Should Merloni replace its network of regional warehouses with transit points? To focus your thoughts, consider the RDC’s at Roma and Catanzaro. Which of these RDCs would you replace this with a transit-point system? Why? When evaluating whether Merloni should transition from its regional distribution centers (RDCs) to a transit-point system / cross-docking system, there are several factors to consider: 1. Industry and type of product 2. Customer demands and service levels 3.
Location of the network 4. Total cost of the two systems Merloni Elettrodomestici manufacturers and sells appliances to retailers in both urban and rural markets. The current production-planning horizon is three months, indicating a rather innovative company and product line. This indicates that products are typically fast moving, which are more likely candidates for a transit-point system. The Milano location, where the pilot occurred, has the highest total average daily demand (203).
Therefore, other locations with lower daily demand may not respond as favorably to the system change. For instance Catanzaro has very daily demand (65), less than 1/3 of Milano making it a less likely candidate. Current service levels are 24 hours for product available in the RDCs or 2-6 days when items need to be sent from the central warehouse. However, it is not clearly stated as to what is the expectation by customers. This information would be necessary in order to make a more informed recommendation.
In general, removing warehouses, lowers service levels. Therefore if a transit-point system were adopted it may lower service levels. Additional data would be necessary to understand impacts to service levels. The next important factor is the locations in the network. The pilot in Milano was approximately 350-400 km from the central warehouse. However, the site locations have an impact on the success of cross-docking sites. Looking at two different locations Roma, 175 km away, and Catanzaro, 600 km away.
Increasing distances impacts service levels due to the length of time to get product to these locations. Lastly, the total landed cost of the two systems would indicate the relative benefits and weighing that against any potential decrease in service levels. The case indicates that operating costs and inventory costs would decrease to 20% of the original cost. Short-haul transportation costs would remain the same; however, long-haul (from central warehouse to transit points) would increase. This would need to be evaluated in order to fully assess.
Evaluating all these factors together, it seems that a transit-point system would result in significant cost savings. However, it is clear that all sites could not be converted to transit points if current service levels are desired unless a few other warehouses were kept (e. g. one in the North and one in the South). This is because Milano used one truck per day with a daily demand of 200. Catanzaro has 1/3 the demand indicating a truck would be sent every three days, thus increasing service levels.