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Master's Degree Thesis Master’s degree thesis LOG950 Logistics Location of regional warehouses: A case study. Stian Andersen Number of pages including this page: 93 Molde, 2015 I Mandatory statement Each student is responsible for complying with rules and regulations that relate to examinations and to academic work in general. The purpose of the mandatory statement is to make students aware of their responsibility and the consequences of cheating. Failure to complete the statement does not excuse students from their responsibility. Please complete the mandatory statement by placing a mark in each box for statements 1-6 below. 1. I/we hereby declare that my/our paper/assignment is my/our own work, and that I/we have not used other sources or received other help than mentioned in the paper/assignment. 2. I/we hereby declare that this paper Mark each 1. Has not been used in any other exam at another box: department/university/university college 1. 2. Is not referring to the work of others without acknowledgement 2. 3. Is not referring to my/our previous work without acknowledgement 3. 4. Has acknowledged all sources of literature in the text and in the list of references 4. 5. Is not a copy, duplicate or transcript of other work 5. I am/we are aware that any breach of the above will be 3. considered as cheating, and may result in annulment of the examination and exclusion from all universities and university colleges in Norway for up to one year, according to the Act relating to Norwegian Universities and University Colleges, section 4-7 and 4-8 and Examination regulations section 14 and 15. 4. I am/we are aware that all papers/assignments may be checked for plagiarism by a software assisted plagiarism check ii 5. I am/we are aware that Molde University College will handle all cases of suspected cheating according to prevailing guidelines. 6. I/we are aware of the University College’s rules and regulation for using sources iii Publication agreement ECTS credits: 30 Supervisor: Arild Hoff Agreement on electronic publication of master thesis Author(s) have copyright to the thesis, including the exclusive right to publish the document (The Copyright Act §2). All theses fulfilling the requirements will be registered and published in Brage HiM, with the approval of the author(s). Theses with a confidentiality agreement will not be published. I/we hereby give Molde University College the right to, free of charge, make the thesis available for electronic publication: yes no Is there an agreement of confidentiality? yes no (A supplementary confidentiality agreement must be filled in) - If yes: Can the thesis be online published when the period of confidentiality is expired? yes no Date: 26.05.2015 iv Preface and acknowledgement This master thesis concludes my five years at Molde University College – Specialized University in Logistics, and presents the main result from my academic work during this period. The work has been conducted in order to obtain an MSc degree in Logistics, and carried out from December 2014 to May 2015. I would like to express my deepest gratitude to my supervisor Associate Professor Arild Hoff for supervising me and giving me good and much appreciated guidance throughout the process of writing the thesis. I would also like to thank TOOLS Molde AS for giving me the opportunity and contacting me about this case, and especially to Klaus Inge Røsberg who has been an excellent contact and always responded quickly whenever I have had any questions or was in need of data. Lastly, I would like to thank the faculty itself and its staff for giving me five eventful years, both academically and socially, and for challenging me to improve myself. Stian Andersen Oslo, Norway May 2015 v Abstract This master thesis investigates the case of introducing regional warehouses in a value chain in order to decrease the total number of warehouses used, and to improve the overall performance. Tools Molde presented this case to me, and we have used real life data provided by them in the analysis. We address the problem of where to locate the regional warehouses, and how to implement them in the already existing value chain. In order to get a thorough view off the new warehouse network, we have performed the analysis on three scenario alternatives, and two distribution alternatives. Factors such as the average inventory, average order time and stock out probabilities has been used as measurements, in order to compare the solutions obtained. By investigating the effects of the new solutions, Tools will get a clearer view off what their warehouse-network would look like if they centralized their warehouse operations Three main analyses have been conducted, including a facility location analysis to find out where to locate the regional warehouses, and a simulation analysis to see how the solutions behave when implemented. In addition, we have searched for improvements and tested the robustness of the solutions through a sensitivity analysis. By comparing the results from the analyses to the current situation, we can say that we can expect a significant reduction in the average inventory and an improvement in the system performance by introducing regional warehouses and centralizing their operations. vi Contents 1. Introduction ................................................................................................................... 1 1.1 Company overview ................................................................................................. 1 2. Problem Description...................................................................................................... 3 2.1 Warehouses ............................................................................................................ 3 2.2 Inventory ................................................................................................................ 4 2.3 Distribution ............................................................................................................. 5 2.4 What to investigate ................................................................................................. 5 2.5 Research questions ................................................................................................. 6 2.5.1 Main research questions .................................................................................. 6 2.5.2 Sub-questions .................................................................................................. 6 3. Literature Review .......................................................................................................... 7 3.1 Facility location problem ........................................................................................ 7 3.2 Centralization and aggregating demand ................................................................. 8 3.2.1 The “Square Root Law” .................................................................................. 9 3.3 Inventory Management ......................................................................................... 11 3.3.1 Carrying Costs ............................................................................................... 12 3.3.2 Safety Stock .................................................................................................. 12 3.3.3 Order system ................................................................................................. 13 3.3.4 ABC analysis ................................................................................................. 14 3.4 Discrete-Event Simulation ................................................................................... 14 4. Methodology ............................................................................................................... 15 4.1 Facility location analysis ...................................................................................... 15 4.2 Simulation Analysis ............................................................................................. 17 4.3 Sensitivity Analysis .............................................................................................. 18 5. Facility Location Analysis .......................................................................................... 20 5.1 Assumptions ......................................................................................................... 20 5.2 Multi-Echelon p-median ....................................................................................... 21 5.3 Multi-echelon p-center ......................................................................................... 23 5.4 Changes for scenario and distribution alternatives ............................................... 24 5.5 Data Collection ..................................................................................................... 26 5.5.1 Locations ....................................................................................................... 27 5.5.2 Facilities ........................................................................................................ 27 5.5.3 Distances ....................................................................................................... 28 vii 5.5.4 Demand ......................................................................................................... 28 5.6 Results .................................................................................................................. 29 6. Simulation Analysis ...................................................................................................
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