How Famosa distribution network is working

Famosa is a Spanish toys manufacturer. Jorge León did a presentation about this company and how their distribution network is working. Logsitics factors at famosa are:

• Toys are strongly season products: sales a re concentrated in 3 months
• Toys life cycles are very short
• Manufacturing process needs to be “stock to order” which implies high risks in stocking inventory.
• Since China is its largest supplier and lead times are long, Famosa is dependent on the intensive use of forecasting.

They had some problems to manage their logistics:

• Not structured porudction plan.
• Operational and logistics costs were too high
• High level of capacity with huge semi.fnisihed inventories.
• Products suffere high rates of obsolescence.
• Outsourcing in China used only as a source of components, products were still finished in Spain.
• Production in Spain gave flexibility but incurred high cost inefficiency.
• Distribution carried out from a single point only.
• Dispatch of products packed loose without using pallets.

The redesign of the supply chain was the solution. And new distribution network appeard:

• Implementation of central and regional distribucion centres:
  • Goods are dispatched direct from the DC in China to the market and o the central DC in Spain.
    Some goods are also dispachned form Onil.
  • They have warehousing accros Europe.
• Creation of a consolidation center in China:
  • The objective was to take advantage of logistics and fiscal benefics.
• They adapt logistics processes to the consumer goods sector standards.

It’s important to think that distribution networks never are designed. From time to time they are re-evaluated, like what Famosa did on 2003. Many factors change son distribution networks are usually adapted.

Some years ago I did an study together with other colleages an study about the Spanish Industry of toys. You can download it by clicking in here. You can find below the presentation (it’s in Spanish):

 

Distribution Network Design in IKEA

Rosa Ruiz did a very interesting presentation about IKEA:

 They base their distribution on the followign principles:

• A global distribution network: Big distribution network
• Large volumes: Are on the manufacturing side.
• Flat packages: This is important part to increase the value to weight ratio
• Low cost: compared with traditional manufacturers.

On this video from Discovery Channel they explain how IKEA does thigns:

On the subject “Innovation” we’ve also worked on innovation on the IKEA supply chain. This could be a diagram of the IKEA supply chain:

Here you can find the slides she used:

Hub and spoke policy vs a dense web of connections

This is interesting to think how par cel service can guarantee a 24h delivery to any country in Europe. To do that they usually consolidate everything in one point and then send it to the nearest distribution center, like what appears on the following image

But to do that there are different options:

• A spoke-hub distribution paradigm:”a system of connections arranged like a chariot wheel, in which all traffic moves along spokes connected to the hub at the center. The model is commonly used in industry, in particular in transport, telecommunications and freight, as well as in distributed computing”. Example: TNT
• Web connections: Used by DHL and connects point to point destinations without a central distribution center.

Demand and distribution networks

The distribution network also depends of the demand. Depending how concentrated is the demand during the year, there will be different distribution networks. The case of toys its very different compared with the food industry. In the first case the whole distribution network

There are important aspects related with demand:

• Seasonal demand: Like on the toys
• Life cycle phase.
• Life limited products.
• Predictability level of demand: Thre are different methods of forecasting.

Value to weight ratio

This ratio determines parts of the distribution network. It is possible to have a centralized system (in case there is a low value to weight) and a decentralized system (in case there is a low value to weight).

The furniture is a product with a value to volume ratio terribly low and transporting its really expensive. Then suppliers use to install close to their customers. If you manage to increase the value to volume ratio you will be able to design centralized warehousing.

 

On this product there are full of empty spaces, so it was really expensive to transport (this is not square):

 

But the new one is different and it is possible to disassemble the hypopotamus. So transportation costs reduce a lot.

 

What type of palet is this one?

It has some metalic parts together with some cilindric parts.

Warehouse at a Mercadona Supermarket

This is a picture I tool today on a Mercadona supermarket in Valencia. This is the warehouse they use beyond what they have on the aisles. Probably for mire than 2 days as we said during the lecture.