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Thursday 24th May 2018
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Full Circle?

Before the widespread use of computers, warehouse locations were often settled by using a 'string map'. Pins were stuck in the map at customer's locations, and string (usually fishing line) looped over them, the weight on the end of each line being proportional to that customer's deliveries. The inboard ends of the string were knotted together.
Where the knot settled was the centre of pull (not gravity).
As managers we might reflect on:-

  1. How we managed to computerise a wrong method when we already had a right method, and
  2. Why nobody noticed! Debate …

gap
   

Warehouse & DC Location - Centre of Pull Method #2

CASE B

A fast growing, London-based manufacturer considering a second site had turned its eyes enviously to the grants, land prices and labour skills of the North West. While the two site model is slightly different from the single site, exactly the same principles are used.

Progressive cancellation of paired outlying demand drew an 'hourglass' shaped contour. This led us to consider a quite extraordinary solution - that the new plant should be in Calais! Very significant flows of finished goods to (and raw material from) France dominated the picture after the progressive pairing and cancellation of demand from the extremities

CASE C

An importer bringing goods through Southampton distributed them out of Manchester. A quirk of import freight pricing through the scheme ports made this (at that time) more cost effective than it sounds. Cost effective it might be, at least on inbound costs. Logical it isn't. By the time a stream of northbound container lorries reaches Newbury, 50% of the goods have already been driven past their intended customers. Southampton as a possible DC site was rapidly added to the 'what if' distribution model.

THE EUROPEAN PICTURE

Our three case studies showed that the 'contours of equal warehousing opportunity' in this country can be 100, 400 or 150 miles across, depending on the circumstances. In mainland Europe, however, they can be larger than an entire country.

The CoG of the EC population is around Chamonix. Chamonix may be many things to many people, but as a distribution centre it rivals Lundy Island. The French/Swiss/Italian border shares some of the features of Belper, including the tiny proportion of total consumption which takes place within a reasonable distance of the CoG. Since Switzerland isn't even a member of the EC, the risk of putting a Distribution Centre in or next to an area of low demand, is that much greater.

The costs of a wrong decision are horrendous. In case study 'B', the costs of going outside the 95% contour were £1,000 a year per mile. This for a £20m turnover company struggling to make 1% net return on sales.

In theory, there's a 'safety net'. Most warehouse locations are confirmed by detail route modelling. In practice, this provides a false sense of security.

Firstly, detailed route planning is itself an approximation. With 20.92 billion possible ways to plan a single 16 drop route, the computer can't and doesn't look at every possible option. They do a pretty good job, but the control of route shape (the so called 'petal') is still down to the skill and experience of the operator.

Most seriously, the quality of the routes being modelled only reflect the quality of the starting assumptions. At best, detail route planning will prevent the location from ending up - to quote an Americanism - 'at the junction of two dead end streets'. However, nothing in the detailed routing will force the planner looking for sites around Whitchurch to start his search in Calais! Very much the opposite - total costs will increase as he or she experiments with sites south of Whitchurch, and they will rapidly focus on more northerly prospects for the position of the distribution centre.

On the European scene, use of the cancellation method will throw up possibilities that you, your competitors, the labour market and the land speculators would otherwise miss. The inclusion of Greece, Spain and perhaps Turkey in the CoG calculation is pulling the 'Euro-CoG' further South and East than any defensible logic. Those who continue to use the CoG method will turn the Swiss French border into a sort of 'Euro Keynes'. Those who don't will be building north of the Rhine gorge, into Belgium and the Alsace.


What happened next?
A preview of this article was released to all the package vendors.
One(!) then rewrote their software.


  1. In passing, the conversion of decimal sales forecasts to integer BTLs is an area fraught with misunderstandings.

Added Nov '08.
An engaging and interactive Tool contrasting CoG and CoP. Click here …

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