Award winning Capstone Project for the Center for International Trade and Transportation\'s Global Logistics Specialist Program 2010.

1. 2010
ACME’s Supply Chain Solution
Program
Innovative Logistics Consulting
Greg Matthews
Dan Phillips
Karen Allec
Sven von Borries
Septiadi Tjahjono
Sokchanda Im
6/28/2010

2. TABLE OF CONTENTS
EXECUTIVE SUMMARY .......................................................................................................................4
Who is ILC? ................................................................................................................................................ 4
ACME’s Current Situation ......................................................................................................................... 4
End Result of Implementing ILC’s Plan...................................................................................................... 4
Overview of ILC’s Recommendations ....................................................................................................... 5
Bottomline ................................................................................................................................................ 7
INNOVATIVE LOGISTICS CONSULTING PROFILE....................................................................................9
Mission Statement .................................................................................................................................... 9
Vision ......................................................................................................................................................... 9
Company Profile ........................................................................................................................................ 9
ILC Services ................................................................................................................................................ 9
Responsibilities ........................................................................................................................................ 10
Success Story ........................................................................................................................................... 15
Client Testimonies ................................................................................................................................... 16
CONCEPTUAL SUMMARY ................................................................................................................. 16
SWOT Analysis......................................................................................................................................... 17
Assumptions/Major Issues ...................................................................................................................... 17
Goals and Objectives ............................................................................................................................... 19
ILC’S ANALYSIS ................................................................................................................................. 20
Information Technology .......................................................................................................................... 21
Warehouse/Distribution ......................................................................................................................... 29
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3. TABLE OF CONTENTS
Transportation......................................................................................................................................... 41
Green Initiatives ...................................................................................................................................... 49
CONCLUSION ................................................................................................................................... 58
BIBLOGRAPHY.................................................................................................................................. 62
APPENDICES .................................................................................................................................... 64
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4. EXECUTIVE SUMMARY
Innovative Logistics Consultants (ILC) wants to congratulate ACME Stores for taking a bold step
towards achieving new supply chain objectives. ILC would like to thank ACME for the opportunity
to propose this solution for ACME to reach their goal of developing a fully integrated strategic
logistics plan.
ILC is a pioneer in the field of supply chain management and has worked with many Fortune 500
Who is ILC?
companies such as General Electric, Proctor and Gamble, and Coca Cola in our 15 year history. ILC
has developed a plan of action that will enable customers to prosper and grow into the future.
ACME is a strong company with good leadership and is open to change. Despite identifiable
ACME’s Current Situation
financial and operational waste, they are currently competing effectively in the marketplace.
ACME could benefit greatly from Information Technology to manage inventory and warehouse
operations, changing from a push to a pull distribution model which will result in less costly
warehouse expenses, and a more efficient transportation model.
Furthermore, the vast majority of ACME stores are located on the east coast which has been less
impacted by the recession. As opposed to the Southwest, where high foreclosure rates have
caused financial chaos, and the Midwest, where manufacturing has declined and unemployment is
very high.
The current retail trend for ACME’s competition is to increase logistics budgets while reducing
other capital investments. Target for instance, spent 23% of their capital investment budget on
improvements to their supply chain in 2007 and 31% in 2009 (Target Co., 2009).
ILC has developed a comprehensive logistics plan for ACME that will reduce waste and increase
End Result of Implementing ILC’s Plan
efficiency. This plan will include a state of the art IT system, a fully optimized warehouse, and
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5. EXECUTIVE SUMMARY
distribution network. ACME will cut transportation costs and become a more environmentally
conscious company. With ILC’s plan, you will see a $42 million first year savings, a total savings of
$224 million at full implementation, and a cash flow increase of $298 million for an overall benefit
of $522,432,792 (See Appendix 1-ROI/Payback).
In our analysis of ACME’s Distribution and Warehousing model, we researched ACME’s
Overview of ILC’s Recommendations
competition to define the industries “best practices” and create a benchmark model using Target
DC operations.
Information Technology is the most important facet of supply chain management today. With the
Information Technology - Total Visibility and Integration
use of state-of-the-art Enterprise Resources Planning (ERP) solutions, retailers are now able to
have real time inventory control driven by consumer demand.
ACME’s current in-house ERP software system, although good is Microsoft based. It is designed for
small to medium business needs and will not handle an expected annual growth rate of 10%. We
recommend implementing an ILC hosted ERP system at a cost of $9,134,500 total start up with on-
going expenses of approximately $11,377,200 annually. This will be explored further in IT
analysis.
ILC proposes to bring ACME from their current efficiency rating of 21% to 78% over a three year
Warehousing/Distribution
period by introducing multiple height stacking formulas and procedures (See Appendix 4-Whse
Layout). The proposed ERP system will integrate inventory and warehouse management
systems.
ACME has a 20/1 store to distribution center (DC) ratio while Walmart and Target stand at 100/1,
and 47/1 respectively. ACME's average DC square footage of 258,000 compared to Target’s
average DC square footage of 128,000 further illustrates the disparity between ACME and its
competition.
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6. EXECUTIVE SUMMARY
3 Import warehouses @ 282,000 square ft each
ILC proposes reducing the number of DC’s from 40 to 13:
9 regional DC’s @ 282,000 square ft each
•
1 E-Commerce DC @250,000 square ft
•
•
Import DC: Los Angeles, CA – Dallas, TX - Chicago, IL
E-Commerce DC: Louisville, KY
Regional DC: Seattle, WA – Atlanta, GA – Hartford, CT – Edison, NJ – Little
Rock, AK – Charleston, SC – Akron, OH – Des Moines, IA – Indianapolis, IN
*Illustration 1: Final DC Layout
ILC recommends the following changes to the transportation of home electronics
Transportation - Faster to Market for Less Money
 Renegotiate rates to LA/LB and Prince Rupert.
 Eliminate shipments to Baltimore
 Improve cubic foot capacity by changing from 40’ DRY containers to 40’ HC (High Cubic)
 Reduce suppliers to 3 (Shanghai, Hong Kong and Pusan). Nets same or lower rate.
 Reduce transportation costs by increasing CFT capacity - 40’ HC containers into 53’ trailers
shipped to the Regional DC’s.
 Reduce Ocean transit time; Distribution analysis will identify and explain how this affects
inventory carrying costs.
o Apparel – 13 to 12 days
o Home Electronics – 23 to 17 days
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7. EXECUTIVE SUMMARY
The rising environmental consciousness of Green operations significantly increased in
Environmental - How big is ACME’s Carbon Footprint?
ACME the last couple years. Unfortunately, such a concept has only reached the discussion
stage. This awareness is compounded by the high upfront costs and lack of experience from
ACME management. ILC will recommend and develop a sustainable “Environmental
Responsibility Plan.” These environmental improvements to ACME’s supply chain will cost
$9,307,981, but are off-set by savings in the form of reductions in water and power use.
See Green Initiatives analysis.
ACME’s Strategic Logistics Plan will provide a state of the art IT system, efficient and cost
Bottomline
effective warehouse, distribution, and transportation model. ACME will see a first year
savings of $42,210,473 and a total savings of $224,064,792 at full implementation.
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8. EXECUTIVE SUMMARY
*Table 1: 3-Year Plan
ACME has the opportunity to change. However, if ACME does not address the waste and
Consequences of Inaction
inefficiencies in their supply chain as their competitors have already done, they will run the risk of
losing their competitive edge.
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9. INNOVATIVE LOGISTICS CONSULTING PROFILE
“Innovation is a consultation away”
Our mission is to provide a flexible and comprehensive supply chain solution to our clients
Mission Statement
through the integration of smart business practices, utilizing years of industry experience,
and the leveraging of today’s technology allowing our clients to constantly adapt to the
changing world of logistics. Our solutions are designed to be simple and cost effective
providing our clients a clear, sustainable competitive advantage.
Our vision is to become the premier leader in supply chain consultation by providing the
Vision
highest level of customer satisfaction. We provide each client with a plan to integrate the
needs of their business, its mission and values, while optimizing the supply chain so that
they may achieve greater reach and profits.
As the leading non-asset based 3rd party logistics provider and Top 10 freight capacity
Company Profile
broker in the US, Innovative Logistics Consulting (ILC) simplifies ACME logistic needs by
reducing ACME cost expenditures while increasing efficiencies along ACME entire supply
chain. Founded in 1999, ILC has become a world leader in supply chain consultation. Our
Staffs combine more than 100 years of industry knowledge and experience to carefully
assess ACME current operations in order to provide an all inclusive strategic plan. We offer
an array of services that include, but are not limited to, full transportation management
services, carrier contracting and negotiations, and freight brokerage services.
 Enterprise Resources Planning Solutions: Our Webhosted ERP systems based on
ILC Services
the Software As A Service (SAAS) will improve the visibility and flexibility with
minimal investment
 Transportation Management: Our transportation services will help get ACME
goods from point A to point B at the lowest possible cost
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10. INNOVATIVE LOGISTICS CONSULTING PROFILE
 Domestic/International Warehousing: Our warehouse location specialists will
offer you multiple locations in free trade zones to make use of free resources and
eliminate unnecessary costs
 Consulting: Our consultants will assist in developing important benchmarks,
transportation procurement, and network analysis
Responsibilities
Greg has more than 25 years of supply chain management
Greg Matthews—President & CEO
experience with numerous Fortune 500 firms. His background
includes consulting, 3PL, manufacturing & distributing. His last
corporate position he headed a $200 million logistics division.
He has consulted in the logistics, consumer goods, business
equipment, electronics, health care and aerospace/defense
industries. He is skilled in Business Process Engineering,
Business Transformation Management, Business Systems
Applications and Project Management.
He is a graduate of Rochester Institute of Technology and is certified in Integrated Resource
Management (CIRM) by APICS, a member of the “expert panel” for a national retail supply
chain reform initiative and a contributor to the development of the CSCMP’s Supply Chain
Management Process Standards.
Greg serves as Executive Director of the Center for Supply Chain Excellence at California
State University at Long Beach.
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11. INNOVATIVE LOGISTICS CONSULTING PROFILE
Sokie brings a deep background of more than 10 years in
Sokchanda “Sokie” Im—Chief Environmental Officer
environmental science and policy and experience in “green”
business consulting. She has worked at the Climate Center of
Natural Resources Defense Council in Washington, DC on
federal climate and energy policy. Previously, she worked as a
consultant at Greenback Partners LLC, where she advised a
Fortune 100 retail client on strategic “sustainability” planning
and led the development of an on-line team assessment tool.
She also has experience working as an environmental educator
and an AmeriCorps volunteer, and has done several stints as a
field ecologist in Costa Rica, Panama, northern California, and
Antarctica.
Sokie holds an M.B.A. from Princeton University's Woodrow Wilson School, where she
focused on climate and energy policy, and a second master's degree in ecology and
evolutionary biology from the University of California-Berkeley. Sokie was a National
Science Foundation (NSF) Graduate Research Fellow. She received a B.A. with Honors in
Biology from Brown University, magna cum laude, Phi Beta Kappa.
Sokie serves as the Environmental Sustainability Director of the Center for Supply Chain
Excellence at California State University, Long Beach.
Prior to joining ILC, Karen served as vice president of strategic
Karen Allec—Senior V.P. Business Development
alliances at Siemens Business Services where she was
responsible for generating significant revenue via strategic
alliance relationships. Other executive roles include serving as
vice president of international business development at
NetVendor and director of consulting alliances at i2
Technologies.
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12. INNOVATIVE LOGISTICS CONSULTING PROFILE
Before joining ILC, Karen served as a unit manager within Ernst & Young LLP's supply chain
practice where she focused on supply chain network design and operations strategy
initiatives. Karen also held positions in supply chain planning and operations with Black &
Decker. Early in her career, Karen was a senior consultant within Andersen Consulting’s
Logistics Strategy Practice. Karen holds a master of science in business logistics from San
Diego State University and a bachelor's degree in business from USC.
Karen serves as Business Development Director of the Center for Supply Chain Excellence
at California State University at Long Beach.
Andy has over 20 years of Information Technology industry
Septiadi “Andy” Tjahjono - V.P. Information Technology
experience. He led the IT management team for the startup and
rapid growth of Northern Telecom and Sears Canada corporate
Data Centers. He also directed the rollout of the Northern
Telecom’s initial worldwide network. Most recently Andy was
responsible for global IT integration at McDonalds focusing on
delivering real time data solutions for the supply chain,
refrigerated warehouses, food industry and container ports.
Andy is a certified SaaS developer and a certified trainer in SAP
systems integration.
Previously, Andy was senior vice president and chief technology officer of Strategy and
Technology at Compaq Computers. Prior to joining Compaq, he served as president of
Internet Technology and Development at AT&T Labs, where he led a team responsible for
the architecture, planning and development of AT&T’s Internet technologies and services.
Andy has been a technology executive for nearly two decades, serving in leadership
positions at Cadence Design, Apple Computer and Schlumberger Research. In 2004, he was
named one of the world’s 25 most influential chief technology officers by InfoWorld. Andy
received a bachelor’s and master’s degrees in computer science from the University of
California at Berkeley.
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13. INNOVATIVE LOGISTICS CONSULTING PROFILE
Andy currently serves as Information Technology Director of the Center for Supply Chain
Excellence at California State University at Long Beach.
Over 25 years experience as key consultant in Logistics and
Dan Phillips—V.P. of Logistics
Supply Chain Management. He has served as Vice President of
Distribution & Transportation for both Value City Department
Stores and Big Lots. Dan was also Director/General Manager of
Distribution for Marshalls Department Stores (now a division
of TJX). His experience covers all Years of supply chain
management, construction, material handling installation, WH
site selection, productivity improvement, and SCM analysis.
Dan has served in director and VP assignments for distribution, logistics, supply chain and
operations. He has also served in internal consulting assignments and has established an
industrial engineering operation for a major retailer.
Dan earned his bachelor’s degree in industrial engineering and operations research from
Cal-Tech University and his MBA, with concentration in logistics analysis, from Stanford
University. He is a member of Warehousing Education and Research Council (WERC),
Council of Supply Chain Management Professionals and has served on the advisory board for
the National Conference on Operations and Fulfillment.
Dan currently serves as Logistics Director of the Center for Supply Chain Excellence at
California State University at Long Beach.
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14. INNOVATIVE LOGISTICS CONSULTING PROFILE
Sven started his professional career in 1992 with TNT’s
Sven von Borries—V.P. of Transportation
Express and Mail divisions. In 1994 he joined the team that set
up the Mercedes spare parts unit in Italy and Europe and
subsequently established TNT Automotive Logistics in Italy,
France, Spain and the UK. In 1995 he established TNT Logistics
Brazil and in 1999, he was appointed President and Managing
Director of TNT Logistics South America. Most recently he was
Director of Transportation Logistics at
Agility Brazil in São Paulo, Sven has almost 20 years of experience in Global Supply Chain
Management focusing on Transportation.
Sven has a PhD in Transportation Logistics and Supply Chain Management from the
University of Brazil at São Paulo. He specializes in Transportation Management and
Intermodal economics in his consulting. He has served as an expert witness in several
transportation cases and written numerous magazine and newspaper articles and books on
the subject.
Sven currently serves as Transportation and SCM Director of the Center for Supply Chain
Excellence at California State University at Long
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15. INNOVATIVE LOGISTICS CONSULTING PROFILE
Client: Pantaloons Retail (India Retail Leader)
Success Story
Objective: Sourcing system to integrate vendors in the supply chain for better visibility.
The customer was facing the following problems:
Customer Need
Current system was not able to track, identify, and retrieve POs by vendors
Status of an order could not be assessed
•
Delivery date slippage leading to stocks-outs or over stocking
•
Sourcing problems also impacted quality team's checking routine during
•
manufacturing cycle
•
• No access to stock volumes leading to wrong sourcing decisions
ILC's solution covered the following:
Solution
• Identification of all entities involved in the supply chain
• Differentiating the key business from the moderate (revenue basis) to prioritize
sourcing
• Integrating vendors into customer's sourcing process
• Re-engineering processes to shorten PO life cycle
• Establishing vendor collaboration
• Establishing visibility in the PLC
PO processing cycle time reduced from three days to one
Value Delivered
Vendor response time on order acknowledgment reduced from seven days to two
•
Online vendor request for change in delivery date reduced from seven days to two
•
Vendor rationalization resulted in on-time, and on-order delivery
•
•
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16. INNOVATIVE LOGISTICS CONSULTING PROFILE
Client Testimonies
"There's only one Supply Chain Consultancy in the Region, I know of, that truly
understands our industry. ILC’s experience and operational supply chain backgrounds
is the major difference between ILC and the others".
-Craig Hope-Johnstone, General Manager - Logistics, Australian Discount Retail (Trading).
"Innovative Logistics Consulting has been our preferred supply chain management
consulting business for 8 years as they have proven time and time again that they
provide value for money solutions that hit the bottom line"
-Brian Robinson, Chief Executive Officer, George Weston Foods Baking Division - Australia
“In today’s economy, strategic sourcing and supply chain organizations are expected to
achieve more than ever. Innovative Logistics Consulting can find the resources you
need to exceed expectations.”
-Jeff Savage, Senior Vice President, Sysco Corporation
`
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17. CONCEPTUAL SUMMARY
SWOT Analysis
Assumptions/Major Issues
 Proprietary legacy systems / Stand Alone;
Information Technology
o ACME’s current platform was developed in the 1990’s to accommodate the
processing of PO’s to Orient vendors, but requires manual forecasting. The
result of manual forecasting against planned sales at a 10% annual rate,
despite clear inventory visibility, has created inventory carrying cost of
approx. $10,000,000 year over year.
 Key operating systems lack integration;
o ACME utilizes several software systems to manage the supply chain. They
include Warehouse, Inventory, PO, Transportation and Financial
Management. All separate, all requiring manual input to organize
information.
 Unsuitable for large Enterprises such as ACME;
o 1990’s architecture was devised to handle a small to medium sized business.
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18. CONCEPTUAL SUMMARY
o ACME’s current 800 stores and 40 DC’s has dwarfed its capabilities and
requires an updated ERP system to handle 10% annual growth.
Four major contributors to ACME’s current warehousing inefficiencies;
Warehousing/Distribution
 Poor utilization of DC space. Vertical capacity limited to stacking one pallet high.
 High Safety Stock as a result of poor forecasting. Contributes to high carrying costs.
 Poor utilization of space and high safety stock combine to create over $13.8M in
carrying costs in the following areas;
o DC Overhead attributable to safety stock $10,000,080
o DC Overhead attributable to revolving stock $ 2,826,689
o Cost of Holding Inventory $ 1,027,877
 ACME’s DC’s by the numbers;
# Stores 800
ACME Current
# DC's 40
Ratio - Store/DC 20
Avg DC SqFt 258000
TTL DC SqFt 10320000
Ratio - DC SqFt/Store 12900
DC Sq.Ft. Utilization 54437
DC Efficiency 21%*
*DC efficiency explained in DC analysis
**Table 2: ACME’s DC Efficiency
 Inefficient use of equipment
Transportation
o Ocean—LCL vs. 20 foot/40 foot
o Intermodal—Double stack/thru rate vs. OTR
 Poor CFT utilization.
o Ocean—40’ STD vs. 40’ HC
o Regional DC—40 foot trailer vs. 53 foot trailer
 Inefficient use of modes
o Container on Flat Car (COFC)
o Trailer on Flat Car (TOFC)
o Over the Road (OTR)
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19. CONCEPTUAL SUMMARY
 Inconsistent Transportation plan
o DC’s do not have routing guides
o No limits on mileage to destination DC
 ACME lacks sufficient environmental concern
Environmental
 Large Carbon Footprint.
Goals and Objectives
 Utilize 40 HC containers vs. 40 STD containers
#1 – Increase Ocean Container CFT capacity by 21.5%
 40’ STD = 1972.81 CFT vs. 40 HC = 2396.77 CFT
 1972.81 / 2396.77 = 21.5%
 Apparel - Free two week warehousing in China
o This will help build additional capacity to support 20/40 containers
 Reduce suppliers from 5 to 3.
#2 – Reduce Ocean Transit Time for Home Electronics by 26.1%
o Manila and Taiwan to Shanghai, HK, and Pusan
o This shortened the miles traveled between Orient and US.
 Reduce suppliers from 4 to 2.
#3 – Reduce Ocean Transit Time for Apparel by 7.7%
o Manila, Shanghai, and Pusan to HK and PRD (Pearl River Delta)
o This shortened the miles traveled between Orient and US.
 Switch from PUSH to PULL supply chain system
#4 – Reduce overall ACME DC Footprint by 65%
 Reduce number of DC’s from 40 to 13
 Re-distribute inventory
 Reduce Inventory carrying costs by 51%
 Increase vertical capacity in DC’s;
o 1 high to 3 high
o Add racking to go 4 high
o Implement WMS as a module of ERP
o Create key “Import” centers to facilitate intermodal distribution to Regional
DC’s.
 Open dedicated E-Commerce facility in Louisville, KY
#5 – Develop On-Line presence to increase Sales. Potential Unknown
o Convert existing regional DC
#6 – Improve Cash Flow to $298,000,000
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20. CONCEPTUAL SUMMARY
 Sell ACME owned Real Estate; Idle DC’s
 WMS (Warehouse Management), TMS (Transportation Management),
#7 – Replace 5 separate software systems with one integrated ERP system
Accounting/Finance, HR, and Customer Relations
 Implement hosted ERP to improve visibility throughout the entire supply chain
 Streamline data collection
 Improve connectivity by introducing EDI
 Decrease Carbon footprint by 20%
#8 –Improve Sustainability Awareness throughout ACME
o Reducing the number of warehouses
o Improve transportation
 Double stacking containers
 Trailer on Flat Cars
 Less Containers/Trailers
 Reduce water consumption
o Replace 4,239 urinals
o Save 192,681,818 gallons of water
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21. ILC’S ANALYSIS
Below, ILC will develop both qualitative and quantitative information addressing each
Pillar of the proposed solution. We will compare ACME actual model vs. ILC plan of action.
ACME’s current Enterprise Resource Planning (ERP) system suffers from poor inventory
Information Technology
management controls, as seen by excesses and shortages in the retail stores. These huge
fluctuations in inventory have an impact on the overall flow of goods from vendor to
distribution centers and from distribution centers to retail stores. This is due largely on the
lack of visibility and information sharing along the entire supply chain.
*Illustration 2: ACME’s Current ERP Systems
Innovative Logistics Consulting recommends overhauling ACME’s current ERP system by
Solution
replacing it with ILC’s ERP Web Hosted system. ILC’s Web Hosted system reduces the
disparity in inventory and improves visibility and sales forecasting. ILC’s Web Hosted
system contains an EDI (Electronic Data Interchange) web-based module providing
information to all parties securely over the Internet. It allows parties to track inventory
levels and automate replenishment through Point-of-Sale (POS) transactions via the hosted
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22. ILC’S ANALYSIS
ERP system. The key to our software is continuity and visibility as it integrates every aspect
of the supply chain into a single system.
*Illustration 3: ERP Concept
*Illustration 4: ILC’s Web-Hosted ERP System
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23. ILC’S ANALYSIS
Using a service model, and typically the delivery vehicle of a secure Internet connection,
companies can now outsource the installation, delivery, and maintenance of their mission-
critical software to service providers that specialize in specific applications areas.
By successfully changing the delivery and economic model of these applications, Software-
as-a- Service companies are creating a seismic shift in the software industry. It is now a
mainstream and accepted idea that sophisticated, high-end enterprise applications like
customer relationship management (CRM), accounting, and intercompany data exchange
can be delivered successfully by ILC Hosted ERP systems.
ILC’s IT personnel are experts in this particular software category, handle all the messy
business of software maintenance and integration. Even though ILC will maintain secure,
reliable data centers for the delivery, ACME is more than to welcome to have their data
back up on Head Quarter office. The hosted ERP model is very attractive for companies that
want to concentrate on improving their core business rather than software maintenance
and upgrade skills.
Although the primary users are ACME employees, we can configure that every one involve
in ACME SCM can access necessary reports and screens. For instance, someone in Hong
Kong may want to proactively monitor movement on the certain item at the certain store,
they can easily access it through a web-based report.
Even thought with the easy access on the SCM information, ACME need to follows a strict
procedure and approval process to create user accounts and to designate the specific views
and reports that those customers can access.
ILC’s Vendor Management Inventory application will have the biggest impact as the
Vendor Management Inventory (VMI)
information is shared between all departments. Based on predetermined replenishment
levels, orders will be placed into restock as necessary. It streamlines much of the ordering
process by placing the responsibility for replenishment on the vendors. As goods are
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24. ILC’S ANALYSIS
purchased or moved, ILC’s VMI application automatically updates all parties involved with
real-time inventory information.
Replenishment notifications are automated and updated in real-time, based on POS
purchases. When a particular item inventory level hits the reorder level a purchase order is
automatically generated from the vendor to the buyer.
The replenishment levels are set in advanced based on an agreed upon threshold between
the supplier and the buyer. ACME will leverage its current point-of-sale (POS) system as a
key inventory tracking tool.
ACME presently has an extensive POS system in its retail stores. However, ACME is not
leveraging the systems full capabilities. As it stands, ACME’s POS main function is compiling
sales data. Based on data collected from all ACME’s POS Stores, ACME orders all goods for
the following year, plus an additional 10% for assume increase business activity for the
coming year. Under VMI, POS would report real-time inventory and generate purchase
orders.
ACME’s employees use their ERP system in so many different areas and with little
Visibility in Supply Chain Management (SCM)
standardization. Part of the issue is maintaining separate, stand-alone modules of its ERP
application. Information is NOT processed or shared along the supply chain. There are no
built in checks for handling inventory and addressing the principles of warehousing like
systematic stock management and stock traceability.
ILC’s SCM application is able to provide real-time inventory levels, track actual customer
usages and purchases instead of expected sales. Eliminating expected sales helps reduce
inventory overhead which increases efficiency and decreases operating costs in
warehousing and shipping. With this kind of system will help make ACME’s transition from
a push sales forecasting model to a pull sales forecasting model.
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25. ILC’S ANALYSIS
Owning an ERP / EDI based system is complicated. It requires expertise and attention to
IT Implementation
detail during the initial setup and routine day-to-day processing. ACME’s decision to utilize
ILC’s ERP Hosted system has cost associated as shown below.
*Table 3: ERP Implementation Cost
The key to every successful project implementation is to understand and integrate all the
aspect of business and role. Integrations processes are more than technical challenges, they
also help map business processes across the boundaries of individual systems.
ACME and ILC will work together to accomplish this. It will involve cooperation from team
leader (both in Store and DC) to manager and the executive level. ILC will develop the IT
plan and responsibility for its implementation.
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26. ILC’S ANALYSIS
ILC and ACME IT Manager 2 weeks
Task Responsibility Estimated duration
Pre-evaluation
ILC, ACME IT manager and
Screening
chief Information 2 weeks
technology
Evaluation Package
ILC and ACME IT staff 1 weeks
ILC, ACME HR and COO 1 weeks
Project Planning
ILC and ACME (DC, Store
Varies (2-4 weeks)
Organization Staffing
and HQ)
ILC and ACME IT Staff 2 weeks
Team training
Testing
*Table 4: IT Development Plan
Year 1 – Technology Integration
Pre-evaluation Screening: Once the company has decided to go for the ERP system, the
search for the package must start as there are hundreds of packages it is always better to
do a thorough and detailed evaluation of a small number of packages, than doing analysis of
dozens of packages. This stage will be useful in eliminating those packages that are not
suitable for the business process.
Evaluation Package: This stage is considered an important Year of the ERP
implementation, as the package that one selects will decide the success or failure of the
project. Implementation of an ERP involves huge investments and it is not easy to switch
between different packages, so the right thing is to ‘do it right the first time’. Once the
packages are evaluated and identified, the company needs to develop a selection criterion
that permits the evaluation of all the available packages on the same scale.
Project Planning: This is the Year that designs the implementation process. It is in this
Year that the details of how to go about the implementation are decided. Time schedules
and deadlines for the project are developed at this point in the process. The plan is
developed, roles are identified and responsibilities are assigned. It will also decide when to
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27. ILC’S ANALYSIS
begin the project, how to do it and how to complete it. A committee of team leaders of each
implementation group usually does the planning.
Organization Staffing: It is in this Year that human factors are taken into consideration.
While every implementation is going to involve a significant change in number of
employees as well as their job responsibilities, and as the process becomes more
automated and efficient, it is best to treat ERP as an investment as well as a cost cutting
measure.
Team training: Training is also an important Year in the implementation, which takes
place along with the process of implementation. This is the Year where the company trains
its employees to implement and later, run the system. Thus, it is vital for the company to
choose the right employee who has the right attitude- people who are willing to change,
learn new things and are not afraid of technology and a good functional knowledge.
Testing: This is the Year where one tries to break the system. One has reached a point
where the company is testing the real case scenarios. The system is configured and some
extreme cases like system overloads, multiple users logging on at the same time, users
entering invalid data, hackers trying to access restricted areas and so on needs to be
considered. This Year is performed to find the weak link so that it can be rectified before its
implementation.
Year Two – Fully functional ERP Hosted and E-Commerce Integration
Post implementation: Once the implementation is over, ACME Staff will be able to handle
routine maintenance with help from ILC’s Staff. To reap the fruit of the implementation it is
very important that the system has wide acceptance. There should be enough employees
who are trained to handle problems that arise. The system must be updated with the
change in technology. The post implementation will need a different set of roles and skills
than those with less integrated kind of systems.
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28. ILC’S ANALYSIS
E-Commerce implementation: On this Year the step will be similar with new ERP system
that ACME has. With having all the product data on the main server, ACME will be able to
launch their E-Commerce within one year
ACME’s current ERP system cannot keep up with the constant changes in trade regulations
Global Trade Management (GTM)
such as the bill of lading, classification of goods, and custom compliances. Much of the
information processed at ACME is done manually. Inputting information manually
increases the likelihood of mistakes caused by human error. In order to keep ACME up-to-
date with all the necessary administrative needs and reducing the number of human errors,
ILC will implement a GTM application.
Global Trade Management has the capability to provide up-to-date information to make
accurate global trade decisions. It will automate ACME’s trade processes by eliminating
many problems that slows down the process of goods traveling along the supply chain such
as misclassification of items, miscalculation of duties, and/or the incorrect filing of
necessary documentation. This application is designed to automatically flag any errors that
need to be fixed in order to continue processing the delivery of goods. It could also be used
as a tool to fasten the delivery of goods by having the current information available.
The GTM application will assist ACME in streamlining their supply chain by expediting and
clearing customs of all inbound and outbound shipments and reduce the number of
possible fines and penalties for incorrect filings. This will reduce overall working capital,
operating cost and increase trade efficiencies.
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29. ILC’S ANALYSIS
“Lean Logistics” has become the industry standard and companies are focusing on
Warehouse/Distribution
improving their bottom line by increasing supply chain efficiency. Target and Walmart
realize the importance of efficiencies in their supply chain and invest significant portions of
their budget into supply chain management. Due to the current economic conditions,
Target Stores has reduced their total budget for capital improvements from $4.4B in 2007
to $1.8B in 2009, while increasing the percentage of their annual capital expenditures for
IT, distribution and other supply chain improvements from 22% in 2007 to 31% in 2009
(Target Co., 2009).
Walmart has 4200 stores and 42 DCs which service 100 stores each and is the industry
leader in supply chain management. Walmart attributed a 25.2 percent increase in gross
profit in the third quarter of 2009 to improvements in logistics. Walmart Stores Executive
Vice President Bill Simon said, “…in fiscal 2009, our logistics operation delivered about
$200 million in savings” (Target Co., 2009).
Reorganizing ACME marketing areas and distribution centers will eliminate waste and
inefficiencies. Currently ACME has 800 stores serviced by 40 distribution centers (DC’s)
with 250,000-282,000 sq ft. per center. Target has 1740 stores serviced by 37 DC’s with
128,000 sq. ft per center (Target Co., 2009). ACME store to DC ratio is 20/1 while Target’s
ratio is 47/1. The total warehouse square footage used by ACME for their DC’s is 10 million
square feet, while Target’s is 4.8 million square feet. That is less than half of the warehouse
space ACME currently requires, and Target is servicing almost twice as many stores.
Consolidating market areas would cut warehouse and transportation costs and facilitate
efficient movement of goods. Currently, ACME has 27 marketing areas servicing 30 stores
per area. A far more efficient model would include three strategically positioned import
centers, LA, Dallas, and Chicago, to receive incoming goods and disperse to nine regional
DCs for cross dock to stores. An additional DC servicing 18 stores in the MW area will also
handle E-Commerce and will be established in the UPS hub city of Louisville, KY.
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30. ILC’S ANALYSIS
The import and regional centers will be 282,000 square feet and serve 62 stores each. This
is based on Target’s ability to handle 47 stores in a 128,000 square foot warehouse space.
This “spoke and wheel” distribution model will efficiently cover the U.S. LA import center
plus 1 DC would service the western region with 120 stores, Dallas import center plus 2
DC’s would service the southeast region with 180 stores, and Chicago import center plus 7
DC’s would service the northeast region with 500 stores. This model will bring ACME more
into the ratio of store to DC and warehouse square footage utilization of ACME competitors.
The three import centers were selected using location allocation software (See Appendix
2) and the DC’s to be closed were also identified by use of this software. In Year 1, three
import centers in LA, Chicago, and Dallas will be established and 9 DC’s will be consolidated
and closed. In Year 2, the DC in Louisville, KY will be retrofitted for E-Commerce, and an
additional 9 DC’s will be consolidated and closed. In Year 3, no additional new DC’s will be
established and final 13 existing DC’s will be closed. Utilization of existing DC’s, wherever
possible, is preferred to opening new facilities to mitigate costs and business disruption. At
the end of Year 3, Import Centers in Los Angles CA, Chicago IL, and Dallas TX, and DC’s in
Louisville KY, Seattle WA, Atlanta GA, Littlerock AR, Charleston SC, Hartford CT, Edison NJ,
Detroit MI, Akron OH, Des Moines IA, and Indianapolis IN will be fully operational.
The Novell warehouse will no longer be used. All apparel garments will clear US Customs in
the LA/LB import center and will be shipped LTL directly to regional DC’s. Over the period
of three years ACME will reduce their total DC’s from 40 to 13. In closing 27 warehouses,
savings in operating costs and employee wages will be realized. Currently ACME spends
$270,000,000 annually in operating expense to maintain their 40 DC’s. By eliminating 27
DC’s, ACME would realize an on-going annual operating cost savings of $175,500,000 plus
the employee wage and benefits savings. ($6,500,000 x 27 DC’s)
ACME currently owns all of their stores and DC’s. If 27 were sold, the closed warehouses
will realize a cash infusion of $298,000,000 over three years based upon an average
warehouse per square footage prices from $19/sf in Arkansas and $73/sf in California
(http://www.loopnet.com/). We recommend the sale of DC closures in Year 1 and 2 of the
logistic plan. For the balance of the closed DC’s, we would recommend further research be
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31. ILC’S ANALYSIS
done by ACME’s CFO to determine optimum disposition of the real estate owned to
improve cash flow, maximize tax advantages and accommodate future growth.
In addition to restructuring distribution centers and increasing visibility due to improved
technology integration, we would recommend more efficient warehouse space utilization
and flow to eliminate waste and inefficiency and improve productivity. In our analysis of
ACME’s Distribution and Warehousing model we researched ACME competition to define
the industries “best practices” and created a benchmark model using Target which we will
propose to ACME as follows:
*Table 5: Benchmark
Further to the point;
4,736,000 Warehouse sq. ft / 1740 = 2722
2722 x 47 DC’s = 128,000 into the avg DC sq. ft = 100% efficiency
ACME’s 10 million sq. ft / 800 stores = 12,900 DC sq. ft/store
Using the Target benchmark (2722 sq. ft of each DC used per store x the number of stores
serviced per DC currently) as the 100% baseline efficiency rate, for ACME we come up with
a comparable DC efficiency of 21%. ILC proposes to bring ACME to 78% efficiency over the
three year period. Bottom line, the more efficiently the DC space is used, the fewer DC’s it
will take to service more stores.
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32. ILC’S ANALYSIS
Inventory management IT systems and warehouse management systems will combine to
make the movement of goods through the warehouse transparent. Improved warehouse
operations such as the industry standard of double or triple stacking pallets, alone would
cut ACME’s current warehouse space utilization by a minimum of 60% (Appendix 3 & 4-
Whse Layout). Coupled with other strategies such as cross docking and automation will
maximize efficient flow of goods and the DC overhead cost attributable to revolving stock
and the cost of holding inventory will also significantly improve. Strategies such as
negotiating two weeks free warehousing during consolidation of apparel in China also
eliminates holding cost in the U.S.. ACME’s current average dwell time for Home Electronics
is ten days. With above improvements, dwell time will be reduced to 3-5 days. ACME’s
current warehouse/distribution model could be strengthened greatly by implementing
these logistic strategies ACME’s competitors have adopted.
Innovative Logistics Consulting has developed a strategic logistics plan for ACME to allow
The Innovative Solution
for the following:
Increased Gross Profit
Improved Cash Flow
•
Minimal Capital Investment
•
Reduced Waste
•
Improved Efficiencies
•
Meet or Exceed Industry Standards
•
•
Impact on Productivity
The new distribution/warehouse model will move more goods in less square footage with
less manpower. By initiating a “Pull” rather than the current “Push” distribution model
ACME will have more efficient inventory control. And due to the IT improvements, there
will be greater integration and cooperation from all parties to the supply chain.
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33. ILC’S ANALYSIS
Impact on Cost of Operation
The new strategic logistic plan will reduce warehouse cost, manpower cost, transportation
cost and inventory holding cost with minimal capital investment. ACME has been able to
compete in the marketplace with the current logistic plan, and will be able to capture an
even larger market share with the initiation of the proposed improvements.
Overall Benefits
ILC proposes to bring ACME in line with its competitor’s efficiency rating
 Increased Warehouse Efficiency
from 21% to 78% over a 3 year period.
•
ACME’s supply chain will have increased visibility and efficiency due to the
introduction of state-of-the-art IT solutions.
•
Warehouses will operate at maximum efficiencies with the introduction of
automation, cross-docking, and maximum utilization of cubic capacity by
•
implementing new stacking procedures.
 Fully Optimized Distribution Model: Elimination of waste in the distribution
model due to more optimal location of DC’s and reduced number of total DC’s.
 Positioned for Future Growth: Part of ACME’s Mission is growth. With the
improved logistic plan ACME will be more than 3 times more efficient and able to
accommodate and manage that growth efficiently well into the future.
Pre-launch planning will be a joint effort between ILC and Corp. Level executives from
Planning
ACME. A team will be established to integrate ILC distribution and warehousing concepts
into ACME business model and to analyze and coordinate efforts to affect the new strategic
logistics plan until completion. They will meet a minimum on a quarterly basis but status
reports will be provided by ILC on a monthly basis.
Two teams will be established to handle the Warehouse Efficiency Plan (WEP)
implementation and the other to handle the Distribution Center Consolidation Plan (DCC).
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34. ILC’S ANALYSIS
The Warehouse Efficiency Plan team will have a representative from ILC, Warehouse
Operations Managers, and other required staff from ACME. Their job will be to over-see the
warehouse improvements. They will meet as needed and prepare a monthly report. .
The Distribution Center Consolidation team will also have a representative from ILC, a
representative from the ACME legal and finance departments, and other required ACME
staff. Their job will be to over-see the consolidation of the ACME warehouses. As needed
ILC’s experts from IT and the “Green Initiative” will participate on both teams.
Warehouse Implementation
Year 1
Import Center Identification: ILC, using location allocation software, identifies all
proposed DC locations, whether new start-ups or closures. ACME DCC team works with
•
commercial Realtors and contractors and others to acquire and retrofit the warehouses,
including IT and “Green” solutions. The 3 import center warehouses are ready to open
within the first 12 months. Open LA, Dallas and Chicago Import Centers at a cost of $75
million. In ILC negotiations with the cities, Bond Funds will be used to finance the
projects at a lower than market rate. A 1% reduction in the cost of funds represents
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35. ILC’S ANALYSIS
$750,000 annual interest savings. Amortized over 30 years is a $22.5 million savings in
finance costs for ACME.
Import Center Start Up Expense
($ In Millions)
Real Estate Costs* 20.6 14.7 13.3
LA/LB Chicago Dallas
Acquisition Costs 2.0 1.5 1.3
7.0 7.0 7.0
$29.6 $23.2 $21.6
Retrofit Costs
Total Costs $74.4
*Footnote - Loop Net Commercial Real Estate Online 2010
*Acquisition costs include real estate fees and closing costs. Retrofit costs include design fees $470K Green Retrofit
$2.15M, 36 electric forklifts and batteries $1.24M, Racking and set-up $3.9M, Office Retrofit $450K, Security Systems
$360K, Signage $30K
*Table 6: Import Center Start Up Expense
ACME currently operates a DC in Spokane, WA. ILC recommends relocating the DC to
• Relocation of Washington State Distribution Center
Seattle, WA for several reasons. Seattle will serve as an alternate port of entry in the event
of weather or labor issues that could cause disruption of freight movement in LA and
Prince Rupert. It is also a better transportation hub for rail and trucking than Spokane, and
provides a larger labor force. The ILC DCC Team will handle the acquisition of the new
warehouse, closure of the Spokane DC, and the movement of equipment to the new
location. This will also be completed within the first twelve months.
Washington DC Relocation
$12.8
$1.2
($ In Millions)
Real Estate Costs*
$2.0
Acquisition Costs
(Ret. Costs lower due to equipment moved from
Retrofit Costs
Spokane)
Total Costs $16.0
*Footnote - Loop Net Commercial Real Estate Online 2010
*Acquisition costs include Real Estate fees and closing cost. Retrofit includes design $156K, Green retrofit $230K,
Racking and set-up $1.3M Office retrofit $150, Security Systems $120K, Signage $10K
Warehouse Efficiency Plan: The ILC consultant and a representative from the WEP
**Table 7: Washington DC Relocation
team will visit the nine warehouses that have been identified as non-closures and begin
•
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36. ILC’S ANALYSIS
working, in coordination with their Operations Managers, to develop a warehouse
layout and flow that will maximize efficiency for each warehouse. An immediate
implementation of this warehouse efficiency plan will be to begin to double or triple
stack pallets in all 40 warehouses immediately, which will represent a minimum of 50%
increase in usable warehouse space, and eventually reaching 4 high with the addition of
racking in Year 2. This will allow for warehouse consolidation of stock from closed
warehouses. ACME’s current average dwell time for Home Electronics is 10 days. That
would be reduced to 3-5 days.
Distribution Center Reductions: The DCC will over-see the closure of 9 additional
warehouses in Year I at a cost of $2.7 million.
•
$500,000
Distribution Center Closure Expense
$200,000
DC Shut Down Costs
Cost of Closure Per DC $300,000
Sale of Equipment
$300,000 x 9 $2,700,000
$300,000 x 9 $2,700,000
Year One Closure Expense
$300,000 x 13 $3,900,000
Year Two Closure Expense
Year Three Closure Expense
Total DC Closure $9,300,000
*Shut Down costs includes Contractor and Personnel costs for a two month period. Sale of Equipment such as forklifts,
racking systems, office and other equipment total approximately $200K.
Disposition of Real Estate: ILC would recommend the immediate sale of the nine
**Table 8: Distribution Center Closure Expense
closed warehouses in Year I to off-set cost of the new import centers and the relocation
•
of the Washington distribution center. The sales of the nine warehouses will yield $72.7
million in net proceeds.
Sale of DC's in Year 1
$83.7
($8.3)
($ In Millions)
Real Estate Value*
($2.7)
Cost of Sale
DC Closure Expense
Profit $72.7
*Average Per Sq. Feet Value of ACME DC's is $37/SF X 250,000 SF = 9.3 Mil/DC
*Footnote - Loop Net Commercial Real Estate Online 2010
*Cost of Sale expense assumes max. 10% sales commission. DC Closure Expense includes cost of repairs, removal of
equipment and labor for repairs and removal and also property security during closure.
**Table 9: Sale of DC’s in Year 1
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37. ILC’S ANALYSIS
*Illustration 5: Year 1 Distribution Model
Year 2
Import Centers Fully Operational: In coordination with ILC transportation experts
the DCC team will implement the Import Center openings and the commencement of
•
ocean transportation of goods to LA and Prince Rupert will begin.
Distribution Center Reductions: The DCC team will consolidate and close 9 additional
warehouses at a cost of $2.7 million, with an annual savings of $58,500,000 due to these
•
reductions. (9 DC’s x $6,500,000)
E-Commerce Distribution Center: The DC in Louisville, KY, the hub city for UPS will
be modified for IT and act as the center for E-Commerce at a cost of $1.5 million. The
•
DCC team will coordinate the retrofit and work with ILC’s IT experts. The E-Commerce
center will utilize UPS Ground for its LTL service and they will assist in the web-based
tracking of shipments for ACME customers. E-Commerce is a new source of revenue for
ACME and annual sales of $5,000,000 are expected in the first year. If we assume the
income remains the same for three years, the time value of that money is $16,232,320.
at 4% interest rate over the three years of the strategic logistic plan.
Warehouse Efficiency Plan: The WEP team finalizes the warehouse efficiency plan
started in Year I and is implemented at all 13 of the facilities that will remain active in
•
ACME’s strategic logistic plan. A second shift will be added and the same warehouse
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38. ILC’S ANALYSIS
equipment will perform twice the production each day. New import centers and
existing DC’s implement cross-docking and improved warehouse flow methods. New
racking will be installed and pallet stacking will reach four high to optimize the volume
of the warehouse.
Warehouse Management IT Systems Fully Operational: DCC team will assist IT in
facilitation training and implementation of the new system. The efficiencies that the
•
new warehouse management system brings to ACME allows for the consolidation of all
stock from the closed DC’s.
Sale of Year 2 closed DC’s will generate $72,700,000 in net proceeds.
• Disposition of Real Estate
Sale of DC's in Year 2
$83.7
($ In Millions)
$8.3
Real Estate Value*
$2.7
Cost of Sale
DC Closure Expense
Profit $72.7
*Average Per Sq. Feet Value of ACME DC's is $37/SF X 250,000 SF = 9.3 Mil/DC
*Footnote - Loop Net Commercial Real Estate Online 2010
*Cost of Sale expense assumes max. 10% sales commission. DC Closure Expense includes cost of repairs, removal of
equipment and labor for repairs and removal and also property security during closure.
**Table 10: Sale of DC’s in Year 2
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39. ILC’S ANALYSIS
*Illustration 6: Year 2 Distribution Model
Year 3
Distribution Center Reductions: The DCC will consolidate and close 13 warehouses at
a cost of $4.2 million. Because cash flow in this economy is vital to the health of a
•
company, ACME is in a very good position because these last warehouses can generate
significant capital, whether sold or leased. You may want to hold these assets until a
more favorable real estate market and generate income from leases now. We
recommend that you have the CFO evaluate the final disposition of these assets taking
into consideration ACME’s complete financial picture, the current market conditions
and tax consequences. If ACME were to sell all real estate, it would generate
approximately $298,000,000 in net proceeds.
Fully Integrated Logistics Plan Completed: Import Centers in LA, Dallas, and Chicago,
E-Commerce Center in Louisville, KY and nine Regional DCs are in full operation. ACME
•
will have 13 DC’s servicing 80 stores with an average efficiency rating of approximately
78%, and DC square footage that will allow for a growth of ACME stores projected at 8-
10% annually (See Illustration 1). The new warehousing and distribution model has
been completed at a cost of $117,700,000 and a total operating cost savings of
$275,500,000.
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40. ILC’S ANALYSIS
Combined with both Operating savings of $275,500,000, plus the added value of the real
*Illustration 7: Year 3 Distribution Model
estate disposition of $298,368,000, the total financial benefit of the proposed changes to
ACME warehouse and distribution model would be $573,868,000.
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41. ILC’S ANALYSIS
ACME’s current Transportation model is underutilized, generating waste, and is
Transportation
inefficiently used.
Home Electronics
UNDERUTILIZED EFFICIENCY
Currently, ACME is utilizing two ports of entry in the U.S; Long Beach and Baltimore. Cargo
shipped via Baltimore services five H.E. DC’s at the East Coast: Hartford, CT; Atlanta, GA,;
Edison, NJ; Little Rock, AR; Charleston, SC where the transit time is an average of 32.5 days.
Long Beach services the other five H.E. DC’s in the Mid-west, where containers are cross-
docked before getting to the destination DC’s: Detroit, MI; Springfield, Il; Akron, OH; Des
Moines, IA; Indianapolis, IN ending with a transit time of an average of 14 days. When
combined, the average transit time for Ocean transportation for H.E. is 23.25 days.
ILC is proposing ACME to eliminate the East Coast port of entry of Baltimore, shipping all of
their cargo through the West Coast, where 60% of the total FEU’s will be sent via Prince
Rupert, Canada. From there, the goods continue on to Chicago via intermodal. Another
25% will be shipped via through rates from the Orient direct to Dallas arriving in Los
Angeles port and being sent intermodal on double stacked trains. The remaining 15% will
be held in LA, where half of it will be cross-docked to the Seattle Regional DC. From the
Chicago and Dallas Import DC’s, proportionate cargo will be cross-docked to the remaining
eight Regional DC’s.
ACME is purchasing from five different Orient suppliers located in HK, Shanghai, Manila,
Pusan and Taiwan.
ILC proposes to move the production from Manila and Taiwan to only three suppliers; HK,
Shanghai and Pusan. The impetus for this change was Taiwan becoming too expensive to
manufacture so many suppliers are changing production line locations to Mainland China.
Manila is still further away from the West Coast, North America (WCNA) which makes the
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42. ILC’S ANALYSIS
Ocean freight rate higher. These three suppliers are strategically chosen and are
considered as Asian Base Ports (ABP) which retain a lower/same rate level.
UNDERUTILIZED CAPACITY
ACME is using 40’ DRY Containers to ship cargo from the Orient to the U.S. utilizing the
inside capacity of 1,972.81 cft per box which as a total per year, imports 2544 FEU’s. This
capacity enables 80 TV’s, 340 DVD/VCR and 75 Portal Stereos summing up to a logistic cost
per 40’ Container of $11,231.58.
ILC proposed to move the Home Electronic cargo into 40’ HC (High Cubic) containers,
where the inside capacity increases to 2396.81 or approx. 424 cft per container, decreasing
the total volume of container to the U.S. by 450 FEU’s.
 2544 FEU’s x 1,972.81 cft = 5,018,829 c.ft (Current Model)
 2094 FEU’s x 2,396.77 cft = 5,018,829 c.ft (Proposed Model)
-450 FEU’s +423.96 cft
Domestic Transportation; ACME’s current model is cross-docking 1316 Trailers in Rancho
*Table 11: Home Electronic Cubic Feet Calculations
Dominguez from 40’ Containers to 40’ Trailers to be sent via Intermodal to the DC’s in the
Mid-West with an overall cost of $2,835,519.
ILC proposal for the Domestic Transportation consists in Cross-docking the cargo from the
mentioned Import DC’s (LA, Dallas and Chicago) into 53’ Trailers optimizing space and
being able to distribute 1316 Trailers to all 10 proposed regional DC’s (not only five as
shown in current model).
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43. ILC’S ANALYSIS
Another improvement that ILC tackled is to change the distribution model to send the 53’
trailers on TOFC’s (Trailer On Flat Car’s) for destinations over 500miles, and utilize OTR
(Over The Road) for distances lower than 500 miles, bringing a saving to the operation of
$1,952,866 (spreadsheet below – comparing current vs. proposed model).
The main improvement with the Transportation model relies on use of larger Import DC’s.
Bringing the cargo into the U.S. via “through rates” to the same Import DC’s bring them
strategically closer to the remaining 10 Regional DC’s, which lowers the rate per mile
guaranteeing the savings illustrated above.
OCEAN FREIGHT COSTS
ACME’s current Ocean Freight rates had their last review in 09/01/2007 working on an
average of $3,897.78 by dividing the total logistic ocean cost by the current quantity of
containers. Looking at ACME’s Budget Summary, the Ocean Transportation is the 2nd
highest cost (total $9,915,940), and when added to the Domestic Transportation
($2,835,519) and the Cross-Docking charges ($394,800) ACME has a total Transportation
cost for Home Electronics of $13,146,259.
Market research was performed to see where ACME could save on existing Ocean
Transportation rates. Comparing ILC’s new bid against ACME’s current rate structure, we
arrived at a savings of $685 per container (if compared to 40’ DRY). ILC proposes to use
40’ HC containers, the saving will not be that big…even though saving in Ocean
Transportation $1,031,800.
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44. ILC’S ANALYSIS
In general, the main proposal that ILC is doing to ACME, generates a savings for the Home
*Table 12: Home Electronics Savings
Electronics of $2,984,668 in the first year that will start in the first quarter after the
business is awarder to us (See Gantt Chart in appendix).
UNDERUTILIZED EFFICIENCY
Apparel
ACME is today moving their cargo as LCL (less than container load) from 4 origins in Asia
(Hong Kong, Shanghai, Pusan, Manila) to LA/LB and afterwards moved to an 3rd party
Warehouse (Novell) which takes in average 13 days being sent only once a month from
each supplier.
In order to improve the inventory and the transit time, ILC proposes to develop a new
supplier in the Pearl River Delta area (mainland China) and move the production from
Shanghai, Pusan and Manila into only 2 suppliers; the one in Hong Kong and the new
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45. ILC’S ANALYSIS
developed one in PRD. After being consolidated in Hong Kong, the cargo will be shipped
ever 15 days in 20’ Dry containers to Los Angeles Import DC in only 12 days of transit.
UNDERUTILIZED CAPACITY
ACME currently sending the cargos on LCL basis, from 4 different places, is not combining
the cargo which could improve capacity and reduce costs.
After having only 2 suppliers close to each other in the PRD area, ILC proposes to
consolidate the every 15 days at the Kuehne Nagel Warehouse in Hong Kong, where we
negotiated a 14 days Free Storage. The cost for the consolidation will be $26.5 per CBM
(which already includes the 14 days Free Storage, receipt of cargo in the CFS, loading of the
container and roundtrip CY/CFS).
The Reason to consolidate the cargo is that we can have 23.91 CBM to be loaded each 15
days, which is enough for a 20’ Dry container on the low season.
Total cargo sent on Low Season:
That means that for the low season, the total rate per year for apparel is $47,006.73
(calculation below)
 $26.5 x 47.81 CBM = $1,266.97 (Consol charge) + ( 2x $1978) (20’ Ocean rate) =
$5,222.97 per month x 9 (low season months) = $47,006.73
Now for the 3 months that are considered Peak Season (July, August, September) ILC
recommends ACME to use 40’ Dry containers due to the volume increase (as seen below).
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46. ILC’S ANALYSIS
So using the same math as below (26.5 x CBM + 40’ Dry container) we get the total Apparel
Ocean cost and are able to save $50,104.97 if compared to the current Apparel cost of
$127,653.00 (as been below + appendix) .
OCEAN FREIGHT COSTS
The ocean costs for 20’ and 40’ Dry were also negotiated with Kuehne Nagel as seen below:
The Domestic Transportation done today by ACME won’t change, being only consolidated
more packages to the same 10 Regional DC’s.
But as a second project, ILC can be studying an improvement for the Apparel Domestic
Distribution by negotiating special rates for Small Package sent direct to the stores,
avoiding one more step/cost at the Regional DC’s.
The Transportation planning for the whole project will be fully implemented by Year 2,
Planning
after the Import Warehouses are open and running in LA, Dallas and Chicago. The first year
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47. ILC’S ANALYSIS
will be used to offshore the new suppliers and consolidate the volume to the awarded ones
in Hong Kong, Shanghai and Pusan for Home Electronics, and Hong Kong and PRD (Pearl
River Delta) for Apparel.
After each supplier for Home Electronics is selected and instructed to be working with 40’
HC Containers, work done in partnership between ACME’s and ILC’s Transportations Corp
Team, the new Domestic Transportation model will be implemented in synergy with the
Distribution Center Consolidation (DCC) Team at the Import Warehouses.
The Apparel consolidation will also happen as soon the new supplier in PRD is developed,
where the cargo will be sent to Hong Kong and combined at the Kuehne Nagel’s Warehouse
to be sent as scheduled to LA. This will occur all together within Year 1.
The Domestic transportation for Apparel won’t suffer any changes at the moment, being
sent as current model to the Regional DC’s on LTL basis.
When fully implemented, the combined savings for the Home Electronics, Apparel and
Domestic Transportation will generate a total benefit of $3,034,773 which will improve
cash flow and reduce waste.
To guarantee the best rate quotation, at the beginning of each year ILC will manage a new
bidding for ACME to make sure all rates being used are in average to the market.
As a special benefit by quoting with Kuehne Nagel for a 3 year plan, where the rates will
just be revised to the market level each January, no GRI or PSS will be applied if the whole
project is awarded to them as Ocean Freight Forwarder.
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48. ILC’S ANALYSIS
PROPOSED ILC TRANSPORTATION MODEL
*Illustration 8: ILC’s Proposed Transportation Model
In the event of a strike in the West Coast USA, ILC has established a backup plan to reach
Contingency Plan
the Import DC’ in Dallas and Los Angeles by going the freight via Panama Canal into
Houston, TX. In case any strike occurs in the Canada West Coast, cargo will be shifted from
Prince Rupert into Seattle, WA, and railed to Chicago.
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49. ILC’S ANALYSIS
Logistics is the integrated management of all the activities required to move products
Green Initiatives
through the supply chain. Green logistics is the practice of these movements that take both
environmental and social factors into consideration.
GOVERNMENT POLICIES & REGULATIONS
Why Go Green?
Governments around the world have begun to introduce laws that govern the rational and
conservation of energy. For example, Tokyo has to comply with the Revised Energy
Conservation Law of 2006. The law is a comprehensive act that regulates energy
management in manufacturing, commercial and transportation sectors; energy efficiency
standards for vehicles and appliances; energy efficiency standards for houses and buildings
(The Energy, 2010).
In 2006, California introduced Assembly Bill 32 (AB 32). AB 32 grants California the rights
to set emission standards and implement greenhouse gas guidelines, promote alternative
fuels and technologies by way of rebates and other incentives. AB hopes to reduce harmful
emissions statewide and return emissions levels from a decade ago (Taylor, 2010). It is
only a matter of time before other states follow suit and it would be wise for ACME to be
the leader in green.
SOCIAL FACTOR
Consumers are becoming increasingly aware and conscious over the impact that products
and business have on the environment. A 2007 Intellitrends market study revealed that 93
percent consumers were willing to spend or pay more to get products labeled as a green
product and shop with companies that have a support in environmental sustainability
(Bishop, 2007).
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50. ILC’S ANALYSIS
FUTURE COST SAVINGS
Huge upfront cost is the main deterrent preventing many businesses from going green.
Such simple changes as energy efficient light bulbs and water conservation techniques have
been met with hostility, but the huge future savings cannot be denied.
For example, improving fuel mileage efficiency in the trucking fleet by one mile per gallon
would save more than $52 million per year (Is Walmart, 2005).
A waterless urinal saves on average 20,000 to 45,000 gallons of water a year. Twenty-two
Waterless urinals can save up to 1,000,000 gallons of water per year (Waterless, 2010).
ACME currently employs a PUSH program for their inventory system that not only causes
The Green Situation at ACME
excess inventory, but also a higher amount of carbon footprint and inefficiencies in the
production, storage, and transportation of goods. This is due to a lack of visibility along the
supply chain and a lack of appropriate technology in place to support ACME and their
efforts to go green.
INFORMATION TECHNOLOGY
Many of the green benefits from information technology are indirectly related to
improvement in efficiencies along the supply chain. For example, improvements in
forecasting provide additional lead time for maximizing and transporting goods. This
means less trucks and fewer trips and that equates to less harmful emissions.
Additionally, allowing ILC to host ACME’s data centers, has the added benefit of lowering
C02 emissions. ILC data centers utilize the latest in software and storage capability
requiring less power, cooling, and space than other data centers.
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51. ILC’S ANALYSIS
3R Principle (Reducing, Reuse and Recycle)
ILC suggest implementing a 3R principle to eliminate waste as much as possible. For
example:
Recycle paper
Use double-sided paper when printing
•
Replace disposable batteries with rechargeable ones
•
Recycle printer cartridge
•
Implementing paperless ordering systems to reduce paper waste.
•
•
DISTRIBUTION CENTERS
Lighting
ILC recommends that lighting in all distribution centers be retrofitted and replaced with
Energy Star Qualified Light Emitting Diode (LED) Lighting. The benefits of LED lights
include:
Lowering operating expense. LED lights use 75% less energy than incandescent
lights (“Energy Star”, 2007).
•
Reduces maintenance costs. LED lights last 35 to 50 times longer than
incandescent lighting and about 2 to 5 times longer than fluorescent lighting
•
(“Energy Star”, 2007).
Reduces cooling costs. LED lights produce very little heat.
Minimum three-year warranty. This guarantee is far beyond the industry
•
standard of 1 year.
•
Added features. Some indoor LED models have dimming capabilities. Outdoor
models have automatic daylight shut-off and motion sensors on some outdoor
•
models. The ability to turn lights on only while they are in use will conserve energy
and further reduce energy cost.
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52. ILC’S ANALYSIS
Skylights
ILC recommends that ACME install Skylights in all 13 distribution centers. Skylights have
the ability to increase energy efficiency by maximizing natural lighting, eliminating heat
transfer and making the most of passive solar heating reducing overall operating cost and
lowering C02 emissions (Save the Bulbs, 2010).
In addition, the natural lighting provided by skylights has been known to increase
productivity. There seems to be a direct correlation between natural lighting and
productivity. It seems as though natural lighting has a positive psychological effect. Some
studies suggest that the human brain perceives the color properties of natural light as
‘normal’ and thus we respond in a positive, physical way when it is present. The National
Commission on Sleep Disorders Research estimates that, in the United States alone,
businesses lose more than $150 billion a year in productivity as a result of employee
fatigue due to lack of daylight (Velux America, 2010).
Recently, Lockheed Martin reported a 15% increase in worker productivity after installing
skylights. They were awarded a $1.5 billion defense contract based on increased
productivity and saved $300,000 to $400,000 a year on energy bills due to natural light
from skylights (Velux America, 2010).
Lighting Sensors
Lighting sensors will also help reduce energy cost and usage by limiting the use of lights as
necessary. The lights will turn off and on as people enter or leave a room. This is
particularly useful in rooms that are used in short durations, such as bathrooms.
Water Conservation
ILC recommends the replacement of 4,239 flush urinals with waterless no-flush urinals.
The cost to replace the no-flush urinals is $429 per urinal for a total of $1,818,531 with an
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53. ILC’S ANALYSIS
average cost of $1.00 per 1000 uses and a payback period between one and three years. A
waterless urinal saves on average 20,000 to 45,000 gallons of water a year. ACME is
expected to save over 192,681,818 gallons of water per year with waterless urinals
(Waterless, 2010). The savings associated with water alone at $1.50 per 1000 gallons
equates to $289,023 (http://www.fcwa.org/Story_of_water/html/costs.htm).
TRANSPORTATION
Improved Freight Logistics
The new IT system in place should improve efficiencies in the transportation of goods, as it
provides information on how many hours and miles each route should use, allowing ACME
to determine how many trucks and drivers are truly needed. Simplifying delivery routes
reduces the number of trucks needed to transport goods and also reduces distances for
deliveries, which in turns saves on fuel consumption, green house emissions, and lowering
overall cost. Real-time visibility will also allow ACME to maximize load capacity by
providing real time inventory levels and lowering the number of trips.
Increase Railway Use
Transporting goods by railway and ships emits less C02 than that of trucks and airways.
Transporting containers by rail rather than trucks reduces carbon footprints by as much as
62%. Transporting trailers by train rather than truck cuts carbon footprints by as much as
49% (See Figure X for example). This is why ACME will route 1257containers via Prince
Rupert and 837 containers to LA and Dallas.
DOUBLE STACK CONTAINERS BY TRAIN CONTAINERS BY TRUCK
(LA to Chicago) (LA to Chicago)
1 train carrying 256 units 256 trucks
2,200 rail miles 2,015 highway miles
Consuming 25,400 gallons of diesel fuel Consuming 79,400 gallons of diesel fuel
420 metric tons CO2 footprint 1,113 metric tons CO2 footprint
*Source: The U.S. EPA’s Climate Leaders program emission factors (Direct Emissions from Mobile Combustion Sources, May 2008); BNSF’s
carbon emission estimator was formed in collaboration with ClearCarbon Consulting, Inc.; Other sources include BNSF shipment history and
internal shipping metrics, along with route mileage calculation programs, trucking system averages (Truck Assumption: 6.5 mpg highway),
and other data sources.
**Table 13: Carbon Savings | BNSF Intermodal Containers vs OTR
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54. ILC’S ANALYSIS
53’ TOFC TRAILERS BY TRAIN TRAILERS BY TRUCK
(LA to Chicago) (LA to Chicago)
1 train carrying 123 units 123 trucks
2,200 rail miles 2,015 highway miles
Consuming 19,400 gallons of diesel fuel Consuming 38,100 gallons of diesel fuel
270 metric tons CO2 footprint 535 metric tons CO2 footprint
*Source: The U.S. EPA’s Climate Leaders program emission factors (Direct Emissions from Mobile Combustion Sources, May 2008); BNSF’s
carbon emission estimator was formed in collaboration with ClearCarbon Consulting, Inc.; Other sources include BNSF shipment history and
internal shipping metrics, along with route mileage calculation programs, trucking system averages (Truck Assumption: 6.5 mpg highway),
and other data sources.
**Table 14: Carbon Savings | BNSF Intermodal Trailers vs OTR
This method will have a profound savings on fuel expended on the transportation of home
electronics. The current model is as follows:
Current
Model
Origin DC Destination W/hse Miles Total Crossdock 40' Qty
Hartford, CT 247
Atlanta, GA 271
Edison, NJ 259
Little Rock, AR 193
Charleston, SC 258
SHA / PUS
Rancho Dominguez Detroit,MI 2300 1,316
/ HKG /
MNL / TW Springfield,IL 2000
Akron,OH 2400
Des Moines, IA 1700
Indianapolis,IN 2100
Avg Miles 2100 2,544
* Mulitiplied by 1316
Miles Traveled 2,763,600 containers
Sub Total
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55. ILC’S ANALYSIS
The new model will have save 485,933 gallons of fuel for a savings of $1822,248.75.
New
Model
Origin Import DC's Destination W/hse Miles Total Crossdock - 53' Qty
LA Seattle,WA 1140 104
Dallas Atlanta,GA 780 108
Little Rock,AR 320 108
Charleston,SC 1100 108
SHA /
Chicago Hartford, CT 900 148
PUS /
HKG Edison, NJ 800 148
Detroit, MI 290 148
Akron, OH 370 148
Des Moines, IA 340 148
Indianapolis, IN 190 148
Avg Miles 623 1,316
* Mulitiplied by 1316
Miles Traveled 819,868 containers
Sub total
Less Miles Traveled 1,943,732
Gallons of Fuel Saved 485,933 Savings
Based on 4 miles to gallon
TTL Fuel Savings @ $3.75/gallon $ 1,822,248.75
*Table 15: Green Implementation Cost
Comparable Green Efforts by Competitors
Target’s total C02 emissions in 2006 was 2.63 million metric tons of CO2
Target
•
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56. ILC’S ANALYSIS
Placed energy efficient technologies, advanced refrigeration and renewable energy
technologies into Target buildings
•
Reduce energy use 50% by using light emitting diodes (LEDs) in freezers and
coolers.
•
70% of items destined for landfills have been reused, recycled, or rethought
40% energy savings by converting overhead store light from four lamps to two.
•
Low-flow toilets that meet Federal standards
•
Ultra low-flow hand-wash faucets that are 75 % more efficient than required and
•
reduce wash-water flow to sewer treatment plants
•
Walmart’s total C02 emissions in 2008 was 20 million metric tons of CO2
Walmart
Over the next five years, Walmart plans on reducing CO2 emissions by 20 million
•
metric tons
•
Placed energy efficient technologies, advanced refrigeration and renewable energy
technologies into Walmart buildings
•
In 2009, Walmart improved fleet efficiency by 60% compared to 2005 in the United
States, while still carrying 77 million more cases, driving 100 million miles and
•
reducing 145,000 C02 emissions
Since 2003, JCPenney has invested over more than $130 million to install energy
JCPenney
management technology, more efficient lighting and high-efficiency heating,
•
ventilation and air-conditioning (HVAC) systems in its stores
JCPenney reduce its total C02 emissions by 80 million pounds in 2008 with future
plans to lower C02 by another 20% per square foot through 2015
•
Launched the EMPowered program where associates are regarded as
environmental stewards who are actively involved in helping to reduce the
•
Company’s overall emissions by curtailing unnecessary energy usage.
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57. ILC’S ANALYSIS
JCPenney was the first retailer to earn the ENERGY STAR® Award for Sustained
Excellence by the U.S. Department of Energy and the U.S. Environmental Protection
•
Agency with plans on retrofitting an additional 200 stores
In conclusion, ACME will reduce its carbon footprint by 20% of its average yearly output of
3.43 metric tons of CO2 emissions. This will be achieved by leveraging energy efficient
technologies in the areas of Information Technology, Distribution Centers. and
Transportation. It is the hope of these efforts to remain competitive in the area of
sustainability.
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58. CONCLUSION
ILC’s proposed Supply Chain Solution to ACME is a Three Year Plan which consists of three
main pillars with an added benefit of Green; Information Technology, Warehousing,
Transportation. Which after implemented will mirror the industry’s best practices,
generating significant savings and improving cash flow.
 Year 1
Information Technology
o Integration of all Key Operational Systems
o Switch to EDI Webhosted ERP
 Year 2
o Implement E-Commerce
o Fully Operational ERP
 Year 1
Warehousing
o Implementation of 3 Import Warehouses in Los Angeles, Chicago and Dallas
o Relocate Spokane, WA Distribution Center to Seattle, WA
o Close 9 DC’s (Las Vegas, NV; San Francisco, CA; Phoenix, AZ; Denver, CO;
Kansas, KS; La Grange, GA; Savannah, GA; Baton Rouge, LA; Spokane, WA)
 Year 2
o Conversion of Louisville, KY Regional DC into E-Commerce DC
o Close 9 DC’s (Wilmington, DE; Rockford, IL; Normal, IL; Baltimore, MD;
Northbridge, MA; East Orange, NJ; Moon, PA; Macon, GA; Springfield, IL)
 Year 3
o Close 13 DC’s (Clearwater, FL; St. Paul, MN; Raleigh, NC; Albany, NY;
Washington, DC; Miami, FL; Birmingham, AL; Plymouth, PA; Tulsa, OK; Salt
Lake City, UT; Houston, TX; Albuquerque, NM; Detroit, MI)
 Overall
o Keep 10 Regional DC’s and 3 Import DC’s (Los Angeles, CA; Seattle, WA;
Dallas, TX; Louisville, KY; Atlanta, GA; Hartford, CT; Edison, NJ; Little Rock,
AK; Charleston, SC; Chicago, IL; Akron, OH; Des Moines, IA; Indianapolis, IN)
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