Vestel Durable Goods Marketing

Riam A. Wibowo 1

Vestel Durable Goods Marketing: Improving Distribution Management

Answers of Case Exercise part B

( problem of Vestel simplified distribution, page 33 - 34)

Riam A. Wibowo

– A part of Group Assignment on Operation Management

Course

Riam A. Wibowo 2

About this Case Base on case “Vestel Durable Goods Marketing: Improving Distribution

Management” by Professor Barış Tan and Assistant Professor Zeynep Akşin with the assistance of Hülya Gökbel, Koç University Graduate School of Business, Istanbul, Turkey. www.ku.edu.tr

The case is distributed worldwide by the European Case Clearing House (ECCH):

The European Case Clearing HouseCranfield UniversityWharley EndBedford MK43 0JRENGLANDTel: 44 (0) 1234 750 903Fax: 44 (0) 1234 751 125E-mail: [email protected]

ECCH at Babson Ltd.Babson CollegeBabson ParkWellesley MA 02457USATel: 1 781 239 5884Fax: 1 781 239 5885E-mail: [email protected]

http://www.ku.edu.tr/

mailto:[email protected]

mailto:[email protected]

Riam A. Wibowo 3

Case Background• Vestel Durable Goods Marketing is the

marketing, sales and distribution company of the Vestel Group in Turkey.

• It is engaged in the domestic sales of industrial products manufactured by Group subsidiaries and its own Vestel branded products purchased from world producers under the Vestel brand name.

• Vestel worked with Horoz Logistics as a third party logistics (3PL) company. Horoz Logistics was selected as a company with good functioning infrastructure and good information technology investments.

Riam A. Wibowo 4

Background (2)• Vestel implemented Manugistics’ Networks

Transport Management (MTM) module to improve it distribution system.

• Horoz Logistics Distribution Networks are as shown below:

Riam A. Wibowo 5

Instructions from Case Exercise

• Consider a simplified version of the distribution problem of Vestel. There are only two products:– televisions (1 vol./unit) – refrigerators (3 vol./unit).

• There are three customers A, B, C located in Ankara, Adana, and Erzurum respectively.

• The demands from these customers are given below:

Riam A. Wibowo 6

Instructions from Case Exercise (2)

• The locations of the customers are given in the following network. Distances between the cities are given on the arcs in distance units.

Riam A. Wibowo 7

Instructions from Case Exercise (3)• Two size trucks are available:

– large size truck: • capacity of 18 vol.• costs $10 per unit distance

– small size truck: • capacity of 10 vol. • costs $6 per unit distance.

• The return distance is not considered in determining total cost. These trucks are operated by a 3PL

• logistics company and available at all the cities. There is no limitation for the number of trucks to be used.

• Only the volumes of products are important to load the trucks.

Riam A. Wibowo 8

Answers to questions # 1• Find a distribution plan that will yield a low

transportation cost for Vestel. What is the average utilization of the trucks for your plan?

• The cost is depend on distance and vehicle capacity. c=f(d,v)

• Since the 2 types of vehicles are available on all cities, it is possible to change to cheaper (small) vehicle during the trip.

• This transportation problem could be solved by optimization software ( such as Vehicle Routing Problem). but it is not available and we will solve it manually.

Riam A. Wibowo 9

Answers to questions # 1• Instead of calculating and comparing total costs of every

possible 6 routes, using 2 type of vehicles, it makes sense to minimize the cost by maximizing the utilization

• Let's calculate the demands volumes:– demands volumes = demand number x vol of product

A (Ankara) B (Adana)

C (Ezurum)

Total #

Total volume

TV 1 4 2 7 7Refrigerator 4 1 2 7 21Total volume 13 7 8 28

Riam A. Wibowo 10

Answers to questions # 1• ... and calculate possible utilizations:

Utilizations = truck capacity / demand volumeThen find the best combination of trucks and the demand volume (utilizations that nearest to 100%) Best combination

best combination• C served with small a truck• A & B served with 2 small trucks

Riam A. Wibowo 11

Answers to questions # 1• Now calculate the cost:

Riam A. Wibowo 12

Answers to questions # 1

– Distribution plan that will yield a low transportation cost for Vestel is :

• A small truck deliver 10 vol to serve 10 of 13 vol. demands of Ankara (A) through route O-A

• A small truck deliver 10 vol to serve remaining 3 vol demand of Ankara (A) and 7 vol demand of Adana (B) through route O-A –B

• A small truck deliver 8 vol to serve 8 vol demands of Ezurum (C) through route O-C

– Total cost = $96 – Average utilization is 87.5%

Riam A. Wibowo 13

Answers to questions # 2• Assume that the trucks are returning back empty from

the destinations due to the imbalance of the traffic of goods to be transported from the East to the West and from the West to the East. What is the average utilization of the trucks for the owners and operators of these trucks?

• The average utilization of the trucks for the owners and operators of these trucks is one half of 87.5% = 0.5 x 87.5% = 43.8%

Riam A. Wibowo 14

Answers to questions # 3• Another 3PL company offers a fixed price of $3.5 per

television and $11 per refrigerator regardless of the destination. Would you accept this offer?

• Let's calculate the total cost of this 3PL to serve the Demand of all cities


C (Ezurum)

Total #

Total cost

TV 1 4 2 7 24.5Refrigerator 4 1 2 7 77

Cost 47.5 25 29 101.5

Riam A. Wibowo 15

Answers to questions # 3• the total cost offered by this 3PL to serve

the Demand of all cities is $101.5. • Since the cost using Vestel current 3PL is

only $96 (see previous slide), Vestel should not accept this offer.

Riam A. Wibowo 16

Vestel & Bosch • Now consider the same problem for Bosch. Bosch is also

delivering to their dealers in Ankara, Adana, and Erzurum. On the same day, their demands are given in the following table, – What happens if you coordinate the distribution of

Vestel and Bosch? What will be the total saving?– How would you distribute the saving between Vestel

and Bosch?

Riam A. Wibowo 17

Bosch distribution• Let calculate demand and find best route for Boch

Demand of Boch


C (Ezurum)

Total #

Total volume


Best combination

Riam A. Wibowo 18

Bosch distribution (2)

• Distribution plan that will yield a low transportation cost for Bosch is :– A small truck deliver 8 vol to serve 8 vol. demands of Ankara (A)

through route O-A– A small truck deliver 10 vol. to serve 10 vol demands of Adana (B)

through route O-B– A small truck deliver 10 vol to serve 3 vol demands of Adana (B) and 7

vol. demands of Ezurum (C) through route O-B-C – Total cost = $96

• Average utilization is 87.5%

Route Truck Path Product Volume

Truck capacity

Cost/distance unit

Distance Cost Truck utilization

1 O-A & O-B-C

small O-A 8 10 6 3 $18 80.00% Total cost $96

small O-B 10 10 6 5 $30 100.00% Averge utiliztion 87.50%

small O-B 10 10 6 5 $30 100.00%small B-C 7 10 6 3 $18 70.00%

• ....calculate the cost:

Riam A. Wibowo 19

Vestel & Bosch joint distribution

• Now, calculate demand and find best route for both Vestel and Bosch

Combined Demand of both Vestel & Boch


C (Ezurum)

Total #

Total volume


Best combination

Riam A. Wibowo 20

Vestel & Bosch joint distribution (2)

• Joint Distribution plan that will yield a low transportation cost for both Vestel & Bosch is :– 2 small trucks deliver 2x10 vol to serve 20 vol demands of Adana (B)

through route O-B– 2 large trucks deliver 2x18 vol to serve 21 vol. demands of Ankara (A)

through route O-A. Then one of the trucks deliver 15 vol to serve 15 vol demands of Ezurum (C) through route A-C

– Total cost = $150 • Average utilization is 96.67%

• ....calculate the cost:Route Truck Path Distance Cost

1O-B & O-A-C small O-B 10 10 6 5 30 100.00% Total cost $150

small O-B 10 10 6 5 30 100.00%96.67%

large O-A 18 18 10 3 30 100.00%large O-A 18 18 10 3 30 100.00%large A-C 15 18 10 3 30 83.33%

Product Volume

Truck capacity

Cost/distance unit

Truck util ization

Averge utiliztion

Riam A. Wibowo 21


– Joint distribution reduce the cost and improve utilization for both Vestel and Bocsh by $42 or 21.9%.

Riam A. Wibowo 22


• How would you distribute the saving between Vestel and Bosch?

• We would distribute the saving base on the cost if Vestel and Bosch operate as separate distribution. – The company with lowest cost on its own/separate

distribution should recieve bigger portion, as incentive to cooperate

– Since both Vestel and Bocsh cost are the same, the saving should distribute equaly