Examining and Improving Stock Redistribution Process within European and Asia Regions: A Case Study at Epiroc AB
(2021) MTTM02 20211Engineering Logistics
- Abstract
- The unbalanced supply and demand will raise the distribution and transportation problems. Lateral transhipment (called stock redistribution) between two Customer Centres (CC) has been implementing to reduce unhealthy inventories. The two significant issues are the inefficient process and unnecessary cost of reactive lateral transhipment. The searching and communication processes can take longer than expected depending on other CC's responsiveness. The unnecessary cost caused by reactive action to fulfil the customer demand may incur to fulfil the customer expectation for having the spare part immediately. In most countries, the lateral transhipment will drive import duties and other taxes imposed on the goods. Stock redistribution may... (More)
- The unbalanced supply and demand will raise the distribution and transportation problems. Lateral transhipment (called stock redistribution) between two Customer Centres (CC) has been implementing to reduce unhealthy inventories. The two significant issues are the inefficient process and unnecessary cost of reactive lateral transhipment. The searching and communication processes can take longer than expected depending on other CC's responsiveness. The unnecessary cost caused by reactive action to fulfil the customer demand may incur to fulfil the customer expectation for having the spare part immediately. In most countries, the lateral transhipment will drive import duties and other taxes imposed on the goods. Stock redistribution may create more costs to the company; therefore, there is an immediate need for CC to examine the profit margin against the potential costs. The purpose of this thesis project is to examine the current stock redistribution practice and to explore the effective, efficient, and sustainable lateral transhipment model and logistics clustering in Spain, Turkey, China and India in specific regions only (Europe and Asia). The main methodology used in this thesis project is a case research methodology to uncover stock redistribution in a complex international physical distribution perspective, which is very rarely explored in previous research. This thesis also uses the modelling research methodology by proposing a simple mathematical model and providing a decision support system in Microsoft Excel supported by the Solver to provide the most profitable network solution to the company. Because of this research characteristic, four cases (Spain, Turkey, China, and India) are selected based on purposive sampling to improve the stock redistribution policy in Epiroc. Multiple cases obtain the replication logic to increase the research’s external validity. The abductive approach combines qualitative and quantitative approaches by gathering primary and secondary data from internal and external of the company. Every region and country may have different practices in the actual implementation. Spain and Turkey, represent Epiroc’s subsidiaries in Europe, only do the stock redistribution when there is no stock in the CC and GlobalDistribution Centre (GDC). On the other hand, India and China should find excess stocks from other CCs when they do not have stock in their local warehouse, regardless of the GDC’s availability. GDC will block the order from India and China when GDC can locate at least one CC with excess stock. The time-consuming searching and communication process often happens. The CC uses the best-guess method due to the absence of global policy's guideline. The simple math model in Excel with the Solver successfully provides the most profitable solution to the company. The model considers the most important variables: distance, transportation mode, trade relationship, import duty, taxes, and rule of origin. When the customer has a lead-time requirement to be fulfilled, the second decision model successfully proposes the most profitable solution with the user's lead time intervention to restrict possible transportation mode. The logistics clustering matrix for each country is also developed to provide an approximate solution in the colour-based rule. These scientific tools and approach can replace the best-guess method used by Epiroc’s CCs to determine the optimal redistribution network solution. The Regional Distribution Centre (RDC) should be encouraged to handle the following responsibilities: (1) manages proactive lateral transhipment (2) reduces the CC’s stock level (3) instructs CC to move excess stock to the local central warehouse (4) redistributes excess stock from the lower standard cost’s CC to the higher standard cost’s CC. Meanwhile, all lateral transhipment policies (proactive, reactive, and hybrid) can be implemented depending on different circumstances. The proactive lateral transhipment should be encouraged based on the colour code rule from the developed logistics clustering matrix for each country. The proactive transhipment will enable the most sustainable and cheapest transportation mode to redistribute excess stocks. Using the profit optimisation model, Epiroc will always choose the most sustainable stock redistribution network option. The triple bottom line among people, profit, and planet can be achieved using this solution. Sea freight is the most sustainable transportation mode and the most cost-efficient solution based on the thesis' assumption. Epiroc also reduces the environmental impact on transportation by optimising regional redistribution. (Less)
- Popular Abstract
- Stock Redistribution is No Longer a Problem
Authors : Rhama Aditya Putra and Jinlong Kang
Affiliation : Division of Engineering Logistics, Department of Industrial Management, Lund University
Title of thesis : Examining and Improving Stock Redistribution Process within European and Asia Regions: A Case Study at Epiroc AB
In recent years, the trend of stock redistribution between some stock locations is increasing to immediately fulfil customer demand. There is also a need in the manufacturing industry to reduce the obsolescence and scrapping costs of unhealthy inventories. Moreover, the redistribution of unhealthy inventory can satisfy the demand on another stock location and generate a cash flow to the company. Therefore, the need... (More) - Stock Redistribution is No Longer a Problem
Authors : Rhama Aditya Putra and Jinlong Kang
Affiliation : Division of Engineering Logistics, Department of Industrial Management, Lund University
Title of thesis : Examining and Improving Stock Redistribution Process within European and Asia Regions: A Case Study at Epiroc AB
In recent years, the trend of stock redistribution between some stock locations is increasing to immediately fulfil customer demand. There is also a need in the manufacturing industry to reduce the obsolescence and scrapping costs of unhealthy inventories. Moreover, the redistribution of unhealthy inventory can satisfy the demand on another stock location and generate a cash flow to the company. Therefore, the need to manage the stock redistribution is becoming important for the company’s flexibility.
Epiroc AB, a Swedish-leading manufacturer for mining and infrastructure equipment, urgently needs to solve this issue to reduce unhealthy inventories in some stock locations in several countries. Currently, there is no visibility to the profit margin and cost for every process involved in the redistribution of product from one country to another country. The stock redistribution process involves transportation, export-import, and taxes complexities in the global supply chain environment.
This thesis project aims to provide both optimal and approximate solutions for the company. We created a decision model in Microsoft Excel for the company to provide the most profitable redistribution network for the company. The user in the company can set the specific lead time based on the customer requirement. We also developed a logistics clustering matrix to provide an approximate solution when the company finds difficulties to collect the transportation cost between each paired country. The lead-time and trade relationship on each axis can represent the distance, transportation cost and import duty in an approximate way. The most interesting part is the usage of a colour-based rule matrix to decide which country’s stock location should be approached.
Surprisingly, the sea freight mode is not only the most cost-efficient transportation mode, but also the most sustainable transportation solution to the environment. Then, it is followed by road freight mode as the next cost-efficient and sustainable transportation mode. Therefore, the company can achieve the triple bottom line rule (People, Profit, and Planet) at the same time using the optimal and approximate solutions.
Instead of only focusing on reactive redistribution when one stock location faces a stockout problem, Epiroc should encourage the proactive method. The Regional Distribution Center should be able to manage the redistribution before the demand is known.
All solutions are very easy to implement and use the most convenient software (Microsoft Excel). There is no need for high-level management in the supply chain to have a regular weekly meeting only to review and provide discretion for each redistribution case. The decision can be made using the scientific solution by the lower level of each supply chain organisation in the company’s subsidiaries to replace the current best-guess method. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/9047979
- author
- Putra, Rhama LU and Kang, Jinlong LU
- supervisor
- organization
- course
- MTTM02 20211
- year
- 2021
- type
- H2 - Master's Degree (Two Years)
- subject
- keywords
- Lateral transhipment, Stock redistribution, Profit optimisation, International physical distribution, Customs union, Free trade agreement, Rule of origin, Carbon emission
- report number
- 5940
- language
- English
- id
- 9047979
- date added to LUP
- 2021-06-04 09:51:56
- date last changed
- 2021-06-04 09:51:56
@misc{9047979,
abstract = {{The unbalanced supply and demand will raise the distribution and transportation problems. Lateral transhipment (called stock redistribution) between two Customer Centres (CC) has been implementing to reduce unhealthy inventories. The two significant issues are the inefficient process and unnecessary cost of reactive lateral transhipment. The searching and communication processes can take longer than expected depending on other CC's responsiveness. The unnecessary cost caused by reactive action to fulfil the customer demand may incur to fulfil the customer expectation for having the spare part immediately. In most countries, the lateral transhipment will drive import duties and other taxes imposed on the goods. Stock redistribution may create more costs to the company; therefore, there is an immediate need for CC to examine the profit margin against the potential costs. The purpose of this thesis project is to examine the current stock redistribution practice and to explore the effective, efficient, and sustainable lateral transhipment model and logistics clustering in Spain, Turkey, China and India in specific regions only (Europe and Asia). The main methodology used in this thesis project is a case research methodology to uncover stock redistribution in a complex international physical distribution perspective, which is very rarely explored in previous research. This thesis also uses the modelling research methodology by proposing a simple mathematical model and providing a decision support system in Microsoft Excel supported by the Solver to provide the most profitable network solution to the company. Because of this research characteristic, four cases (Spain, Turkey, China, and India) are selected based on purposive sampling to improve the stock redistribution policy in Epiroc. Multiple cases obtain the replication logic to increase the research’s external validity. The abductive approach combines qualitative and quantitative approaches by gathering primary and secondary data from internal and external of the company. Every region and country may have different practices in the actual implementation. Spain and Turkey, represent Epiroc’s subsidiaries in Europe, only do the stock redistribution when there is no stock in the CC and GlobalDistribution Centre (GDC). On the other hand, India and China should find excess stocks from other CCs when they do not have stock in their local warehouse, regardless of the GDC’s availability. GDC will block the order from India and China when GDC can locate at least one CC with excess stock. The time-consuming searching and communication process often happens. The CC uses the best-guess method due to the absence of global policy's guideline. The simple math model in Excel with the Solver successfully provides the most profitable solution to the company. The model considers the most important variables: distance, transportation mode, trade relationship, import duty, taxes, and rule of origin. When the customer has a lead-time requirement to be fulfilled, the second decision model successfully proposes the most profitable solution with the user's lead time intervention to restrict possible transportation mode. The logistics clustering matrix for each country is also developed to provide an approximate solution in the colour-based rule. These scientific tools and approach can replace the best-guess method used by Epiroc’s CCs to determine the optimal redistribution network solution. The Regional Distribution Centre (RDC) should be encouraged to handle the following responsibilities: (1) manages proactive lateral transhipment (2) reduces the CC’s stock level (3) instructs CC to move excess stock to the local central warehouse (4) redistributes excess stock from the lower standard cost’s CC to the higher standard cost’s CC. Meanwhile, all lateral transhipment policies (proactive, reactive, and hybrid) can be implemented depending on different circumstances. The proactive lateral transhipment should be encouraged based on the colour code rule from the developed logistics clustering matrix for each country. The proactive transhipment will enable the most sustainable and cheapest transportation mode to redistribute excess stocks. Using the profit optimisation model, Epiroc will always choose the most sustainable stock redistribution network option. The triple bottom line among people, profit, and planet can be achieved using this solution. Sea freight is the most sustainable transportation mode and the most cost-efficient solution based on the thesis' assumption. Epiroc also reduces the environmental impact on transportation by optimising regional redistribution.}},
author = {{Putra, Rhama and Kang, Jinlong}},
language = {{eng}},
note = {{Student Paper}},
title = {{Examining and Improving Stock Redistribution Process within European and Asia Regions: A Case Study at Epiroc AB}},
year = {{2021}},
}