Identify location for multi-facility regional distribution center December 3, 2009 Team Kim H. Milton Stewart School of Industrial and Systems Engineering Georgia Institute of Technology

Agenda I Initiate II Analyze III Envision IV Design V Recommendation Appendix 1

I. Initiate > Project Members Hamilton Sundstrand Project Representative Dang Huynh – Global Logistics Manager Marc A. Bartos – Global Logistics Analyst ISYE 6203 Project Group ‘Team Kim’ Hangil Kim Prabhkar N Navjyot Kaur Youngbin Park Jungbin Yim 2

I. Initiate > Project Timeline Overall Preview for what we have done and where are we, and what we are going to do Project Assignment Class Presentation Final Delivery 5th Conference Call(scheduled) 1st Conference Call 2nd Conference Call 3rd Conference Call 4th Conference Call W1 W2 W3 W4 W5 W6 W7 W8 W9 W10 Initiate Analyze Envision Design Project Objectives & Goals Project Timeline Best practice benchmark Gaining reliable data Consolidation Methodology Net benefit calculation Find optimal consolidation schedule and location Sensitivity Analysis Design Detailed To-Be Structure Possible Scenarios Future Scope Timely Communication Hamilton Sundstrand: 1. Have bi-weekly conference call (or E-mail) if needed 2. Report Status - four conference calls so far, fifth one is scheduled on Nov. 13th - three presentations delivered so far Quality Assurance: Dr. John Vande Vate 3

Agenda I Initiate II Recommendation III Analyze IV Envision V Design Appendix

II. Recommendation > Result Ship all shipments on the following routes on Wednesday and Friday SINGAPORE,ROCKFORD-Singapore CO CLARE,MIRAMAR-Ireland SINGAPORE,WEST HARTFORD-Singapore WOLVERHAMPTON,SAN DIEGO-England HALEY,ROCKFORD-Canada FRACC IND B JUAREZ QUERETARO,SAN DIEGO-Mexico LAVAL,ROCKFORD-Canada SAINT-LAURENT,WINDSOR LOCKS-CANADA HAMBURG,SAN DIEGO-Germany RENFREW,SAN DIEGO-Canada ZHUZHOU,SAN DIEGO-China Top 11 frequent routes 5

II. Recommendation > Route Composition In top 11 frequent routes, No. of Vendors on these routes: 22 No. of Hamilton Sundstrand Co. on the routes: 7 # of shipments

II. Recommendation > Implementation Recommendation In top 11 frequent routes, There are 7 routes that only have a single supplier RENFREW,SAN DIEGO HALEY INDUSTRIES ZHUZHOU,SAN DIEGO ZHUZHOU SOUTH AEROENGINE HAMBURG,SAN DIEGO LUFTHANSA TECHNIK LOGISTIK (DE) FRACC IND B JUAREZ QUERETARO,SAN DIEGO TURBORREACTORES SA DE CV WOLVERHAMPTON,SAN DIEGO HS MARSTON AEROSPACE CO CLARE,MIRAMAR Hamilton Sundstrand HALEY,ROCKFORD HALEY INDUSTRIES Single supplier routes Can be implemented right away!

II. Recommendation > Detailed Implementation LAVAL,ROCKFORD- Canada HAMBURG,SAN DIEGO-Germany COCLARE,MIRAMAR-Ireland SINGAPORE,ROCKFORD SINGAPORE,WEST- HARTFORD-Singapore Routes run by DHL USA Inc. SAINT-LAURENT, WINDSOR LOCKS-Canada HALEY,ROCKFORD-Canada RENFREW,SAN DIEGO-Canada LAVAL,ROCKFORD-canada SINGAPORE,ROCKFORD-Singapore SINGAPORE,WEST- HARTFORD-Singapore Routes run by UPS SPS WOLVERHAMPTON,SAN DIEGO HAMBURG,SAN DIEGO FRACC IND B JUAREZ QUERETARO,SAN DIEGO SAINT-LAURENT, WINDSOR LOCKS Routes run by FedEx corp. Possible Routes Consolidated WOLVERHAMPTON,SAN DIEGO -England HAMBURG,SAN DIEGO-Germany COCLARE,MIRAMAR-Ireland FRACC IND B JUAREZ QUERETARO,SAN DIEGO Consolidate by DHL USA Inc. SAINT-LAURENT, WINDSOR LOCKS-Canada HALEY,ROCKFORD-Canada RENFREW,SAN DIEGO-Canada LAVAL,ROCKFORD-Canada SINGAPORE,ROCKFORD-Singapore SINGAPORE,WEST- HARTFORD-Singapore Consolidate by UPS SCS 8

European carrier consolidation II. Recommendation > Carrier Composition European carrier consolidation Canada carrier consolidation UPS SCS DHL USA INC

Reduction in Transportation Cost Reduction in No. of Shipments II. Recommendation > Carrier Composition Reduction in Transportation Cost Reduction in No. of Shipments # of shipment Current Wed-Fri Shipment Reduction in CBF, MPF

Agenda I Initiate II Recommendation III Analyze IV Envision V Design Appendix 11

III. Analyze We analyze data with this procedure. In this phase, we firstly validate the raw data and make the basic consolidation model based on Hamilton Sundstrand’s suggestion Initiate Initiate Initiate Analyze Analyze Analyze Envision Envision Design Gaining Reliable Data 1 Developing Basic Consolidation Model 2 Comparing Net Benefit of Consolidation 3 12

III. Analyze > 1. Gain Reliable Data The raw data provided by HS had problems of the reliability - typos, lack of information, and weak linkages between files. Therefore, we cleaned raw data by following steps 1-1 Regularize the data Shipper Company BOMBARIDER AEROSPACE BOWMILL ENGR BRADKEN BRUSSELS AIRLINES NV-SA … C & D AEROSPACE CANADA CO C &D AEROSPACE CANADA CO Shipper Company BOMBARDIER AEROSPACE BOWMILL ENGR BRADKEN C&D AEROSPACE CANADA CO Delete data whose supplier is Airline Emergency orders (Mostly for repairs) Infrequent shipments Will be used for Macro 1. Delete Airlines 2. Identify Names (Correct Typo) 13 13

III. Analyze > 1. Gain Reliable Data The raw data provided by HS had problems of the reliability - typos, lack of information, and weak linkages between files. Therefore, we cleaned raw data by following steps 1-2 Clean up the data JMR, DGF (Carriers’ Data) Reliable Data DGF: 2,388 lines JMR: 3,028 lines Will be used to get Current # of Shipments Total Duty & Fees before and after Con-solidation Bill Number Weight, Pieces Vessel Name Supplier Country Export Total Duty/ Fee … DGF: 6,632 lines / JMR: 5,187 lines Delete data which are not matched with ‘USD YTD’ data Delete data whose supplier is Airline : Supplier Identifier with US YTD : Duty + Custom’s Brokerage Fee 14

III. Analyze > 1. Gain Reliable Data The raw data provided by HS had problems of the reliability - typos, lack of information, and weak linkages between files. Therefore, we cleaned raw data by following steps 1-2 Clean up the data (Cont.) US YTD (HS’s Data) Reliable Data US YTD: 4,013 lines Will be used to get Latitude & Longtitude of Suppliers/Consignees Traffic Route Carrier Name Client ID Shipper Name Shipper Address Shipper City Shipper Zip code Consignee Address … YTD: 4,036 lines Delete data whose supplier is Airline : Supplier Identifier with DGF/JMR : Custom’s Brokerage Fee 15

III. Analyze > 2. Develop Basic Consolidation Model 2-1 Understand HS’s Basic Consolidation Concept As-Is As-Is To-Be To-Be 16

III. Analyze > 2. Develop Basic Consolidation Model We run the Excel Macro to calculate the reduced number of shipment according to one to seven days consolidation strategy of identical supplier, country of origin and date of shipment 2-2 Develop the basic consolidation methodology Index Supplier Name Country of Origin Date of Shipment Visual Basic for Excel Macro Consol. Index Shipment Decision 233 A J WALTERS AVIATION CA 09-Jan-09 268 Don't Ship Separately Ship 268 A J WALTERS AVIATION CA 09-Jan-09 293 A J WALTERS AVIATION CA 12-Jan-09 313 A J WALTERS AVIATION CA 13-Jan-09 314 314 A J WALTERS AVIATION CA 13-Jan-09 332 A J WALTERS AVIATION CA 14-Jan-09 338 338 A J WALTERS AVIATION CA 14-Jan-09 340 A J WALTERS AVIATION CA 15-Jan-09 367 365 A J WALTERS AVIATION CA 15-Jan-09 367 366 A J WALTERS AVIATION CA 15-Jan-09 367 367 A J WALTERS AVIATION CA 15-Jan-09 369 A J WALTERS AVIATION CA 16-Jan-09 412 A J WALTERS AVIATION CA 20-Jan-09 428 A J WALTERS AVIATION CA 21-Jan-09 430 430 A J WALTERS AVIATION CA 21-Jan-09 449 A J WALTERS AVIATION GB 22-Jan-09 451 450 A J WALTERS AVIATION GB 22-Jan-09 451 451 A J WALTERS AVIATION GB 22-Jan-09 524 A J WALTERS AVIATION GB 28-Jan-09 525 525 A J WALTERS AVIATION GB 28-Jan-09 530 A J WALTERS AVIATION GB 29-Jan-09 531 1. Same supplier 2. Same CoO 3. Same Date of Ship. (1-7 days option) 17

III. Analyze > 3. Compare Net-benefit Cost Reduction by Consolidation 1) * 2) 1) : $ per shipment 2) : shipments delay options * : 1 implies shipment on the same day and 2 implies delayed by one day and so on. It is possible to delay the shipments by no more than four days without losing net benefit under the assumption that - delayed shipments imply the holding cost of vendor capital and reduce the net benefit of strategy 18 18

Agenda I Initiate II Recommendation III Analyze IV Envision V Design Appendix 19

IV. Envision We envision the detailed consolidation model based on previous analysis. We reflect possible and critical constraints into the basic model Initiate Initiate Initiate Analyze Analyze Analyze Envision Envision Design 1 Reflect the Cost of Capital Investment 2 Reflect the Adjusted Fee of Carriers … 20

IV. Envision > 1. Cost of Capital Investment We need to take into account the inventory holding cost to the model because of increased inventory at carrier’s place Net Savings = (Reduced CBF + Reduced MPF) – Inventory Holding Cost (i=15%) Delayed days Same day 1 day 2 days 3 days 4 days 5 days 6 days Total invoice spend ($) 56,267,348 Period (Days) 180 Total invoice spend/day 312,596 Holding cost ($) - 46,889 93,779 140,668 187,558 234,447 281,337 # of shipments in period 3,054 Holding cost/Shipment 15 31 46 61 77 92 Savings ($) over period 101,504 123,463 138,240 149,677 153,121 153,129 154,008 Savings ($)/day 564 686 768 832 851 856 Savings ($)/shipment 33 40 45 49 50 ` 21 21

IV. Envision > 1. Cost of Capital Investment Sensitivity Analysis By Changing the value of interest rate, we get different net-savings shown as below, the conflict between the delay shipment strategy and cost of capital holding, would yield an upper limit on the interaction. Case 1. Set i=15% Case 1. Set i=15% Case 1. Set i=15% Case 2. i=10% Case 3. i=20% Case 3. i=20% 1) * 2) : Savings/Shipment 2) : Holding cost/Shipment : Net Savings/Shipment 1) : $ per shipment 2) : shipments delay options * : 1 implies shipment on the same day and 2 implies delayed by one day and so on. Even if 7 days consolidation provides the largest saving, due to the holding cost, it is not the optimal period of consolidation 22

Agenda I Initiate II Recommendation III Analyze IV Envision V Design Appendix 23

V. Design We locate the consolidation points in some country Initiate Analyze Analyze Analyze Envision Envision Design 1 Location of Consolidation Points 2 Example: Carrier Consolidation in Europe 3 Future scope for Consolidation of shipment 24

V. Design > 1. Location of Consolidation Points In addition to the principles of the basic consolidation model, we firstly concentrate on establishing consolidation point to the country where the shipments occurs more often Current shipper scenario Top freight sources 55% of shipments 62% of invoice value are from Canada Europe 1. # of Shipments Option 1. Consolidate Carriers Focused on reduction of freight cost by increasing share of business to top carriers Option 2. Find possible consolidation points for Cross dock Focused on freight cost, MPF, and CBF 2. Invoice Value Future scope 25

V. Design > 2. Example: Carrier Consolidation in Europe In addition to the principles of the basic consolidation model, we firstly concentrate on establishing consolidation point to the country where the shipments occurs more often Top 4 shipper countries in Europe Top 2 carriers chosen for consolidation based on # of shipments Total invoice amount Total duty/fees Top 2 carriers chosen for consolidation Federal Express Lufthansa The net increase in business for these carriers 20% of the current size of business with Hamilton Sundstrand 26

V. Design > 3.Futurescope for Consolidation of shipments From the current consolidation strategy to delay shipments, the distribution of shipments over the week is still spread over all the seven days of the week. So there is still opportunity to improve the savings by consolidating the shipments days within the week. (i.e. ship only Monday or Tuesday or Monday & Tuesday) The upper limit on the interaction is still four days as per our earlier analysis 27

Thank you 28

Agenda I Initiate II Recommendation III Analyze IV Envision V Design Appendix 29

Appendix. 1. Macro codes 30

Appendix. 2. Excel works 31 1 DAY 4-DAY Row Labels Sum of Invoice value 1 1932504.13 3406935.67 2 7289085.88 7542407.39 3 10303304.63 20457990.87 4 23714597.35 7322334.41 5 19498828.74 11515823.03 6 11064280.93 11387655.93 7 20370059.94 32539514.3 (blank) Grand Total 94172661.6 2 DAY 5-DAY 5416171.92 5508167.62 5278973.19 12229606.32 8725797.05 10883684.07 10307653.92 20469974.62 26410491.77 9325334.08 16561329.33 10656385 21472244.42 25099509.89 3-DAY 6-DAY 2972062.58 2848829.3 15104461.53 16843027.05 6339727.27 17812951.06 9999776.48 10254050.89 16436892.7 23508235.33 20576098.34 8896763.81 22743642.7 14008804.16 31

Appendix. 2. Excel works 32 Shipper country MEX Shipper city SALTILLO SANTA CATARINA APODACA ARVADA CIDAD 635-2 ZONA IND EL POTOSI ESCOBEDO FRACC IND B JUAREZ QUERETARO MEXICO MONTERREY QUERETARO SAN LUIS POTOSI WINDSOR LOCKS SAN SALVADOR Latitude 25.36 25.68333 25.76667 39.88 23 18.91667 25.66667 20.62556 22.15 41.92917 13.7 longitude -100.98 -100.467 -100.2 -105.11 -102 -97.1167 -100.317 -100.372 -100.983 -72.6278 -89.2167 Shipper name No of shipments Invoice value Direction PARKWAY PRODUCTS DE MEXICO S DE RL 5 5138.53 N 62.8165 90.36866 1659.691 282.0769 819.3898 74.79229 530.1096 356.9359 3182.171 1786.861 FUNDICION AGUILAS SA DE CV 1 920.61 25.683333 28.27465 1636.521 336.3782 827.4664 15.14623 562.4825 396.3814 3119.894 1776.282 EZI METALES SA DE CV 87 359081 25.766667 1634.276 357.5803 824.9496 16.13222 571.9353 409.9526 3093.923 1764.812 PROCESOS TERMICOS Y ESPECIALES 28 20279.9 SUNDYNE CORP 2 1633.12 1899.664 2453.546 1642.045 2187.919 2009.679 2722.983 3298.878 TIGHITCO LATINOAMERICA SA DE CV 19275 680.5206 342.0562 312.9715 140.8167 3438.133 1698.103 TECNOLOGIA PROCESOS Y MAQUINAR 330.72 18.916667 819.4812 390.029 539.732 3447.779 1023.025 TURBORREACTORES SA DE CV 225409 1089.76 METALIZADOS Y MAQUINADOS DE MX 1043.12 25.666667 560.5745 396.8616 3110.053 1764.616 6 14747.9 20.62555555 180.9435 3515.06 1412.474 HAMILTON SUNDSTRAND (MX) 479.43 3432.66 1558.321 12 22125.5 HAMILTON SUNDSTRAND DOCK J BLD (MX) 578.14 41.9291667 3522.853 OXIGENOS Y GASES DE 449.29 32