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Allocation of a European DC to Minimize LUL Shipments for Companies within the Aged Alcoholic Beverage Industry

Berntson, Josefin LU and Flink, Cecilia LU (2016) MTT820 20161
Engineering Logistics
Abstract
Title: Allocation of a European Distribution Center to Minimize LUL Shipments for Companies within the Aged Alcoholic Beverage Industry

Authors: Josefin Berntson, Cecilia Flink

Supervisor: Sebastian Pashaei, Department of Industrial Management and Logistics, Faculty of Engineering, Lund University

Problem description: The increased demand for distribution as a result of the globalization has increased the distribution cost for many companies and made it crucial for companies to have a good distribution strategy. One strategy to keep down the distribution cost is to aim for full-unit-load (FUL) shipments and gain economies of scale, which companies with small order quantities often struggle with. One potential strategy to decrease... (More)
Title: Allocation of a European Distribution Center to Minimize LUL Shipments for Companies within the Aged Alcoholic Beverage Industry

Authors: Josefin Berntson, Cecilia Flink

Supervisor: Sebastian Pashaei, Department of Industrial Management and Logistics, Faculty of Engineering, Lund University

Problem description: The increased demand for distribution as a result of the globalization has increased the distribution cost for many companies and made it crucial for companies to have a good distribution strategy. One strategy to keep down the distribution cost is to aim for full-unit-load (FUL) shipments and gain economies of scale, which companies with small order quantities often struggle with. One potential strategy to decrease less-than-unit load (LUL) shipments is through the establishment of a distribution center (DC) in the companies’ distribution network. With a DC, goods can be shipped in FUL shipments from the manufacturing site to this DC before going out to the customers. To optimize the cost savings by establishment of a DC, the optimal geographical allocation of the DC is crucial.

Research questions: (1) What aspects should be considered when establishing a European DC for aged alcoholic beverage to reduce LUL shipments? (2) How can the optimal location of a European DC, aiming to reduce LUL shipments for companies in the aged alcoholic beverage industry, be determined?

Purpose: The purpose of the study is to answer the research questions by developing a model that can be used when investigating weather and how the distribution cost within the aged alcoholic beverage industry can be reduced by decreasing LUL shipments through the establishment of an European DC.

Methodology: To find a solution for optimally allocating a DC with the aim to reduce LUL shipments, the research questions were answered. The important aspects to consider for this issue were mapped by investigating theory within the topic and conducting an empirical case study at Inver House Distillers (IHD), a Scottish whisky company facing high distribution cost due to LUL shipments. The important aspects were put in a developed two-step model for determining the optimal location for a DC. The model was structured based on literature concerning the gravity model. The two-step model was applied on IHD. The aim with applying the two-step model to the IHD case was to identify practical benefits and flaws of the model.

Conclusion: Aspects that have been found to be important for companies within the aged alcoholic beverage industry when finding the optimal location for a European DC to decrease their number of LUL shipments are:
• Number of orders per time unit
• Cost per average order per km
• DC cost
• Expected growth
• Stable number of customers
• Maximum transit time
• EU regulations for storage and handling of excise goods
• Service level
These aspects can be put in the developed two-step model that considers the aspects in either a quantitative or qualitative way, and in combination with considering backhauling and transportation mode the optimal location for a DC can be found. (Less)
Abstract (Swedish)
Titel: Placering av europeiskt distributionscentrum för att minska LUL-transporter för företag inom industrin för lagrade alkoholhaltiga drycker

Författare: Josefin Berntson, Cecilia Flink

Handledare: Sebastian Pashaei, Avdelningen för industriell ekonomi och logistik, Lunds Tekniska Högskola, Lunds universitet.

Problembeskrivning: Den ökade efterfrågan av distribution, som ett resultat av den ökade globaliseringen, har ökat distributionskostnaderna för många företag och gjort det nödvändigt för företag att ha en välutvecklad distributionsstrategi. En vanlig strategi för att minska distributionskostnader är att sträva efter att nyttja FUL-transporter och på så sätt få storskalighetsfördelar. Detta är något som företag med små... (More)
Titel: Placering av europeiskt distributionscentrum för att minska LUL-transporter för företag inom industrin för lagrade alkoholhaltiga drycker

Författare: Josefin Berntson, Cecilia Flink

Handledare: Sebastian Pashaei, Avdelningen för industriell ekonomi och logistik, Lunds Tekniska Högskola, Lunds universitet.

Problembeskrivning: Den ökade efterfrågan av distribution, som ett resultat av den ökade globaliseringen, har ökat distributionskostnaderna för många företag och gjort det nödvändigt för företag att ha en välutvecklad distributionsstrategi. En vanlig strategi för att minska distributionskostnader är att sträva efter att nyttja FUL-transporter och på så sätt få storskalighetsfördelar. Detta är något som företag med små orderstorlekar ofta har svårt med. En potentiell strategi för att minska less-than-unit load (LUL)-transporter är att etablera ett distributionscentrum (DC) i företagets distributionsnätverk. Med ett DC kan varor skickas i form av full-unit load (FUL)-transporter från produktionen till detta DC innan de därefter transporteras ut till kunden i mindre transporter. För att optimera kostnadsfördelarna med ett DC så är det geografiska läget av DCt avgörande.

Forskningsfrågor: (1) Vilka aspekter ska man ta hänsyn till när man etablerar ett europeiskt DC för lagrade alkoholhaltiga drycker med syfte att minska LUL transporter? (2) Hur kan en optimal geografisk plats för ett europeiskt DC, med syfte att minska LUL-transporter för företag inom industrin för lagrade alkoholhaltiga drycker, bestämmas?

Syfte: Syftet med studien är att besvara forskningsfrågorna genom att utveckla en modell som kan besvara om och i så fall hur distributionskostnaden för företag inom industrin för lagrade alkoholhaltiga drycker kan minskas genom att minska LUL-transporter vid etablering av ett europeiskt DC.

Metod: För att hitta en lösning för optimal placering av ett DC med syfte att reducera LUL-transporter har de valda forskningsfrågorna för undersökningen besvarats. De viktiga aspekterna för det aktuella problemet har kartlagts genom undersökning av befintlig forskning inom området och genom att utföra en empirisk fallstudie för Inver House Distillers (IHD), ett skotskt whiskyföretag med höga distributionskostnader på grund av många LUL-transporter.
De viktiga aspekterna har lagts samman i en utvecklad tvåstegsmodell för att bestämma den optimala placeringen av ett DC. Tvåstegsmodellens struktur är baserat på litteratur kopplat till DC-placering med fokus på litteratur rörande gravitationsmodellen. Tvåstegsmodellen har applicerats på IHD med målet att identifiera både fördelar och brister med tvåstegsmodellen.

Slutsats: Aspekter som har ansetts viktiga för företag inom industrin för lagrade alkoholhaltiga drycker när en optimal plats för ett europeiskt DC ämnat för att minimera LUL-transporter ska bestämmas är:
• Antal ordrar per tidsenhet
• Kostnad per genomsnittlig order per km
• DC-kostnad
• Förväntad tillväxt
• Stabilt antal kunder
• Maximal transporttid
• EU-regleringar för punktskattepliktiga varor
• Servicenivå
Dessa aspekter kan sammanställas i en tvåstegsmodell som tar hänsyn till aspekterna i antingen en kvalitativ eller kvantitativ form, och tillsammans med aspekterna backhauling och transportmedel kan en optimal placering för ett DC tas fram. (Less)
Popular Abstract
Distribution cost is often responsible for about ten percent of companies total cost, and many companies struggle trying to keep it down. One way to do this is to aim towards the possible cost reduction of economies of scale, which often can be reached with bigger shipment sizes because of the lower cost per shipped pallet. The increased demand for transportation due to the globalization can therefore be a main problem for companies that ship small orders, and the establishment of a DC in the distribution network could be a solution to overcome the problem of shipping less-than unit load shipments over very long distances. However, the geographical location of the DC within the distribution network is a crucial factor affecting the... (More)
Distribution cost is often responsible for about ten percent of companies total cost, and many companies struggle trying to keep it down. One way to do this is to aim towards the possible cost reduction of economies of scale, which often can be reached with bigger shipment sizes because of the lower cost per shipped pallet. The increased demand for transportation due to the globalization can therefore be a main problem for companies that ship small orders, and the establishment of a DC in the distribution network could be a solution to overcome the problem of shipping less-than unit load shipments over very long distances. However, the geographical location of the DC within the distribution network is a crucial factor affecting the potential cost savings of the establishment. (Less)
Please use this url to cite or link to this publication:
author
Berntson, Josefin LU and Flink, Cecilia LU
supervisor
organization
course
MTT820 20161
year
type
H2 - Master's Degree (Two Years)
subject
keywords
LUL-/ FUL Shipments, Distribution Network Design, Distribution center, Distribution Costs, Europe, Alcoholic Beverage Industry
report number
5814
language
English
id
8888504
date added to LUP
2016-08-16 11:32:53
date last changed
2016-08-16 11:32:53
@misc{8888504,
  abstract     = {Title: Allocation of a European Distribution Center to Minimize LUL Shipments for Companies within the Aged Alcoholic Beverage Industry

Authors: Josefin Berntson, Cecilia Flink

Supervisor: Sebastian Pashaei, Department of Industrial Management and Logistics, Faculty of Engineering, Lund University

Problem description: The increased demand for distribution as a result of the globalization has increased the distribution cost for many companies and made it crucial for companies to have a good distribution strategy. One strategy to keep down the distribution cost is to aim for full-unit-load (FUL) shipments and gain economies of scale, which companies with small order quantities often struggle with. One potential strategy to decrease less-than-unit load (LUL) shipments is through the establishment of a distribution center (DC) in the companies’ distribution network. With a DC, goods can be shipped in FUL shipments from the manufacturing site to this DC before going out to the customers. To optimize the cost savings by establishment of a DC, the optimal geographical allocation of the DC is crucial. 

Research questions: (1) What aspects should be considered when establishing a European DC for aged alcoholic beverage to reduce LUL shipments? (2) How can the optimal location of a European DC, aiming to reduce LUL shipments for companies in the aged alcoholic beverage industry, be determined?

Purpose: The purpose of the study is to answer the research questions by developing a model that can be used when investigating weather and how the distribution cost within the aged alcoholic beverage industry can be reduced by decreasing LUL shipments through the establishment of an European DC. 

Methodology: To find a solution for optimally allocating a DC with the aim to reduce LUL shipments, the research questions were answered. The important aspects to consider for this issue were mapped by investigating theory within the topic and conducting an empirical case study at Inver House Distillers (IHD), a Scottish whisky company facing high distribution cost due to LUL shipments. The important aspects were put in a developed two-step model for determining the optimal location for a DC. The model was structured based on literature concerning the gravity model. The two-step model was applied on IHD. The aim with applying the two-step model to the IHD case was to identify practical benefits and flaws of the model. 

Conclusion: Aspects that have been found to be important for companies within the aged alcoholic beverage industry when finding the optimal location for a European DC to decrease their number of LUL shipments are:
•	Number of orders per time unit
•	Cost per average order per km
•	DC cost
•	Expected growth
•	Stable number of customers 
•	Maximum transit time 
•	EU regulations for storage and handling of excise goods 
•	Service level 
These aspects can be put in the developed two-step model that considers the aspects in either a quantitative or qualitative way, and in combination with considering backhauling and transportation mode the optimal location for a DC can be found.},
  author       = {Berntson, Josefin and Flink, Cecilia},
  keyword      = {LUL-/ FUL Shipments,Distribution Network Design,Distribution center,Distribution Costs,Europe,Alcoholic Beverage Industry},
  language     = {eng},
  note         = {Student Paper},
  title        = {Allocation of a European DC to Minimize LUL Shipments for Companies within the Aged Alcoholic Beverage Industry},
  year         = {2016},
}