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UNITED PARCEL SERVICES

LOCATION SELECTION

Abhinav Parmar
Akshit Sobti
Ankur Verma
Bhupesh Singh
Jasdeep Bedi
INTRODUCTION
• United parcel service, Inc. (UPS) is a package delivery
company.

• Headquarters in Sandy Springs, Georgia, United States.

• UPS delivers more than 15 million packages a day to 6.1


million customers in more than 220 countries and territories.

• UPS is known for its brown trucks, internally known as


package cars and also operates its own airlines.
COMPANY STRUCTURE

• DOMESTIC PACKAGE

• INTERNATIONAL PACKAGE

• SUPPLY CHAIN AND FREIGHT


Competitors
• Major domestic competitors are United
States Postal Services (USPS) and FedEx.
• International competitors include Canada
Post, FMCL WORLDWIDE , LDH express, Royal
Mail, Japan Post and India Post etc.
• More recently , continued growth of online
shopping contributed to the rise of emerging
competition from niche carriers.
System design
• UPS Parcel network is based on a hub and
spoke model.
• UPS operates centers that feed parcels to the
hubs where they are stored and forwarded to
their destinations.
• Air hubs are typically located at airports.
UPS Enables Global Commerce
UPS: UPS Supply Chain Solutions:
•World’s largest package delivery • A global provider of integrated logistics and
company and a global leader in supply
supply chain solutions
chain services
• Revenue of $8.4 billion
– Revenue of $49.7 billion in 2007
– Moves 6% of U.S. gross domestic • Operations in 120 countries with over 1,033
product facilities and 38 million square feet of
– Serves more than 200 countries warehouse space
7.9 million customers daily • Customs brokerage services in all major
– 93,637 ground vehicles international trade locations
– 268 aircraft - World’s 9th largest
• Global air and ocean freight forwarder and a
airline
leading Non-Vessel Operating Common Carrier
– 101 years of experience
• Proven solutions in key industries, including
Healthcare, High Tech, Automotive, Industrial
Manufacturing, Retail and Consumer Goods
IMPORTANCE OF LOCATION IN SUPPLY
CHAIN NETWORK
The efficient and effective movement of goods from raw material sites
to processing facilities, component fabrication plants, finished goods
assembly plants, distribution centers, retailers and customers is critical
in today’s competitive environment. Approximately 10% of the gross
domestic product is devoted to supply-related activities .
Approximately 10% of the gross domestic product is devoted to supply-related
activities . Within individual industries, the percentage of the cost of a finished
delivered item to the final consumer can easily exceed this value. Supply chain
management entails not only the movement of goods but also decisions about:
• where to produce,
• what to produce,
• how much to produce at each site,
• what quantity of goods to hold in inventory at each stage of the process,
• how to share information among parties in the process and finally,
• where to locate plants and distribution centers.
LOCATION DECISIONS
The geographic placement of production facilities, stocking points, and
sourcing points is the natural first step in creating a supply chain. The
location of facilities involves a commitment of resources to a long-
term plan. These decisions should be determined by an optimization
routine that considers production costs, taxes, duties and duty
drawback, tariffs, local content, distribution costs, production
limitations, etc. Although location decisions are primarily strategic,
they also have implications on an operational level.
NATURE OF LOCATION SELECTION DECISIONS
• Strategic Importance of location decisions
– Long term commitment/costs
– Impact on investments, revenues, and operations
– Supply chains
• Objectives of location decisions
– Profit potential
– No single location may be better than others
– Identify several locations from which to choose
• Location Options
– Expand existing facilities
– Add new facilities
– Move
UPS Location Decision Factors
Community
Regional Factors Considerations

Multiple Plant Site-related


Strategies Factors
Regional Factors

• Location of raw materials


• Location of markets
• Labor factors
• Climate and taxes
Community Considerations

• Quality of life
• Services
• Attitudes
• Taxes
• Environmental regulations
• Utilities
• Developer support
Site Related Factors

• Land
• Transportation
• Environmental
• Legal
Multiple Plant Strategies
• Product plant strategy
• Market area plant strategy
• Process plant strategy
LOCATION ANALYSIS
CENTER OF GRAVITY APPROACH
 Finds location of distribution center
that minimizes distribution costs
 Considers
 Location of markets
 Volume of goods shipped to those
markets
 Shipping cost (or distance)
Location
Center of Gravity Approach
Census Population
Tract (x, y) (l) lx ly
A (2.5, 4.5) 2 5 9 x* =
B (2.5, 2.5) 5 12.5 12.5
C (5.5, 4.5) 10 55 45
D (5, 2) 7 35 14 y* =
E (8, 5) 10 80 50
F (7, 2) 20 140 40
G (9, 2.5) 14 126 35
Totals 68 453.5 205.5
Location
Center of Gravity Approach
Census Population
Tract (x, y) (l) lx ly
453.5
A (2.5, 4.5) 2 5 9 x* =
68
B (2.5, 2.5) 5 12.5 12.5
C (5.5, 4.5) 10 55 45 205.5
D (5, 2) 7 35 14 y* = 68
E (8, 5) 10 80 50
F (7, 2) 20 140 40
G (9, 2.5) 14 126 35
Totals 68 453.5 205.5
Location
Center of Gravity Approach
Census Population
Tract (x, y) (l) lx ly
453.5
A (2.5, 4.5) 2 5 9 x* =
68
B (2.5, 2.5) 5 12.5 12.5
C (5.5, 4.5) 10 55 45 205.5
D (5, 2) 7 35 14 y* = 68
E (8, 5) 10 80 50
F (7, 2) 20 140 40
G (9, 2.5) 14 126 35
Totals 68 453.5 205.5
Location
Center of Gravity Approach
Census Population
Tract (x, y) (l) lx ly
A (2.5, 4.5) 2 5 9 x* = 6.67
B (2.5, 2.5) 5 12.5 12.5
C (5.5, 4.5) 10 55 45
D (5, 2) 7 35 14 y* = 3.02
E (8, 5) 10 80 50
F (7, 2) 20 140 40
G (9, 2.5) 14 126 35
Totals 68 453.5 205.5
Location
Center of Gravity Approach
Location
Break-Even Analysis
Location
Break-Even Analysis

Fixed Costs Variable Costs Total Costs


Community per Year per Unit (Fixed + Variable)
A $150,000 $62
B $300,000 $38
C $500,000 $24
D $600,000 $30
Location
Break-Even Analysis
for 20,000 units

Fixed Costs Variable Costs Total Costs


Community per Year per Unit (Fixed + Variable)
A $150,000 $62
B $300,000 $38
C $500,000 $24
D $600,000 $30

Total Variable Costs


Location
Break-Even Analysis
for 20,000 units

Fixed Costs Variable Costs Total Costs


Community per Year per Unit (Fixed + Variable)
A $150,000 $62
B $300,000 $38
C $500,000 $24
D $600,000 $30

Total Variable Costs

$62 (20,000)
Location
Break-Even Analysis
for 20,000 units

Fixed Costs Variable Costs Total Costs


Community per Year per Unit (Fixed + Variable)
A $150,000 $62
B $300,000 $38
C $500,000 $24
D $600,000 $30

Total Variable Costs

$62 (20,000) = $1,240,000


Location
Break-Even Analysis
for 20,000 units

Fixed Costs Variable Costs Total Costs


Community per Year per Unit (Fixed + Variable)
A $150,000 $62 $1,390,000
B $300,000 $38
C $500,000 $24
D $600,000 $30

Total Variable Costs

$62 (20,000) = $1,240,000


Location
Break-Even Analysis
for 20,000 units

Fixed Costs Variable Costs Total Costs


Community per Year per Unit (Fixed + Variable)
A $150,000 $62 $1,390,000
B $300,000 $38
C $500,000 $24
D $600,000 $30

Total Variable Costs

$62 (20,000) = $1,240,000


Location
Break-Even Analysis
for 20,000 units

Fixed Costs Variable Costs Total Costs


Community per Year per Unit (Fixed + Variable)
A $150,000 $62 $1,390,000
B $300,000 $38 $1,060,000
C $500,000 $24 $ 980,000
D $600,000 $30 $1,200,000
Community
Fixed Costs
per Year
Total Costs
(Fixed + Variable)
Location
A
B
$150,000
$300,000
$1,390,000
$1,060,000 Break-Even Analysis
C $500,000 $ 980,000
1600
D $600,000 $1,200,000
Annual cost (thousands of dollars)

1400

1200

1000

800

600

400

200

0
2 4 6 8 10 12 14 16 18 20 22

Q (thousands of units)
Community
Fixed Costs
per Year
Total Costs
(Fixed + Variable)
Location
A
B
$150,000
$300,000
$1,390,000
$1,060,000 Break-Even Analysis
C $500,000 $ 980,000
1600
D $600,000 $1,200,000 A
Annual cost (thousands of dollars)

(20, 1390)
1400
(20, 1200) D
1200 (20, 1060) B
C
1000
(20, 980)
800

600

400

200

0
2 4 6 8 10 12 14 16 18 20 22

Q (thousands of units)
Community
Fixed Costs
per Year
Total Costs
(Fixed + Variable)
Location
A
B
$150,000
$300,000
$1,390,000
$1,060,000 Break-Even Analysis
C $500,000 $ 980,000
1600
D $600,000 $1,200,000 A
Annual cost (thousands of dollars)

(20, 1390)
1400
(20, 1200) D
1200 (20, 1060) B
C
1000
(20, 980)
800

600
Break-even
400
point
200
A best
0
2 4 6 8 10 12 14 16 18 20 22

Q (thousands of units)
Community
Fixed Costs
per Year
Total Costs
(Fixed + Variable)
Location
A
B
$150,000
$300,000
$1,390,000
$1,060,000 Break-Even Analysis
C $500,000 $ 980,000
1600
D $600,000 $1,200,000 A
Annual cost (thousands of dollars)

(20, 1390)
1400
(20, 1200) D
1200 (20, 1060) B
C
1000
(20, 980)
800 Break-even point
600
Break-even
400
point
200
A best B best
0
2 4 6 8 10 12 14 16 18 20 22
6.25 14.3
Q (thousands of units)
Community
Fixed Costs
per Year
Total Costs
(Fixed + Variable)
Location
A
B
$150,000
$300,000
$1,390,000
$1,060,000 Break-Even Analysis
C $500,000 $ 980,000
1600
D $600,000 $1,200,000 A
Annual cost (thousands of dollars)

(20, 1390)
1400
(20, 1200) D
1200 (20, 1060) B
C
1000
(20, 980)
800 Break-even point
600
Break-even
400
point
200
A best B best C best
0
2 4 6 8 10 12 14 16 18 20 22
6.25 14.3
Q (thousands of units)
Location
Break-Even Analysis
1600 A
Annual cost (thousands of dollars)

(20, 1390)
1400
(20, 1200) D
1200 (20, 1060) B
C
1000
(20, 980)
800 Break-even point
600
Break-even
400
point
200
A best B best C best
0
2 4 6 8 10 12 14 16 18 20 22
6.25 14.3
Q (thousands of units)
Location
Break-Even Analysis
1600 A
Annual cost (thousands of dollars)

(20, 1390)
1400
(20, 1200) D
1200 Break-Even Quantities
(20, 1060) B
C
1000
(A) (B)
(20, 980)
800 $150,000 + $62Q Break-even
= $300,000 + $38Q
point
600 Q = 6,250 units
Break-even
400 (B) (C)
point
200 $300,000 + $38Q = $500,000 + $24Q
A best B best C best units
Q = 14,286
0
2 4 6 8 10 12 14 16 18 20 22
6.25 14.3
Q (thousands of units)
Location
Transportation Method
Setting up the Initial Tableau
Create a row for each plant and a column for each warehouse

Warehouse
Plant
1 2 3

Phoenix

Atlanta
Location
Transportation Method
Setting up the Initial Tableau
Add a column for plant capacities and a row for warehouse demand

Warehouse
Plant Capacity
1 2 3

Phoenix 400

Atlanta 500

900
Requirements 200 400 300 900
Location
Transportation Method
Setting up the Initial Tableau
Insert costs into the shipping route option cells

Warehouse
Plant Capacity
1 2 3
$5.00 $6.00 $5.40
Phoenix 400

$7.00 $4.60 $6.60


Atlanta 500

900
Requirements 200 400 300 900
Location
Transportation Method
Interpreting the Optimal Solution
LOCATION-SELECTION OF LOGISTICS
DISTRIBUTION CENTER
GEOGRAPHIC INFORMATION SYSTEMS
(GIS)
 New tool to help in location analysis
 Enables more complex demographic
analysis
 Available data bases include
 Detailed census data
 Detailed maps
 Utilities
 Geographic features
 Locations of major services
Geographic Information Systems
(GIS)
CHARACTERISTICS OF GIS

1. Efficient space data saving and organizing model,


unified management of space data and attribute data.

2. Realization of data visualization

3. Strong space data processing and analyzing ability,


particular space analysis decision function.
CONSTITUENTS OF GIS
A complete GIS system consists of the parts as followed:
computer hardware system, computer software system,
geographic data (space data) and application model as
show below
1.Common function: Data input, saving, searching, output like common data management
system.

2. Graphics: Not only outputting all factor diagrams for users, but also outputting all kinds of
specific diagram with the requirements of users.

3. Management of geographic database: Integrating and updating database which memorizes


geographic position as basic variable.

4. Network analysis: Geographic analysis and model-making of geographic net work (such as
traffic network) and city infrastructure network (such as water supply and drain network).
FUNCTIONS OF UPS DISTRIBUTION
SYSTEM BASED ON GIS
1. Vehicle and goods tracking With the help of GPS and electronic
map, the system can show the actual position of vehicles and
goods anytime, and can inquire the state of the vehicles and
goods, which is convenient to dispatch and manage

2. Transportation route and guidance providing The system can plan


transportation route, and the screen can show us design line in
electronic map and running route and operating method of vehicles.
3. Information inquiring The system can be used to search main buildings,
transportation vehicles and customers in the scope of distribution. The
searching materials can be described in characters, language and pictures,
and the positions can be shown in electronic map
4. Imitation & decision The system can make use of long-term customers,
vehicles, orders and geographic data to establish model to imitate
distribution network layout, based on which the system sets up decision
supporting system to provide more effective and audio-visual decision
grounds.
THE GLOBAL FOOTWEAR SUPPLY CHAIN
Footwear producers and retailers must coordinate a complex network of suppliers and
customers, ensure that goods are delivered effectively and efficiently, provide
consistently high quality product, and comply with changing regulations.
Elements of the Global Footwear Supply Chain
The footwear supply chain is comprised of numerous functional elements and
all must work together for advantage to be created and sustained.

International
Logistics and Trade Small Air Ocean Customer
Distribution Management Package Freight Freight Service

Inventory Information Rail Road Post-Sales


Management Technology Freight Freight Support

Managing these functional elements as separate


disconnected silos leads to ballooning total distribution cost,
and increased propensity for loss, damage, delay, and flow
disruption.
Supply Chain Challenges Impacting Footwear
The Footwear industry is being profoundly impacted by recent developments
in the global trade environment:
Rising Energy Costs – Fuel prices have increased over 70% YoY, with
limited ability for carriers to establish new hedges. Every 1-cent
increase in Jet-A adds $195m to global air carrier operating costs. In
2000 fuel averaged 15%-20% of a freight carrier’s operating costs –
today it exceeds 50%.

Security and Regulatory Compliance – More than 25 new


international transportation security regulations have come into effect in
the past six years. Research shows that 9.2% of international orders
have compliance errors, 3.4% of shipments are held at customs, and
2.4% of customs license applications are initially rejected.

Economic Downturn in Key Markets – Record low relative valuation


of the US dollar combined with tightening in the credit market has
slowed US nominal retail growth to 1.3% - its lowest level of growth
since the 2001 recession.
Shipment Routing: One Size Does Not Fit All
Footwear leaders realize competitive advantage through integrated multi-
modal transportation aligned to the specific needs of their products.

Customer Ready Store Ready Pooler Ready DC Ready

3
High Margin
5 Merchandise
High Velocity
Time in Transit

6
Merchandise

Geography
7

Seasonal
Demand

Margin
16 Seasonal
26 Merchandise
28 Replenishment
40 Merchandise

Shelf Life
Different Modes Incur Different Opportunity Costs
While air to ocean mode shift can reduce some specific freight expenditures, it
incurs other total distribution costs which must be factored in.
Number of days

Traditional 1 2 1 1 3-7 1 1 1 16 Total


Air
Air Freight
Supplier

Client DC Client
Supplier Origin DC De-Consol Pooler
Network Stores

Supplier
Ocean Freight

Traditional 7 26-31 5-25 2-7 7 1 1 45 Total


Ocean

Air to Ocean Mode Shift Impacts


• Trans-continental transportation costs can be reduced by over 70% on a per unit basis, but…
• Inventory carrying costs can increase by over 275%
• Longer lead times are required to hit narrowing market windows
• Intra-season replenishment of fast-moving SKUs becomes constrained
• Localization of product to demand becomes increasingly challenging
Optimized Routing Creates More Sustainable Value
Aligning routing to optimal distribution characteristics for individual SKUs is
the key to sustainable competitive advantage.
Number of days

Optimized 1 2 1 1-3 3-11 Total


Air
Air Freight + Small Package Hybrid
Supplier

Client DC Client
Supplier Origin DC De-Consol Pooler
Network Stores

Supplier
Ocean Freight + Small Package Hybrid

Optimized 1- 3 15-18 1 7 3 17-27 Total


Ocean

Optimized routing capitalizes on achieving and maintaining


the correct blending of Effectiveness and Efficiency by
actively managing both the distribution path and supporting
transportation modes.
UPS TRADE DIRECT
A complete, integrated, multi-modal solution

PICKUP /
CONSOLIDATE
SHIPMENTS

Freight and Consolidated Freight moves Package and LTL


individual shipment crosses via LTL shipments are
packages are the border in a delivered direct to
Packages enter
picked up and single customs multiple retail
UPS package
consolidated clearance stores and/or end
delivery
customers
network
HUB AND SPOKE MODEL
The hub-and-spoke distribution paradigm (or model or network) is a system of connections
arranged like a chariot wheel, in which all traffic moves along spokes connected to the hub at
the center.
UPS operates centers that feed parcels to hubs where parcels are sorted and forwarded to their
destinations. Centers typically are the point of entry for parcels and send the parcels to one or
more hubs. A hub is a location where many centers send packages to be sorted and sent back
out to other centers or hubs.
THE HUB-AND-SPOKES SYSTEM WORKS IN COMPARISON TO THE POINT-TO-
POINT SYSTEM

Point-to-point system

Hub-and-spoke
DEFINITION OF A HUB
1. A hub for logistics is a major warehouse which has
direct service to many other modes of transport.

2. Sometimes also refered to an airport where a specific


airline maintains large operations.
SPOKE
They are smaller compare to the hubs and handles domestic deliveries
only.
Mostly it is located in every state in the country.

Spokes serve the small markets, transferring various shipments from


this market to big market (hub)
GENERAL IDEA OF HUB & SPOKE SYSTEM IN UPS
AIRLINES
Flights depart from smaller airport (spoke) in the area

Converge on the Hub airport at approximately the same


time

Shipments are disembarked from the flights and are


shuttled to another aircraft

When all shipments have been loaded, the


main aircraft depart

60
UPS' Parcel Network is based on a
hub and spoke model
UPS operates centres that feed parcels to hubs where parcels are sorted
and forwarded to their destinations. Centers typically are the point of
entry for parcels and send the parcels to one or more hubs. A hub is a
location where many centers send packages to be sorted and sent back
out to other centers or hubs.
Centers feed packages to facilities at airports (called gateways), which in turn
send them to an air hub to be sorted and put on another plane to a final
destination gateway, and then from there to a center. For instance, a package
traveling from Seattle, Washington to Atlanta, Georgia, would be loaded onto
an air container at Boeing Field just south of Seattle and flown to the UPS Air
Hub at Chicago Rockford International Airport in Rockford, Illinois. From there
it would be sorted to a container heading to Atlanta to Hartsfield-Jackson
International Airport, and taken by truck from the airport to the delivery
center.
BENEFITS
• The small number of routes generally leads to more efficient use of
transportation resources. For example, aircraft are more likely to fly at full
capacity, and can often fly routes more than once a day.

• Complicated operations, such as package sorting and accounting, can be


carried out at the hub, rather than at every node.

• Spokes are simple, and new ones can be created easily.

• Customers may find the network more intuitive. Scheduling is convenient


for them since there are few routes, with frequent service.
DRAWBACKS
• Because the model is centralized, day-to-day operations may be relatively inflexible. Changes at the
hub, or even in a single route, could have unexpected consequences throughout the network. It may be
difficult or impossible to handle occasional periods of high demand between two spokes.

• Route scheduling is complicated for the network operator. Scarce resources must be used carefully to
avoid starving the hub. Careful traffic analysis and precise timing are required to keep the hub operating
efficiently.

• The hub constitutes a bottleneck or single point of failure in the network. Total cargo capacity of the
network is limited by the hub's capacity. Delays at the hub can result in delays throughout the network.
Delays at a spoke can also affect the network.

• Cargo must pass through the hub before reaching its destination, requiring longer journeys than direct
point-to-point trips. This trade-off may be desirable for freight, which can benefit from sorting and
consolidating operations at the hub, but not for time-critical cargo and passengers.
Thank You !