Supply chain network design and inventory management for cost-efficient, in-time, perfect deliveries
Summary
TLDR在麻省理工学院(MIT)的春季系列直播活动中,Paulo Sousa Jr. 和 Miguel Rodriguez Garcia 共同主持了最后一次活动,邀请了 Wayfair 运营分析高级经理 Rafael Grillo Illipronti 作为嘉宾。Rafael 分享了 Wayfair 在网络设计和库存管理方面的策略,特别是如何通过优化配送网络和利用多级分销策略来实现成本效益、准时和完美交付。他讨论了 Wayfair 如何通过模拟和优化工具来权衡成本和速度,以及如何利用 AB 测试来衡量客户对交付速度的敏感性。此外,Rafael 还提到了 Wayfair 如何激励供应商在靠近客户的地点持有库存,以及如何通过激励而非强制的方式来影响供应商行为。最后,他提到了选择供应商时考虑的关键因素,包括产品类别管理和市场需求。整个讨论强调了学术理论与实际业务决策之间的联系,以及如何将复杂的供应链概念应用到现实世界中。
Takeaways
- 🎓 这是MIT供应链管理MicroMasters项目春季系列的第三次也是最后一次直播活动,前两次可以在MIT的Etiology YouTube频道观看。
- 🤝 Paulo Sousa Jr.和Miguel Rodriguez Garcia共同主持了这次活动,他们分别负责SC3x供应链动态和SC1x供应链基础课程。
- 📈 Rafael Grillo Illipronti作为演讲嘉宾,他是Wayfair运营分析部门的高级经理,负责全球履行中心网络设计。
- 🌐 Wayfair是一个连接供应商和客户的平台,专注于家具和装饰品市场,拥有国际化的供应商网络和遍及北美及欧洲的客户群。
- 🚀 Wayfair从纯粹的直运业务模式转变为投资建立物理分销网络,包括履行中心、交叉码头站、拉货点站和最后一公里交付站。
- 📊 Rafael强调了网络设计和库存管理在成本效率、及时交付和完美交付中的重要性,并分享了他在运营分析团队中的具体做法。
- 🔍 Wayfair使用模拟方法和经典优化方法的组合来分析成本与速度性能之间的各种场景和权衡。
- 📈 Rafael讨论了如何通过多级分销策略和安全库存管理来平衡库存水平和交付速度。
- 📝 他提到了如何使用AB测试来衡量客户对交付速度的敏感性,并将速度转化为销售价值。
- 🤔 在选择供应商时,Wayfair考虑的关键因素包括客户期望、供应商的地理位置、产品组合和市场特定需求。
- 📚 Rafael提到,MicroMasters项目的证书不仅有助于申请MIT的供应链管理混合硕士项目,也适用于全球其他大学。
- 📱 Rafael鼓励观众通过LinkedIn与他联系,以获取更多信息或提问。
Q & A
Wayfair的商业模式是什么?
-Wayfair是一个平台,连接供应商和消费者。供应商主要负责生产Wayfair网站上销售的家具和装饰品,而消费者则是购买这些商品的人。Wayfair不拥有库存,除了特定情况外,他们的目标是保持资产轻量化。最初,Wayfair是一个纯直运业务,完全依赖第三方物流,如FedEx和UPS进行配送。后来,Wayfair开始投资建立自己的物理分销网络,包括配送中心、交叉装卸站、拉式站点和最后一公里配送站点。
Wayfair如何确定产品在配送中心的存放位置?
-Wayfair使用运营分析团队开发的模型来确定产品在配送中心的存放位置。这些模型每六个月更新一次,以确保当前的决策与市场条件保持一致。他们考虑的因素包括运输成本、租金成本等长期趋势,而不是短期波动。
如何衡量配送速度对客户的重要性?
-Wayfair通过与竞争对手的比较和AB测试来衡量配送速度的重要性。AB测试涉及选择一些产品,对不同客户群体显示不同的预计交付时间,并测量这些变化对销售转化率的影响,从而了解客户对配送速度的敏感度。
Wayfair如何管理其全球供应链网络中的库存?
-Wayfair采用多级分销策略,将库存保留在区域中心(hubs),并根据靠近客户的配送中心(FCs)的消耗情况,从中心向这些配送中心运送产品。此外,Wayfair通过算法优化网站排名,激励供应商在更多地点持有库存,以提高产品的可用性和配送速度。
Wayfair如何选择供应商?
-供应商的选择更多是由Wayfair的品类管理部门负责,他们根据目标市场客户的预期和需求来选择供应商。这涉及到为不同地区的客户提供符合他们预期的产品组合。
Wayfair如何平衡成本和配送速度?
-Wayfair通过模拟不同的场景来平衡成本和配送速度。他们不追求单一的最优解,而是评估多个可行方案,并根据成本效益和速度进行权衡。他们还使用AB测试来了解不同客户群体对配送速度变化的敏感度,从而做出更有针对性的决策。
Wayfair的供应链网络设计有哪些关键考虑因素?
-Wayfair在设计供应链网络时,考虑的关键因素包括成本效率、配送速度、市场需求的预测准确性、安全库存的需求、产品的边际利润以及客户对快速配送的期望。
Wayfair如何决定在哪些地点建立配送中心?
-Wayfair通过分析长期趋势和市场条件,使用优化和模拟方法来决定在哪些地点建立配送中心。他们每六个月更新一次模型,以确认或调整之前的决策。
Wayfair的供应商主要位于哪些地区?
-Wayfair的供应商主要位于东南亚、中国,以及北美、加拿大和欧洲的部分地区。这些供应商通常是市场特定的,即北美的供应商通常只为北美市场服务。
Wayfair如何利用高级IT分析来辅助供应商选择过程?
-虽然选择供应商主要是品类管理部门的工作,但高级IT分析可以帮助他们更好地理解市场趋势、消费者行为和竞争对手的动态,从而做出更明智的供应商选择。
Wayfair的供应链管理教育课程有哪些?
-Wayfair的供应链管理教育课程包括MITx MicroMasters program中的五个课程,涵盖了供应链基础、供应链动态、运输与物流中心的课程等。
Wayfair的全球供应链网络有多大的规模?
-Wayfair的全球供应链网络服务于超过2000万客户,主要在北美、德国、英国和爱尔兰。他们的供应链网络包括超过1700万平方英尺的仓库空间,包括配送中心、交叉装卸站和配送站点。
Outlines
🎉 春季系列直播活动介绍
Paulo Sousa Jr. 和 Miguel Rodriguez Garcia 共同主持了春季系列的第三次也是最后一次直播活动。他们邀请观众查看前两期节目,并介绍了MIT的供应链管理教育YouTube频道。Paulo是MITx MicroMasters供应链管理项目中的SC3x供应链动态的领导,而Miguel是SC1x供应链基础课程的领导。他们讨论了供应链管理中的两个关键话题:网络设计和库存管理,并介绍了来自全球最大电子商务零售商之一的演讲嘉宾Rafael Grillo Illipronti。
🌟 Wayfair业务模式及供应链概述
Rafael Grillo Illipronti 介绍了自己,并概述了Wayfair的业务模式,它是一个连接供应商和客户的平台,专注于家居和装饰市场。Wayfair原先是一个纯粹的直运业务,但自2014年起开始投资建立物理分销网络,包括配送中心、交叉码头站、拉货点站和最后一英里配送站。Wayfair服务于北美、德国、英国和爱尔兰的2000多万客户,其供应商主要位于东南亚、中国以及一些在东欧、美国和加拿大的供应商。
📈 Wayfair的供应链结构和物流
Rafael 描述了Wayfair供应链的结构,包括国际和国内供应商的不同物流路径。对于国内供应商,产品可以直接运送到配送中心(FCs),有时也可以直接运送到交叉码头位置或基于资产的配送站。对于国际供应商,产品通常通过集装箱运输,可能需要30至40天的海运时间。Wayfair的物流决策包括是否将产品放置在靠近客户的位置或保留以利用安全库存池。
🔍 网络设计和库存管理的决策过程
Rafael 解释了Wayfair如何结合库存管理和网络设计来决定产品的定位。这涉及到决定是推迟还是提前产品的定位。Wayfair使用内部工具来评估不同的场景,并选择成本最优的解决方案。团队使用经典优化和模拟方法来分析成本和速度性能之间的各种场景和权衡。
🛠️ 应对日常挑战的策略
Rafael 讨论了Wayfair如何使用模拟方法来分析不同的场景和权衡,以应对日常挑战。他们生成多种“如果”场景,然后比较并展示给利益相关者,以决定最佳的网络设计。这种方法允许Wayfair在保持战略一致性的同时,根据市场条件的演变每六个月更新一次模型的结论。
📦 库存管理:产品定位的挑战
Rafael 强调了将产品放置在靠近客户的位置的重要性,以及这样做的挑战。他解释了如何通过多级分销策略来控制库存水平,并推迟产品定位决策。此外,他还讨论了如何根据产品的利润率、需求变化和客户对速度的期望来决定在特定地区的产品放置。
⚖️ 定位的易度与价值评估
Rafael 描述了如何评估产品定位的易度和价值。他提到了需求变化、利润率、客户期望、交货时间的变异性和交货时间本身等因素如何影响产品定位的难易程度。他还讨论了如何通过多级分销策略来平衡成本和速度,以及如何避免进入“危险区域”,即客户不关心且难以定位的产品区域。
🕒 模型更新周期和决策过程
Rafael 解释了Wayfair如何每六个月更新一次模型,以确保之前的决策仍然符合市场条件。他还讨论了如何通过模拟不同的场景来回答利益相关者的问题,并确认当前的路径。此外,他还提到了如何通过与竞争对手的比较和AB测试来衡量速度对客户的重要性。
🤝 供应商库存管理和选择策略
Rafael 讨论了Wayfair如何处理供应商的库存管理,包括如何激励供应商在更多地点持有库存,以及如何通过算法选择更靠近客户的库存。他还提到了供应商选择过程,这更多是由Wayfair的品类管理部门负责,他们根据客户期望和市场需求来选择供应商。
📝 总结与问答环节
在问答环节中,Paulo 和 Miguel 提出了几个问题,包括关于模型更新周期、速度对客户群体的重要性、供应商库存管理和选择策略等。Rafael 详细回答了这些问题,并提供了关于Wayfair如何操作和优化其供应链的见解。最后,他们感谢了参与者,并提醒了即将开放的SCx课程。
Mindmap
Keywords
💡供应链管理
💡网络设计
💡库存管理
💡双 sided platform
💡资产轻模式
💡CastleGate
💡运营分析
💡模拟方法
💡AB测试
💡供应商选择
Highlights
MIT的春季系列直播活动已经举办了三次,本次为最后一场。错过前两场的观众可以在MIT的Etiology YouTube频道观看。
Paulo Sousa Jr.和Miguel Rodriguez Garcia共同主持了本次活动,他们分别负责MITx MicroMasters供应链管理课程的不同部分。
活动邀请了Wayfair运营分析高级经理Rafael Grillo Illipronti作为演讲嘉宾,他分享了关于供应链网络设计和库存管理的见解。
Rafael Grillo Illipronti拥有丰富的供应链管理经验,曾在巴西咨询公司ILUS工作,并持有圣保罗大学海军工程学士学位和麻省理工学院供应链管理硕士学位。
Wayfair作为一个连接供应商和客户的平台,专注于家居装饰市场,并且是一个典型的双边平台。
Wayfair原先是一个纯直运业务模式,但自2014年起开始投资建立物理分销网络,包括配送中心、交叉码头站、拉货点站和最后一公里配送站。
Wayfair服务于北美超过2000万客户,并在德国、英国和爱尔兰也有业务,供应商主要位于东南亚、中国以及部分在东欧和北美。
Wayfair的供应链管理是一个全球性的挑战,需要从亚洲运输商品到北美和欧洲,并确保客户能够快速收到产品。
Rafael讨论了如何使用运营分析团队的工具来确定成本效益、及时性和完美交付的网络设计和库存管理策略。
Wayfair使用模拟方法和经典优化方法的组合来分析成本与速度性能之间的各种场景和权衡。
Rafael强调了在实施网络设计决策时,需要考虑的不仅仅是理论最优解,还有实施的可行性和对供应商的解释。
Wayfair通过AB测试来衡量顾客对交付速度的敏感度,以此来评估速度对销售的实际影响。
Wayfair采用了多点分销策略,通过在区域中心持有库存,然后根据需要将产品从中心运送到靠近客户的配送中心。
Rafael解释了如何根据商品的利润率、需求变化和客户期望来决定商品的定位难度和价值。
Wayfair的供应商选择过程更多是由品类管理部门负责,他们根据客户需求和市场特点来选择供应商。
Rafael鼓励观众在LinkedIn上联系他以获取更多信息或提问,表现出了开放和互动的态度。
MITx MicroMasters供应链管理课程的五个课程中有些目前开放报名,鼓励观众查看并加入。
Transcripts
(bright music)
- Hi, everyone.
Welcome again to our spring live series.
Time flies.
This is already our third and last live event
for the spring series.
If you missed the first two,
you can watch them on MIT's Etiology YouTube channel.
By the way, there you will find many other great videos
on supply chain management education,
so feel free to explore the channel.
Thank you for joining us today.
I am Paulo Sousa Jr.
Of course lead for SC3x supply chain dynamics,
which is part of the MITx MicroMasters
in Supply Chain Management program from MIT.
Once more, I'm happy to be co-hosting this live event today
with my colleague Miguel Rodriguez Garcia,
course lead for SC1x Supply Chain Fundamentals.
Hello, Miguel.
- Hi, Paolo.
Thank you so much for the introduction and hi, everyone,
I'm really happy to be here with you.
I'm excited to bring the industry perspective
for our MicroMasters learners.
Once again, as you guys know, this is our core,
that connection between academia and the industry.
So we are really happy
to be hosting one of these events again.
So today we are gonna be discussing two key topics
in supply chain management.
One is gonna be network design
and the other one is gonna be inventory management.
And for that we have an amazing speaker joining us
from one of the largest e-commerce retailers in the world.
So stay connected
'cause it is gonna be a really, really great talk.
And as always, we are gonna follow the same agenda.
First, our guys speaker will give us a presentation
that will last around 25 minutes
and after that we'll have some time at the end
to answer some questions from you guys from the audience.
So that will be probably around 15 minutes.
And so the total length of the life event will be 45 minutes
and we encourage you to participate
by using the Q&A feature in Zoom.
Please try to avoid the chat for questions
'cause it is gonna be really hard for Paulo
and I to keep track of them.
So when you wanna ask any questions to our guest speaker,
use the Q&A feature in Zoom.
And at the end as we said,
Paulo and I will be channeling those questions
to our guest speaker.
And remember, Paulo also mentioned
that the event is part of the MITx MicroMasters program
in supply chain management,
a program that we develop here at the Center
for Transportation and Logistics at MIT,
and as well as supply chain fundamentals
and supply chain dynamics,
the MicroMasters program includes five courses in total
and some of them are currently open for enrollment,
so don't hesitate to check them out.
We'll be posting the link in the chat group
in case you guys are interested.
And now with this back to you, Paolo,
so you can introduce our guest speaker for today.
- Thank you so much, Miguel.
Today we are honored
to have Rafael Grillo Illipronti directly
from Berlin, Germany.
Rafael is in Operation Analytics senior manager at Wayfair.
He lets global fulfillment center network design
within the operations analytics team.
Before Wayfair, he worked
for a Brazil based consulting firm,
ILUS, enabling growth and competitive advantage
through supply chain management strategies
for e-com, retail, and CPG companies.
Rafael holds a bachelor's degree in NAVO engineering
from University of Sao Paulo
and a Master's in supply chain management from MIT.
He's also a MicroMasters alum,
which means he passed all courses
from the MicroMasters program
like many of you are doing right now.
As some of you may know, one among many other benefits
from earning the MicroMasters program credential
is that you become eligible to apply
to the MIT Supply Chain Management blended Master's program
at MIT, just like Rafael did, and also to other universities
around the world.
All right, so welcome back to the MicroMasters program,
Rafael the floor is yours.
- Cool, it's awesome to be here, Paulo.
Thanks everyone for being here as well
and to discuss two super interesting topics.
I remember maybe four
or five years ago attending these live events
and seeing like what folks were doing in the industry
and looking forward to be doing that as well.
And it's great to be here again now as a speaker, (laughs)
it's a bit different,
but, well, let me get started with the presentation
that we have for today.
Lemme know if you can see my screen, but hopefully you can.
- Yes.
- Awesome, thanks guys.
So the topic for today is network design
and inventory management for cost efficient, in time
and perfect deliveries.
So network design
and inventory management are rather broad topics,
but I wanna explore a little bit of how we are doing it
at Wayfair in more specifically how I am doing
within the operations analytics team,
of course supported by many other teams at Wayfair.
So quick intro about myself,
Paulo already mentioned a bunch.
I'm an MIT SCM alum from the class of 2021.
I have a bachelor's in naval engineering and spent six years
in consulting prior to Wayfair
with heavy focus on network design
and inventory management,
which is probably the reason I ended up doing
what I'm doing today. (laughs)
I'm currently based in Berlin, Germany,
so I've added two pictures that I took here.
The one in the bottom right is the Wayfair office.
So we are right in into the central part of Berlin
in Alexanderplatz overlooking the TV Tower,
which is quite nice view during the summer.
This was about last week in the end of the day,
but why don't we get started with what you guys are here for
and not my silly pictures.
So let me briefly try to capture Wayfair's business model
in a slide.
Basically Wayfair is a platform
that connects suppliers and customers.
So suppliers are essentially the ones that manufacture
the furniture and decor that we sell in our website.
And customers, of course are the people
that won't wanna go there and buy it.
Now so we are essentially a classic dual-sided platform
like many other platforms like Huber
or other marketplaces like Amazon.
The difference is we are specialized in a specific market,
which is home and decor.
Now, the fact that we are a dual-sided platform
makes suppliers also customers in a way
because our platform needs to be something that drives value
for them and therefore they need to feel compelled
to ship products to us or sell stuff in our website.
So in that sense, they're also customers for us.
So here really supplier relationship management is key
to doing what we do.
Our key important topic,
we don't own inventory apart from very specific cases
where we are mandated to do so,
but we aim to be asset light in that sense.
Originally Wayfair was a pure drop ship business
and what does that mean?
Essentially drop ship business means
we don't have any delivery infrastructure,
we rely fully on third party.
So we relied a lot on FedEx, UPS to do the deliveries.
So deliveries were happening from suppliers directly
from their warehouses in North America
and Europe to customers.
Now around 2014, we shift things around a bit
and we started heavily investing in building
a physical distribution network.
So that entails not only adding fulfillment centers,
but also adding cross docking stations,
pull point stations and delivery stations
for last mile deliveries.
We don't aim to own trucks despite that,
there are sometimes that we paint trucks
with the Wayfair logo, but those trucks are not ours.
They're third party, they just have the Wayfair logo.
So my people
from the US might have seen them delivering stuff
near your neighborhood.
But, yeah, essentially that's what Wayfair does
in a nutshell.
Now we serve more than 20 million customers
in North America focusing on Canada
in the US, US is our largest market.
We also serve customers in Germany,
and in the UK, and Ireland.
Our suppliers are mainly in Southeast Asia, China,
a few of them in Eastern Europe, and US, and Canada.
So it's really a global supply chain
that we're managing here.
Essentially needing to transport goods from Asia
to North America and Europe,
and really managing inventory availability to a point
where we can ensure that the customers are gonna have
the products that they want near them
to enable faster deliveries.
Last year we recorded revenues just above 12 billion
and just to give
a sense of the size of the footprint network
that we have today,
we're talking about more than 17 million square feet
of warehousing space
is adding up not only fulfillment centers
but also the delivery stations and cross docking stations
that we have across North American and Europe.
Of course the majority of them is fulfillment centers
because they are the largest buildings.
But the other things are there as well accounted for.
Now, lemme try to give you a summarized view
of what the Wayfair supply chain looks like.
Essentially we have two types of suppliers.
We have international suppliers,
which are those located in Southeast Asia and China.
We have domestic suppliers,
which are suppliers essentially like located
in North America, Canada, and Europe.
They are market specific.
So it's not common that a North America supplier
is gonna serve European customers.
We actually don't want that happening
because like product portfolio is different.
So we try to keep them market specific.
So that's why we are calling them domestic.
And really the international suppliers,
the way to get the product
from the suppliers into our CastleGate network,
which is essentially the physical distribution network
that we have built since 2014.
We have a few ways of doing that.
For domestic suppliers,
we can ship product directly from the supplier to the FCs,
so the fulfillment centers.
Sometimes we decide to skip the fulfillment centers
if, for example, the supplier
has a warehouse nearby one of our fulfillment centers,
there isn't really much of a reason to add a touch there.
So we skip the fulfillment center
and go directly to a cross docking location
where we then can inject into a parcel carrier like FedEx
or UPS, or we can ship it
to one of our asset based delivery stations
and then make the delivery to the customer.
Another option is sending product to what we call
a domestic break bulk facility.
That's something that we started to do this year.
We didn't do much before.
So still the idea
is that this domestic break bulk facility will be able
to break the bulk coming from the suppliers.
So essentially it's similar to a cross liking location
but operating on the inbound side.
And then for the international suppliers,
we also have a few options.
Our international suppliers, when we ship product,
we are talking about shipping via container normally.
So that means product is gonna be on water
for about 30 to 40 days
depending on which coast we are sending product to.
If we're sending to the west coast in the US
that's about 30 days.
If we are sending to the east coast, that's about 40.
Depends a lot.
And essentially the way we do that is we can ship product
directly from the supplier to the FCs.
And we would do that
for a supplier that has a lot of volume,
so enough volume to fill up at least one or two containers.
If the supplier doesn't have enough volume to fill up one
or two containers,
what we're gonna do is we are gonna send the product
from that supplier
to what we called international consolidation centers.
In those consolidation centers,
that volume is gonna wait for volume from other suppliers
to build up container.
And then we're gonna put that container
from multiple suppliers into a ship
and that ship is gonna travel from Southeast Asia
or China to the US, Canada or Europe.
Depends where we are sending that product to.
Then when it gets to the FCs,
we make decisions whether we are gonna position
that product near the customers
or if we're gonna hold it back
to leverage on essentially safety stock pooling.
That is why this whole presentation
has a bit of inventory management built into discussion
because that decision to either postpone
or anticipate the positioning,
it's essentially an inventory management decision
but mixed with network design.
And then we can do the same path that we do
with domestic suppliers.
We can ship from the FCs to the cross stocking
when a sale's made, and then we can move product
from the cross stocking stations
to the parcel carriers or to the delivery stations.
And really what happens here is we have multiple nodes
and we can do any combination of nodes
that it's cost optimal in a way.
So it gets very complex very fast
and it requires a lot of scenario modeling to determine
what's the optimal solution
to get to depending on the supplier
and depending on the type of product
that we are talking about.
So here this slide is just what we use internally at Wayfair
to define what operations analytics
the team I'm in does.
So essentially what we are trying to do here is
we are operating at a longtime horizon for decision making
and highly complex decision making.
So, I mean, it's the best of both words in a way
because it's complex, it's interesting,
but it's also challenging to do so.
So it requires us to leverage
a lot of our analytical ability
and modeling capacity to get to a good answer
that's gonna be robust and that's gonna give us
the results that we're looking for
in terms of cost abnormality and speed.
So really the types of questions
that we are trying to answer here,
specifically talking about network design
and inventory management
is where to locate fulfillment centers,
where to locate cross-talking centers,
where to locate delivery stations.
And then once we have defined
where to locate those facilities,
what types of items or products do we wanna hold
in each facility
and really what infrastructure do we need to build
for each facility such that the facility can hold
the type of inventory that we expect it to.
I am more focused
on the fulfillment center network design piece.
So question number one over here
and the what types of items we wanna hold in each FC,
the cross docking piece and the delivery centers piece
is done by another sub-team within operations analytics,
but I'm gonna try to capture that
in this presentation as well.
So if anyone in away is seeing this,
I'm gonna try to do my best. (chuckles)
But our approach to network design here
is really to have an end-to-end view
where we can trade off cost and speed fully.
So really the tools that we have built
across the years are tools that allows us
to not only see what's the cost optimal answer,
but also see what if scenarios
'cause that's ultimately what we need
to convince our stakeholders
that answer A is better than answer B.
And really the ability to trade off speed
and cost is something
that I've seen prior to Wayfair being done
in many different ways.
Sometimes folks try to capture what's the value of speed,
which is somewhat difficult to do
'cause there is an inherently strategic value to speed
that is hard to put a number on, which is essentially like,
what if my competitors invest a lot on speed
and that becomes a reality in the future
and I don't invest in speed, like measuring
that type of thing is very, very difficult to do.
So the way we do at Wayfair is we try to show
what's the speed outcome and what's the cost outcome,
and then we make inferences based on those two results.
So it's almost like we have a multi objective function
of minimizing cost but also trying to be better at speed.
Let me go to the next slide over here, oops.
Okay, cool.
So the the ways we are tackling these challenges
that we face on a day-to-day
is to use a combination of classical optimization
and simulation methods to analyze
the various scenarios and trade-offs
between cost and speed performance.
So it's what I mentioned earlier where say you generate
and folks from the SC1x are gonna remember
that there is a topic specifically for optimization modeling
where essentially we're trying to get to the optimal answer
for an accurate design configuration,
really that approach it works well
if you are comfortable enough
to say that your optimal answer is much, much better
than suboptimal answers.
In some cases what happens and what we see in a day-to-day
at Wayfair is that an optimal answer is not that much better
than a suboptimal one,
but sometimes a suboptimal answer is much easier
to implement and to explain to a supplier, for example.
So it's an important trade off that we make
that we are able to show what are the differences
between an optimal answer and the various scenarios
that suppliers can propose
and that other stakeholders can propose.
So we've transitioned a little bit away
from a classical optimization approach specifically
for FC network design to more of a simulation based approach
where we basically brute force run
all the scenario combinations
and we choose what scenarios we wanna look at really
from a computational standpoint,
there isn't much of a difference.
The simulation model that we use
is capable of generating the answers
within like 30 minutes running
and a classical optimization model
would be maybe 10 minutes faster, but much harder,
sorry, to give you the suboptimal answers.
So what we are doing is generating multiple
what if scenarios and then comparing them,
and showcasing them to our stakeholders and saying, hey,
if we do path A, it's a dollar per unit cheaper,
but we're gonna have to transform our network entirely
to be able to do that.
So maybe we do something simpler in the beginning
and then we transition to that option.
So I think that's really where the academic methods,
really the rubber meets the road in that sense
where we have to change
a bit of how we would solve this type of problem
in a controlled sealed environment.
And where when we have multiple things changing
at the same time, a huge organization
and people asking for different scenarios
and suppliers wanting explanations
for why are we proposing this instead of that,
we need to be able to give 'em sufficiently clear answers
and giving them an answer like don't worry,
trust this black box that it's right,
it's not something that they're gonna be happy with.
So this is the why behind we are really shifting
the way we do this.
So right after we define the location
for the fulfillment centers, the real challenges,
what types of items do we wanna put
in each fulfillment center?
So that becomes
more of an inventory management type of thing.
And let me actually show you why this is an important thing
for Wayfair, right?
So imagine that,
and that's a trend across all of the e-commerce
is that customers want fast deliveries happening faster
and faster and multiple competitors are pushing
for that same thing to delivery faster and faster.
And to do that there isn't an another way
to do it other than having product close to customers.
So being able to position the types of products that sell
in a specific region near the customers
of that specific region is really
what we are trynna do here.
And it actually allows us to have some sort of control
over the demand as well because we can influence
what people are gonna see at the website
by showing them things that we have nearby
and that kind of helps shape
what the consumer is gonna wanna purchase.
But in a way what we are trying to do is have product
near the customers that's really just about it.
But how we do that is the challenge.
And you saw that also in SC1x, if I'm not mistaken,
I think it is.
But the more you try to be accurate at the regional level,
so assume you break down demand too much
and you try to forecast it,
what's gonna happen is you're gonna be wrong more often
and when you're wrong more often,
that means you need more safety stock to cover for the times
that you're wrong.
And in those cases, what happens is we tell the supplier,
hey, Mr. Supplier,
please send us additional inventory
because we are making more forecast mistakes,
so we need more safety stock to cover for those mistakes.
Of course, for Wayfair,
that's not necessarily a burden
because we don't own the inventory but the supplier does.
So we are cognizant of that and we don't want the supplier
to see their inventory levels increasing like crazy.
Otherwise for them,
it's gonna be too much of a cash investment
in terms of working capital tied to inventory
that they're not gonna wanna work with us.
So we need to figure out a way
of positioning near the customer
but also being able to control the inventory levels.
And this is where we find
that a multi echelon distribution strategy
is really very effective.
And that's something that we are exploring
within the operations analytics team.
We're trying to essentially postpone
the positioning decision and actually hold buckets
of inventory in regional hubs
and then as we deplete the child FCs,
the FCs near the customers,
we ship product from our hubs to these FCs.
So that additional touch costs money,
but 40 items that have really high margin, it's worth it.
40 items where we are able to leverage the speed benefit,
it's worth it.
What's gonna happen is 40 items
that they have low margin
or their demand variability is crazy high,
we're not gonna wanna have them in every single location.
That's still a hypothesis that we are exploring,
but still, if you think about it,
it's something that really does make sense.
So really the trade off here is if we spread too much,
we increase inventory levels too much.
If we spread too little,
we don't leverage the speed
that we wanna serve customers with.
So there really is a trade off here
that's being brought by the demand, the demand variability,
the margin, the customer expectation really,
the lead time variability and the lead time itself.
So for international suppliers
where the lead time is 30 days
and for international suppliers
where sometimes we are using an unreliable sheeping route
that varies a lot the lead time,
we see that these things combined
to form like what I'm calling here,
the ease of positioning or the difficulty of positioning
for that matter.
So, for example, the higher the demand variability
and the higher the lead time variability,
the more difficult it is to position an item
near a customer.
The lower that is,
the easier it is to position an item near a customer.
So that's what is being represented here by the x-axis.
Now the y-axis is capturing here the value of positioning,
which is essentially a combination
between the customer expectation and the margin of an item.
So items with very high margin
and very high customer expectations
in terms of fast deliveries,
that means they have very high value of positioning.
For items where we have very low margin
and low customer expectations regarding the fast deliveries,
that means we have low value of positioning.
Now what can happen is an item has very high margin
but customers simply don't care
whether they're delivered faster or not.
That would be an item
where we also see low value of positioning
because if customers are ultimately not gonna purchase them
because they're being delivered faster,
really there is not much reason for us to deliver faster.
So what we're trying to do here
is trying to segment customer expectations
and value versus the challenges, and difficulty,
and costs of doing that positioning.
And really what we see here is that for items,
it's very easy to position them and it's very high value
to position them, of course,
we will want to have those items positioned close
to customers, so that's easy.
That's like the best of both worlds.
The challenge is for the zones,
and let me circle them over here,
these ones where we wanna be careful with what we do.
In these zones,
we need to make very specific trade offs regarding the value
and the challenges of positioning an item.
And it's really where the multi echelon strategy
that I just mentioned can be a propeller for facilitating
the positioning of products.
So it's really what we are trynna leverage right now.
And then we have this danger zone here,
which we have no value of positioning
and it's very hard to position those items.
For those items,
it's also easy enough to know what the answer is.
The answer is simply don't position those items
near to customers because customers don't care
and it's very difficult to do so.
So this is really nice.
This is question mark, we are exploring
and this is the danger zone or the the zone
where we don't wanna go (chuckles) essentially.
So with that, I think I spoke a lot about this
and now I wanted to leave a few minutes for you guys
to ask questions regarding what we are doing,
and we can explore this together
instead of you just hearing me talk and talk.
- Well, thank you so much, Rafael, for the presentation.
I think it was great.
We already have a lot of questions so that's amazing.
I think we're gonna start like shooting (chuckles) you
with some of them.
So the first one,
I'm gonna try to also wrap up some of your ideas here
'cause I think it was amazing how you shared
that the trade-offs
between having an optimal solution versus how easy it is
to actually deploy that kind of solution is something
that you don't find when you're only academia.
You're only touching the theoretical part.
And that's because not every cost is included
in an optimization problem.
It's impossible to include
the cost of changing some things
within the network whatsoever.
So there is a question from Amir Usar,
which is really interesting and he asked you
what is the period decision,
like the period of time that you guys use to refresh
the optimization model or the simulation model?
Do you run it every month, every day, every quarter
and why, maybe you run it differently
depending on the kind of decisions that you make, so.
- Yeah, so the these models that we have,
the intent of them is really to drive strategic decisions.
So the timeline for these decisions are like two
to five years.
We are refreshing the conclusions
from that model every six months
to make sure that the decisions that we made six months ago,
they still hold based on evolving market conditions, sorry.
And really the inputs don't change that often.
So for example, transportation costs, shipping costs,
rent costs, those types of things,
the way we model them
is to avoid changing them every six months
because we don't wanna capture short-term volatility
when we are modeling, we wanna capture long-term trends.
So unless markets conditions change dramatically
and we think that those conditions are gonna withstand
the next two to five years,
we are gonna keep the same inputs.
But really the rate of refresh for this is every six months.
What happens, this is kind of a good thing,
is that we tend to confirm the decision
that was made six months ago, every six months.
But that brings us reassurance
that we are in the right path.
So I think it's one of those things where we do that
because we need to keep up answering questions
that stakeholders have.
So what happens really every six months
is that we receive a bunch of questions from stakeholders
and we try to generate scenarios
and show them why we think scenario A
is better than scenario B,
and explain why we are going with that option
and following that path.
So it's really more of a communication thing
than more of a our network is changing every six months,
you know, so it's more of a strategic alignment
than change in direction.
- Yeah, no makes total sense.
Thank you so much for the answer.
Paulo, do you wanna take the next question?
- Yeah, sure.
Thank you so much Rafael, for such a great presentation.
You explored many topics from all of our courses,
so SC1x for sure,
inventory management but also SC2x network design
and we have some learners from SC3x here,
supply chain dynamics and in this course
we discuss about supply chain strategy.
You mentioned that you moved
from like a cost efficient supply chain
to a more responsive supply chain in terms of speed,
and this is great to see here in the discussion
and we have a question related to that.
So Andrea, Andrea Lopez is asking how do you measure
how relevant speed is to a given population if you do,
is it a comparison with competitors
or solely social features field research?
- So there are two ways to doing that essentially.
One is the comparison with competitors,
which is difficult to do because you have to map
the exact same types of product that you are selling
with the items that the competitor is selling.
So that's a fair comparison but we do that
to make sure that we are on par with our competitors
if not better.
Another way of doing that is via AB testing.
So what we do is we select a few products
and we do experiments to see how sensitive
the customers are to variations in delivery.
So we are gonna select for example, 100 customers,
that's just a random number,
we're gonna select a number of customers
and those customers are gonna see
that that specific item is gonna be delivered to them
in five days.
Then another set of customers are gonna see
that that specific item is gonna be delivered
for them in four days.
Another set of customer is gonna see three days,
and so on and so forth.
You got the logic and really we measure how much we convert
in sales for each of those groups of customers.
So if the customers that saw five days,
you would imagine that they don't buy
as much as the customers that saw four days,
and the customers that saw four days don't buy
as much as the ones that saw three days.
And so we measure that and we have essentially like a curve
that shows you for every item, for every customer segment,
what is their sensitivity to speed,
so how much more in sales we expect to get
from having faster deliveries.
And that's how really we translate speed
to an actual measure in terms of like value.
- Great, thank you so much, Rafael.
Miguel, do you want to take the next one?
- Yeah, actually the next question I had,
I think you already answered it Rafael,
'cause it was about AB testing.
So it's really interesting what you shared
'cause that's somehow a way you also shaped
the customer demand
'cause if you know that having a two hour delivery,
or same day, or like depending on the time windows
or whatsoever doesn't have an impact,
at some point you don't have to offer that anymore,
it actually reduce costs.
So really, really interested.
Yeah, so we don't have much time
but I'm gonna steal one of your questions Paulo
and then if you still want, you can also ask one more.
So Gustav, gosh, this learner wants to know like
when you are talking about holding inventory
nearby the fulfillment centers as safety stock,
like who holds the inventory from that point
'cause you said, for example,
that you don't have the inventory
so did you actually like force your suppliers
to have the safety stock for you,
'cause that's gonna be a key, I dunno, negotiation
in terms of like asking them to have more stock
for you guys without ownership.
- Yeah, yeah, so what what we do is,
it depends on two things, right?
We have a drop ship business
and we have a CastleGate business, right?
And the two things operate together.
So the supplier owns the inventory, right?
But they own the inventory that sits
in their drop ship warehouse and they also own the inventory
that sits in our CastleGate warehouse.
What's gonna happen is that the ranking algorithm
in the website, it's gonna select the items
that are closer to the customer.
So if a supplier doesn't have the item availability
near the customer is not gonna see their product.
What's gonna happen is they're not gonna buy it.
So because of that,
that's an incentive for the supplier to have inventory
in more locations.
That location can be a CastleGate warehouse
or it can be a drop ship warehouse, for all we care,
it doesn't make much of a difference specifically for that.
It makes a difference for other things
because CastleGate has later cutoff times.
So we can get faster deliveries in that sense.
But in terms of like availability on the website,
people are gonna see
despite being on drop ship or CastleGate.
Now the negotiation with the supplier for increasing
the inventory levels is indeed complex
because if we ask them to hold more inventory
because we wanna be in more locations, they can say no,
we are not gonna obligate them to have inventory.
If they don't see the value
in having more inventory, they're not.
So it's really a matter of setting the right incentives
in the platform and setting the right costs for the supplier
to operate where we want the supplier to operate in.
So it's more of a incentive-based approach
than a you need to have inventory here,
you're gonna be punished if you don't typa thing,
you know, so yes,
the supplier owns the inventory and we try to shape
the supplier behavior to where it's beneficial
for both the supplier and ourselves.
- Really, really interesting.
- Nice. - Yeah, thank you so much.
Paulo, do you wanna take one super quick last question
or do you think we wrap up?
- Yeah, I think we can take one more.
So let me take the last one
because I think it's connected to the topic
we are discussing right now.
So the next question here is what are the key factors
to consider when selecting suppliers
for a global supply chain network?
How can advanced IT analytics aid
in the supplier selection process?
- So the selection of suppliers in that sense,
it's more of a category management thing within Wayfair.
So it is more driven by what things we think
the customers wanna purchase in our website
and what things like, for example,
a German customer values more than a US customer.
The types of items
that are in the two websites are different.
So we are gonna wanna select suppliers for the two regions
that offer different portfolios that are in line
with what each customer expects.
That's not something
that my team specifically is working on,
but it's something that I know other teams
at Wayfair specifically category management are working on,
on selecting the suppliers that have the portfolio
that we know the customers are gonna purchase
in each specific market.
- All right, well,
thank you so much for all your answers, Rafael.
We still have a lot of questions,
but we don't have time to to answer them all,
but we really thank all of our learners
for the engagement for sure.
So again, thank you so much everyone
who decided to join us today.
It's been a super insightful session.
So thank you, Rafael, once more.
Before we say goodbye,
just want to remind everyone a couple things, first,
as you guys know,
this was the last life event of the spring series that Paolo
and I have been co-hosting for the last three months
between SC1x and SC3x.
So it's been a real pleasure
to share the experience with you guys.
Second, do you know some SCx courses are still open
for enrollment, for those completing SC1x and SC3x,
it's important to note that SC2x
and SC4x are gonna be opening really soon
within one month.
And so we encourage you to check them out on our website.
Yeah, just again, thank you everyone, Paul and Rafael,
thank you so much and if you wanna share any final words
with our audience, the floor is yours, guys.
- Thank you so much, Rafael, thank you so much, everyone,
it was a great session and have a great day.
- Thanks so much, guys.
If you wanna reach out to me on LinkedIn
or anything like that to ask questions,
feel free to do that,
happy to take questions offline as well.
Thank you, good to be here.
- All right, thank you everyone.
Have a great week, bye-bye.
- [Rafael] Bye.
- [Paulo] Bye.
(bright music)
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