Wal-Mart Logistics Network LT John Harrop and LT Aaron Baker

Background (US 2010) 3708 Retail Units 117 Distribution Centers 1.8 million employees

Background (US 2010) Annual Sales $258.3 Billion Annual Operating expenses $15 Billion Annual Transportation Costs $3 Billion

Background Wal-Mart Imports $25-$30 Billion of Chinese goods annually More than many countries – Russia – Australia – Canada

Background 8010 Driver Associates 7150 Tractors 46,650 Trailers

Background 1 Billion Miles/Year 1.8 Million Store Deliveries; 1.3 Million Deliveries from Suppliers

Model Assumptions $3 per mile Transportation Cost (includes cost of time at 65 mph) $83.68 per hour $50,000 in goods, value per container $1500, cost to ship 1 container of goods from China to California. Demand across network is 1317 cntrs./day

Model Assumptions (cont.) 3 Chinese suppliers – Each with supply of 350 containers/day – Shipping cost of $1500/container

Model Assumptions (cont.) 3 U.S. Suppliers – Each with Supply of 200 containers/day – Shipping cost of $860/container – $2000 import penalty added – Total cost $2860/container

Model Assumptions (cont.) Vancouver added as a back up port for Mira Loma. – Can receive imports from China if needed – Transportation cost according to actual mileage

Chinese Suppliers Port Mira Loma Import DC U.S. Suppliers Sams DC 6493 Vancouver

Nodes/Arcs Chinese Suppliers Port start RDC start RDC End Port End Imp DC ST Imp DC End Wmt St Wmt End Attack Arcs Supply (-) Demand (+) U.S. suppliers Wmt St Wmt End Supply (-)

Measure of Effectiveness Solve a Min Cost Flow model using estimated costs to find the most cost effective way to meet all demands from DCs and individual stores on a given day.

Vulnerabilities Wal-Mart Imports $25 to $30 billion annually from china Protesters might try to disrupt flow from Chinese Suppliers to shift business to U.S. merchants

Results: First Run, Protest Causes 3 Hour Delay No Interdictions: – Total transportation cost to meet demand is $3.6 million – 1050 containers from Chinese suppliers (Entire Supply) – 267 from U.S. suppliers

Results: First Run, Protest Causes 3 Hour Delay 1 Protest: – Routes unchanged – Protest location: Port Mira Loma – Transportation cost increases by $263,592

Chinese Suppliers Port Mira Loma Import DC U.S. Suppliers Sams DC 6493

Results: First Run, Protest Causes 3 Hour Delay 2 Protests: Routes unch. – Protest locations: Port Mira Loma CA Imports DC – Transportation cost increases by $527,184

Chinese Suppliers Port Mira Loma Import DC U.S. Suppliers Sams DC 6493

Results: First Run, Protest Causes 3 Hour Delay 3 Protests: – Routes unch. – Protest locations: Port Mira Loma CA Imports DC RDC 7033 – Transportation cost increases by $723,497

Chinese Suppliers Port Mira Loma Import DC U.S. Suppliers Sams DC 6493

Results: First Run, Protest Causes 3 Hour Delay 4 Protests: – Routes unch. – Protest locations: Port Mira Loma CA Imports DC RDC 7033 South Sams DC – Transportation cost increases by $790,776

Chinese Suppliers Port Mira Loma Import DC U.S. Suppliers Sams DC 6493

Results: First Run, Protest Causes 3 Hour Delay 5 Protests: – Routes unch. – Protest locations: Port Mira Loma CA Imports DC RDC 7033 South Sams DC RDC 6493 – Transportation cost increases by $815,854

Chinese Suppliers Port Mira Loma Import DC U.S. Suppliers Sams DC 6493

Results: First Run, Protest Causes 3 Hour Delay 6 Protests: – 45% increase in Supply from U.S. – Protest locations: Port Mira Loma CA Imports DC RDC 7033 South Sams DC RDC 7047 – Transportation cost increases by $847,133

Chinese Suppliers Port Mira Loma Import DC U.S. Suppliers Sams DC 6493

Operator Resilience curve Number of Protests

Operator Resilience curve Steady cost increases from 1 – 6 protests – Increase in cost of $200K for each protest – First two attacks were on the busiest nodes Port Mira Loma & Imports DC Costs gradually drop off as number of attacks increases because only lower value attacks are left and supply begins to shift more to U.S. suppliers.

Results: Second Run, Protest Causes 24 Hour Delay No Interdictions: – Same as first Run – Total transportation cost to meet demand is $3.6 million – 1050 containers from Chinese suppliers (Entire Supply) – 267 from U.S. suppliers

Results: Second Run, Protest Causes 24 Hour Delay 1 Protest: – Protest location: Port Mira Loma – Now use China to Vancouver Route – Only 717 containers from China. – Transportation cost increases by $1.97 million/day

Chinese Suppliers Port Mira Loma Import DC U.S. Suppliers Sams DC 6493 Vancouver

Results: Second Run, Protest Causes 24 Hour Delay 2 Protest: – Protest location: Port Mira Loma Vancouver – Imports from China Stopped completely. – 16% of demand cannot be met – Transportation cost increases by $2.1 million/day

Chinese Suppliers Port Mira Loma Import DC U.S. Suppliers Sams DC 6493 Vancouver

Operator Resilience curve Number of Protests $ Mil

Operator Resilience curve After 1 protest, supply from China is reduced from 1050 containers/day to 717. After 2 protests, supply from China is cutoff completely Additional cost to use U.S. suppliers instead of Chinese suppliers for same goods is $2 million/day

Operator Resilience curve Alternate Model 1 Created 3 suppliers in US and 3 suppliers in China with slightly different prices. Reduced competitive disadvantage of US suppliers from $2000 to an average of $1500 Changed cost of 24 hour delay from nC to just the cost of the delayed resources (assumed longer term supply chain)

Operator Resilience curve Number of Protests $ MilTons

Operator Resilience curve Steady cost increases from 1 – 6 protests – Increase in cost of $250K for each protest – First two attacks were on the busiest nodes Port Mira Loma & Imports DC US suppliers see immediate increase in demand, but run out of supply after 3 attacks. If US suppliers were available, it would reduce Walmart costs and provide more US sales. Jumps in cost reflect cost increases to Chinese supply, and are mitigated when US supply is available.

Operator Resilience curve Number of Protests $ Mil

Operator Resilience curve After 1 protest, supply from China is reduced from 1050 containers/day to 717. US suppliers reach max capacity immediately After 2 protests, supply from China is diverted to Vancouver port. 3 rd attack is on Vancouver, which forces supply back to Port Mira Loma, at greatly increased cost

Operator Resilience curve 2 nd Alternate Model Added Portland port, restored average competitive disadvantage of US suppliers to $2000, increased range of supplier costs. With a 3 hour delay, only one US supplier overcame competitive disadvantage (max US supply was 400/600), and Portland was never used. With a 24 hour delay, US supply was maxed at first blockage of Port Mira Loma, and Portland was used at that point, but was second port blockaded. Then a second blockage at Mira Loma, and then Vancouver, at which point delay costs were almost $3 million

Operator Resilience curve Conclusion & Recommendations Port Mira Loma, Vancouver, and CA Imports DC are the most likely places to cause a major disruption. Goods go from Port Mira Loma to Imports DC Coordinate with local law enforcement to ensure a protest at the Port can be contained quickly. Use another DC as a back up to receive import goods if the Import DC is blocked. Location of alternate port is less important than reliability of network, recruiting additional US suppliers would be key to keeping costs low during a disruption.

Operator Resilience curve Future work Expand the network to encompass the entire U.S. Assess actual cost difference between US and Chinese suppliers, and available supplier capacity. Develop a metric to account for the “cost” of protesting to the protesters to estimate the amount of time a disruption would last.

References Wal-Mart 2010 notice to shareholders. data-on-trucking-costs-available/

References Questions ?????????