09 August 2010

Drop Point Implementation at Jakarta

Optimizing Supply Chain by Utilization of Local Latest Updating (ULLU)
“Management of Jabotabek’s Drop Point (DP) to increase of LIFR, OTD and reducing Operation Cost by fully utilize of JORR”




LITERATURE BACKGROUND

Donald Waters (2003, Logistics -139) said that to determine location is important enough for organizations to look at every available analyst before reaching a conclusion. If the logistic strategy calls for short delivery times, then facilities must be in locations that can achieve this; if the strategy calls for low costs, facilities will probably be centralized to get economical scale.

Supply chain management (SCM) is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers (Harland, 1996).[1] Supply Chain Management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption (supply chain).
Another definition is provided by the APICS Dictionary when it defines SCM as the "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand, and measuring performance globally."

ORIGINAL CONDITION: YEAR 2008-2009

The company business is Pharmacy. Some unique patterns of pharmacy’s business are fulfill followed by the company, such as same day delivery for order receipt before 2pm, 4 hours order emergency (called “cito”) and others.

Coverage area
Jabotabek (Jakarta Bogor Tangerang and Bekasi area) was supported by 4 branches completed with product storage, sales and finance office and order processing. Each of them had minimal rental cost around 125 Million Rupiah per year, 10 Billion of stock storage, 10 sales staffs, 4 finance staffs, 4-5 staffs of warehouse and logistic and also 2 staffs for customer services.

Warehouse & Logistic
To handling around of 10 Billions Rupiah of stock, more than 14,000 of customers and more than 8,000 transactions per month, its need minimal 4 staffs plus the 1 supervisor. They supported by 2 delivery schedules for every branch and serves to customer by 5-10 motorcycles and 2-3 blind van.

Order process
Per branch had 2-3 staffs to receive and process the order to the system. The order from customer come to the branch by 4 ways : phone, fax, salesman and also by mail. Two agreements whit customer are that order come before 2pm will be delivered at same day and after 2pm will be delivered the day after. Exclude “cito”.

Tangible and intangible cost
To operate one branch, the tangible cost are fix and variable cost, such as : warehouse and office rental cost, staff cost, operational cost (water, electricity, phone etc). For intangible cost come from handling receiving stock come from central warehouse to branh, picking and packing stock to fulfill customer order, stock take cost, government audit cost, closing end of month cost, provide GDP standard cost etc.

Problems
  1. Out of stock is an usual issue for every end of month. Its happen due to central warehouse should prepare huge stock for 4 branches in the very short day only, 30 or 31. This condition will have impact to LIFR (line item fill rate) and also OTD (On Time Delivery).
  2. High % of logistic cost
  3. Intangible activity which is spent much time and effort to full fill the requirement

  
THE PROJECT

The ideas of the project come from availability of Jakarta Outer Ring Road (JORR) . This facility is possible to create an access for all customers around Jabotabek.

Basic concept



Drop point (DP) is an consolidation process of warehouses, finance activity and order process into single warehouse by implementation of cross docking process from central warehouse at DP to the customer.

The goods will be prepared, picked and packed and also completed with invoice at Bekasi central warehouse and then cross docked at DP before hand over to customer.

There are two types of transportation used : blind van from Bekasi central warehouse and motorcycles from DP.

As preparation, branch Cikarang and branch Pulomas (Jkt1) already merged to central warehouse as part of learning curve how to serve direct customer from central warehouse instead of deliver to branches only. Second process, branch Pasar Minggu (Jkt3) merged half to central warehouse and half to branch Kebayoran (Jkt2). At the end process, branch Kebayoran (Jkt2) merged to 2 drop points.


Steps of the project
Step 1: mapping customer’s outlet base
It’s very important step which will have impact to determine of “how many DP” should be available to cover and closer to customer.



The number is very important also to determine at the next step for how many motorcycle will support this DP.

From this step, its determined where the DP should be available based on the weight of the customer number.

Step 2: determine DP locations
To determine DP locations, its used simple method, called “Me2”. This method means to compare to the current friendly competitor which are already available.

This step to make sure that DP location is reasonable to available at that location.

When its compare to the current competitor, its look that the best number of DP and alternative locations are on Grogol (DP1), BSD (DP2), Pasar Minggu (DP3) and Bogor (DP4).

Step 3: mapping alternative to the JORR’s facility.

By download from Google map, the DP’s must be mapped to the JORR access. It’s very important due to the speed of delivery from central warehouse at Bekasi will depend on how fast Blind Van can reach the DP.

Step 4: create the DP

Team already define how look like DP’s are:

• Investment:
   – Low investment
• Facilities at DP:
   – Owned by company
   – Motor pool for cross-docking
   – Motor cycles for distributing products to the dedicated point’s area of coverage (dedicated territory)
   – Admin DP (Finance) and no sales admin (Sales)
• System :
   – All order from DP’s territory managed by Head Office
   – All delivery plan/return consolidated and managed at central warehouse including their document pertinent to billing, delivery process
   – All return from point’s territory come to DP before it goes to central warehouse
   – Products/goods at DP deliver regularly from central warehouse by truck van
   – Products/goods cross docked at DP and distributed to customer within DP’s territory
   – Expire product return coming to DP and to be managed and consolidated by central warehouse

Step 5: re-engineering operation process

By closing 4 branches and move all activities to central warehouse, its need to reengineering the existing process with 2 conditions:
  1. Do not add the man power
  2. Use existing system support
The major activities needed to be re-engineering are:
· Order preparation release time, must ketchup departure time
· Hand over product and document at both central warehouse and DP
· Exceptional delivery for non DP customers

Step 6: calculating support armada and set up schedule

Ideally the unit number of armada should not more than as current. To achieve this, its need to be re-calculated in very detail schedule and activity.

Based on the customers number, its determined 12 motorcycles for DP1, 3 motorcycles for DP2, 3 motorcycles for DP3 and 3 motorcycles for DP4. The rest of 9 motor cycles and 9 blind vans are ready available at central warehouse.

Time motion study was implemented to know what the best schedule to prepare the goods for all activities such as : order receipt time, pick and pack, documentation, hand over to blind van’s driver, the best time to departure, time to arrival and hand over to motorcycle’s rider, lead time to customer, reverse documentation and also payment process.

By implementing of Donald Waters theory (2003, Logistics – 326), there are two approaches to determine routing. First uses geographical arguments regardless of the actual roads and second look at the road network and finds shortest routes through it.

It’s done more than 3 months to finalize the schedule of optimum delivery for 4 drop points and divided in to 4 time schedules:
  1. 1st departure is on 5 am covers DP1, DP2, DP3 and DP4. This route will back to central warehouse at 11 am. This blind van will be used again for 4th departure next.
  2. 2nd departure is on 10 am and only cover DP1 then back to central warehouse waiting for 4th departure.
  3. 3rd departure is on 12 am by use 4 blind vans for all DP’s. Three of them will go direct to customers.
  4. 4th departure is on 14.30 pm by use 4 blind vans and only 1 of them will go direct to customers.

Step 7: review and potential improvement

During 3-6 months after implementation, some activities were reviewed and adjusted to the better processes. The processes that adjusted due to review period are:
· Hand over process and transport manifest documentation
· Alternative access during afternoon departure
· Reverse delivery documentation

Potential improvement already planned to cover Sukabumi and Cianjur area from DP Bogor which was previously by Bandung branch and also prepare the next drop point plus (DP +) for Bandung branch by utilizing Tol Purbaleunyi (Jakarta – Bandung) and preparing all the order from Central Warehouse Bekasi.


RESULT AND ACHIEVEMENT

  1. Line Item Fill Rate (LIFR) – increasing significantly during end of the month closing period.
  2. On Time Delivery (OTD) – increasing OTD and double certainty delivery time to customer.
  3. Trips/day – increasing from average 2 time per day become average 3.5 times per day.
  4. Supply chain cost – reducing minimal 450 mio per year for branch rental, 180 Mio for electricity per year.
  5. No complexity of operation by no intangible cost for handling receiving stock come from central warehouse, picking and packing stock to fulfill customer order, stock take cost, government audit cost, closing end of month cost, provide GDP standard cost etc.


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