Question

Case Study - Warehouse

CASE STUDY - Warehouse

The following case about Otter Aerospace is a fictionalized look at a real problem faced by a real Canadian company. As you read through the case, think about different ways to build a service network to improve service time and service quality to far away customers, and about what other factors would influence your decision to open a warehouse in a foreign country.

Otter Aerospace is a Canadian aircraft manufacturer, specializing in small and medium-body midrange aircraft. A large part of their business is supplying after-market spare parts to their customers (the airlines) when their aircraft require routine or unexpected maintenance. For routine maintenance, the airlines will typically keep a small supply of parts at major airports around the world. These parts are re-stocked at regular intervals and can be shipped from Otter’s manufacturing campus in Montreal.

A more challenging problem arises from unexpected maintenance requirements. Aircraft are routinely inspected before every flight, and occasionally worn or defective parts will be found. For safety reasons, aircraft cannot fly until these part(s) are replaced. Having an aircraft on ground (AOG) waiting for a part can be quite expensive for the airlines, costing up to $40,000 per hour (source: www.boeing.com). As Otter’s customers grow their airline businesses, and the company attracts international airlines as new customers, urgent requests for spare parts have increasingly been coming from airports around the world. Otter’s management team is wondering if they need to expand their spare parts service network.

Currently, Otter has service parts warehouses in Montreal and Berlin. The service policy they guarantee to their customers is a 24-hour Return-to-Service (RTS), meaning that Otter will deliver a new part and assist with the installation so that the grounded aircraft will be flight-worthy within 24 hours of the part being ordered.

It takes 3 hours for Otter to pick an order at their warehouse and get it to a nearby airfield. It takes 5 hours from the time the order is placed to arrange a small cargo plane to make the delivery. Both the warehouse and the airfields operate from 6am to 12am (midnight), but a plane can be arranged overnight and ready to fly at 6am. It then takes time to fly to the destination airport, as given in the table below. All times are in hours, including taxiing, takeoffs and landings.

Cities	Berlin	Buenos Aires	Cairo	Calcutta	Cape Town	Hong Kong	Honolulu	Montreal	Rio de Janeiro	Sydney	Tokyo
Berlin		14.5	4.5	9	12	11	14.5	8	12.5	19	11
Buenos Aires	14.5		14.5	19.5	9	22	14.5	11	3	14.5	21.5
Cairo	4.5	14.5		7.5	9	10	17	11	12	17.5	12
Calcutta	9	19.5	7.5		12	4	14	15	18	11.5	7
Cape Town	12	9	9	12		14.5	22	15.5	8	13.5	17.5
Hong Kong	11	22	10	4	14.5		11	15	21	9.5	4.5
Honolulu	14.5	14.5	17	14	22	11		10	16	10	8
Montreal	8	11	11	15	15.5	15	10		10.5	19	12.5
Rio de Janeiro	12.5	3	12	18	8	21	16	10.5		16	22
Sydney	19	14.5	17.5	11.5	13.5	9.5	10	19	16		10
Tokyo	11	21.5	12	7	17.5	4.5	8	12.5	22	10

Otter then allows 5 hours at the destination airport to get the part to the plane, install the replacement part, and perform a final inspection before certifying the plane as air-worthy.

For simplicity, assume that the destination airport and mechanics can work around the clock (so that Otter does not have to worry about time zones and the local time of arrival).

Customer orders can be placed at any time during the day. Customer orders are filled from the closest Otter space parts warehouse. Assume Otter always has the spare parts in stock.

Questions:. What is the minimum number of new warehouses that Otter should open to ensure all the cities in the table are within the 24-hour guarantee range of an Otter warehouse?

Answer 1

Question: Minimum number of new warehouses Otter has to open so that all given cities are within 24 hour guarantee range of an Otter Warehouse

Answer:

Facts:
1. Otter's manufaturing campus is in Montreal
2. For routine maintenance, parts are available in major airports but challenge is availability of parts at a time of unexpected maintenance
3. AOG cost per hour $40,000 (idea is to minimise this and not let the process exceed an hour)
4. Service parts warehouses located in Montreal (manufacturing base) and Berlin
5. Time between part being ordered and flight ready for take off should be 24 hrs (constraint)
6. 3 hours to pick up part from warehouse and drop at nearest airfeild
7. 5 hours from order to arrange cargo plane for delivery (it can be arranged during non working hours 12 am to 6 am)
8. 5 hours for installation and final inspection
9. Working hours 18 hours

Cities	Berlin	Beuonos Aires	Cairo	Calcutta	Cape town	Hong Kong	Hono Lulu	Montreal	Rio DI Jinerio	Sydney	Tokyo
Berlin	0	14.5	4.5	9	12	11	14.5	8	12.5	19	11
Beunos Aires	14.5	0	14.5	19.5	9	22	14.5	11	3	14.5	21.5
Cairo	4.5	14.5	0	7.5	9	10	17	11	12	17.5	12
Calcutta	9	19.5	7.5	0	12	4	14	15	18	11.5	7
Cape Town	12	9	9	12	0	14.5	22	15.5	8	13.5	17.5
Hong Kong	11	22	10	4	14.5	0	11	15	21	9.5	4.5
Hono Lulu	14.5	14.5	17	14	22	11	0	10	16	10	8
Montreal	8	11	11	15	15.5	15	10	0	10.5	19	12.5
Rio Di Jeniero	12.5	3	12	18	8	21	6	10.5	0	16	22
Sydney	19	14.5	17.5	11.5	13.5	9.5	10	19	16	0	10
Tokyo	11	21.5	12	7	17.5	4.5	8	12.5	22	10	0

Lets analyse,

Berlin: Getting parts available is not a problem as a warehouse already exists here
Beunos Aires: Closest airfeild is Rio Di Janeiro
Cairo: Closest airfeild is Berlin
Calcutta: Closest airfeild is Hong Kong
Cape Town: Closest airfeild is Rio Di Janeiro
Hong Kong: Closest air feild is Calcutta followed by Tokyo
Hono Lulu: Closest air feild is Rio Di Janeiro
Montreal: Getting parts available is not a problem as a warehouse already exists here
Rio Di Janeiro: Closest airfeild is Beunos Aires
Sydney: Closest airfeild is Hong Kong
Tokyo: Closest airfeild is Hong Kong

As per calculations, ie. 3 hours for getting spare part from warehouse to airfeild, 5 hours for arranging the cargo plane that will fly the parts to the airport and 5 hours for installation and final inspection, gives us a total of 13 hours. This means that flying time between airports/airfeilds should be limited to 24 hrs- 13 hrs= 11 hours.

I have considered the closest airfeild to each airport as per the table and flying times between closest airfeild to airport is all below 11 hrs. But if you look closely Rio Di Janeiro and Hong Kong are closer to most airports (You can calculate no. of hours and see that they make the cut). A warehouse already exists in Montreal and Berlin and Cairo can be serviced from Berlin. Therefore, the minimum number of warehouses that Otter needs to open to make the guaranteed time is 2, at Rio Di Janeiro and Hong Kong.