Analyze Transportation and Inventory Cost Savings of a Centralized Distribution Model
Burlington Northern Santa Fe (BNSF) Railway, headquartered in Fort Worth, Texas, is one of North America’s largest Class I Railroad Companies. It maintains over 33,000 route miles of railroad network and has the highest volume of intermodal traffic in the world.
With hundreds of suppliers and many thousands of products, BNSF approached Visual8 to develop a Warehouse Consolidation Capacity Analysis model of BNSF’s centralized distribution center to analyze the potential cost savings in transportation and inventory while maintaining high service levels on order delivery.
The simulation model would explore the costs and operational issues related to the centralization of their parts inventory. BNSF wanted to specifically investigate the costs and efficiency of pooling stocks in a single location. In addition to testing a central supply point, the simulation model would also include modeling the best location for the distribution center from a set of alternative sites such as Chicago, Boston, Houston, New York, etc.
In a joint effort, Visual8 assisted BNSF in developing a simulation of their entire parts supply network. The computer model accounted for the geographic locations of the many source and supply points in the system together with the frequency of stock replenishments and product demand levels. Other key parameters included:
- Transportation travel times and costs across the network,
- Product consumption rate and reordering policies,
- Holding charges,
- Truck-load (TL) and less-than-truck-load (LTL) policies,
- Order consolidation rules, and
Alternative locations for the distribution center were evaluated as well as various “what-if” scenarios. The scenarios included the impact on handling costs and the overall effectiveness of the proposed system, including resource and transportation requirements. Product flows, cross-docking, and warehouse capacity requirements were also evaluated. The distribution process was simulated over a one-year time frame with the prescribed operating conditions at specific points over the planning horizon to determine the cost-benefits of each scenario.
The resultant simulation tool enabled BNSF to analyze and present the recommendations on the merits of a centralized distribution facility to a wide audience. The recommendations included the “best” location and the cost-savings that can be derived from this distribution center over the current supply method.