The encyclopedia · Strategy & Leadership · Operational decision · 1992–1993
DowBrands designs one distribution system out of two
An optimization DSS merged DowBrands' two distribution systems, saving about $1.5M a year in logistics.
DowBrands
the move
After combining two independent distribution systems, DowBrands faced the challenge of integrating them into one while balancing facility, inventory and transportation costs against customer service.
Researchers developed an optimization-based decision support system for designing two-echelon, multi-product distribution systems and applied it to DowBrands' problem.
The DSS gave managers insight into the cost and service trade-offs so they could design an integrated network rather than brute-force combining the two.
why it works
- The problem spans facility, inventory and transport costs, which interact across echelons.
- Customer service was on the table, not a hidden assumption.
- A two-echelon, multi-product model captured real network structure.
- Managers could explore trade-offs before committing capital.
what transfers
After a merger the sum of two networks is usually worse than one optimized network; the win is in re-balancing facilities, inventory and transport together.
what came after
Savings in logistics from the application were conservatively estimated at $1.5 million per year, and the DSS became a demonstration of how optimization can cut a merged distribution network's cost without degrading service.
references
- Designing an Integrated Distribution System at DowBrands, Inc.
- Designing an Integrated Distribution System at DowBrands, Inc.
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