SONY WAREHOUSE OPTIMIZATION

Sony Warehouse Optimization

Abstract

This paper aims to discuss a simulation study for a multi-product, Sony warehouse inventory replenishment system. The paper compares a Sony warehouse N-retailer replenishment system to N-retailer system with cost per unit of distribution and delivery lead-times as the performance measures. The purpose is to demonstrate that under specific circumstances a two warehouse N-retailer inventory replenishment system provides better customer service without significant changes in the cost. Mathematical modeling and simulation methodology is used to test the performance of the proposed two warehouse N-retailer system and statistical analysis is used to compare the performance of several scenarios. The two warehouse replenishment system indeed reduces delivery lead-times, used as a measure of customer service, under specific conditions such as controllable freight costs. Caution should be exercised when interpreting these findings as the historical data used was from a single source. The paper did not investigate the effects of variable shipping costs from the manufacturing plant, warehouse and retailer. Future research could also consider multiple second level warehouses. The findings provide a persuasive argument for manufacturers struggling with performance issues and channel relationships. Moreover, in addition to contributing to efficiency of distribution, two level systems can also enhance ability to adapt to local market conditions and to unexpected demand variations. The model examined in this paper addressed a specific case for one company. While freight costs and warehousing costs will vary across companies, the cost represented here may be used as a gauge for evaluating systems with cost structures in the vicinity of those for the company represented in this paper. Additionally, the model is amenable to substitution of other firms' cost structures.

Sony Warehouse Optimization Introduction

Establishing sales branches at remote locations has long been a practice of manufacturers. The primary reason is proximity to customers and the ability to more rapidly respond to their target market. This practice has gained tremendous momentum in recent years for several reasons. First, it became a popular response to the shift in distribution channels. Building regional distribution centers has helped retail giants such as Sony significantly improve performance and has contributed to the increase in power of such retailers, helping Sony become the World's largest corporation in terms of sales (Rugman and Girod, 2003). Manufacturers have found that building regional warehouses may provide a means for their survival and future growth in the struggle over channel relationships. Second, sales branches and regional warehouses have become necessary as US firms rapidly expand internationally, especially when they are unable to locate a local distributor in a foreign market. Regional warehouses not only contribute to the efficiency in physical distribution of US made products, but also enhance the ability to adapt to local market conditions, especially unexpected demand variations. Finally, the emergence of e-commerce has dramatically changed the landscape of retailing and distribution channels. It has opened the door to direct selling for manufacturers and created powerful retail giants such as Amazon.com. Never before has it been so apparent that efficiency in logistics may ...