Merloni Elettrodomestici SpA is a leading manufacturer of domestic appliances in Italy. It adopted a small, decentralized operation to be in harmony with its surrounding, which resulted in overstock. For increasing the competitive power, management desired to streamline its distribution system to drill down the inventory.
They institutes a “distribution resource planning” program to translate the product distribution forecasts into production planning needs. A regional warehouse in Melano happens to be selected as exposition area for two months, warehouse should be emptied therefore they decided to have a trial of the transit point instead of warehouse to distribute products to the customers in Milano area without any degradation.
The Current distribution system of Merloni
It consists of three echelons including plant warehouse, a central warehouse and regional warehouse. Each plant specializes in one product line, has a warehouse are adjacent to its production facilities for storing raw materials, components and finished goods.
The finished goods are shipped regularly in truckload quantities from each plant to the central warehouse in Fabriano, while regional warehouses pick up stock from the central warehouse. Shipments are arranged when orders had accumulated for a full truckload. The delivery of products from the regional warehouse to the retailers is subcontracted to the local delivery trucks operators.
Such decentralized inventory management gives more flexibility to the regional warehouses, they can adjust the inventories regarding to the marketing situation quickly. Moreover, as the regional warehouse can keep inventories, they can serve the customer in a short time as they do not need to wait for goods from central warehouse located far away. Furthermore, a variety of smaller shipments combined into one larger shipment enjoy an economy of transport.
However the decentralization of the inventory leads to the overstock in the regional...