Merloni Elettrodomestici Spa: The Transit Point Analysis

Case Facts
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Merloni Elettrodomestici SpA is a major Italian manufacturer of domestic appliances. The company has four manufacturing subsidiaries as
a) Merloni Elettrodomestici (domestic appliances): It manufactured both freestanding and build-in appliances like washing machine etc. It had buildfive plants in Italy. This unit had highest (75%) sales revenue share in 1984. b) Merloni Igienico Sanitari (Bath and heating products): It manufactured water heaters, bath tubs etc. This unit had 20% revenue share in 1984 for overall group. c) Merloni Casa (Build-in kitchen and furniture): It designed, (Buildmanufactured and installed built-in kitchen and bath furniture. builtd) Merloni Progetti (industrial projects): This unit licensed Merloni technology and oversaw the construction of plants to produce products locally in other countries. Besides above four plants Merloni had a centralized warehouse and seventeen warehouses across Italy.

Current setup
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Company had dedicated single plant for one product. Company had reliable pool of semisemiskilled people near the plants. Companys response for demand fluctuation could be good. Company emphasized on decentralized operations. Some retailers generally received 24-hours delivery of product that was 24in stock at nearest warehouse. Otherwise two to six days were required to replenish the stocks from central warehouse to regional warehouse to retailers Shipment delays occurred time to time for variety of uncontrollable and controllable reasons. Under such conditions small retail customers with no or little stocks were impacted most leading to unsatisfied consumers. It affected Merlonis responsiveness and efficiency both. No built-in appliances were distributed thru regional warehouses. builtEach plant had its own warehouse area to store raw materials, finished goods etc. It was to increase responsiveness at plant level.

Current Setup contd..

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Company used to give discounts to customers ordering full-truckload fullthru plants. Otherwise the orders were fulfilled from regional or central warehouses. This was to avoid higher transportation cost while delivering not full truck load to customers. Shipments were sent to regional warehouses from central warehouse once accumulated orders leaded to full-truckload. It increased the fullefficiency at transportation as a SCM channel. Regions located more than one days journey from central warehouse held higher inventory levels to buffer demands over longer replenishment lead times. Merloni had reliable contracts with operators in each regions. After sales service was a major function with responsibility for sales planning, physical distribution and warehouse management, customary maintenance and repair activities. Company managed a centralized inventory planning system. It implemented of an A-B-C inventory classification program. They were Aable to reduce inventory levels at the regional warehouses by 75%. The production planning time horizon was also reduced from four months to three while the required lead-time to firm orders was leadreduced from two months to one.

Solution X-Docking X

The customer evening presented a golden opportunity for the to trial the cross docking option
As we know cross-docking refers to moving product from a manufacturing plant crossand delivering it directly to the customer with little or no material handling in between. In the current case the company ran a pilot project for cross docking at Milano warehouse loading area.

Conclusion


Transit Point Only at Milan The trail at Milan was successful. but the work involved significant manual work. They should work on some more appropriate logistics solution which can give real time visibility at any time; for anyone in the supply chain can identify where inventory is, its exact location, and if it is promised to a customer. The company should create and manage the experience curve for using cross docking facility for some time. Specially we have not seen weather come into effect, this effects the movement of the goods almost a complete stop. The conversion of the Milano warehouse into an exhibition center could lead to sales and marketing strategic advantage. One alternative would be to continue serving the region through a transit point. The current distribution network could then be maintained for the remaining regions. Although this alternative would not address the primary issue (efficiency of the distribution network as a whole), it would allow Merloni to continue operating its exhibition center without significant risks to product delivery.

Conclusion
Merloni used to replenish region warehouse directly from central warehouse. It could use the concept of transshipment to increase its performance on efficiency front. Its given that , regional warehouse are of different capacity. So, the company could use some of the bigger warehouses to fill other smaller warehouses or nearby warehouses as and when required. This could also give Merloni some flexibility on delivering the products and increase in responsiveness. Many distribution resource-planning (DRP) software can be programmed to resourceautomatically choose optimum routes if they are provided with necessary information about route-specific transport costs and routewarehouse specific inventory storage and operational costs.

Recommendation
 

Merloni should not deploy the transit point concept across all the regional offices. An alternative measuremeasurenot to deploy the transit point concept across all the regional offices as doing so will increase average product delivery times and adversely affect customer satisfaction. At also the costcostsavings realized from conversion of warehouses to transit points may be offset by higher costs of transportation, costs of modifying the central office, and cost of lost sales due to customer dissatisfaction.