This document summarizes a case study analysis and recommendations for an elevator company's supply chain planning. It identifies that the company's current distribution network with regional distribution centers (RDCs) leads to high logistic costs and lack of visibility. Five redesign alternatives are analyzed. The best option is determined to be Configuration 5, which eliminates all RDCs and builds an additional main distribution center (MDC) in Hamburg. This is estimated to save over 2 million euros annually in logistic costs by centralizing control and addressing capacity constraints. Implementing Project 949 to improve forecasting could provide additional savings of 1 million euros. The recommendations are for the company to adopt Configuration 5 to realize cost savings and supply chain benefits.

1. Elevator company case study
Advanced Supply Chain Planning LAB
A.Y. 2015/2016
Prof. Giovanni Miragliotta
Large Group NN
Ludwing Arroyo Crivelli – 840944
Fernando Jaramillo Navarro – 840586
Federico Edoardo Pantanella – 837908
Fabio Parisi – 838093
Jesus Andres Caceres Rivera – 854232
Danilo Torretta – 837978

2. Agenda
• Executive summary
• Key facts
• Current logistic cost structure
• Qualitative analysis of redesign alternatives
• Logistic cost structure of redesign alternatives
• Selection of the best configuration
• Trends analysis
• Project 949 evaluation
• Recommendations

3. Executive summary
• The industry’s traditional high margins and the poor integration between PROD and SALE BUs are the primary causes of the
weak control and visibility that EC has on its logistic cost structure (52% of logistic costs are under the responsibility of the
Vending Companies). This contingency is leading the company to high inefficiencies in the logistic activities, which might be
even sharpened if the expected growth of the business in the next years will be confirmed.
• In order to remedy this situation, the as-is scenario and five logistics re-design options have been analysed from both
qualitative and quantitative perspectives: the best alternative identified (Cfg. 5) consists in eliminating all the RDCs and
building an additional MDC in Hamburg.
• This reconfiguration will allow to save more than 2 mln €/year in logistics, as well as taking back a centralised control on the
overall logistic activities and related costs. Moreover, the current limited capacity in the Italian MDC – an evident bottleneck
of the system – will be mitigated by splitting the production volume over two MDCs working in parallel. Other benefits can be
obtained with this redesign, such as reduced damages’ risk due to the elimination of the handling activities in the RDCs.
What is more, if EC will be able to properly reshape its supply base, the expected benefits may rise to app. 4.9 mln €/year.
• The transition to this new configuration should start as soon as possible: meanwhile, in order to deal with possible
change management issues (e.g. organisational redesign), Project 949 could help in offsetting the problems
generated by the constrained capacity at the Italian MDC.

4. Key facts
Long supply & production LT
 Logistic costs account for more than € 18.4 million
 11 independent Vending Companies and 13 RDCs all around Europe under the control of SALE
 13,400 elevators delivered each year
- More than 50% of the production volume is managed by
SALE
- PROD has no control on 52% of the overall logistic cost
structure
- On average, plants are kept in stock for app. 1.5 months in
RDCs (it is a Configure-To-Order system!)
- High handling and inventory holding costs
Lack of visibility and control on
logistic activities
Sleeping WIP
Capacity constraint at MDC - On average, 996 plants in stock (not considering "other
countries") in front of an available capacity of 1,000
- About 2 months from order release to gathering of
components in the MDC

5. Current logistic cost structure
18,445,000 €/year
 The average logistic cost per plant is app. 1,450 €, accounting for more than 11% of the average plant value (13,000 €)
 More than 9.6 mln € are not under the direct control of EC
 Outbound transportation costs (primary and secondary) represent more than half of the total logistic costs (51%)
Click the button to assess
the entity of individual cost
categories

6. Qualitative analysis of redesign alternatives
Service level Quality
Stock distribution in
the network
Logistic costs Visibility
Final
evaluation
Configurations
with RDCs
- Zero State
- Cfg. 2
- Cfg. 4
Good: it is preferable to
be near the final
destination of the plant
when the BS is ready in
order to reduce order
cycle time.
The additional
handling in
RDCs causes a
higher damage
risk that may
lead to quality
issues.
Several local facilities avoid the
necessity to keep the stock in
one place only, which could be
an issue due to limited
capacity.
Higher handling costs.
- Additional handling in RDCs.
- Loading/unloading and management costs are higher
in RDCs due to economies of scale.
Higher inventory-holding costs.
- Higher value of inventory in RDCs due to primary
outbound transportation.
Lower primary outbound transportation costs.
- Better saturation of trucks going from MDC to RDCs.
EC has no visibility on
stock in the RDCs and
thus no control on their
logistics.

Configurations
with no RDCs
- Cfg. 1
- Cfg. 3
- Cfg. 5
Theoretically bad, even
though maximum
transportation lead time
is 2.5 days and therefore
this aspect is not
differential.
Lower damage
risk.
Lower overall uncertainty as
stock is centralized, but possible
issues related to capacity.
Two MDCs (Cfg. 5) can solve the
trade-off and also mitigate any
risk that would cause a
disruption of the supply.
Lower handling costs.
Lower inventory-holding costs.
Higher primary outbound transportation costs.
Full visibility on stock:
logistics management
within the single facility
may become more
complex but managing
the network becomes
overall easier.

Eliminating RDCs
seems the best
option
Strengths
MDC in Italy
Most of suppliers are in Italy: inbound transportation costs are
supposed to be lower.
Minor changes need to be introduced into the distribution network.
MDC(s) located
in other
countries.
Secondary outbound transportation fares are supposed to be lower
thanks to a better geographical position of the MDC.
We adopted a pairwise comparison
approach, focusing on two main
discriminant criteria
1. Presence of RDCs
2. Location of the MDC(s)

7. Logistic cost structure of redesign alternatives
Every hypothesis on costs is confirmed:
keeping RDCs is always more expensive
Click the button to assess
the entity of individual cost
categories
EC should eliminate RDCs
from the distribution network
We are going to focus on
Configurations 1, 3 and 5

8. Selection of the best configuration (1/2)
PROs
CONs
From the cost analysis,
Configuration 1 appears to be the
best option. It also requires
minimum change (the MDC will
stay in Italy after all), but the
current facility is already
saturated. Moreover…
…most of suppliers are currently
located in Italy. After moving the MDC
to another country, the company may
decide to re-locate the supply base,
sourcing from local vendors in order to
reduce inbound transportation costs.
Neglecting inbound transportation
costs and inventory-holding costs in
the MDC, which are dependent on the
location of suppliers, the ranking of
configurations changes. Now, the only
discriminant cost category is primary
outbound transportation.
Configuration 5 is the best
option as it minimizes primary
outbound transportation costs.
Cfg. 1
Cfg. 3
Cfg. 5

9. Selection of the best configuration (2/2)
Taking everything into account, we believe EC should implement Configuration 5
Minimization of logistic costs NOT dependent on the location of suppliers (primary outbound transportation
costs above all)
Two MDCs allow to split the centralized stock, avoiding to incur issues related to constrained capacity
Supply chain risk mitigation: continuity of supply is enhanced by the presence of two MDCs
Necessity of higher
coordination with 3PLs, as
managing distribution
operations on an
international scale (without
local intermediaries) may
pose issues
Assets should me
modular, providing the
ability to easily expand
facilities, capacities and
equipment to meet
increasing demand
Some pre-requisites

10. Trends analysis
Future trends
Increase in
demand
In order to simulate the
effects of this trend, we
used as a proxy the
predictions on the building
construction output in
Europe in the next 5 years,
assuming that most of EC’s
sales are due to the
installation of new
equipment.
Variations in the fuel
price
Being a commodity, the price of
fuel is extremely unpredictable.
Since the location of suppliers is
likely to change in the future, we
focused on primary outbound
transportation only and simulated
the effects of
increments/decrements in the
corresponding fares.
Implementation of the
BIM software in the
construction industry
Construction companies are starting to
adopt the BIM software for modelling
building designs. A BIM model
presents a 4th dimension, time, which
develops a reliable schedule of project
activities. Thanks to BIM, building
sites’ uncertainty may be significantly
reduced, alleviating the issue of stock
faced by elevators companies.
Therefore, we simulated the effects of
a reduction in the stock coverage.
RESULTS OF SIMULATIONS
We simulated how logistic
costs vary in the different
configurations according to
the changes introduced in
the model inputs.
In any case, we verified that
future trends are not
supposed to compromise
the robustness of the re-
design choice.

11. Project 949 evaluation
SIMULATIONS
We estimated the quantitative benefits of
Project 949 simulating two possible future
scenarios:
Scenario 1. Stock coverage in the MDC for direct
deliveries and in RDCs is equal to 1 month. In the
MDC for indirect deliveries it is equal to 0.25
months.
Scenario 2. Stock coverage in the MDC for direct
deliveries and in RDCs is equal to 0.5 months. In
the MDC for indirect deliveries it is equal to 0.25
months.
Results show that the sum of handling and
inventory-holding costs (the only differential cost
categories in case stock coverage is changed)
decreases in all configurations in a quite linear
way. Going from the as-is situation to Scenario 2,
cost savings are app. 1.5 million €/year in
configurations with RDCs and 1 million €/year in
the others. However, the robustness of the re-
design choice is not compromised.
Currently, planning the
delivery date is not
100% reliable as
production and supply
must start 2 months in
advance. Several issues
delaying building sites’
completion may occur
in the meantime.
Reducing
production and
supply lead time
may bring higher
visibility on
building sites’
readiness
With a reliable
forecast of when
building sites will
be ready for the
receipt and
installation of
equipment, WIP
is likely to
decrease

12. Recommendations
EC should abandon the current distribution network and implement Configuration 5 in order to:
1. Achieve a reduction in logistic costs. Assuming inbound transportation and inventory-holding are not
differential, possible cost savings are app. 4.9 million €/year. Moreover, due to the elimination of RDCs,
the company would have full control on all logistic operations and thus on costs.
2. Avoid issues related to capacity constraints and get closer to emerging markets.
3. Reduce supply chain risk and enhance the continuity of supply thanks to two parallel facilities.
Finally, Project 949 should be implemented in order to gain higher visibility on clients, make the company’s
planning process more reliable and reduce the amount of stock kept in distribution centres. Possible cost savings
are app. 1 million €/year for Configuration 5.
Possible criticalities
• Initial investments are not expected to be critical
• Change management process (e.g. control systems, KPIs, workforce relocation, etc.) should be carried out
carefully On a long-term perspective, the emergence of the "smart elevators" business in Europe might compel
a change of the supply base or make some markets more attractive than others.