The encyclopedia · Engineering & Operations · Technical decision · 2006–2010
Applied Materials redesigns its service and parts network by modeling it
Applied Materials built a 50,000-part network model that cut $5.24M of inventory and eliminated five depots.
Applied Materials
the move
Applied Materials, the nanomanufacturing equipment leader, supported customers worldwide with a service and parts network of more than 100 locations.
At the end of 2006 it set up a detailed optimization model covering roughly 50,000 parts to evaluate and rationalize its North American network.
The model was, to the authors' knowledge, the first large-scale multiechelon network-design model to incorporate safety stock inventory costs while considering lead time and risk pooling, letting the company reduce costs while maintaining or improving service.
why it works
- It captured safety-stock costs, not just transportation and facility costs.
- Lead time and risk pooling were modeled, so consolidation's inventory effect was real, not assumed.
- The 50,000-part scope made the answer actionable company-wide.
- Recommendations could skip an echelon where the stock was not paying for itself.
what transfers
Inventory cost is not just about where to put stock, it is about what holding stock at each echelon costs; model both together or you cannot see the saving.
what came after
The recommendations pointed to consolidating depot locations for specific customers and skipping an echelon for others, with a projected inventory reduction of $10 million. During the first year Applied Materials eliminated five depots and attributed $5.24 million in inventory reductions and $1.1 million in total savings to the network changes.
references
- Applied Materials Uses Operations Research to Design Its Service and Parts Network
- Applied Materials Uses Operations Research to Design Its Service and Parts Network (PDF)
spotted an error? The archive wants to know.