography) if required.

 7. PROJECT DELIVERABLES