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Merloni Elettrodomestici Sp A: The Transit Point Experiment

1435 words - 6 pages

Case Study: Merloni Elettrodomestici SpA: The Transit Point ExperimentThe OrganizationMerloni Elettrodomestici SpA (Merloni), is a major Italian manufacturer of freestanding and built-in appliances. Merloni's distribution network consists of five manufacturing plants, a centralized warehouse, and seventeen regional warehouses.During the past few years, Merloni has implemented programs that have successfully shortened production-planning lead times and decreased inventory levels. In particular, with the help of a centralized inventory planning system and implementation of an A-B-C inventory classification program, they were able to reduce inventory levels at the regional offices by 75%. The production planning time horizon was reduced from four months to three while the required lead-time to firm orders was reduced from two months to one.In line with a new wave of efforts to further reduce inventory and enhance production efficiency, management is evaluating a proposal to replace regional warehouses with "transit-points". At these transit points, products arriving on trailers from the central warehouse and plants would then be transferred directly to smaller local delivery trucks. The primary issue being assessed then is the viability of the transit point solution and its effectiveness in improving efficiency and reducing costs. The secondary issue is the provision of an exhibition center in the Milano area without significant risks to product delivery.AnalysisThe proposal being evaluated utilizes the concept of "cross-docking" and is synonymous with JIT in manufacturing. In cross-docking, goods are received on one dock and are immediately shipped through another, without the need for storage. To carefully assess the benefits and disadvantages of this proposal, a number of critical factors must be addressed:Inventory: As describe above, the current inventory levels held at the regional offices already reflect a 75% reduction in comparison to historical figures. This level of inventory is established based on customer demands and constrained by production lead-times. Although the transit point concept eliminates inventory stocks at the regional warehouses, it does nothing to reduce the overall required inventory levels. That is, it does not alleviate any of the constraints that determine inventory levels such as reducing production set up times or production lot sizes. Therefore, the current requirements of inventory would not be affected.Infrastructure: By eliminating the need for inventory storage at the regional offices, the transit point concept could help reduce operational costs at the regional warehouses. These operational cost savings would be associated with reduction in space, utility, and labor usage. However, it is important to remember that Merloni will still need to maintain the facilities needed for cross-docking as well as temporary storage of units that it was unable to delivery immediately. Therefore, Merloni will not be able to...

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