Master thesis 30hplnu.diva-portal.org/smash/get/diva2:848986/FULLTEXT01.pdf · Abstract Master thesis in Business Administration and Economics, Major in Logistics 30 hp. Course code

“You can’t climb the ladder of success with your

hands in your pockets” – Arnold Schwarzenegger

Authors: Anton Auvoja 86102

Jim Holtne 910421

Supervisor: Petra Andersson

Examiner: Helena Forslund

Date: 2015-05-25

Course code: 4FE05E

Master thesis 30hp

A case study of Mionix’s distribution system on how to

improve inventory management with focus on customer

service and total cost

Anton Auvoja & Jim Holtne 2015-05-25

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Foreword

The authors have had the privilege to work together with a company with high ambitions who

strive for excellence in everything they do. It has been an exciting experience to gain insight

in this enterprise that operates in the business of gaming equipment. Prior to conducting this

study, the authors had no knowledge from this line of business. This has made it possible for a

stimulating journey throughout the spring and the feeling we have is that the result is

something that will actually have a positive effect for Mionix and the future that lies ahead for

the company. Therefore, we want to sincerely thank all of the involved participants that made

this study possible with special thanks going out to Jörgen Blixt (CFO) and Peter Nygren

(Founder and VP of product development).

Further, the authors would also like to thank our opponents Fredrik Carlsson & Alexander

Skoglund for their constructive criticism and their thoughts and ideas who contributed to

improve this thesis. Finally, we would like to thank our examiner Helena Forslund and our

supervisors Petra Andersson and Roger Stokkedal for their insightful comments and

recommendations.

Växjö 25th of May 2015

__________________________ __________________________

Anton Auvoja Jim Holtne


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Abstract

Master thesis in Business Administration and Economics, Major in Logistics 30 hp.

Course code 4FE05E, VT 2015

Authors - Anton Auvoja and Jim Holtne

Supervisor - Petra Andersson

Examinator - Helena Forslund

Title - A case study of Mionix‟s distribution system on how to improve inventory

management with focus on customer service and total cost

Background - A company‟s distribution system is a critical component and businesses need

to consider the aspects of customer service and total cost when designing the distribution

system. A distribution system can be defined as the process of making products or services

available for customers. The rise of e-commerce has increased the challenge of having a cost

efficient distribution system together with a high standard of customer service. The

distribution system is put under heavy pressure to deliver goods as quickly as possible and at

the lowest possible cost due to globalization and outsourcing. E-commerce involves a new

approach of the distribution system with its small order sizes, daily order volumes and small

parcel shipments that are often shipped the same day. Inventory management is being

regarded as an important part of the distribution system. Inventory management is the ability

to balance the demand of products with the supply of products in a cost-effectively way.

Companies therefore need to use material planning methods to coordinate the flow of material

effectively throughout the distribution system.

Purpose - The purpose of this paper is to study Mionix‟s current distribution system with

focus on customer service and total cost. Based on the findings, this thesis will identify which

costs that are possible to influence and reduce. Secondly, the aim is to study how material

planning methods can help Mionix to improve the inventory management function and

propose measures for improvement.

Method - This thesis has used a positivistic view with a deductive approach. It is a case study

that contains elements of both qualitative and quantitative research strategy. In order to fulfil

the purpose of the study the authors have conducted a flow and situational analysis in order to

identify services and costs in the distribution system that Mionix can influence. Further, the

authors conducted a situation analysis of Mionix‟s current inventory management function.

The authors then calculated and analysed how material planning methods such as EOQ, Total

cost, Sensitivity analysis, Ordering points and optimal safety stock and service levels could


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improve Mionix‟s inventory management function. Next, alternative solutions are presented

together with the authors‟ evaluations and recommendations for the company. The data that

was needed to accomplish this was collected by performing interviews, observations and

extracting data from computer system e.g. Excel.

Conclusion - The authors have identified two distribution channels within the distribution

system: the wholesaler channel and the retailers/e-commerce channel. Mionix has the

opportunity to influence two particular costs: capital costs and cost of loss of sales, which are

included in inventory- and customer service costs according to the total cost model. Material

planning methods can improve Mionix‟s inventory management function by deciding safety

stock levels, ordering points and EOQ for all products in accordance with the theoretical

framework. Further, if Mionix use the authors‟ recommendation the company can reduce

estimated total annual cost by 23% or 26% depending on what mode of transportation that is

used.

Keywords - Distribution system, distribution channel, inventory management, material

planning methods, e-commerce, Total cost, EOQ, Safety stock, Service levels


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Contents

1. Introduction ............................................................................................................................ 1

1.1 Company presentation ...................................................................................................... 1

1.2 Background ....................................................................................................................... 2

1.3 Problem discussion ........................................................................................................... 5

1.3.1 Mionix distribution system........................................................................................ 5

1.3.2 Mionix‟s inventory management .............................................................................. 6

1.4 Research questions ........................................................................................................... 7

1.5 Purpose ............................................................................................................................. 7

1.6 Delimitation ...................................................................................................................... 7

1.7 Thesis disposition ............................................................................................................. 8

2. Method ................................................................................................................................... 9

2.1 Scientific view .................................................................................................................. 9

2.2 Scientific approach ........................................................................................................... 9

2.3 Research strategy ............................................................................................................ 10

2.4 Research Design ............................................................................................................. 10

2.5 Sampling method ............................................................................................................ 11

2.6 Data collection ................................................................................................................ 12

2.6.1 Course of action ........................................................................................................... 13

2.7 Quality criterion .............................................................................................................. 14

2.8 Research ethical considerations ...................................................................................... 15

2.9 Analysis method ............................................................................................................. 16

2.9.1 Analysis method – How is Mionix current distribution system designed? ................. 17

2.9.2 Analysis method – Material planning methods for Mionix ......................................... 17

2.9.3 Analysis model ........................................................................................................ 18

2.10 Summary of methodology choices ............................................................................... 19


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3. How is Mionix‟s current distribution system designed with focus on customer service and

total cost? .................................................................................................................................. 20

3.1 Theory ................................................................................................................................ 20

3.1.1 The distribution system ............................................................................................... 20

3.1.1.1 Distribution utility ................................................................................................ 21

3.1.1.2 Distribution gaps .................................................................................................. 21

3.1.1.3 Distribution roles of 3PLs .................................................................................... 22

3.1.1.4 Distribution channels ............................................................................................ 24

3.1.1.5 Modes of transportation in the distribution system .............................................. 25

3.1.1.6 E-commerce ......................................................................................................... 25

3.1.2 Customer service vs total cost ..................................................................................... 27

3.1.2.1 Customer service .................................................................................................. 27

3.1.2.2 Total cost model ................................................................................................... 28

3.1.2.3 Correlation between total cost and service ........................................................... 31

3.1.3 Taylor‟s model ............................................................................................................. 32

3.1.4 Abrahamnsson & Aronsson‟s model for measuring the distribution system .............. 33

3.1.5 Theoretical summary ................................................................................................... 34

3.1.6 Theoretical analysis model .......................................................................................... 36

3.2 Empirical data – Distribution System ................................................................................ 38

3.2.1 Overview of Mionix‟s distribution system .................................................................. 38

3.2.2 Wholesaler channel ...................................................................................................... 38

3.2.2.1 Hecny, 3PL ........................................................................................................... 39

3.2.2.2 Gandalf Data AB .................................................................................................. 39

3.2.3 Retailer/e-commerce channel ...................................................................................... 40

3.2.3.1 Airlog, 3PL ........................................................................................................... 41

3.2.3.2 Alwex, 3PL ........................................................................................................... 41

3.3 Analysis .............................................................................................................................. 44


VII

3.3.1 Mionix‟s distribution channels .................................................................................... 44

3.3.2 Wholesaler channel ...................................................................................................... 45

3.3.2.1 Hecny ................................................................................................................... 45

3.3.3 Retailer/E-commerce channel ...................................................................................... 46

3.3.3.1 Hecny ................................................................................................................... 46

3.3.3.2 Airlog ................................................................................................................... 47

3.3.3.3 Alwex ................................................................................................................... 48

3.3.4 Analysis summary - Correlation between service and cost ......................................... 49

4. How can material planning methods help Mionix improve the inventory management

function? ................................................................................................................................... 52

4.1 Theory ................................................................................................................................ 52

4.1.1 Inventory management and material planning methods .............................................. 52

4.1.2 Economic ordering quantity ........................................................................................ 54

4.1.2.1 Total cost model ................................................................................................... 55

4.1.2.2 Inventory in transit ............................................................................................... 56

4.1.2.3 Sensitivity analysis ............................................................................................... 57

4.1.3 Safety stock and service levels .................................................................................... 57

4.1.4 Ordering points ............................................................................................................ 60

4.1.4 Theoretical summary ................................................................................................... 62

4.2 Empirical data .................................................................................................................... 64

4.2.1 EOQ and Total cost ..................................................................................................... 64

4.2.2 Safety stock and ordering points ................................................................................. 67

4.3 Data processing tools ......................................................................................................... 68

4.3.1 Coding ......................................................................................................................... 68

4.3.2 Calculating EOQ.......................................................................................................... 68

4.3.3 Calculating safety stock .......................................................................................... 69

4.3.3.1 Calculate standard deviation in lead time ............................................................ 69


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4.3.3.2 Calculate optimal quantity ................................................................................... 71

4.3.3.3 Finding Z values and calculating safety stock .................................................... 72

4.3.4 Calculating ordering points ........................................................................................ 73

4.3.5 The Inventory management tool .................................................................................. 74

4.3.5.1 The different costs in the Inventory management tool ......................................... 75

4.4 Analysis .............................................................................................................................. 77

4.4.1 Approach of the analysis ............................................................................................. 77

4.4.2 Estimation of Mionix‟s current total costs .............................................................. 77

4.4.3 Total costs based on EOQ ........................................................................................... 79

4.4.3.1 EOQ .......................................................................................................................... 79

4.4.3.2 Safety stock............................................................................................................... 80

4.4.3.3 Ordering points ......................................................................................................... 83

4.4.3.4 Total cost .............................................................................................................. 84

4.4.4 Sensitivity analysis .................................................................................................. 87

4.4.5 Plausibility analysis – Total costs based on orders/year ......................................... 90

4.4.5.1 Reliability of calculated total costs ...................................................................... 91

5. Conclusion ............................................................................................................................ 92

5.1 Research questions ......................................................................................................... 92

5.1.1 Research question 1 - How is Mionix‟s current distribution system designed with

focus on customer service and total cost? ............................................................................ 92

5.1.2 Research question 2 - How can material planning methods help Mionix improve the

inventory management function? ......................................................................................... 93

5.1.3 The Inventory management tool .................................................................................. 95

5.2 Socioeconomic aspects and the contribution of the thesis ............................................. 96

5.3 Reflections and critique .................................................................................................. 96

5.4 Future research ............................................................................................................... 97

5.5 Reliability and validity of the study ............................................................................... 98

5.6 Ethical considerations ..................................................................................................... 98


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6. References ............................................................................................................................ 99

6.1 Books .............................................................................................................................. 99

6.2 Scientific articles .......................................................................................................... 100

6.3 Electronic sources ......................................................................................................... 102

6.4 Interviewed persons ...................................................................................................... 102

7. Appendix ............................................................................................................................ 102

7.1 Interviews ..................................................................................................................... 102

7.2 Sensitivity analysis ....................................................................................................... 106

7.3 Plausibility analysis – Total cost allocation Air & Boat .............................................. 110

List of Tables

Table 1 – Interview persons………………..………………..………………..……………...12

Table 2 – Data collection………………..………………..………………..…………………13

Table 3 – Summary of methodology choices………………..………………..……………...19

Table 4 – Theoretical summary………………..………………..………………..…………..34

Table 5 – Mionix current stock level (+ included safety stock) at Alwex, March 2015..........43

Table 6 – Summary of identified roles, delivery-, customer service and costs………..…......50

Table 7 – Theoretical summary………………..………………..………………..………......62

Table 8 – Total annual demand at Alwex (coded) ………………..…………………………64

Table 9 – Mionix sales history Växjö, 2014 (coded)…….. ………………..………………..65

Table 10 – Variable transportation costs (Boat and Air) ………………..……………..........66

Table 11 – Averge ordering quantities for Växjö, last three months (coded) ………............67

Table 12 - Estimation of Mionix total annual costs based on current safety stock levels and

ordering quantities……..………………………..………………..………………..………....77

Table 13 – max % deviation of total costs, min/max safety stock…………………….......…78

Table 14 – Calculated EOQ and orders/year for Mionix‟s products (Boat and Air)…………80

Table 15 – Mionix‟s service level based on current desired safety stock levels (Boat or Air..81

Table 16 – Mionix safety stock levels 98/95/90% service levels (Boat)……………………..82


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Table 17 – Mionix‟s safety stock levels of 98/95/90% service levels (Air)………………….83

Table 18 – Calculated ordering points 98/95/90% (boat & air) ………………..…………….84

Table 19– Mionix‟s calculated total costs for transportation by boat and air………………...85

Table 20 – Mionix EOQ and Total costs for transportation by boat………………………....86

Table 21 – Mionix EOQ and Total costs for transportation by air…………………………...86

Table 22 – Sensitivity analysis EOQ and Total cost (Air) ………………..………..………...87

Table 23 – Sensitivity analysis EOQ and Total costs (Boat) ………………..………….........88

Table 24 – Sensitivity analysis for product 1………………..………………………..……....89

Table 25 – Summary of identified roles, services and costs in Mionix‟s distribution system..93

List of Figures

Figure 1 - Some of Mionix current products..............................................................................1

Figure 2 – Thesis disposition......................................................................................................8

Figure 3 – Analysis model........................................................................................................18

Figure 4 – Theoretical disposition............................................................................................20

Figure 5 – Aggregation role......................................................................................................23

Figure 6 – Spreading role..........................................................................................................23

Figure 7 – Relationship gaps, roles and utilities...................................................................... 24

Figure 8 – Four commonly used distribution channels.............................................................25

Figure 9 – Characteristics of the transportation modes.............................................................25

Figure 10 - The distribution system of an e-commerce company.............................................26

Figure 11 - The six cost items in the total cost model..............................................................29

Figure 12 – Correlation between service and costs...................................................................31

Figure 13 – Abrahamsson‟s and Aronsson‟s model for changing distribution systems. .........33

Figure 14 – Own illustrated symbols for flow analysis............................................................36

Figure 15 – Theoretical analysis model....................................................................................37

Figure 16 – Overview of Mionix distribution system (own illustration) .................................38

Figure 17 – Wholesaler channel (own illustration) .................................................................39

Figure 18 – Retailer/e-commerce channel................................................................................40

Figure 19 – Theoretical disposition..........................................................................................52


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Figure 20 – Total cost curve.....................................................................................................56

Figure 21 – Ordering points......................................................................................................61

Figure 22 – Theoretical analysis...............................................................................................63

Figure 23 – How to calculate EOQ ..........................................................................................69

Figure 24 – How to calculate standard deviation during lead time..........................................70

Figure 25 – How to calculate Qopt (EOQ) .............................................................................71

Figure 26 – How to find n(Z) and calculate safety stock levels based on service levels..........72

Figure 27 – Calculating ordering points..................................................................................73

Figure 28 – The Inventory management tool.......................................................................... .74

Figure 29 – Mionix‟s correlation between service and costs....................................................81

Figure 30 – Cost reduction based on orders/year.....................................................................90

Figure 31 – Total costs with 150% demand.............................................................................91

Figure 32- Mionix‟s distribution system..................................................................................92

Figure 33– Total cost allocation...............................................................................................94

Figure 34– The Inventory management tool............................................................................95

List of Formulas

Formula 1 – EOQ-formula......................................................................................................................55

Formula 2 – Total cost model...................................................................................................55

Formula 3 – Total logistics costs..............................................................................................56

Formula 4 –In transit inventory................................................................................................57

Formula 5 – Variable transportation cost.................................................................................57

Formula 6 – Safety stock..........................................................................................................59

Formula 7 – Safety stock, SERV2............................................................................................60

Formula 8 – Ordering point......................................................................................................61

Formula 9 – TC Inventory...........................................................................................................75

Formula 10 – TC Transport.........................................................................................................75

Formula 11 – TC Safety stock.....................................................................................................75


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Formula 12 – Annual variable transportation costs........................................................................76

Formula 13 – Annual fixed transportation costs.............................................................................76

Formula 14 – Total costs..............................................................................................................76

1. Introduction

The introduction chapter starts off with a company presentation of Mionix AB which is

followed by a background description of the thesis subject. A problem discussion is then

presented which culminate into two research questions. Further, the purpose is displayed

together with the delimitations of the thesis. The chapter ends with a disposition that describe

how the thesis progresses.

1.1 Company presentation

Mionix AB was founded 2007 in Växjö, Sweden by Peter Nygren with the idea of creating

the world‟s best performing gaming mouse. Mionix is originally the name of a gaming clan

founded by Peter and his friends. Around that time there were no or few gaming mice on the

market. They decided to take matters into their own hands and Mionix AB was created. Peter

got in contact with a partner in Asia who claimed he had a technical solution for the mouse

Mionix wanted to create. Mionix knew that it would be possible conquer a large portion of the

market if they managed to create their own world class performing gaming mouse. Within

three months Mionix presented sales figures of 500.000 SEK, making it possible for the

company to grow and develop their product portfolio further (Blixt, CFO Mionix, 2015-01-

16).

Figure 1 - Some of Mionix current products

Mionix AB is a global micro enterprise with total revenue of 9 million SEK (2014) and 6

employees that are operating from their offices in Växjö and Malmö. The product portfolio

has been extended to include headsets, keyboards, mouse pads and accessories in addition to

gaming mice. All together, these add up to 15 unique products that are available on the

market. Mionix were however not alone in realizing this great potential for profit in the

market of gaming equipment. Their main competitors are SteelSeries, Razor, Logitech and

Qpad. Mionix are unique in their product development and engineers are working together

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with customers in online forums to exchange feedback and ideas from customers (Blixt, 2014-

01-16).

Mionix customers are located all around the world and offer shipping of their products to

nearly all countries. Mionix vision includes plans of an expansion and as a result they expect

to handle larger volumes in their distribution system due to an anticipated increase in number

of sales. Mionix are unsure of how this is going to affect their distribution system and

inventory management (Blixt, 2014-01-16).

1.2 Background

In today‟s ever changing world, companies are continuously evaluating and redesigning the

distribution system in order to serve customers in the best possible way (Goetschalkx, Vidal

& Dogan, 2002). A distribution system can be defined as the process of making products or

services available for customers. In order to create an efficient distribution system it is

necessary to understand what utility values distribution can contribute in order to fulfill

customer service requirements. It is also critical to know how the gaps in the distribution

system that exists between the producer and consumer can be efficiently bridged with the help

of third-party logistics (3PLs) (Mattsson, 2012).

Distribution systems consist of one or more distribution channels that are categorized

depending on the number of participants, which usually varies between two and five. If the

customer buys directly from the manufacturer, the channel consists of two participants.

Traditionally, manufacturers sell their products to a wholesaler or retailer which increases the

number of participants in the distribution channel. However, companies are increasingly

starting to use e-commerce as a channel to sell and distribute products towards customers in

addition to the existing traditional distribution channels (Rosenbloom, 2004). The term e-

commerce can be defined as products or services that are sold to customers through one or

more web pages on the internet (Ryo, Son & Jung, 2003). An e-commerce distribution

channel reach and generate sales via Internet, allowing the customer to search independently

for information and compare prices, products and retailers. There are usually no geographical

restrictions in these channels and customers can place an order any time of the day. E-

commerce distribution allows companies the possibility of selling a small range of products

towards customers with specialized needs (Berman and Thelen, 2004).


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The rise of e-commerce has increased the challenge of having a cost efficient distribution

system together with a high standard of customer service. Inventory and transportation costs

cannot be overlooked if companies want to stay profitable. The distribution system is put

under heavy pressure to deliver goods as quickly as possible and at the lowest possible cost

due to globalization and outsourcing. The distribution system is therefore a significant factor

for successful companies in our time (Gunasekaran, Ngai & Cheng, 2007). E-commerce

involves a new approach of the distribution system with its small order sizes, daily order

volumes and small parcel shipments that are often shipped the same day. Ensuring a high

standard of customer service e.g. timely and accurate deliveries to customers‟ doorsteps is a

complicated task and depends largely on the design of the distribution system (Cho, Ozment

& Sink, 2008).

The upsurge of e-commerce has brought several challenges and opportunities within the

distribution system. E-commerce has meant that customers no longer have to leave their

house in order to buy products or services. How long customers are able to wait between

buying and receiving is of utmost importance in this new channel of direct sales. As a result

the expectation of customer service e.g. product availability and timely deliveries have

increased greatly (Swaminathan & Tayur, 2003). Internet transformed the way companies

perform business these days some time ago. In reality, not having an online presence severely

hampers the competitiveness of a company. Due to the many companies engaging in e-

commerce this has led to the haphazard addition of a new distribution channel to an existing

distribution system (Bretthauer, Mahar & Venakataramanan, 2010).

The distribution system is a critical component for the business strategy and cannot be

overlooked by companies that wish to be successful. It is important to consider the aspects of

customer service and total cost in the distribution system. The size of the company, market

and customer segments and product characteristics are also a number of factors that limits

how the distribution system should be designed (Nahmias, 2013). Today, many companies

use 3PLs to manage the distribution system completely or partly in order to ensure

transportation between nodes. 3PLs often provides a package solution with transport, returns,

storage, packing and administration which means that the customer can focus on their core

competence. It can be wise for small companies to use 3PLs for their economies of scale and

negotiation power against transportation companies (Lindstedt & Bjerre, 2009).


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Issues of the distribution system can be divided into two broad categories: (1) design-oriented

issues which relates to the basic infrastructure of the distribution system and (2) inventory

management-oriented issues which relate to the actual management of inventory within the

distribution system. Design-oriented issues are linked to trying to solve the following

questions: What kind of distribution channels should a company have in order to sell and

distribute their products? What kind of transportation modes and routes should be used?

Inventory management-oriented issues arise due to the following questions: How much

inventory of products should be kept in order to fulfil customer service expectations? How

often and with what quantity should inventory be restocked? (Swaminathan & Tayur, 2003).

Companies often manage their inventory based previous experience and “intuitive”

knowledge, especially small and micro enterprises. Without an efficient inventory

management function companies have a hard time to maintain competitiveness and stay

profitable, especially those with a global customer base. Inventory management and material

planning methods help logistics managers in their decision making in the distribution system.

With the use of these tools companies can establish savings that can have a profound effect on

overall profitability (Goetschalkx, Vidal & Dogan, 2002).

Inventory management is the ability to balance the demanded material with the availability of

material in a cost-effectively way as possible. To manage inventory efficiently companies

need to use material planning methods in their decision making in order to coordinate the

flow of material effectively throughout the distribution system (Lumsden, 2012). Commonly

used material planning methods include the EOQ-formula, total cost model, safety stock

models and ordering points. These material planning methods have different properties and

characteristics and are more or less suitable depending on the company and its environment

(Mattsson, 2012). Controlling and managing inventory management in a cost-efficient way

can be difficult due to large amount of data, decision variables and the performance trade-off

between service and total cost. One of these challenges is the need of involving different types

of flows in the distribution system including material flow, product design, information and

financial flow. Securing the material flow is important, however the other flows cannot be

ignored as they affect each other (Capo-Vicedo et al. 2011).


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1.3 Problem discussion

1.3.1 Mionix distribution system

The distribution system of a company spans over numerous functional and geographical areas

which brings complexities in form of design and management. Issues that complicate the

matter of how the distribution system should be designed and managed includes; uncertainty

in demand, supply and production distribution, inventory costs and lead time between entities

in the distribution system. Failure to address these problems causes inefficiencies in the

distribution system such as unnecessarily high capital costs and logistical costs, increased risk

of stock outs and poor customer service (Swaminathan & Tayur, 2003)

Making products available to customers located on a global market is very different compared

to distributing products on a local market, especially for small and micro companies. These

companies have a distribution system that is stretched around the globe which results in

longer lead times and higher logistical costs. If companies do not handle these problems they

could experience loss of sales and increased logistics costs making survival harder in the long

run (Xu, Wilkinson & Brouthers (2002). With a global customer base, Mionix faces the

problem of having to deliver products globally which creates bigger challenges compared to

companies that only have a domestic customer base. Lead times are longer and logistical costs

are higher. With the company facing increased logistical costs Mionix is bound to evaluate

the distribution system in order to identify which costs that be reduced in order to not lose its

competitiveness (Blixt, 2015-01-16).

Thirumalai & Sinha (2005) argues that customer service is an important factor when

customers choose whether or not they will place an order. When a customer request a product

that is not available immediately it is likely that the customer will go elsewhere and in worst

case never return (Nahmias, 2013). Mionix sales are expected to increase as a result of the

company‟s vision. The distribution system is not designed to cope with the impacts that an

expansion may bring. This is problematic for the company and could result in greater logistics

costs, increased risk of stockouts and poor customer service. Ultimately, this limits Mionix

competitive ability and could mean that Mionix can lose customers to competitors due to lack

of product availability and late deliveries (Blixt, 2015-01-16).

Companies with inefficient distribution systems will have problems of making their products

available to potential customers (Brettel et al. (2010) If a company fails to satisfy the

customers service requirements it could reduce the possibility of customers remaining loyal to


6

the company and risk losing them to a competitor (Thirumalai & Sinha, 2005). Mionix is

currently considering evaluating their distribution system in order to lower costs and improve

product availability towards customers (Nygren, Founder and VP of Product development

Mionix, 2015-03-30). Mionix customers have a high demand for fast deliveries. As a result,

this sometimes affects what mode of transportation that is used to ship the products to the

warehouse in order to refill inventory levels. If a product is currently out of stock Mionix

sometimes decide to send it from the warehouse in Hong Kong by air instead of sea in order

to reduce lead time. However, shipping products by air instead of sea will result in increased

transportation costs (Blixt, 2015-01-16).

1.3.2 Mionix’s inventory management

Global markets are more unpredictable compared to other markets and have large variations

in demand. Further, most small companies have no or less experience with global logistics

meaning they are working in areas that they have little or no knowledge about (Waters, 2003).

The lack of knowledge will reduce the possibility of managing the inventory function

properly. A lack of knowledge and the absence of proper material planning tools can create

problems for the company‟s inventory management function. Neglecting the inventory

management can lead to imbalance between supply and demand. An imbalance between

supply and demand will lead to problems in form of holding too much inventory and high

capital cost if supplies are too large, or shortage situations and poor customer service which

results in loss of sales and customers if demand is too large (Jonsson, 2008).

Mionix is experiencing problems of having capital tied up in warehouse and transportation

inventory. The company is relatively small and need to free up capital to avoid dealing with

liquidity issues. In addition, Mionix forecasts are uncertain because of volatile demand in the

market. The unwanted outcome of this is that Mionix often experience shortage of some

products which leads to a loss of sales (Nygren, 2015-02-26). Due to the problems described

by Waters (2003) and Jonsson (2008) Mionix is currently considering the usage of material

planning methods in their inventory management in order to ensure better product

availability, lower capital costs and shorter lead times towards customers. Mionix currently

manage their inventory management based on a combination of experience and intuitive

knowledge rather than the use of suitable material planning methods (Blixt, 2015-01-16).

According to Goetschalkx, Vidal and Dogan (2002) making decisions based on experience

and intuitive previous knowledge instead of using proper material planning methods can


7

cause companies to lose their competitive edge and struggle with profitability, especially

those that have a global customer base.

1.4 Research questions

1. How is Mionix‟s current distribution system designed with focus on customer service

and total cost?

2. How can material planning methods help Mionix improve the inventory management

function?

1.5 Purpose

The purpose of this paper is to study Mionix‟s current distribution system with focus on

customer service and total cost. Based on the findings, this thesis will identify which costs

that are possible to influence and reduce. Secondly, the aim is to study how material planning

methods can help Mionix to improve the inventory management function and propose

measures for improvement.

1.6 Delimitation

This thesis will not take the manufacturing process into account when analyzing the

distribution system. The distribution system will start at Mionix‟s warehouse in Hong Kong

and finish at the end consumer.

Based on Mionix request this thesis will not consider changing 3PL when costs are examined

in research question 1.

Due to limitations in time and resources the authors have chosen to focus on the Alwex

warehouse in the retailer/e-commerce channel in research question 2. This delimitation was

taken in consent with Mionix.


8

Empirical data are processed in a computer program

1.7 Thesis disposition

Figure 2 – Thesis disposition

1. Introduction

3.1 Theory RQ 1

3.1.1 Distribution system 3.1.2 Customer service vs Total cost

3.2 Empirical data RQ 1

4.1.1 Inventory management and material planning methods

2. Methodology

2.1 Scientific

view

2.2 Scientific approach

2.3 Research strategy

2.4 Research

design

2.5 Sampling method

2.6 Data

collection

2.7 Quality

criterion

2.8 Ethical consid.

2.9 Analysis method

3. RQ 1 - How is Mionix current distribution system designed with focus on service and total cost?

3.3 Analysis RQ 1

4. RQ 2 - How can material planning methods help Mionix improve their inventory

4.2 Empirical data RQ 2

4.3 Data processing tools

4.4 Analysis RQ 2

5. Conclusion RQ 1 & RQ 2

4.1 Theory RQ 2

6. References

7. Appendix


9

2. Method

This chapter presents the research method and approach that has been used to conduct this study. The

authors describe different theories within each method and approach and motivate their choice of

research method. Further, the authors present an analysis model that was created in order to reflect

the study’s purpose. This model aims to serve as a frame of reference for the continued thesis writing.

The chapter ends with a summary of methodology choices.

2.1 Scientific view

There are two main approaches on how to view collected data: Positivism and Hermeneutics.

From a hermeneutic approach it is assumed that presuppositions made from the researcher

affect the gathering of data. It is believed that knowledge is created between individuals and

that different interpretations are needed in today‟s complex environment. Objective facts are

not enough to ensure high quality assessments of the situation. Positivism advocates that

knowledge always should be based upon objective facts and logical reasoning. There is no

room for subjective interpretations of facts e.g. a person‟s feelings or values. All researchers

should be able to reach the same results since the data is not affected by different

interpretations of facts. (Bryman & Bell, 2011)

The data of this paper has been collected through interviews, observations and statistics

provided by Mionix. The researchers did not have any relationship with the interview persons

prior to this study. This eliminates the use of a hermeneutic approach because the researchers

didn‟t have the possibility of conducting subjective assessments or interpret their answers.

Based on this argument the authors chose the positivistic approach. Since most of the

collected data consists of given parameters there was no need for interpretation by the

authors. Further, the analysis made on the collected data will not be based on own

interpretations but objective statistics from Mionix, in accordance with the positivistic

approach. The researchers in this paper accept that people might influence and create

knowledge. It is therefore the researchers‟ responsibility to be critical and logical in their

reasoning based on the answers that they were given. The researchers assure that the

presented information and collected data in this study is presented and described objectively.

2.2 Scientific approach

During research authors can choose between three different scientific approaches deduction,

induction and abduction. Deduction is the most common view of the relationship between

theory and empiricism in social science. Based on current knowledge and theoretical


10

consideration in an area of research, the researcher derives one or more hypothesis that will be

subject to empirical examination. (Bryman & Bell, 2010) The sequence of a deductive

process can be described as followed: Theory → Hypothesis → Data collection → Result →

Hypothesis is either confirmed or rejected → Theory is revised. Fischer (2010) argues that the

deductive approach is when a conclusion is consistent in relation to the set premises.

Deduction is focused on logic and is not dependent on past experience or observations.

(Fischer, 2010)

Taking a deductive approach, the authors of this paper first researched existing theory and

then tested the theories on the gathered empirical data in order to find possible patterns. Based

on the collected information the authors acquired a basis to draw conclusions from. This study

does not intend to create any new theory on the researched topic. A deductive approach is

therefore suitable for this study.

2.3 Research strategy

Qualitative research can be described as a data collection technique and data analysis

procedure that generates non-numerical data. Interviews and observations are usual methods

when researchers are trying to get a deeper understanding for e.g. a company‟s current

situation. Qualitative research can be used as an important tool when there is no objective

truth. Quantitative research is typically used when it is possible to measure and categorize

data. Mathematical models and artificial environments are commonly used in order to test

theories. When measuring data it is critical that variables are dependent or independent, these

variables can be used to describe reality and how different aspects influence reality. (Bryman

& Bell, 2011)

This thesis will use a mixture of qualitative and quantitative research strategy in order to

study Mionix‟s current distribution system and inventory management. Qualitative data will

be collected by conducting observations and interviewing relevant employees at Mionix and

the different 3PLs that they use. Quantitative data has been collected through statistics in form

of excel-data. This data has been used to describe Mionix current material planning methods

and to calculate EOQ, Total cost model, sensitivity analysis, ordering points, safety stock

levels and service levels.

2.4 Research Design

A case study can be defined as a strategy for doing research with the empirical investigation

of a specific phenomenon within its real life context. The case study strategy is especially


11

useful if the researcher want to gain a full understanding of a specific organization and its

processes. There are different types of case studies e.g. single case and multiple cases with the

advantage that the results have higher reliability since more cases are being studied. Multiple

cases will also generate a more general picture of the studied phenomenon. (Yin, 2007) A

single case study gives the researcher the opportunity to observe and analyze a phenomenon

few have reflected on before, although it is harder to generalize the phenomenon. When

studying and questioning existing theory, a case study is arguably suitable. A case study can

as well challenge existing theory and provide new research problems. (Saunders, Lewis &

Thornhill, 2009) When conducting a case study it is suitable to use both quantitative and

qualitative methods because sometimes there is a need for acquiring additional parts from

each research method. (Bryman & Bell, 2005) Yin (2007) further argues that case studies are

suitable when empirical data is collected from more than one source.

This thesis will only use a single case since the focus will be on analyzing data that is specific

for Mionix. A mixture of quantitative and qualitative research strategy is suitable when

conducting a case study and benefits the analysis. Data will be collected from three sources;

interviews, observations and statistics extracted from computer systems, which according to

Yin (2007) generate a deeper understanding that is critical for the thesis end result.

2.5 Sampling method

Random sampling is an objective sampling method which comprises that each element of the

target population has an equal probability of being selected e.g. drawings names from a hat or

random digit dialing. Given that the sample size is sufficiently large and the sampling design

is properly executed, the method of random sampling allows generalization from respondents

that can be applied to the total population. Non-random sampling is not necessarily made with

the goal of being statistically representative of the population. Instead, the researcher uses

personal experience, convenience and expert judgment to select the elements in the sample,

making it a subjective method of sampling. Convenience sampling encompasses selecting

sample elements that are most readily available to the researcher and can provide the

information required. For example, when exit interviews are conducted amongst restaurant

customers the participants are chosen on the basis of having just finished their meal. A

snowball sample is one where the initial respondents normally are selected using random

sampling. The researcher then uses the initial respondents to get in contact with other

respondents that are relevant for the research. This process is continued until a sufficient

sample size is reached (Hair et. al, 2003).


12

Because this study is focusing on solving and researching a specific problem for Mionix, the

researchers have chosen a non-random sampling selection method with convenience sample.

This choice is motivated due to the study‟s need of specific information which cannot be

acquired through other sampling methods.

Table 1 – Interview persons

2.6 Data collection

Primary data is information that is actively collected for specific research and is often

generated by interviews or observations. Secondary data includes information that have

already been collected by other researchers e.g. books, journal articles or online data sources.

It is important to understand that some secondary data may have been collected for a different

purpose. (Saunders, Lewis & Thornhill, 2009)

When conducting a case study the authors are not limited to using one source of data but

instead use many different sources in order to build reliability. The collection of empirical

data is based on primary data that was collected from e.g. interviews, observation, and

extracts from computer systems. Secondary data have been used for the theoretical framework

of the thesis and acquired through the search engines: OneSearch, Google Scholar, Emerald,

and Business Source Premier. Keywords that have been used are e.g. distribution system,

distribution channel, inventory management and material planning methods Secondary data

have also been collected studying different sources of advance literature within the topic from

the Linnaeus University Library.

There are different techniques that can used to collect primary data through interviews, such

as structural, unstructured or semi-structural. In a structural interview questions are

established and written down in advance and are always asked in the same order, with the

purpose of consistency and comparability. Unstructured interviews resemble a normal

Interview person Position

Jörgen Blixt CFO “Chief Financial Officer”, Mionix AB

Peter Nygren Founder and VP of product development,

Mionix AB

Lars Pålsson Logistics Manager, Mionix AB

Niclas Olofsson Market and business development, Alwex

AB


13

conversation and questions about the research topic are asked randomly. This type of

interview is preferably used when trying to understand the bigger picture and asking for

detailed information. Semi-structural interviews have questions established in advance but the

respondent has more opportunity to speak freely and express his or her own opinions.

(Bryman & Bell, 2011) During the first interview with Blixt 2014-01-16, the authors had an

unstructured interview in order gain an understanding of the company and the assignment.

Observations can be performed in numerous ways. (Björklund & Paulsson, 2012) This study

has performed participating observations in order get a clear understanding of the company

and its distribution system. This method means that the researcher observe the environment,

listen to what is said and ask questions. The participating observation technique often includes

interviews with key persons and studies of important documents and key figures. (Bryman &

Bell, 2011)

Table 2 – Data collection

2.6.1 Course of action

The initial contact between the authors and Mionix was taken in December of 2014. Because

of the author‟s technical- and gaming interest they had previously heard about a Växjö based

company called Mionix that produced gaming equipment. The first step was to send an open

email and asking the company whether or not they were interested in participating in the case

study. In the email the authors also presented themselves as last year‟s students of Master in

Business Administration and Economics with the purpose of writing a master thesis within

the logistics field. Jörgen Blixt (CFO) answered the email and accepted to participate. A first

meeting was held at the Växjö headquarters were the authors conducted an unstructured


14

interview (2015-01-16) to learn about the company and get a deeper understanding of the

problem.

Due to Jörgen Blixt leaving the company shortly, the decision to change the contact person

was taken. This led the authors to meet Peter Nygren. Peter Nygren is founder and VP of

product development at Mionix and possesses a transverse and profound knowledge about the

company. The authors have conducted an unstructured interview and mail interview with

Peter. In addition, they visited Mionix (2015-04-08) for a day to extract the data needed from

Mionix data systems together with Peter. The next approach of the study was to visit Alwex

AB, a 3PL in Mionix distribution system. The reason for this was to gain knowledge, view

another perspective and gather information about the distribution system and inventory

management function of Mionix. At this point, the authors conducted a semi-structured

interview (2015-04-15) with Niclas Olofsson and performed an observation at the warehouse.

Finally, the authors conducted a telephone interview (2015-04-16) with Lars Pålsson to

collect additional data that was needed.

2.7 Quality criterion

In order for the research findings to be credible, the researchers must reduce the possibility of

getting the answer wrong when conducting the study. This means attention must be given to

three particular emphases on research design: reliability, internal-, external validity and

concept validity. (Saunders, Lewis & Thornhill, 2009; Yin, 2007)

Reliability can be explained as to what degree your data collection techniques or analysis

procedures will yield consistent outcomes. With the aim to secure high reliability it is

important to reflect whether other observers will come to the same results. In order to assess

this, the following three questions must be asked (Easterby-Smith et al. 2008:109)

1. Will the measures yield the same results on other occasions?

2. Will similar observations be reached by other observers?

3. Is there transparency in how sense was made from the raw data?

Validity can be defined as whether the findings are truly what they appear to be about.

Validity increases when a study is using a broad amount of sources for data collection or

when interviewed individuals review summaries of empirical data. (Saunders, Lewis &

Thornhill, 2009) Internal validity in case studies means that results obtained within the survey

are true. One question to be asked is whether or not two variables have a causal relationship,


15

meaning if a change in one factor influence the other one. External validity refers to whether

the findings can be generalized to e.g. other populations, settings or periods. (Yin, 2007) Case

studies often fail when trying to create a generalization to fixed populations.

Concept validity means ensuring that the right concept has been identified and also represents

the subject that is going to be studied. This is most common during case studies. When

several sources are being used during data collection or if the interview persons get to review

summaries of meetings or the paper, concept validity increases. (Bryman & Bell, 2011)

The researchers used different theoretical and empirical sources during the data collection to

increase the study‟s concept validity. The theoretical framework is collected from several

sources which are all up-to-date sources to ensure correctness about the studied subject. The

empirical data was also collected from numerous sources for the same purpose. The

researchers conducted interviews with employees who had different positions in the company

and its partners to get a fair and overall view of the company and its business. To ensure that

the empirical data from Mionix are reliable and accurate, the researchers have had a

continuous dialog with Peter Nygren.

2.8 Research ethical considerations

Reporting results objectively and honestly is the most significant aspects of research ethics.

The results must be presented in a way that they do not embarrass, disadvantage or harm the

participants. Likewise, the results must not be distorted to fit personal purposes, favor any

particular participants or target group or be presented in such a way that they do not reflect

reality. Finally, any misinterpretation that leads to misleading results is ethically wrong.

(Ghauri & Grönhaug, 2005) Ghauri & Grönhaug (2005) list 10 principles that the researcher

must consider:

1. Plan and evaluate ethical issues from the beginning of the research project, from the

problem formulation stage.

2. If the researcher suspects any problems he or she is obligated to discuss these issues

with the supervisor, fellow researchers or participants.

3. Provide complete picture of the research project, its purpose and objective to

participants.

4. Assure the participants of anonymity, confidentiality and make sure they will not

suffer any harm.


16

5. Use an understandable and simple language towards the participants. They might not

be aware of certain terminology and might be reluctant to ask.

6. The researcher must facilitate the understanding and answering of questions.

7. Establish a trustworthy and credible relationship with participants.

8. If costs are involved in answering the researcher‟s questions or provide information,

the researchers must be responsible for meeting these costs.

9. Assure participants they will be able to read and comment on the report before

publication.

10. Assure participants that they will get a copy of the final report.

The purpose and conduct of this study has been mutually agreed upon by Peter Nygren and

the authors. All participants of this study have been properly informed of its purpose and

objective to avoid any misinterpretation. The researchers ensure that the participants fully

understood the questions and that wrong information has not been given intentionally.

Consequently, the data collection has been collected solely from voluntary respondents. All

respondents were given the option of anonymity. All of the collected data has been used

exclusively for this study and sensitive information will remain confidential. The interviews

were recorded by the researchers and this was done with consent from the respondents. All

participants were given the option to read the report before publication and Mionix will have

full access to the final report.

2.9 Analysis method

When analyzing a case study it is important to include all aspects of the study, both empirical

and theoretical. A common way is to use a step by step method to analyze data. The first

analysis will lead to new studies being made, resulting in more analysis. The purpose of case

studies is to acquire a deep understanding of the studied process and create conclusions out of

the gathered data (Björklund & Paulsson, 2012).

The summary of the methodology chapter can also contain a choice of analysis model. This

model has to reflect the study‟s purpose. The authors can either use an existing model or

create one based on theoretical models. It is this model that then controls the data collection

and how the analysis of data will be done. The choice of analysis model together with other

selected theory represents a frame of reference for the continued thesis writing (Björklund &

Paulsson, 2012). According to Björklund & Paulsson (2012) information and collected data

can be processed and analyzed in several different ways. The purposes of the analysis can

vary but a here are a few examples:


17

Compare different variables or possible solutions with each other

Identify relationships between different variables

Depict changes in variables over time

Present pros and cons amongst the possible solutions

2.9.1 Analysis method – How is Mionix current distribution system designed?

The first research question will have a qualitative approach. The first part consists of a

suitable theoretical framework regarding the distribution system, customer service and costs

in the distribution system. The first part ends with a theoretical analysis model based on the

analysis model. The second part consists of relevant empirical data. The empirical findings

have been collected by using the theoretical and empirical findings lead to the third part,

analysis. The analytical part will consist of identifying customer services and costs within

Mionix distribution system in order to determine which costs that are possible to influence.

2.9.2 Analysis method – Material planning methods for Mionix

The second question will have a quantitative approach. The first part will consist of a

theoretical framework regarding inventory management followed by a number of material

planning methods. The second part is the empirical findings that will mainly consist of raw

data that is needed in order to conduct calculations using the chosen material planning

methods in the analysis part. The third part is the analysis of the theoretical and empirical

findings. In this part the collected empirical data will firstly be used to calculate an estimation

of Mionix‟s current total costs, based on current ordering quantities and safety stock levels.

This is followed by calculating total costs based on EOQ, which also includes calculating

ordering points and optimal safety stock in accordance to the theoretical framework. After

calculations have been made the authors will make a sensitivity analysis in order to find

howthe calculated values react to changes in parameters. Alternative solutions will be

provided by a plausibility analysis in which the authors will try to find a better solution than

using EOQ.


18

2.9.3 Analysis model

Figure 3 – Analysis model

Flow analysis &

Situation analysis

Identify customer

services and costs that

are possible to

influence.

Delivery- & Customer

service

Distribution system

Total cost model

Modes of

transportation

Research Question 1

Mapping phase

Analytical phase

Evaluation and

recommendations

Correlation between cost

& service levels

Research Question 2

Situation analysis Safety stock

Ordering quantities &

Total cost

Ordering points

Inventory

Management

Mapping phase

Calculations &

Analysis

Estimated current

total costs

Total costs

based on EOQ

Boat

Air

Sensitivity

analysis

Boat

Air

Boat

Air

Analytical phase

Boat

Air

Plausibility analysis

– Total costs based

on orders/year

Alternative

solutions

Theory also

used in RQ2


19

2.10 Summary of methodology choices

Scientific view Positivistic

Scientific approach Deduction

Research Strategy Qualitative and quantitative

Research Design Case study

Sampling method Non-random sampling selection method with

convenience sample

Data collection Primary data: unstructured and semi structured

interviews, observations and extracting data

from computer systems e.g. Excel.

Secondary: Books, journals

Quality criterion Reliability, internal and external validity,

concept validity

Table 3 – Summary of methodology choices


20

3. How is Mionix’s current distribution system

designed with focus on customer service and total

cost?

This chapter presents theory, empirical data and analysis for research question one. The

theory part contains relevant theory regarding distribution systems, delivery- and customer

service and the correlation between cost and service. The theory part ends with a summary

and a theoretical analysis model where the authors motivate their choice of theory and

models that is considered the most relevant and interesting for the continued thesis writing.

The empirical data starts off with an overview of Mionix distribution system followed by a

more detailed description of its distribution channels and the participants involved. Finally,

theory and empirical data is put together in order to analyze Mionix distribution system with

focus on cost and service.

Figure 4 – Theoretical disposition

3.1 Theory

3.1.1 The distribution system

Distribution has a close relationship with a company‟s market strategy, which originates in

customers and market‟s needs. These needs determine what customer service the distribution

must achieve. A market strategy that is built to supply a number of customers daily with

inexpensive goods over a large area will require a different distribution system from a market

strategy with opposite characteristics. If the limits of the logistics system correspond to the

3.1 Theory

3.1.1 Distribution system 3.1.2 Service vs Total cost

3.1.1.1-3.1.1.3

Distribution

utility, gaps &

roles

3.1.1.4

Distrib.

channels

3.1.2.1

Delivery- &

customer

service

3.1.4 AA:s distribution system model

3.1.3 Taylor‟s model

3.1.2.3

Correlation

service &

total cost

3.1.2.2

Total cost

3.1.1.5

Modes

of

transport

3.1.1.6

E-

commerce.


21

limits of the company, then subsystems of distribution will mainly be related to the

downstream environment – the company‟s customers. It is necessary to understand that the

vending company‟s distribution must be adapted to customer needs, and that commitments do

not end on dispatch from the company, but only when customer needs have been satisfied

(Jonsson & Mattsson, 2012).

3.1.1.1 Distribution utility

In order to create efficient distribution systems it is necessary to understand what utility

values distribution contributes to and what roles distribution companies have in the supply

chain. Activities in the supply chain are aimed at satisfying customers‟ needs by supplying

different products. To achieve this, there are four different types of utility that must be

performed in the supply chain (Mattsson, 2012).

Form utility represents the added value created through value refinement of input

goods to finished products and is created in the unit.

Place utility represents the added value created through making products available for

acquisition and at the right place and is created in the distribution unit.

Time utility represents the added value created through making products available for

acquisition and at the right time and is created in the distribution unit.

Ownership utility represents the added value created when ownership rights or right of

use of a product delivered are transferred to a customer. A company‟s marketing and

sales units usually account for the ownership utility.

There are a number of ways how these utility-performing activities can be divided among

different resources in the supply chain. It is both a question on of dividing them between the

units in a company and between different companies in the supply chain. Designing

distribution channels is to a large extent focused on this division in order to obtain the most

efficient distribution system possible (Lumsden 2012).

3.1.1.2 Distribution gaps

Dividing activities into different resources in the supply chain in order to create utility is one

problem in the planning of distribution channels. Another problem is finding a way the

bridge the gaps which always exist between producing companies and consuming customers

that uses different intermediaries e.g. retailers, distributors and various other players. It is


22

necessary to bridge these gaps in the supply chain in order to create the four utilities,

mentioned in the previous section, for customers in a cost-effective way (Mattsson, 2012).

The five gaps are:

The pace gap arises because customers do not acquire and consume at the same

places, at the same times and at the same intervals as companies produce. To solve

this, products are made to stock or customer order backlogs are stacked.

The distance gap arises because producers are located in a few places whereas

customers are more numerous and widespread on the market.

The quantity gap arises because companies for financial reasons produce and deliver

in different quantities per time than individual customers purchase and consume.

Using economical ordering quantities that correspond to customers‟ total needs per

time can assist companies to bridge this gap.

The range gap arises because customers need a wider product range than individual

manufacturers can supply in an economic fashion.

The variant gap arises because customers need access to more product variants than

are financially justifiable for manufacturers to produce and transport to customers

3.1.1.3 Distribution roles of 3PLs

To the degree that a gap is manageable by distribution activities, it is cost-efficient to use

3PLs to achieve bridging. 3PLs can apply the different roles as they carry out distribution

functions between producer and customer. Five roles have been identified by Mattsson

(2012):

The aggregation role means that a distributor delivers quantities equivalent to each

customer‟s individual needs.

The spreading role means that a distributor with stock-keeping function delivers with

short delivery times

The contact role means that a distributor takes care of direct customer support.

The service-providing role means that a distributor carries out the final and customer-

order-specific product configuration.


23

Customer

Delivery time

2 weeks

Delivery time

1 day

Delivery of

100 unit

Delivery of

2 units

The consolidation role means that a distributor represents several companies and

distributes their products.

The aggregation role where the producer lets a local distributor close to the market, make the

deliveries equivalent to each customer‟s individual need. The sum of the individual customer

need is transported from the producer itself or through a central distributor. Deliveries are

made to the distributor‟s warehouse where the products later on are transported to each

customer. Using 3PLs with the aggregation role makes it possible to reduce the impact of the

quantity gap between producing at optimal levels and the customers demand (Lumsden,

2012).

Figure 5 – Aggregation role

Source: Own illustration of Lumsden (2012)

The spreading role is an important role that distributors achieve by locating their stock

keeping functions close to the market in order to secure short delivery times. A manufacturer

or central warehouse delivers to local distributors, and from there deliveries to customer are

made. The spreading role thereby also includes responsibilities for inventory management

(Lumsden, 2012).

Figure 6 – Spreading role

Source - Own illustration of Lumsden (2012)

Producer Distributor

Customer

Customer

Customer

Producer Distributor

Customer

Customer

Customer

Customer


24

All roles mentioned in the earlier section play an important part when it comes to achieving

different utilities and closing the gaps that exists in the distribution channel. The figure below

shows the relationship between the gaps, roles and utilities (Mattsson 2012).

Figure 7 – Relationship gaps, roles and utilities

Source – Own illustration of Lumsden (2012)

3.1.1.4 Distribution channels

A distribution channel consists of two or more players linked together in order to cover the

gaps described in the previous section. The main reason is that producing companies are not

able to financially deliver their products directly to customers that are spread throughout the

world. These channels are often linked together with intermediaries such as third-party

logistics (3PLs) in order to bridge the gaps. Since the distribution channels have the purpose

of bringing together the flows of material between producer and customer it is said to consist

of two component parts: a transaction channel and a material flow channel. The transaction

channel is related to the deal between purchaser and vendor and covers the flow of

information around administrative parts of the order-to-delivery process. The material flow

channel relates to the physical parts or the order-to-delivery process i.e. delivery of products

ordered. Since this part of the distribution channel affects the flow of material it is connected

to the amount of products the 3PLs will keep in storage (Mattsson 2012).

Mattsson (2012) lists four types of commonly used distribution channels for consumer

products:

Quantity gap Aggregation role Place utility

Distance gap Spreading role Time utility

Contact role Ownership utility

Range gap Consolidation role

Variant gap Creating variants role Form utility


25

Customer Customer Customer Customer

Figure 8 – Four commonly used distribution channels

Source – Own illustration of Mattsson (2012)

3.1.1.5 Modes of transportation in the distribution system

There are five modes of transportation: road, railroad, sea, air and pipeline. These can be used

for moving goods along the supply chain. Each option gives certain advantages and

limitations. The figure below describes the general characteristics for four of the

transportation modes. (Jonsson & Mattsson, 2012)

Sea Railroad Road Air

Figure 9 – Characteristics of the transportation modes

Source – Own illustration of Jonsson & Mattson (2012)

Companies are not bound to only use one of each transportations type, instead they are able to

using intermodal transports i.e. combined transports. By combining transportation modes it is

possible to use the advantages from more than one mode, making the transport more cost

efficient. However, for it to be more efficient it is important that the extra logistics costs, e.g.

handling costs, do not exceed the amount paid for only using one mode of transport (Jonsson

& Mattsson, 2012)

Large

Low

High

Low

Shipment size

Transportation cost

Capital cost

Delivery service

Small

High

Low

High

Producer Producer Producer Producer

Webshop Retailer Retailer

Wholesaler


26

3.1.1.6 E-commerce

The term e-commerce can be defined as products or services that are sold to customers

through one or more web pages on the internet. An e-commerce company receives orders

from customers and allocate them on to one or more manufacturer and is acting as an

intermediate amongst customer and manufacturers. In order to procure and distribute its

products e-commerce companies typically use the transportations systems of a 3PL which

they have contracted and formed a partnership with (Ryo, Son & Jung, 2003). Frąckiewicz &

Grzesiuk (2013) states that e-commerce enables business on a global scale and allows for

companies to increase sales in existing markets as well as entering new foreign markets.

Small and medium enterprises are given the opportunity to offer products on a global scale,

often by using 3PLs as a business partner in their distribution system.

Swaminathan & Tayur (2003) argues that e-commerce is made up of three areas; consumer-

oriented activity, business-oriented activity and the e-commerce technology infrastructure.

The consumer oriented activities can further be divided into three parts; business-to-consumer

(B2C), consumer-to-consumer (C2C) and government-to-consumer (G2C).

For the reason that Mionix is a business that sell and distribute products to consumers this

paper will henceforth refer to B2C e-commerce when the term e-commerce is used.

Figure 9 – The distribution system of an e-commerce company

Source – Ryo, Son & Jung, 2003


27

3.1.2 Customer service vs total cost

The connection between customer service and total cost is a commonly discussed topic within

logistics literature. The following chapter describes the field of customer service, how cost is

calculated when changes in the distribution system is performed and the connection there

between.

3.1.2.1 Customer service

Customer service is an expression commonly used in different contexts that isn‟t always

defined. Björnland & Persson (2003) claims that the term customer service can be divided

into seven service elements that together provides an overall picture of what customer service

means.

Lead-time: The time from order to delivery

Delivery reliability: Reliability in lead time

Delivery dependability: The right quantity and the right quality of the products is delivered

Information: The customer gets information before, during and after the

delivery

Customer customization: The ability to customize the delivery according to customers‟

needs

Flexibility: The ability to customize the order/product if the conditions change

Service level: Number of orders that can be delivered at the time orders are

placed

The term customer service should be used in connection to what service element that is

regarded, for example “Customer service with regards on lead-time” or “Customer service

with regards on delivery dependability” Björnland & Persson (2003). Due to the purpose of

this paper the authors have chosen to focus on lead-time and service level from Björnland &

Persson (2003) seven service elements. From here on, whenever the term customer service is

referred to it is these two elements, lead-time and service level, which the term consist of.

According to Storhagen (2003) customer service is one of the most important aspects for a

customer, and the supplier are usually judged based upon their service ability. Björnland &

Persson (2003) claims that negative experiences related to poor customer service are hard for


28

companies to get rid of. Therefore it is critical that companies are able to understand the

customer requirements. Further on the authors argues that there only is one reliable way to

determine customer requirements, to ask the customer directly. There is an alternative of

asking salesmen or others in contact with the customer which could bring valuable

information. However, direct contact towards the customer should not be underestimated

since it often plays an important part in obtaining good results.

During the 21th century customers have increased their requirements of faster delivery times

as an effect of the increased change rate of the market. Companies therefore put a lot of effort

into reducing their delivery times towards customers in order to achieve competitiveness on

the market. In the past many companies focused on their physical products quality,

functionality and performance. However, today many customers take these capabilities for

granted. Customers expect that companies in addition to the products are able to provide

different kind of services. Many of these services include logistical services including:

delivery time, delivery flexibility, delivery reliability and service levels at warehouse

3.1.2.2 Total cost model

Total cost is common term that is often used within the logistical field. Total cost means all

cost, even other departments cost, that is affected by a certain decision. If one cost changes in

one part of a system this will also affect cost in different parts of the system (Aronsson et al,

2003). The total cost model is based on a number of costs that can be traced back to the

company‟s logistical activities. The purpose is to identify how different costs affect each other

in order to avoid sub optimization of separate activities which lead to an increase in total cost.

A change in the logistics operations often means some costs increases while other decreases.

For example, if a company tries to reduce transportation costs there is a risk that inventory

costs increases as a consequence. It is therefore important to compare the different costs

against each other in order to calculate the change in total cost that the different alternatives

may bring (Aronsson et. al, 2003). What costs to include in the total cost model depends on

the situation. When the distribution system is studied a predefined total cost model should be

used as a basis, which should then be modified to the situation meaning certain costs can be

added or removed. Costs that should be removed are costs that only affect cost at a minimum

or not at all. Modifying the total cost model to fit the specific situation requires logistical

knowledge and insight (Aronsson et al, 2003).


29

One of the most recognized total cost model is the total cost model presented by Grant et. al

(2005) Here, the costs are divided into six cost items: Inventory, production, transportation,

handling, information and customer service. (See figure)

Figure 11 - The six cost items in the total cost model

Source: Own illustration of Grant et. al (2005)

Inventory

According to Grant et. al (2005) inventory costs are costs that vary proportionally with the

number of products that are held in inventory. This item includes capital cost caused by high

service levels which means that capital is being tied up in inventory, financial assets that the

company otherwise could invest elsewhere. These costs often represent a big part of the total

inventory cost. Risk costs are also included in this item e.g. cost of obsolete products,

insurance costs and taxes for stored products.

Production

Production costs can be linked to purchasing and production and varies with changes in size

and frequency of the order. Material handling costs stems from handling the flow of material,

work in progress and finished products in production facilities. Startup costs are costs that can

be connected to the preparation process of production. Cost of capacity losses can be derived

from production losses caused by breaks or adjustments in production. Costs related to

placing and managing orders in production cumulate in cost of order management Grant et. al

(2005).


30

Transportation

Factors that influence transportation costs can be divided into two main categories; product-

and market related factors. Product related factors are assigned to the characteristics of the

product in the form of density, volume and manageability. Products with low density, high

volume and poor manageability are more expensive to transport in general. Besides product

characteristics market factors can also influence the transportation costs. If a combination of

transport modes are used this requires the need of standardized load carriers such as EUR-

pallets which affects the overall transportation costs. The distance to market is another factor

that affects costs. Whether transports are national or international also affects overall

transportation costs due to custom and administration costs. Environmental regulations and

taxes vary between different regions and countries which add to the cost. Finally,

transportation cost is dependent on market balance and seasonality within the transport

industry Grant et. al (2005).

Handling

Handling costs are costs that arise due to changes in the number of products that are held in

inventory. These costs are unlike inventory costs independent from volume and are linked to

factors such as facilities, personnel and equipment. Operating multiple warehousing facilities

leads to higher handling costs in form of land rent and heating. Having a fewer larger

facilities often leads to economics of scale due to a reduced need for personnel and equipment

when the capacity can be better utilized Grant et. al (2005).

Information

Investments within information management are a key factor to maintain a good level of

service against customers. This includes costs associated with order processing but also

investing in improving the distribution information system for example to enable a faster flow

of information between intermediaries. Creating forecasts are important for companies who

produce to stock in order to adapt their production to the real demand. Grant et. al (2005)

Customer service


31

The last post in the total cost model according to Grant et. al (2005) corresponds to cost for

customer service. This cost mainly consists of loss in sales caused by having too low service

levels and includes not only the cost of temporary losses of sales but also includes a possible

loss of income in the future because of unsatisfied customers spreading bad reputation about

the company. In addition, there are costs that derive from spare parts and return management.

Cost of spare parts includes costs for order processing, spare parts management and service

towards customer. Cost of return management are costs that ascend when the customer return

a product.

3.1.2.3 Correlation between total cost and service

According to Grant et. al (2005) costs connected to service levels should either regarded as an

inventory cost in form of capital cost or customer service cost i.e. the cost of lost sales. To

measure this cost however difficult. Aronsson et. al (2003) also mention that customer service

can be considered as a quality cost but claim customer service to be of such importance that it

is discussed outside the total cost analysis. Having a 100% service level means all products

are kept in inventory in infinite quantity. This is obviously not possible because it would yield

an infinite cost. It is therefore required that the service level is set a level where the customers

are satisfied with both the price and the customer service. Customer service and cost are not

completely linear although a strong correlation between the two can be found, as seen in the

figure below (Aronsson et al, 2003).

Figure 12 – Correlation between customer service and costs

Source – Own illustration of Aronsson et al. (2003)

Revenue

Service levels

Maximum

profit

Costs

Cost

s/re

venue


32

3.1.3 Taylor’s model

Taylor (1997) presents a model that can be applied in many different types of studies within

the fields of logistics. Since the model is relatively generalized it is important that the model

is adjusted in accordance to the study. If the model is not adjusted in a good way, it is possible

that the result does not achieve enough credibility.

Taylor‟s model is divided into five steps: Situation analysis, identification of problems,

alternative solutions, recommended solutions and implementation

Step 1. Situation analysis

The first step in Taylor‟s model is to describe the current situation of the company. It is

important in order to understand the bigger picture and to later on be able to identify

problems. The situation analysis is divided into three parts: Structure, capability and business

environment. The first part consists of mapping the physical flow, the handling of information

and the organizational structure that handle these flows. Secondly, the capabilities will be

measured with a perspective of service and costs. The last part consists of studying the

company‟s environment including markets, customers and suppliers.

Step 2. Identification of problems

The result of this step is depending on how thoroughly the first part was executed. The main

goal of this step is to identify the largest problems and to categorize and prioritize the

problems that are being solved.

Step 3. Create and evaluate alternative solutions

In step 3 it is important to create many ideas of solving a problem. Preferably the ideas should

have different angles of approach in order to look at the problem from different perspectives.

Step 4. Recommended solutions and justification

The fourth step includes a description of the alternatives that were created in step 3. From the

descriptions one alternative is chosen and justified.

Step 5. Implementation


33

The last step in Taylor‟s model includes planning the implementation. This model does not

include the implementation phase but only the planning phase. Determine resources to be

used, time scheduling and costs for the project.

3.1.4 Abrahamnsson & Aronsson’s model for measuring the distribution system

When making changes in the distribution system it is important to view costs as variable and

not fixed. All costs are consequences of managerial decision at some time. Some categories

may not vary currently, based on the current ordering quantity, that does not mean that they

are not controllable or caused by decisions regarding products. Administrative and fixed costs

are influenced by the number of times the activities, included in these costs, are performed.

One example of an activity included in the administrative costs could be the number of orders

placed. The number of orders depends on the number of customers and their buying behavior.

Also, the amount of work needed for processing one order is dependent on the design of the

distribution system. Operating in a poor system will increase the work needed, and its related

costs, without adding any value to customers (Abrahamnsson & Aronsson, 1999).

The author‟s model for making changes in the distribution system is divided into three

different steps (Figure). The two first steps process the current and alternative structures with

regards of costs and customer service. The third focus on construction of the new system on

an operational and tactical level (Abrahamnsson & Aronsson, 1999).

Step 1 Step 2 Step 3

Figure 13 – Abrahamsson’s and Aronsson’s model for changing distribution systems.

Source – Own illustration of Abrahamnsson & Aronsson (1999)

Step 1. Calculate total cost and customer service for the current distribution system

This step is further divided into three steps:

1. Understand the system under study

In order to gain an understanding for the system it is necessary to make a flow analysis. The

reason is to map all activities and the links between, to make the system easier to understand.

Calculate total cost and

examine customer

service of existing

distribution system

Calculate alternative

system

Calculate dimensions

and size of facilities


34

The flow analysis will also show the delimitations for the studied system, i.e. what will not be

included in the study.

2. Calculate total cost of the system studied

This step includes calculations of the distribution systems total cost. A commonly used model

for this is e.g. a total cost model which has been adjusted for the studied system.

3. Find the parameters that influence the volume of resources used in the structure

The design of the distribution system is directly related to many different costs. By examining

different factors that influence every single cost it is possible to create a simulation of an

alternative distribution system. This is necessary in order to reach an understanding whether

or not the cost will be reduced when the system is being changed.

Step 2. Calculate alternative systems.

These structures can be chosen through benchmarking or with different optimization models.

Together with the previous step it is possible to calculate the costs for these different systems.

Step 3. Calculate dimensions and size of facilities

After the overall system is set, the next step is to calculate dimension and size of facilities. It

is critically important that the model is adjusted in line with the studied case and requires deep

knowledge of the company and its processes in order to be successful. Further on, it is

important that qualitative aspects are valued equally as the quantitative while changing the

system. In some cases it is possible that the qualitative aspects are reason enough to change

the system, depending on the competitive advantages it may bring to the company

(Abrahamnsson & Aronsson, 1999).

3.1.5 Theoretical summary

In order to show what information that is relevant and what information that can be

overlooked a theoretical summary can be helpful. It shows what “glasses” i.e. perspective, the

authors use when they gather information. The theoretical summary is usually developed and

presented in the end of the theory chapter as part of the frame of reference and shows what

empirical data that has to be collected and processed in order to answer the study‟s purpose. It

is therefore important to have a well-measured theoretical model in order to capture relevant

data and be effective in the data collection process (Björklund & Paulsson, 2012).


35

The distribution system The distribution system is closely connected to the

company‟s market strategy and originates back to its

desire fulfil customer and market needs. These needs

determine what customer service the distribution

function must achieve.

Distribution utility In order to satisfy customer‟s needs, the distribution

system must perform four types of utilities in the

supply chain: Form utility, Place utility, Time utility

& Ownership utility. These utilities can either be

performed by different units in a company or divided

between different intermediaries.

Distribution gaps Distribution is necessary in order to bridge five gaps

that exist between companies and customers; The

pace gap, The distance gap, The quantity gap, The

range gap & The variant gap

Distribution roles of 3PLs Using 3PLs can be a cost-efficient way for

companies to bridge gaps between companies and

customers. 3PLs can have different roles in a

company‟s supply chain; Aggregation role,

Spreading role, Contact role, Service-providing role

& Consolidation role

Distribution channels The purpose of distribution channels is to coordinate

the flow of material between producer and customer.

There are four types of commonly used distribution

channels; Direct, E-commerce, Retailer, Wholesaler

Modes of transportation There are five modes of transportation that can be

used for moving goods along the supply chain; Road,

Railroad, Sea, Air & Pipeline

E-commerce The term e-commerce can be defined as products or

services that are sold to customers through one or

more web pages on the internet. An e-commerce

company receives orders from customers and

allocate them on to one or more manufacturer and is

acting as an intermediate amongst customer and

manufacturers

Customer service Customer service can be divided into seven elements.

This thesis will focus on two elements; lead time and

service levels. Further, a company‟s distribution

system should be designed based on the required

service levels towards customers.

Total cost Total costs are divided into six cost items that are

related to each other. The costs are: Inventory,

production, transportation, handling, information,

customer service.

Table 4 – Theoretical summary


36

3.1.6 Theoretical analysis model

Different models are more or less suitable depending on the study‟s type. In chapter 3.7

Abrahamsson and Aronssons (AA:s) model for measuring the distribution system and

Taylor‟s model is described. As a basis for analysis, this thesis will use a combination of

AA:s and Taylors model in order for it to answer the thesis‟ first question:

How is Mionix current distribution system designed with focus on customer service and total

cost?

The thesis will, due to resource limitations, not include AA:s second or third step of

benchmarking alternative systems and calculate dimensions and size of facilities. Also

Taylor‟s last step, implementation will not be included in the adjusted model.

The first main step of AA: s model is divided into three additional steps: understand the

system, calculate total cost and map resource driving parameters. The first sub step consists of

creating a flow analysis of the distribution system. This flow analysis will be created with

regard to Mattsson‟s (2012) distribution channels in chapter 3.1.1.4. This thesis will however

use own illustrated symbols in order to enhance the overview of the distribution system,

shown in the figure below:

Physical flow of products

Figure 14 – Own illustrated symbols for flow analysis

Taylor‟s first four steps consist of a situation analysis, identifying factors, alternative

solutions and lastly evaluation and recommendation. In order for these steps to fit with the

study‟s purpose they have been adjusted as seen in the analysis model in chapter 2.9.3. The

adjusted analysis model will start with two steps for research question 1: Situation analysis

and flow analysi and Identify the factors that are possible to influence shown in the figure

below.

Retailer

Wholesaler

3PL warehouse Factory

Terminal


37

Figure 15 – Theoretical analysis model RQ 1

Flow analysis &

Situation analysis

Identify customer

services and costs that

are possible to

influence.

Customer service

Distribution system

Total cost model

Modes of

transportation

Research Question 1

Mapping phase

Analytical phase

Correlation between

cost & customer

service

Research Question 2

Theory also

used in RQ2


38

3.2 Empirical data – Distribution System

3.2.1 Overview of Mionix’s distribution system

The distribution channels begin with the products being produced in a factory in China. This

thesis will delimit this part of the distribution channel. All of Mionix finished products are

shipped to Hecny Group (Hecny), a 3PL in Hong Kong. From this point the distribution

system is divided into two distribution channels: the wholesaler channel and the retailer / e-

commerce channel. An overview of Mionix distribution system is showed in the figure below

(Blixt, 2015-01-16).

Figure 16 – Overview of Mionix distribution system (own illustration)

3.2.2 Wholesaler channel

Products that are sold in this channel are bought directly from the Hecny warehouse by the

wholesaler Gandalf Data AB (Gandalf). These products are delivered by either FCA1 or FOB

2

depending on the quantity and number of products that are ordered. Gandalf is a wholesaler

who orders a relatively large amount of products in order to supply their customers with

Mionix products. Customers include Webhallen, CDON and NetOnNet, which are reputable

Swedish retailers of computer accessories. The retailers then supply customers with Mionix

products through own sales- and distribution channels (Blixt, 2015-01-16).

1 Free Carrier - The seller delivers the goods, cleared for export, at a named place. This can be to a carrier

nominated by the buyer, or to another person nominated by the buyer.

2 Free on board – The seller pays for delivery of goods to the vessel including loading.

Gandalf Customer

Customer

E-commerce

customer

Factory

Hecny

Terminal

Alwex Airlog Customer

Customer

Delimitation

Customer

Customer

Customer

Customer


39

Figure 17 – Wholesaler channel (own illustration)

3.2.2.1 Hecny, 3PL

Hecny’s role in Mionix’s distribution system

Hecny is a 3PL company located in Hong Kong that Mionix hire in order to store their

products once they have left production. Hecny is responsible for sorting, picking, packing

and storing the products. Mionix‟s products are stored at Hecny for two different reasons. The

first reason is to supply wholesaler Gandalf. The second reason is to store products that are

going to be shipped to Mionix‟s warehouse that is located at the 3PL Alwex in Växjö (Blixt,

2015-01-16).

Service

Hecny receives Mionix‟s products from production with different lead times for each product

group. Mice and keyboards have a lead-time of 6-8 weeks, mouse mats and headsets have a

lead time of 30 days (Nygren, 2015-03-30). Mionix does not currently have any set goals for

service levels at Hecny. Instead they use forecasts and experience to decide how many

products that should be kept in inventory (Pålsson, 2015-04-16). Mionix handle all parts of

customer service, including delivery questions from e.g. Gandalf. If any problems arise,

Mionix contacts Hecny.

Costs

Hecny is mainly responsible for storing Mionix‟s products. Mionix pay them for the use of

space and the labor used for the different activities. Hecny also charge Mionix for the

returned goods that are being returned to the factory (Nygren, 2015-05-15).

3.2.2.2 Gandalf Data AB

Gandalf’s role in Mionix’s distribution system

Customer

Customer

Customer

Customer

Customer

Customer

Hecny Gandalf


40

Gandalf is a wholesaler which buys Mionix products directly from Hecny. Gandalf is an

important customer to Mionix since they provide their customer base of retailers with

Mionix‟s products. Products are either delivered by FCA or FOB depending on the quantity

and number of products that are ordered by Gandalf. If the products are delivered via FCA,

Gandalf Data pick up the ordered products directly from Hecny. In the case of FOB Mionix is

responsible for delivering the products to the port of shipment and loading the products onto

the ship (Nygren, 2015-05-05).

Delivery- and customer service

Gandalf is an independent company which means that Mionix does have any control on how

Gandalf work with customer service towards their own customers. However Mionix is still

responsible for the customer service when it comes to returned goods (Nygren, 2015-05-15).

Costs

Since Mionix sell their goods to Gandalf via FCA or FOB they do not have to pay for

transportation costs or the included capital costs. If the products are delivered by FOB Mionix

are however responsible for the costs of bringing the products to the port (Nygren, 2015-05-

15).

3.2.3 Retailer/e-commerce channel

Products sold through the retailer/e-commerce channel are transported by boat or air to Airlog

a 3PL company that is located in Gothenburg. The products are then unloaded and loaded

onto trucks that deliver the products to the warehouse at Alwex in Växjö. The products that

are stocked at Alwex supplies Mionix e-commerce customers worldwide and retailers in the

Nordic region. The retailers include Inet, Komplett and Kjell & Kompany which are reputable

players in the market of computer accessories (Nygren, 2015-03-30).

Figure 18– Retailer/e-commerce channel

Customer

Customer

E-commerce

customer

Hecny

Terminal

Alwex Airlog


41

3.2.3.1 Airlog, 3PL

Airlog’s role in Mionix distribution system

Mionix is currently using a 3PL company called Airlog to transfer products from Hecny to a

Alwex. Products can either be shipped by boat or air from Hecny. Once the products has

arrived at the Airlog terminal they are temporarily stored until being sent to Alwex. Airlog is

responsible for arranging the transport from the terminal to the Alwex. The delivery from

Airlog to Alwex is done by road (Nygren, 2015-05-05).

Delivery- and Customer service

The lead times by boat are 7 weeks with a variation of 1 week and the lead time for air is 7

days with a variation of 2 days for Mionix‟s products to reach the warehouse at Alwex. Once

the products arrive at the terminal Airlog split the orders if necessary and transport the goods

to the Alwex warehouse by road the following day (Nygren, 2015-05-15).

Costs

The costs for storage are free for airfreight the first two days with the day of arrival excluded.

After this period, there is a storage cost based on how many days the product is kept at the

terminal, holidays included. Cost for storage is free for sea freight (Airlog.se, 2015-04-17). It

is however rare that the products remain at Airlogs terminal longer than needed. Therefore the

only costs charge by Airlog is for transportation and handling between Hecny and the

terminal in Gothenburg. Mionix transports are international which affects overall

transportation costs due to added customs and administration costs (Nygren, 2015-05-15).

3.2.3.2 Alwex, 3PL

Alwex’s role in Mionix distribution system

Alwex is a 3PL that Mionix use in order to distribute products to e-commerce customers and

retailers e.g. Komplett in Sweden and Norway. They perform picking and packing, handle

return flow management, freight coordination and storage of Mionix products. Alwex

provides a complete solution of logistics services. Alwex and Mionix inventory systems are

integrated with each other. Whenever an order is placed it pops up in our system and we start

the picking and packing process, send the product and once an order is completed it is

reported back in the system. Alwex have staff available for picking and packing at every hour

of the day (Olofsson, Market and business development manager, 2015-04-15).


42

Retailer/e-commerce channel

E-commerce orders are usually small orders that consists of 1-2 products e.g. a mouse and a

mouse mat. Orders to retailers are bigger and usually consist of 2-3 pallets. In general, there is

a frequent flow of e-commerce orders with 6-9 orders per day (coded). Orders to retailers are

usually shipped once a week. E-commerce orders that are placed before 2 pm are shipped the

same day given that the requested product is available in stock. Retailer orders are shipped the

day after the order has been received (Olofsson, 2015-04-15). According to Nygren (2015-03-

30) a majority the products in the e-commerce/retailer channel are sold within the Nordic

region making it an important market for Mionix. Nygren estimates that the Nordic market is

going to increase by 20 % next year.

Fedex is used for all e-commerce customers located outside of Sweden and Norway and

whenever retailers located outside of Sweden and Norway order smaller volumes such as

samples. DHL Service point is used for E-commerce customers within Sweden and Norway

and Alwex then have to coordinate shipments on behalf of Mionix. Pallet goods to retailers

are either shipped by DHL or Alwex depending on the destination. Road transport is the used

mode of transportation for goods within Sweden and Norway and air transport for goods with

a destination outside of Sweden and Norway. Returned goods are received at the warehouse,

sorted and eventually put back into the inventory system with information on where the return

came from. All returned products are noted with an R in the system to show that it is a

returned product. When Mionix decide that there are enough returned products they then

return the goods to the Hecny warehouse in Hong Kong (Olofsson, 2015-04-15).

Alwex rarely have to perform any last minute deliveries besides e-commerce orders which we

treat as express deliveries. The extra cost for last minute deliveries outside of agreed lead time

is included in Alwex‟s contract with Mionix. It is however very rare that any last minute

deliveries are done but the possibility exists if it should be necessary (Olofsson, 2015-04-15).


Mionix manage all parts of the customer service function themselves. This includes product

support but also questions and requests regarding lost, late or customized shipments. If a

customer has a question concerning a shipment the customer then contacts Mionix to begin

with whom in their turn contacts Alwex. It is however rare that Alwex receive any questions

regarding the shipments from Mionix (Olofsson, 2015-04-15).


43

Mionix has not stated how they wish to measure service level and customer service (Olofsson,

2015-04-15). Pålsson (2015-04-16) mentions that Mionix sometimes experience shortage

situations for products in the retailer/e-commerce channel. This is an undesired scenario due

to the inability of supplying the customer demand. Ultimately this could mean that our

customers choose to buy from our competitors which results in a loss of sales. For example,

customers typically buy new computer equipment every 2-3 year and if we don‟t have the

product in stock we miss our chance for a sale. At this time, Mionix does not have any set

service levels. However, in order to ensure that products are available Mionix‟s goal is that

safety stock levels should range between 250 and 350 per product (coded). This number is

based on forecasts, previous experience and manual assessment. The table below shows

Mionix‟s current stock levels for March 2015 (coded). The red numbers indicates that the

current stock levels are getting close to zero, which means being out of stock (Pålsson, 2015-

04-16).

Table 5 – Mionix current stock level (+ included safety stock) at Alwex, March 2015 (coded)

Alwex does not perform any evaluation of customer satisfaction amongst Mionix customers.

All customer contact is handled by Mionix. Alwex could potentially perform customer

satisfaction surveys if they were asked to. Generally speaking, Alwex is careful to contact

customers‟ customers unless they are asked to (Olofsson, 2015-04-15).

Product Current stock levels Alwex

1 6 2 31 3 0 4 3 5 1426 6 2120 7 1105 8 19 9 443

10 3102 11 2663 12 738 13 1039 14 1199 15 5492


44

Costs in the distribution system

Cost for storage space is based on how many items Mionix have in stock at Alwex AB‟s

warehouse and is usually calculated per pallet. Mionix pay a monthly fee based on the volume

of stock that particular month. Olofsson (2015-04-15) estimates that Mionix usually have 30-

60 pallets of products in storage (coded). The cost to send an e-commerce order is different

than the cost to send a retailer order. E-commerce orders are low volume orders and the

starting cost to pick that order is allocated to a few products, normally one or two products.

This makes the cost for picking e-commerce orders relatively higher than retailer orders.

Alwex uses a combination of starting cost to pick orders with a cost per picked package. The

cost for return flow management is currently set in a cost per hour that every return takes.

Alwex is willing to consider converting this variable cost into a fix cost instead, making it

easier for Mionix to estimate their costs. Alwex are currently unaware of the average number

of returns but claims that it is not a large number (Olofsson, 2015-04-15).

Alwex‟s customers can choose to use the company‟s own cargo operations or use Alwex

agreements with other transport companies or propose to the use their own agreements that

the customer have with another transport company. Whatever proposal that generates the

lowest cost often wins. It is essential to have as minimal distribution cost given the required

service level as possible towards the end customer. In this case Mionix proposed the use of

Fedex, which Alwex at first did not have an agreement with. By a mutual discussion it was

decided that Fedex was the best solution for Mionix. After that dialogue, Alwex registered the

agreement number in the system and arrange the practical necessities. Administrative costs

are smaller for Mionix when they use their own transport agreements. Administrative costs

increases whenever Alwex have to coordinate shipments, which in this case is not necessary

(Olofsson, 2015-04-15).

3.3 Analysis

3.3.1 Mionix’s distribution channels

It is possible to identify two distribution channels in Mionix‟s distribution system that is

consistent with existing theory: the retailer/e-commerce channel and the wholesaler channel.

Since Mionix supply both retailers and e-commerce customers from the same channel until

the product reaches the end-consumer this will be treated as a conjoined channel instead of

being divided into the webshop- and retailer channel that Mattsson (2012) explain in chapter


45

3.1.1.4. The products intended for e-commerce and retailers are shipped together and are also

stored in the same location at the Alwex.

3.3.2 Wholesaler channel

3.3.2.1 Hecny

Role

Hecny is an important part in Mionix wholesaler channel and similarities can be identified to

the spreading- and aggregation role described by Lumsden (2012) in chapter 3.1.1.3. Hecny

receives Mionix‟s finished goods in relatively large volumes and with long lead times from

production. Making smaller volumes with shorter lead times available to Gandalf creates

place and time utility according to Lumsden (2012). By taking on the two roles Hecny are

able to minimize the existing quantity and distance gaps that exist between producers and

consumers.

Mionix‟s wholesaler channel is largely consistent with the wholesaler channel Mattson (2012)

explains in chapter 3.1.1.4. The main difference is that the products are not delivered from the

production facility but instead delivered by FCA or FOB via Mionix‟s finished goods storage

at Hecny. When Mionix have fulfilled their part of the agreed incoterms3 they do not have any

control of the products since Gandalf control their own inventory and customers. The only

part that Mionix are responsible for is customer complaints and handling the flow of returned

goods. By selling to Gandalf from Hecny Mionix does not have to make any decisions

regarding transportation modes since Mionix only is responsible for delivering to the port of

shipment (FOB) or making products available for easy pick up at Hecny (FCA). This means

that Mionix does not have to take capital costs into account that would have existed if Mionix

were also responsible for shipping the goods to the wholesaler.


The lead times that have been identified are 6-8 weeks for mice and keyboards and 30 days

for mouse mats and headsets. Currently, Hecny does not manage the customer service

function. Mionix could outsource the customer service function and instead let Hecny handle

delivery issues. By doing so, this could benefit Mionix by not having to spend unnecessary

resources in form of employees and time that otherwise could have been spent in more

3 Incoterms - A series of international trade terms and standardized contract terms, about how transport costs and

responsibilities should be divided between buyers and sellers.


46

productive ways. According to Mattson (2012) one of the roles of 3PL is the contact role

which includes taking over the customer service function.

Costs

The cost that can be identified in this part of the distribution channel is according to Grant et.

al (2005) total cost model inventory costs, handling costs and customer service costs

Inventory cost are made up of capital cost caused by the inventory Mionix are holding.

Holding cost consists of paying for the space and labor that is used to handle Mionix

products, Finally, customer service costs can be identified due to the return management that

takes place at Hecny and cost of loss of sales which are connected to the fact that Mionix does

not have any set service levels.

3.3.3 Retailer/E-commerce channel

Mionix sell and distribute some of their products to consumers through the company website.

Once an order have been placed Mionix allocate and ship the product the same day given that

the order is placed before 2pm and that the product is in stock. Mionix use 3PLs such as

Hecny, Airlog, Alwex and Fedex to procure and distribute its products. For this motivation,

Mionix can be classified as an e-commerce company according to (Ryo, Son & Jung, 2003)

that is engaging in consumer-oriented activity which classifies it as a B2C e-commerce

company according to Swaminathan & Tayur (2003).

3.3.3.1 Hecny

Mionix retailer/e-commerce channel begins at Hecny. Hecny take on the aggregation role and

the spreading role described by Lumsden (2012) on behalf of Mionix. However, instead of

serving customers directly the purpose of this node is to serve the Alwex warehouse. This

node serves as a buffer that reduces the impact of the quantity gap between production and

customers demand (Lumsden, 2012).

According to Lumsden (2012) the spreading role is an important role that distributors achieve

by locating their stock keeping functions close to the market in order to secure short delivery

times. Mionix retailers and e-commerce customers are located on the other side of the world,

far away from the production facilities in China. Depending on what mode of transportation

that is used the lead time to market, in this case Alwex, can be either short or long. If products

are shipped by boat the delivery time is 7 weeks (1 week variation) and if products are

shipped by air the delivery time is 7 days (2 days variation).


47

Cost in this part of the retailer/e-commerce channel can be classified according to the total

cost model of Grant et. al (2005) and consist mainly of inventory cost which originates from

capital cost of products that are held in inventory and insurance costs and taxes for stored

products. Mionix does not have any own handling costs at the Hecny warehouse, this is

however included in the price that Mioinx is paying for Hecny‟s services. Nygren (2015-02-

26) mentions that Mionix‟s forecast is inaccurate and outdated because of seasonal demand

and changes in demand. Mionix vision of higher expected sales figures also makes the

previous forecasts relatively obsolete. This could be an information costs that Mionix are

currently unaware of. Grant et. al (2005) claims that forecasts are important for companies in

order to adapt their production to the real demand. Therefore, the information flow between

Hecny and Mionix has to be efficient and smooth in order to achieve an efficient distribution

system.

3.3.3.2 Airlog

Role

Airlog‟s role in Mionix distribution system cannot clearly be compared to Lumsden‟s five

roles. However, as Airlog are part in transporting Mionix products they are able to bridge the

distance gap that exists between Hecny and Alwex creating time utility by making products

available.

Costs

The cost that can be identified in this stage of the distribution system are transportation costs

according to Grant et. al (2005) six cost items in the total cost model. The transportation costs

of transportation and administration costs vary depending on what mode of transportation is

used. Mionix‟s transports are international which affects overall transportation costs due to

added customs and administration costs. If Mionix choose to use sea freight the

transportation and ordering costs will be lower but capital costs will be higher due to longer

lead times. If Mionix instead choose to transport the products by air they will pay a higher

price for transportation and ordering but will low capital costs due to short lead times

(Jonsson & Mattsson, 2012). It is important to consider the tradeoff that exists between high

transportation costs versus high capital costs. This tradeoff will be examined deeper in

research question 2.


48

3.3.3.3 Alwex

Role

Alwex takes on the aggregation and spreading role described by Lumsden (2012) in Mionix

retailer/e-commerce channel. The 3PL company aggregate and spread Mionix products to

retailers located in the Nordic region and for e-commerce customers worldwide. Alwex is an

important part of Mionix‟s distribution system due to its closeness to the market and Mionix

headquarters. Pålsson (2015-04-16) mention that the Nordic market is important to Mionix

and that it is expected to increase by 20 % next year. Due to Alwex closeness to the Nordic

region they play an important part if Mionix want to collect any shares of the growing market.


Mionix currently manage the customer service function themselves. This does not only

include questions regarding products but also questions and issues concerning deliveries.

Even though Alwex rarely receive questions about deliveries from Mionix they have the

ability to take care of this part of the customer service function if Mionix wanted to. This

means that if a customer e.g. have a question about a late delivery they will contact Alwex

instead of Mionix. Since Mionix currently contacts Alwex to ask the same question as the

customer did, their part as the intermediary seems unnecessary from a cost perspective.

One of the five roles of 3PLs by Lumsden (2012) is the contact role, which means that the

3PL company takes care of the direct customer service e.g. delivery questions. Since Mionix

is a small company with few employees and may lack the resources and knowledge to deal

with these types of issues. If Mionix would outsource this function it would be possible to

focus on their core competences. If Alwex took direct control of the customer service

function of deliveries they would also be able to evaluate customer satisfaction on Mionix

behalf to identify customer requirements. This would be done by surveys i.e asking the

customer directly, which according to Björnland & Persson (2003) is the only way to identify

reliable customer requirements.

According to Olofsson (2015-04-15) Mionix have not stated how they wish to measure their

customer service. As Storhagen (2003) mention in chapter 3.1.2.1 customer service is one of

the most important aspects for a customer. Since Mionix does not have any set goals for

service levels it can be hard to know how customers experience Mionix‟s service. Björnland

& Persson (2003) argues that if customers experience poor customer service it will create a


49

bad reputation for Mionix that might be hard to get rid of. According to Thirumalai & Sinha

(2005) timeliness and product availability are two important factors when customer chose to

buy a product. Due to customers increased requirements for fast delivery times it is important

that Mionix are able to keep enough products stored in Alwex to ensure that complete

deliveries can be made. Mionix cannot control the delivery times because these are the

delivery times that are agreed upon together with Alwex. The delivery times are also in

accordance with market standards. It is therefore not the delivery times that are important for

Mionix but rather to ensure that products are kept in stock at the right quantity to reduce the

possibility of stock outs.

Alwex costs

The cost that can be identified in this stage of Mionix retailer/e-commerce channel are

inventory costs, handling costs, transportation costs and customer service costs. Inventory

costs arise because Mionix hold inventory at the Alwex warehouse and is mainly made up of

capital costs. Transportation costs are generated when the products are shipped and the cost

depends on whether products are sold to retailers or e-commerce customers. Handling costs

are included in the price Mionix pays for Alwex services. Finally there are customer service

costs that derive from loss of sales caused by poor service levels. Customer service costs in

form of return management can also be identified but represents a small part of customer

service costs.

3.3.4 Analysis summary - Correlation between service and cost

Aronsson et al. (2003) argues that customer service can be considered as a cost but claim that

customer service is of such importance that it should be considered outside of the total cost

analysis. Based on the empirical findings, it is clear that Mionix does not have any agreed

service levels. Mionix current stock levels of March 2015 point to the fact that Mionix

sometimes experience shortages of products. The shortage situation Mionix is experiencing

points towards having too low service levels while desired safety stock levels point towards

having far too high service levels. Having low service levels on some products is considered a

customer service cost and will result in loss of sales which according to Grant et. al (2005)

also can result in possible loss of sales in the future because unsatisfied customers might

spread bad reputation about Mionix. If in fact Mionix‟s service levels are too high this could

be considered as an inventory cost according to Grant et. al (2005) If this should be the case

this could also mean that capital costs are higher than revenue according to the “correlation


50

between service and cost”- model by Aronsson et al. (2003). Mionix safety stock levels are

mainly based on experience which could increase the risk of having inadequate service levels.

Table 6 – Summary of identified roles, customer service and costs in Mionix’s distribution

system

This table summarizes the identified roles, lead time, service levels and costs of Mionix‟s

different actors. Blue represent wholesaler channel and red represent retailer channel. N/A

stands for not applicable or not available

Based on what the authors have exposed in the analysis, some of the identified costs are hard

to influence because they are agreed upon with 3PLs such as transportation and handling

costs. At this time, Mionix are pleased with their partners and are not considering changing

any of the current 3PLs in the distribution system. Even though transportation costs are hard

to alter, Mionix still have the power to decide what mode of transportation that should be

used. Modes of transportation affect the transportation cost in terms of boat being more

economical than air. As mentioned before, the tradeoff between capital cost and transportation

cost need to be considered.

Distribution channel Hecny Gandalf Airlog Alwex

Wholesaler x x N/A N/A

Retailer/e-commerce x N/A x x

Distribution roles

Aggregation xx x N/A x

Spreading xx x N/A x

Contact N/A N/A N/A N/A

Service-providing N/A N/A N/A N/A

Consolidation N/A N/A N/A N/A

Customer service

Lead time xx N/A x x

Service levels N/A N/A N/A N/A

Costs

Inventory xx N/A x x

Production N/A N/A N/A N/A

Transportation N/A x x x

Handling xx N/A N/A x

Information xx N/A N/A x

Customer service xx N/A N/A x


51

Other costs that Mionix are able to control and influence are the costs related to having

inadequate service level which Grant et. al (2005) classifies as an inventory cost in form of

capital cost and customer service cost due to loss in sales. Costs that arise due to the lack of

agreed service levels can be a symptom of inadequate inventory management According to

Lumsden (2012) inventory management is the ability to balance the demanded of products

with the availability of products in a cost-effectively way as possible.

The ability to control and influence these cost is connected to the inventory management

function and the use of adequate material planning methods and could help companies

improve overall profitability (Goetschalkx, Vidal & Dogan, 2002). The next research question

in this paper will therefore identify Mionix‟s current service levels by using the current safety

stock quantity. In addition, the authors will calculate and present optimal safety stock, service

levels, ordering points, sensitivity analysis and plausibility analysis for the Alwex warehouse

in the retailer/e-commerce channel. This will be done with the purpose of managing inventory

in a cost effective way for the company and reduce costs that Mionix are able to influence.


52

4. How can material planning methods help

Mionix improve the inventory management

function?

This chapter presents theory, empirical data and analysis for research question two. The

theory part contains relevant theory regarding inventory management and material planning

methods. The theory part ends with a summary and a theoretical analysis model where the

authors motivate their choice of theory and models that is considered the most relevant and

interesting for the continued thesis writing. The empirical data begins with a description of

Mionix inventory management function and the material planning methods the company is

currently using. Next, the authors illustrate and describe how the performed calculations have

been made in the section data processing tools. The analysis part contain calculations and

recommendations of optimal EOQ, total cost, sensitivity analysis, ordering points. safety

stock and service levels. Further, the authors change certain parameters in order to achieve a

lower total cost than if the company should use EOQ.

Figure 19 – Theoretical disposition

4.1 Theory

4.1.1 Inventory management and material planning methods

Accoring to Nahmias (2013) companies hold inventory for a number of reasons. Due to

economies of scale it can be justified to produce large number of products in every production

run and then store them for future use. Companies also hold inventory to manage

uncertainties, especially against uncertainty of external demand. Further, companies can also

buy up and hold inventory in order to speculate if the value of a product is expected to

4.1 Theory

4.1.1

Inventory management

and material planning

methods

4.1.4.1

Total cost

model

4.1.2

Safety stock

and service

levels

4.1.4.3

Sensitivity

analysis

4.1.4.2

Inventory

in transit

4.1.3

Ordering

points

4.1.4

Economic ordering quantity

model


53

increase. Transportation of products that are produced overseas is also a reason for holding

inventory. Logistics can be described as reasons to hold inventory due to constraints in

purchasing, production or distribution that drive companies to maintain inventory. Finally, the

ability to control costs is an important task that is sometimes overlooked which is the cost of

maintaining inventory levels.

Inventory management is being regarded as an important part of the distribution system.

There are many sophisticated decision support tools that help manage inventory such as the

economic order quantity model (EOQ), total cost model, sensitivity analysis, safety stock and

ordering points systems. The common aim of all these models is to manage the inventory

level optimally and prevent that inventory shortage arise (Jiangab et. al, 2011). To manage

inventory in an effective way, companies should not only have a fair overview of their stocks

but also recognize how to use material planning methods to improve inventory management

and increase customer service. It is therefore crucial for companies to have adequate material

planning methods (Lefrancois & Cherkez, 1987).

Lysons & Farrington (2006) talks about four aims of inventory management:

To be able to serve both internal and external customers according to the required

service levels in terms of quantity and order rate fill.

Determine present and future requirements for all types of inventories in order to not

overstock products but at the same time avoid „bottlenecks‟ in production.

Costs should be kept to a bare minimum by variety reduction, economical lot sizes and

analysis of costs sustained by obtaining and carrying inventories.

Provide inventory visibility throughout the supply chain.

Mattson (1999) claims every flow of material is defined according to what quantity that needs

to be transferred and on what time the receiver should be given the product. The basic

problem of inventory management is to determine these quantities and delivery times in the

most effective way. Within inventory management there is a number of material planning

methods whose function is to offer guidance and answer to the following two questions:

How much should we order from the supplier? (The order quantity question)

When should inbound delivery of order take place to stock or customer? (The delivery

time question)


54

A number of different material planning methods is presented in the next section. Every one

of them offer guidance and answers in their own way to the questions above and can be said

to represent a decision basis in inventory management. Decision regarding what quantity and

delivery time is largely based on forecasting assessments of what is needed and at what time.

This is particularly true in stock initiated material planning. However, it is not very likely that

the decided quantities and delivery times match the actual needs that occur. Changes in

demand and other types of disturbances are bound to inevitable occur. This calls for the need

to revise planned order quantities and delivery times. An ideal material planning method

should therefore also include a sub function that supports re-planning. (Mattson, 1999)

4.1.2 Economic ordering quantity

The EOQ model (economic order quantity model) is one of the most essential of all inventory

models, describing the trade-off between fixed order costs and holding costs (Nahmias, 2009).

In order to calculate this model properly there are some assumptions that have to be made,

these are listed below by Lumsden (2012):

1. Demand rate is known and is a constant (D) units per time (days, weeks, months,

years)

2. Deliveries of Quantity (Q) takes place instantaneously meaning that constant lead

times can be accepted if demand is known and constant during delivery times.

3. Ordering cost (S) is known and constant i.e. administrative cost is not affected by

order quantities or order type.

4. Price per unit (C) is known and constant, no variation in price can occur because of

variation in order quantity.

5. Capital interest rate (I) is known and constant and should be proportional to the value

of the products. Interest rates are often set to 20% based on the estimated 5 year life

cycle that products have (Lumsden, 2012)

6. Shortages are not permitted

Formula 1 – EOQ-formula

Source: Lumsden (2012)


55

The performance of the EOQ-model can differ depending on the quality of the planning

parameters, i.e. to what extent the parameters are correct representations of reality (Sheu and

Wacker, 2001). This may be a result of how parameters are determined in the first place. The

EOQ-model is influenced by current requirements. This means that the requirements need

reviewing periodically in order to maintain as optimal order quantities as possible. How often

this should be is an issue of balancing the cost of reviewing them with the benefits of

maintaining them closer to the optimum. Experience-based quantities are normally more time

consuming and costly to review than calculation-based quantities. However, calculation-based

quantities are more dependent on the quality of the basic data in order to produce reliable

measures. To protect the material flow from disruptions, due to uncertainties in demand and

supply, various safety mechanisms can be applied in all of the examined material planning

methods. The uncertainty in supply and demand can be managed by adding quantity buffers

(i.e. using safety stock) (Jonsson & Mattsson, 2006).

4.1.2.1 Total cost model

When the EOQ have been identified it is possible to use it to calculate the cost with the total

cost model. This model uses the EOQ in order to determine total setup cost (TS) and total

holding cost (TL). (Lumsden 2012)

TK = TS + TL

TS= (D/Q)*2

TL= (Q/2)*I*C

Formula 2 – Total cost model


The total cost formula is related to the EOQ-model since the calculated optimal quantity is

used as a factor in the total cost model. The graphs below shows that EOQ is equivalent to the

point were holding cost and ordering cost are equal. Since the total cost curve is relatively flat

around EOQ the total cost are not sensitive if ordering quantities deviate from optimal

(Lumsden, 2012).


56

Figure 20 – Total cost curve


4.1.2.2 Inventory in transit

Bentz (2003) extends the view of total cost model to include inventory in transit and safety

stock in addition to inventory under holding costs. The definition of total cost according to

Bentz (2003) is:

Total logistics cost = Fixed costs + holding cost (inventory, inventory in transit & safety

stock) + variable transportation costs.

Formula 3 – Total logistics costs

Source: Bentz (2003)

Jonsson (2008) also underline the fact that during the time the products are transported they

are in fact tied up capital and therefore represent a holding cost. This view will be more

relevant and accurate to the study and will therefore be the preferred method of calculating

total cost from here on. According to Sürie & Wagner (2002) goods in transit should be

considered as a part of total inventory and is calculated by multiplying transportation time

with average demand.

In transit inventory = Transportation time (Delivery time expressed in years) x Annual

demand x capital interest rate

Formula 4 –In transit inventory

Source: Sürie & Wagner (2002)


57

Jonsson (2008) argues that companies need to consider total logistics cost instead of just

minimizing the cost of every single logistics activity. In order to accomplish savings, the

reduced inventory holding cost have to be greater than the increase in transportation cost.

Another cost that often is included in a company‟s total cost is the variable costs for each

product. This cost is often based on the products volume or weight (Jonsson & Mattsson,

2012). The formula for calculating variable transport cost for one product is seen below:

Variable total cost = ordering quantity x orders/year x variable cost/product

Formula 5 – Variable transportation cost

Source: Jonsson & Mattsson (2012)

4.1.2.3 Sensitivity analysis

When EOQ have been settled for a function it is important to consider the deviation‟s

sensitivity regarding the input parameters. If changes close to optimum quantities are being

made it does not heavily affect total cost, this is applicable when the total cost curve is flat.

Increasing the optimal quantity with 50% will only result in an 8% increase of total costs,

making this model widely used. If deviation depends on the variables D,S,I or C it is

obligated to use these deviations in the sensitivity analysis. Any deviation in these variables

can create a large deviation on the EOQ, even though the flat total cost curve are still

relatively unaffected. If any of the variables are doubled or halved in the EOQ-model it will

result in a deviation of 40 %, while in the total cost curve this only results in 6% deviation.

Errors in the estimates are therefore relatively safe if not several variables are wrongly

estimated, due to their multiplicative effect. Even though the formula can be considered weak

in regards to sensitivity it is still widely used. The main advantage is that it can generate

results close to optimum with limited information creating valuable key performance

indicators for a company (Lumsden, 2012).

4.1.3 Safety stock and service levels

The purpose of the safety stock function is to handle deviation from normal demand. Safety

stock is used to counteract and minimize the risk of stock outs caused by variation in lead

time and demand. Customers demand cannot be catered when variation occur. In order to

prevent related costs companies must use a safety stock system (Lumsden. 2012). In most

companies, safety stocks are determined based on experience or by adding a fixed percentage


58

to the lead-time demand. Of these approaches, the experience-based approach cannot

automatically be updated and is therefore more costly to review. Surprisingly, many

companies use outdated and simplistic methods for allocating safety stocks (Jonsson &

Mattson, 2006).

Jonsson & Mattson (2012) lists 3 types of safety stock models that can be used for calculating

safety stock levels: manual assessment of safety stock, safety stock as a percentage of lead

time and safety stock based on service level. Manual assessment is a simple approach where

safety stock levels are set on previous experiences. Capital cost and inventory cost must be

considered as well as what consequences stock outs and late deliveries might bring. The next

model is safety stock as a percentage of lead time. This means that safety stock is

dimensioned by a percentage of lead time which enables the safety stock to be differentiated

by using different percentages for different group of articles.

The last and most commonly used safety stock model is safety stock based on service level.

Service levels can be defined as to what extent the product is available in stock when an order

is placed. It is a measure of the probability to deliver an order, part of an order or a product to

the customer. There are different methods of defining and measuring service levels. One

version is to measure the amount of complete orders that can be delivered. This is strictest

method of measuring service levels. Another common definition is to measure how many

parts of an order, order rows, which can be delivered. One order row is specific for one

article. Finally, service levels can be measured by how many products that can be delivered

i.e. partial deliveries are accepted within separate order rows. (Jonsson & Mattson, 2012).

According to Lumsden (2012) companies need to set service levels that are unique for the

market situation and product portfolio. However, the most common practice is to set a 98%,

95% or 90% service level. This paper will use a safety stock model that is based on service

level due to the argument that this is the most common practice. This paper will define and

measure service levels as how many products that can be delivered once an order are placed.

This model dimensions safety stock levels based on customer service goals that are decided

by corporate management. This model enables the differentiation of safety stock levels for

each single article. Safety stock levels can also be decided to cover demand over a certain

period of time which is usually expressed as cover time. The period of time e.g. days or

weeks, is calculated by dividing the calculated safety stock quantity with average demand per


59

period. This method is not a method in itself but rather another way of expressing safety stock

in quantity. (Jonsson & Mattson, 2012)

Deciding safety stock levels from desired service levels and product demand fluctuation is the

most correct method to calculate safety stock. This enables the sizing of the safety stock to be

decided from what service levels the company wants towards its customers (Lumsden, 2012).

In order to calculate the safety stock levels according to this method the following formula

can be used:

SL = k x σ

k = desired service levels

σ = standard deviation in demand during lead-time

Formula 6 – Safety stock

Source: Jonsson & Mattsson (2012)

There are two common definitions of service levels according to Olhager (2000)

SERV1 = The probability that shortage occur during an order cycle.

SERV2 = Number of products that can be delivered directly from stock.

SERV1 is the most commonly used of the two because it is simple to calculate and often

yields satisfactory results. SERV2 is a more advanced technique which is harder to calculate

but it often provides better results. (Aronsson et. al, 2003) This paper will use SERV2 due to

its superiority to SERV1. SERV1 will not be discussed further in this paper.

Jonsson & Mattson (2012) argues that when SERV2 is used it is necessary to first calculate

the so called service function with the help of the following formula:

E(z) = (1-SERV2) x Qopt/ σ

σ = standard deviation in demand during lead-time

Qopt = Optimum ordering quantity (EOQ)


60

SERV2 = Service level

Formula 7 – Safety stock, SERV2

Source – Jonsson & Mattson (2012)

4.1.4 Ordering points

Ordering points is an inventory management system indicates and decides when it is time to

place an order or start production but also which quantities to be ordered or produced. This

decision is taken on the basis of current stock levels, demand and cost factors. The system is

designed so that stock levels are continuously monitored and an order is placed when stock

levels drops below a predetermined quantity. This is called a continuous inspection system.

Another method is that levels are inspected at a certain point of time and the quantity needed

is then ordered. This is called a periodic inspection and is most commonly performed when

companies wishes to coordinate ordering of articles (Jonsson & Mattson, 2012). Many argues

that other inventory management systems e.g. the Kanban system is preferred when used in

environments of consistent demand, small batches and short lead times. However, a study

made by Mattsson (2010) that this are not the case. His study shows that the Kanban system

increases safety stock levels with 10-30% which will increase capital costs.

There are two common types of ordering strategies that are used in inventory management.

The first strategy is based on specific ordering points and means that stock is replenished with

a calculated order quantity when stock levels drop below a predetermined minimum level.

The second type of strategy is when stock levels are restocked to a maximum level as soon as

stock levels drop below the predetermined level. If a company uses the periodic inspection

system this means that stock levels are replenished to maximum levels regardless of the level

at the time of inspection. This does not necessarily mean that the stock was below minimum

levels (Lumsden, 2012). In order to calculate the ordering point (BP) a set of parameters must

be identified: safety stock (SL), demand/period of time (E) and lead time (LT) (Jonsson &

Mattson. 2012).

BP= SL+E*LT

Formula 3 – Ordering point


61

Soruce: Jonsson & Mattson (2012)

Figure 21 – Ordering points

Source – Own illustration of Lumsden (2012)

Lead time

Service level

Ordering point Inve

nto

ry l

evel

Time


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4.1.4 Theoretical summary

Table 7 – Theoretical summary

Inventory management and material

planning methods

Inventory management is important an important part

of the distribution system with the aim of serve

customers with desired service levels and to

determine present and future demand of inventory.

Material planning methods such as, EOQ, Safety

stock and ordering points, can be used as a decision

basis in inventory management

Economic ordering quantity model The economic ordering quantity model (EOQ-model)

is an essential model in inventory management. It is

used to determine optimal ordering quantity and has

the aim of reducing holding and ordering costs. Even

if a number of assumptions are being made it is

powerful tool when deciding how much to keep in

stock, how much to order each time and how often

reorder need to occur.

Total cost model and Sensitivity analysis The total cost model (TK-model) can be used after

EOQ have been identified. This model uses EOQ as a

factor in determining total setup costs and holding

cost. Inventory in transit should be included in total

cost. During the time the products are transported they

are in fact tied up capital and therefore represent a

holding cost. Total cost is not sensitive if EOQ

deviate from optimum. Errors in estimates are

relatively safe and can still generate results close to

optimum, giving companies valuable key performance

indicators.

Safety stock and service levels Safety stock is used in order to minimize risk of stock

outs caused by variation in lead time and demand.

Many companies use outdated models for allocation

safety stock. The most commonly used safety stock

model is based on set service level together with a

number of parameters. There are different methods of

defining and measuring service levels. One way to

measure is to tell how many products that can be

delivered i.e. partial deliveries are accepted within

separate order rows The most common practice is to

set a 98%, 95% or 90% service level.

Ordering points Ordering points is a material planning method to

decide when and how much quantities to be ordered.

Decisions are made on basis of current stock levels,

demand and cost factors. Two main types are being

used: Specific ordering points and Periodic

inspection.


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4.1.5 Theoretical analysis

Research question 2 consists of four steps: situation analysis, calculation & analysis,

alternative solution and lastly the authors will provide an evaluation and recommendations

based on the previous steps. These steps are based on the two models (Taylor‟s & AA:s)

described in chapter 3.

Figure 22 – Theoretical analysis

Evaluation and

recommendations

Research Question 2

Situation analysis Safety stock

Ordering quantities &

Total cost

Ordering points

Inventory

Management

Mapping phase

Calculations &

Analysis

Estimated current

total costs

Total costs

based on EOQ

Boat

Air

Sensitivity

analyis

Boat

Air

Boat

Air

Analytical phase

Theory also

used in RQ1

Boat

Air


– Total costs based

on orders/year

Alternative

solutions


64

4.2 Empirical data

4.2.1 EOQ and Total cost

In order to calculate the economic ordering quantity for Mionix it is necessary to have

information about the parameters: annual demand, fixed ordering cost, price per product and

the capital interest rate. Some of the parameters are easier to obtain than other e.g. price and

capital interest rate. Prices have been obtained from the excel document provided by Mionix.

It is harder to find exact values for the annual demand and ordering costs. Nygren (2015-05-

15) estimates that the capital interest rate is 50 % since the products have a short lifespan,

which is around two years. Annual demand is shown in table 7, this number have been

accumulated out of last year‟s sales history shown in table 8. The received sales history show

how many products that Mionix sell in the retailer/e-commerce channel and indirectly the

demand of the storage at Alwex.

Product Demand Alwex

1 5819

2 9985

3 3956

4 6222

5 6311

6 1188

7 2630

8 4302

9 2732

10 6877

11 6730

12 1821

13 3150

14 3496

15 3538

Table 8 – Total annual demand at Alwex (coded)


65

This table presents Mionix monthly sales figures for the retailer/e-commerce channel. Products have been coded with the number 1-15 to assure

each product‟s anonymity.

Table 9 – Mionix sales history Växjö, 2014 (coded)

Product Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

1 471 471 450 471 419 419 419 628 461 461 461 691

2 680 659 659 733 785 785 837 1047 864 864 921 1151

3 314 356 335 314 262 262 314 419 288 288 345 461

4 471 502 492 471 471 471 471 628 518 518 518 691

5 523 565 576 471 419 471 471 628 461 518 518 691

6 31 31 31 105 105 105 105 157 115 115 115 173

7 262 262 241 262 188 157 157 262 207 173 173 288

8 366 398 419 262 209 314 419 419 230 345 461 461

9 209 262 241 262 209 209 209 209 230 230 230 230

10 492 513 513 523 419 523 523 837 461 576 576 921

11 314 335 283 523 419 523 523 1047 461 576 576 1151

12 21 26 26 209 157 157 157 262 173 173 173 288

13 230 262 256 314 262 209 209 314 288 230 230 345

14 157 136 136 209 209 314 314 523 230 345 345 576

15 157 157 157 209 209 314 314 523 230 345 345 576


66

Ordering costs for Mionix are different depending if products are transported by boat or air.

The ordering costs are based on two invoices that the authors received by Mionix. Ordering

costs consist of administration costs, terminal costs, handling fees, import costs and customs

clearance. Ordering costs for boat is set to 1820 SEK and ordering for air is set to 7280 SEK.

In addition to the fixed ordering costs Nygren (2015-05-15) estimates that the variable cost

for transporting products is 10 times larger than if transported by boat. The variable

transportation costs are based on the products volume/packing size. The estimated numbers

are shown in the table below. In accordance with Mionix the authors will use the estimated

numbers to calculate annual variable transportation costs.

Table 10 – Variable transportation costs (Boat and Air)

According to Nygren (2015-02-26) Mionix‟s order quantities mainly depend on forecasts and

previous experience. Another factor is the occurrence of orders made by the relative big

customers e.g. Komplett. Pålsson (2015-04-17) says that order quantities usually vary

depending on how much capital costs Mionix can afford. Another factor to consider is also

the total costs of products, how long products will be stored and the risk of products becoming

obsolete. The table below shows an average of Mionix ordering quantities over the last three

months. The ordering quantities have been provided by the excel document received by

Mionix.


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Table 11 – Averge ordering quantities for Växjö, last three months (coded)

4.2.2 Safety stock and ordering points

Mionix does not use any specific models for deciding safety stock levels. Mionix have set a

goal of keeping a safety stock of 250-350 per product (coded). This number has been decided

based on previous experience and knowledge by the staff. However, despite the decided

safety stock level Mionix still experience shortage situations and stockouts from time to time

(Nygren, 2015-02-26). Mionix makes deliveries from Växjö to a few e-commerce customers

every day, averaging 1.5 products per order. Deliveries to retailers e.g. Komplett are less

frequent but include a relatively large volume of products compared to e-commerce

(Olofsson, 2015-04-15). Mionix have some knowledge about how much products are

demanded each month, but deviations are relatively common. These deviations appear mainly

when the retailers e.g. if Komplett places fewer or more orders than expected.

Mionix does not have any specific ordering points for refilling their stocks. Instead they

manually place orders when stock levels are getting low (Nygren, 2015-02-26). The aim is to

make one order a month, but deviations exist here also ranging from 1-3 orders per month.


68

4.3 Data processing tools

In this section the authors show how the calculations have been made in the analysis. In order

to analyze and calculate the different material planning methods the computer software

program Microsoft Excel was used as a tool.

4.3.1 Coding

When data was collected from Mionix the products were coded due to causes of secrecy and

sensitive information could hurt the company. To secure anonymity of the products the names

were replaced with the number 1-15 and all the numbers that are used in the calculation are

coded. The parameters that are not included in the coding is: Price, ordering costs, lead times

and variable transportation costs. The coded parameters use the same number in order to

secure that the relationship is consistent.

4.3.2 Calculating EOQ

In order to calculate EOQ the authors decided to use Microsoft Excel. The products were

listed together with the variable parameters demand and price. The fixed parameters are

placed outside the list and locked in the created EOQ-formula. Creating the EOQ-formula

makes it possible to quickly receive new values if parameters were to change. After the EOQ-

formula have been created for the first product it is possible to quickly receive the EOQ for

other products by using the “copy function” and dragging down the column to copy the

formula onto the other products. The EOQ formula is based on the parameters order cost,

interest rate, price and annual demand and put together in the formula seen in the figure

below.


69

Figure 23 – How to calculate EOQ

4.3.3 Calculating safety stock

In order to calculate the optimal safety stock levels for Mionix it is first necessary to calculate

the standard deviation in the lead time.

4.3.3.1 Calculate standard deviation in lead time

It is first necessary to calculate the standard deviation in demand. Using Excel it is possible to

use the existing function “STDEV.S” together with Mionix monthly sales history (table 8, p.

68). When standard deviation in demand have been calculated it put in the formula put

together in the formula with the average demand per month, lead time and deviation in lead

time. It is important that the lead time and its deviation are set to the same time unit as the

demand, which in this case is monthly.


70

Figure 24 – How to calculate standard deviation during lead time


71

4.3.3.2 Calculate optimal quantity

This calculation is done by the same method as described in chapter 4.3.2.1 “EOQ”.

Figure 25 – How to calculate Qopt (EOQ)


72

4.3.3.3 Finding Z values and calculating safety stock

Figure 26 – How to find n (Z) and calculate safety stock levels based on service levels

1. 2.

3.

4.

Using the previously calculated optimal quantity and standard deviation it is possible

to calculate safety stock based on service levels. Step 1 shows how to get desired

service level. Step 2 shows how to calculate the N(z) values that are required in step

3. In step 3 the authors have used the “VLOOKUP”-function in order to

automatically find the Z-values that are required in the calculation. This saves a lot of

time since it instead it have to be looked up manually whenever a parameter is

changed. In Step 4 the Z value are multiplied with the standard deviation in order to

receive the safety stock level for the product.


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4.3.4 Calculating ordering points

After the safety stock levels have been calculated it is possible to calculate the ordering

points. When demand per week has been set it is to be multiplied with the lead time (7 weeks

for boat). The different safety stocks for the products are added to the formula in order to

receive the ordering points based on the set service levels.

Figure 27 – Calculating ordering points


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4.3.5 The Inventory management tool

After the formulas and calculations been made for EOQ, Total costs, safety stock and ordering points the authors decided to create a summarized

table that includes every factor. Mattsson (1999) argues that changes in variables are inevitable to occur and therefore an ideal material planning

method should include a sub function that supports re-planning. With this argument in mind the authors decided that the summarized table should

be converted into a tool that Mionix are able to use whenever changes in different variables occur. The table is shown below together with the

parameters that Mionix‟s can change whenever needed. Every change in the parameters will automatically calculate ordering quantities,

orders/year, safety stock, ordering point and all the different costs adding up to total costs. Many of the calculations have been hidden since they

should not be altered in order to keep the tool working. A requirement that does not show in the figure below is a table with monthly demand for

each product. Meaning that the only parameters Mionix need to alter in addition to monthly demand for each product are the parameters shown in

the red areas. It is also possible to insert values of ordering quantities and safety stock levels to find the total costs the values amount to. Another

benefit of this model is that it is possible to change service level into what is desirable and tool will automatically provide the numbers. Since

Mionix does not have any current service levels it is possible to e.g. find how much to keep in safety stock stock and its costs based by the

desired service level. How to calculate the remaining costs shown in the figure below are presented in the next section.

Figure 28 – The Inventory management tool


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4.3.5.1 The different costs in the Inventory management tool

The authors have used five different costs in order to find how Mionix are able to improve the

inventory management function: TC Inventory, TC Transport, TC Safety stock, Annual

variable transportation costs and Annual fixed transportation costs.

TC Inventory

The TC Inventory represents Mionix‟s capital costs at Växjö and is based on the calculated

EOQ or chosen ordering quantity.

TC Inventory = √ (Annual demand x 2 x ordering cost) / (Interest (I) x Price (P))

Formula 9 – TC Inventory

TC Transport

TC Transport represents the capital costs when products are transported from Hong Kong by

boat or air to Airlog.

TC Transport= LT/year x I x (Order quantity x Orders/year) x P

Formula 10 – TC Transport

TC Safety stock

TC Safety stock represents the capital costs when products are stored in the warehouse in

Växjö.

TC Safety stock = I x Safety stock x P

Formula 11 – TC Safety stock

Annual variable transportation costs

Annual variable transportation costs represent the transportation costs that Airlog add to each

product based on its size/weight.


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Annual variable transportation cost = Variable transportation cost x Order quantity x

Orders/year

Formula 12 – Annual variable transportation costs

Annual fixed transportation costs

Annual fixed transportation costs represent transportation costs that Airlog charge for each

transport regardless of the quantity of products in the order.

Annual fixed transportation costs = (Ordering cost x orders/year)/number of products (15)

Formula 13 – Annual fixed transportation costs

Total costs

Total costs = TC Inventory + TC Transport + TC Safety stock + Annual variable transport cost +

Annual fixed transportation costs

Formula 14 – Total costs


77

4.4 Analysis

4.4.1 Approach of the analysis

The analysis starts by calculating an estimation of Mionix‟s current total costs based on the

previously described costs in the inventory management tool. Secondly the authors will

calculate Mionix‟s total costs based on EOQ. This includes calculating safety stock and

ordering points based on EOQ. This is followed by a sensitivity analysis were changes in

EOQ and its parameters are made in order to find how total costs react to different changes or

deviations. Lastly, the authors have made a plausibility analysis to find out if total costs can

be reduced by using different ordering quantities than EOQ.

4.4.2 Estimation of Mionix’s current total costs

In order to show how material planning methods can improve Mionix‟s inventory

management it is necessary to estimate Mionix‟s current total costs. Because of comparability

the estimation will use the same parameters e.g. annual demand, as the total costs that are

based on EOQ and Orders/year. Since some parameters are based on assumptions the

generated total costs may differ from its true value. The estimation of Mionix‟s current total

costs was done by using current ordering quantities and safety stock as basis when calculating

the different costs. The estimated total costs for both transportation modes are shown below.

Table 12 – Estimation of Mionix total annual costs based on current safety stock levels and

ordering quantities


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Since the current safety stock levels have been randomized the authors found it necessary to

show the range of the current total costs based on the minimum (250) and maximum (350)

safety stock levels that Mionix is currently using. By doing this, the authors are able to show

that the deviation cannot amount to a total cost lower than the one found by the authors. The

calculations show that the maximum deviation in total cost that is possible is 7.9% for boat

transportation and 5.4% air transportation. The lowest/highest total cost for both

transportation modes are shown in the table below.

Boat Air

Table 13 – max % deviation of total costs, min/max safety stock

The estimated current total costs range between approximately 1.33-1.43 million for boat and

1.94-2.05 million for air. With the randomized safety stock the total costs amounted to 1.39

for boat and 2 million for air. These numbers are approximately in the middle on the interval

provided by max/min safety stock levels. The authors took the decision of using the total costs

based on the randomized stock. The estimated current total cost may differ from its true value

due to assumptions made about e.g. constant demand. It was however necessary for the

authors to calculate Mionix‟s total costs based on current ordering quantities and safety stock

levels. This was done in order to enable comparison between the total costs calculated by

using theoretically based material planning methods and substantially to find potential

improvements in the inventory management function.


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4.4.3 Total costs based on EOQ

4.4.3.1 EOQ

The performance of the EOQ-model varies depending on the quality of the parameters used in

the calculation (Sheu and Wacker, 2001). In order to calculate it was necessary to have

information about the parameters: annual demand, fixed ordering cost, price per product and

the capital interest rate. Some of the parameters are easier to obtain than other e.g. price and

capital interest rate. It is harder to find exact values for the annual demand and ordering costs.

Nygren (2015-03-30) estimates that the capital interest rate is 50 % since the products have a

lifespan of around two years. According to Lumsden (2012) the interest rate are often set to

20% and should be proportional to the value of the products. Since Mionix‟s products have a

short life span of two years and are to be considered as high value goods, the authors will use

an interest of 50%. The annual demand was based on Mionix‟s last year‟s sales history for the

retailer/e-commerce channel since Mionix‟s forecasts are uncertain and inaccurate. One

assumption that has to be made when using the EOQ-model is that demand is constant over

time (Lumsden, 2012). It is therefore possible that the results may deviate from its true value.

Ordering costs was decided by Mionix‟s logistics manager to 1820 SEK for and 7280 SEK for

air (Pålsson, 2015-04-17). One of the strengths of the EOQ and total cost model is that even

though some parameters are varies and produce an EOQ that deviates 50% from optimal

value it will only increase an increase in total cost by 8 % (Lumsden, 2012). In the next

section the set parameters for Mionix‟s will be analyzed in a sensitivity analysis to show how

total cost and EOQ react to changes in the parameters.

When transporting by boat Mionix receives a lower EOQ than if products are to be

transported by air. When transported by boat product 1 receives an EOQ of 455 which

represent 7.8% of total demand. Dividing annual demand and EOQ shows that product one

should be ordered 13 times a year. When instead transported by air product 1 the amount is

doubled to 910 products per order. This number represents 15.6% of total demand which

means that 7 orders are necessary to fill the annual demand. The calculated orders per year are

rounded up since it is not possible to send half an order. Therefore some products that receive

values of e.g. 2.1 orders/year are rounded up to 3 orders/year in order to fill the annual

demand. For transportation per boat the highest value is 18 orders/year and for air 9

orders/year. It is important to consider whether it is possible to reduce the orders/year for the

products that receive the highest numbers. This can be made by ordering a slightly higher

quantity per order and compare the tradeoff between capital costs and fixed costs.


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Table 16 – Calculated EOQ and orders/year for Mionix’s products (Boat and Air)

4.4.3.2 Safety stock

Mionix does not use any current models for calculating safety stock at Alwex. Nygren claims

that Mionix goal is to keep a safety stock of approximately 250-350 for every product. Since

Mionix does not have any specific safety stock levels but instead has levels within an interval,

the authors decided to use random numbers within the interval in order to receive set numbers

that are required in order to calculate costs. The numbers are show in the table below Mionix

does not currently measure or have any set goals of service levels. However, by calculating

backwards the authors were able to find what service levels the safety stocks amount to. The

figures below show Mionix‟s current service levels for products if products are shipped by

boat or air. If all products are transported by boat Mionix‟s service levels are higher than 99

%. Product 2 and 11 are the only products that amount to service levels below 99 %,

amounting to nearly 97 %. If instead all products are transported by air Mionix obtain service

levels above 99,9% for each product. This is caused by the shorter lead time that air

transportation provides.


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Transportation by boat Transportation by air

Table 15 – Mionix’s service level based on current desired safety stock levels (Boat or Air)

Whether products are shipped by boat or air these service levels are not optimal from a cost

perspective based on the “correlation between service and cost”-model by Aronsson et al.

(2003). By holding a high service level similar as in Mionix case companies incur a high

capital cost. The cost of holding high service level increases exponentially. This means that

the closer companies are to keeping a 100% service level capital costs increases rapidly which

makes it unprofitable to keep inventories with high service levels. This phenomenon is

illustrated in the figure below:

Figure 29 – Mionix’s correlation between service levels and costs

Source: Own illustration based on (Aronsson et al, 2003).

Service levels

Maximum

profit

Revenue

Costs

Cost

s/re

venue

Mionix current service

levels


82

Nygren (2015-02-26) mention that the company struggle with liquidity issues. Mionix have a

very high service levels as the calculations above show. If Mionix would have a lower service

level e.g. 98% it could benefit the company in dealing with liquidity issues by freeing up

capital that would otherwise be tied up in inventory.

The table below shows safety stock levels for Mionix if they would use a 98, 95 or 90%

service level if all products are transported by boat. The selected service levels have been

chosen because they are common in theory and in order to show how the safety stock differs

depending on what service level that is used. The annual demand has been transformed to

match the same time unit, weeks, as the given lead time. The lead time for boat transportation

is 7 weeks with a standard deviation of 1 week. For example, by taking a closer look at

product 1 the table shows that the demand during lead time is equivalent to 13,4% of annual

demand and the standard deviation during the lead time are 165 products. Further, the safety

stock level is 202 with a 98% service level, 122 with a 95% service level and 46 with a 90%

service level.

Table 16 – Mionix safety stock levels 98/95/90% service levels (Boat)

The table below shows safety stock levels for Mionix if they would use a service level of

98%, 95% or 90% if all products are transported by air. Just as before, annual demand has

been transformed to match the same time unit, weeks, as the given lead time. The lead time

for air transportation is 1 week with a standard deviation of 2 days. Now, for product one, this

table shows that the demand during lead time is equivalent to 2% of annual demand with a


83

standard deviation during lead time of 55 products. This is the reason for the low or non-

existing safety stock levels at a 98% service level.

Table 17 – Mionix’s safety stock levels of 98/95/90% service levels (Air)

4.4.3.3 Ordering points

These tables show optimal ordering points based on the previously calculated safety stock

with 98%, 95% and 90% service level. When transported by boat product 1 should be ordered

when stock levels reach 985 in order to secure a service level of 98%. This number amount to

nearly 9 weeks of demand even though the lead time for boat is 7 weeks. The variation of 1

week in boat transport increases the ordering point to reduce the risk of stockouts occurring.

When reducing the service level to 95% and 90% the ordering point drops to approximately 7-

8 weeks of demand due to the higher accepted risk of stockouts. When transported by air

product 1 receives a significantly lower ordering point of 121 at 98% service level. The

ordering points are close to the weekly demand due to the lead time of air transport is 1 week

with a low variation. When transported by air many products does not require any safety stock

levels, therefore many ordering points are close to weekly demand.


84

Transportation by boat Transportation by air

Table 15 – Calculated ordering points 98/95/90% (boat & air)

Mionix does not have any specific ordering points for refilling their stocks. Instead they

manually place orders when stock levels are getting low (Nygren, 2015-02-26). The

calculated ordering points in the previous tables show that ordering points vary depending on

the chosen mode of transport. It is important that different ordering points are set based on

mode of transport to reduce risk of stockouts.

4.4.3.4 Total cost

Mionix‟s total costs for transportation by boat or air are presented in two tables at page 86.

This table will include the previously calculated safety stock in order to calculate the costs of

keeping the safety stock levels for the different transportation modes.

The table below shows the aggregated total cost for every product depending on the chosen

transportation mode. If all products were to be transported by boat the annual total cost

amounts to 1.24 million SEK. If transported by air the annual total cost amount to 1.95

million SEK increasing costs by approximately 0.7 million SEK or 58.6%. There is one

exception for product 8 which are cheaper to send by air. However if only one product are

sent by air the fixed costs for this product would be significantly higher than if transported

together with other products. The total fixed costs for air transport are 64.792 SEK and if this

cost is added onto product 8 it would not be cheaper than if sent by boat.


85

Table 17– Mionix’s calculated total costs for transportation by boat and air

Found on the next page is two tables which illustrates a more detailed view of Mionix‟s total

costs for both transportation modes. One note to consider is that the annual fixed cost is

calculated based on the highest order/year that any product receives. This in order to ensure

that the total cost are correct even though it add a higher fixed cost for the products that have

a smaller value of orders/year. In the next section the authors will conduct a sensitivity

analysis in order to find how the costs will react to changes in parameters. Afterwards, the

authors will calculate an estimation of Mionix‟s current total costs to act as a reference to

identify how much the total cost can be reduced. The authors will perform a plausibility

analysis with the use of the created inventory tool and change parameters in order to reduce

Mionix‟s current total costs as well as the costs given if Mionix were to use EOQ.


86

Table 18 – Mionix EOQ and Total costs for transportation by boat

Table 19 – Mionix EOQ and Total costs for transportation by air


87

4.4.4 Sensitivity analysis

Lumsden (2012) argues that EOQ is sensitive to changes in parameters I, order cost, D and P

meaning that variation in one parameter result in EOQ not being applicable. However, he also

argues that total cost is relatively insensitive to changes in EOQ. Because Mionix is using a

high interest rate of 50% the authors decided to analyze both variations in EOQ and the

different parameters to find how Mionix‟s relatively high interest rate will affect the capital-

and transportation costs. The table below shows how every product‟s total cost reacts to a

50% increase and decrease in EOQ for air transportation. It is shown that the total costs

increase by 12 % when EOQ is increased and reduced by 12 % when EOQ is decreased. The

deviations of costs are mainly caused by either higher or lower capital costs in inventory and

safety stock levels at the warehouse in Växjö.

Table 20 – Sensitivity analysis EOQ and Total cost (Air)

Table 21 shows that when EOQ is increased or decreased by 50% total costs for boat

transportation increases with 8 % and decreases with 7%. The costs here are also mainly

connected to higher or lower capital costs in inventory and safety stock levels. If products are

ordered in a larger quantities Mionix will keep too much of inventory in relation to demand.

The authors have found that lower ordering quantities than those provided by EOQ will result

in lower costs. It is therefore of interest to use the inventory tool in order to find the lowest

possible total costs based on ordering quantities. This will be done in chapter 4.4.3.5



88

Table 21 – Sensitivity analysis EOQ and Total costs (Boat)

If deviation depends on the different parameters order cost, price, interest rate or demand in

the EOQ-formula it is obligated to use these deviations in a sensitivity analysis. Any deviation

in these parameters can create a large deviation on the EOQ, even though the flat total cost

curve are still relatively unaffected. If any of the variables are doubled or halved in the EOQ-

model it will result in a deviation of 40 %, while in the total cost curve this only results in 6%

deviation (Lumsden, 2012). The authors have used product 1 as an example in the table below

in order to create an easier overview. The complete tables including all products are presented

in the appendix.

The table below shows how product 1‟s total cost reacts to changes in the different

parameters. The interest rate have been reduced by 20 % down to 0,4, ordering cost have been

increased by 20% and demand have been increased 20%. The changed variables are then

combined in order to show how two parameters together influence total costs. Looking at the

reduced interest rate when transported by boat and air it is possible to identify that boat

receives a cost reduction of 17% in relation to 7% by air. This is due to boat having longer

lead times and therefore have a higher reduction of capital costs during transportation. A

change in ordering costs does however not influence the total cost for neither of the

transportation modes. Even if the ordering costs would deviate from its true value the total

costs would not be heavily affected. Notably is that total costs decrease when transporting by

air. This is caused by the reduced orders per years needed, since values are rounded up it is

possible that when values drop from e.g. 7.05 (8 orders/year) to 6.99 (7 orders/year) the total

costs is reduced. When increasing demand by 20 % the total cost increased by 10% by air and

14% by boat.


89

Increasing demand means a larger quantity to both transport, keep in stock which increases the related costs. If demand were to change Mionix

are able to find out how much the increased volumes would generate in costs. Because of Mionix‟s vision of expanding the company expect sales

numbers to increase. The authors therefore decided to only increase demand in order to find how it affect total costs. One of the assumptions in

the EOQ-formula is that demand is constant, meaning that total costs may not be entirely accurate If the true values of demand deviate by 20 %

compared to the values used in the calculations it affects the total costs with approximately 10 % (total costs for all products are found in

appendix). In order to increase reliability of the total costs it would be possible to use forecasted demand, but since Mionix‟s forecasts are

inaccurate and outdated according to Nygren (2012-02-26) this was not an alternative for the authors.

Table 22 – Sensitivity analysis for product 1


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4.4.5 Plausibility analysis – Total costs based on orders/year

By changing different parameters in the inventory management tool the authors have

managed to find a lower cost than when using EOQ. By altering the ordering quantity on

each product the authors managed to find the optimal value for the two different

transportation modes. The ordering quantities have been decided based on the orders per year

required to fulfill annual demand. In order to receive the ordering quantities, the annual

demands have been divided by the desired orders/year. The graph below shows the costs

ranging from 5 orders/year to 23 orders/year. The lowest total cost for air was identified to 18

orders/year and by boat 22 orders/year.

New order quantities

Figure 30 – Cost reduction based on orders/year

If Mionix alter the ordering quantities per shipment so that 18 per year are required the total

cost will be 1 548 395 SEK which is equal to a 23% decrease compared to the estimated

current total costs. The cost reduction is mainly due to lower capital costs in the inventory and

safety stock at Alwex. The total cost allocation for air is found in the appendix (chapter 6.3).

If Mionix instead chose to transport the products by boat and altering ordering quantities so

that 22 orders/year are required to fulfill annual demand, the total cost will be 1 038 241 SEK

which equals a 26% decrease compared to estimated current total costs. The cost reduction is

mainly due to lower capital costs in the inventory and safety stock at Alwex. Even if the fixed

costs have increased it still does not exceed the reduction made in the other total cost areas.

The total cost allocation for boat is found in the appendix (chapter 6.3).

Lowest cost


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4.4.5.1 Reliability of calculated total costs

The authors have provided three different total costs: estimation of current total costs, total costs based on EOQ and total costs based on

orders/year. Throughout the analysis, it has been discussed that assumptions about demand may result in total costs deviating from its true value.

Therefore the authors took the decision of conducting calculations with a 50% increase of demand for all products to show how the three

different total costs would react. The results show that an increase of demand reduces the cost reductions. By air the total costs are reduced by 8

% less, but are still significantly high at 15 % reduction compared to the estimated current total costs. By boat the reduction is higher with a

difference of 16 % compared to when calculated with demand based on last year‟s sales. The reduction of boat still results in a 9 % cost reduction

compared to estimated current total costs. Therefore, if the true value of demand deviates by 50 % from the demand based on last year‟s sales

Mionix would still receive a significant cost reduction when using material planning methods comared to the current methods that are mainly

based on experience.

Air Boat

Figure 31 – Total costs with 150% demand


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5. Conclusion

This chapter contains the thesis’ conclusions for research question 1 & 2. Furthermore, the

Inventory management tool that was created by the authors is presented. Finally,

socioeconomic aspects, future research, criticism, reliability, validity and ethical

considerations of the thesis will be presented.

5.1 Research questions

5.1.1 Research question 1 - How is Mionix’s current distribution system designed

with focus on customer service and total cost?

Figure 32- Mionix’s distribution system

The authors have identified two distribution channels within the distribution system: the

wholesaler channel and the retailers/e-commerce channel. Four 3PLs with different roles have

been distinguished in the two distribution channels: Hecny, Gandalf, Airlog and Alwex. In

addition to identifying lead times throughout the distribution system, the authors have also

discovered that Mionix does not measure or have any set service levels. Mionix handle the

customer service function themselves, including questions about deliveries. The identified

costs in the distribution system are presented in the table below. Within the context of this

thesis the findings show that Mionix has the opportunity to influence two particular costs:

capital costs and cost of loss of sales, which are included in inventory- and customer service

costs according to the theoretical framework.

Gandalf Customer

Customer

E-commerce

customer

Factory

Hecny

Terminal

Alwex Airlog Customer

Customer

Delimitation

Customer

Customer

Customer

Customer


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Table 25 – Summary of identified roles, customer service and costs in Mionix’s distribution

system

5.1.2 Research question 2 - How can material planning methods help Mionix

improve the inventory management function?

Material planning methods can help Mionix to decide safety stock levels, ordering points and

EOQ for all products in accordance with the theoretical framework. By using material

planning methods Mionix can avoid unnecessarily high transportation costs, capital costs and

cost of loss of sales that is caused by using manual assessment in their inventory management

function. Based on Mionix‟s current safety stock levels the authors calculated that Mionix

have unnecessary high service levels that are close to 100% which generates high capital

costs. By using theoretically approved service levels Mionix can lower their safety stock

levels and therefore reduce capital costs. By using ordering points based on the calculated

safety stock Mionix reduces the possibility of stockouts and the decision of choosing a more

expensive transportation mode due to poor planning.

Distribution channel Hecny Gandalf Airlog Alwex

Wholesaler x x N/A N/A

Retailer/e-commerce x N/A x x

Distribution roles

Aggregation xx x N/A x

Spreading xx x N/A x

Contact N/A N/A N/A N/A

Service-providing N/A N/A N/A N/A

Consolidation N/A N/A N/A N/A

Customer service

Lead time xx N/A x x

Service levels N/A N/A N/A N/A

Costs

Inventory xx N/A x x

Production N/A N/A N/A N/A

Transportation N/A x x x

Handling xx N/A N/A x

Information xx N/A N/A x

Customer service xx N/A N/A x


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Mionix estimated current total costs based on current ordering quantities and safety stock

have been calculated and are presented below. By using EOQ Mionix are able to reduce total

costs by 3% for air and 13% for boat. The authors have managed to reduce cost further by

altering ordering quantities for each shipment. The ordering quantities are based on the order

per year required to fulfill annual demand. The cost reduction calculated by the authors is

equal to 23% by air and 25% by boat. Even if the provided total costs may deviate from its

true value the authors have shown that material planning methods can improve Mionix‟s

inventory management. The authors recommend that Mionix makes 22 orders per year by

boat since this receives the lowest total annual cost.

Figure 33 – Total cost allocation


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5.1.3 The Inventory management tool

The authors have been able to show how material planning methods can improve Mionix‟s inventory management. This is however based on set

parameters that often changes in the future due to different factors. Thereby the authors decided to create an Inventory management tool that

Mionix will be able to use when changes in parameters appear. The tool will show how different decisions affect the costs and can therefore act

as a basis for the decisions Mionix will take in the future. Even if this model originally have been created for the retailer/e-commerce channel

Mionix can use this tool in their second warehouse at Hecny as well. This is done by choosing the parameters that are relevant for Hecny. By

altering the model with different parameters it would be possible to calculate the total costs in Mionix‟s manufacturing process. A

recommendation by the authors is to use EPQ instead of EOQ, which is based on parameters needed to calculate cost for production. The authors

will provide more recommendations based on the Inventory management tool in the chapter 5.4 “Future research”

Figure 34– The Inventory management tool


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5.2 Socioeconomic aspects and the contribution of the thesis

The socioeconomic aspect of this study is to make a practical contribution to Mionix

distribution system and inventory management function. By calculating EOQ, Total cost,

Sensitivity analysis, ordering points, Safety stock and Service levels for the retailer/e-

commerce channel Mionix has been given a solid foundation to manage their inventory

management function in a cost-efficient way. This increases Mionix competitive ability

against its competitors and allows for the expansion that is part of Mionix‟s vision. Another

contribution of this thesis is the Inventory management tool presented in 5.1.3 which can be

used at others parts of the distribution system such as the Hecny warehouse and also in the

manufacturing process by changing parameters. This is a generalizable model that can be used

by other micro- or small enterprises that lack material planning methods by simply modifying

parameters according to their own conditions. Thus, the authors have created a generalization

which Yin (2007) argues that case studies often fail to accomplish.

5.3 Reflections and critique

The critique of the study is that the calculated EOQ, safety stocks, ordering points and the

plausibility analysis are based on assumptions of constant demand for every product.

Therefore, it is possible that the calculated costs are may differ from their true value.

However, since Mionix‟s forecasts are uncertain and inaccurate it was necessary to make

assumptions in order for the study to be made possible. Another critique of the study is that

Mionix‟s current total cost has been calculated by using randomized safety stock levels within

an interval. This was necessary in order to compare the current total costs with the new total

costs that were calculated by the authors. It is therefore possible that Mionix‟s current costs

deviate from its true value. However, the authors have shown that the lowest possible cost

brought by using the lowest safety stock levels still exceed the lowest possible costs identified

by the authors. Another factor that might influence Mionix‟s current total cost is that their

current ordering quantities are only based on the last three months. It is possible that

deviations appear due to seasonal demand which could influence current total costs. The

authors have shown in a sensitivity analysis that an increase in ordering quantities by 50 %

only affects total costs by 8% when products are transported by boat. Therefore, even if

Mionix‟s current ordering quantities deviate from its true value it is not possible that the

current total costs receives a lower value than the one provided by the authors.

Lastly, the costs of transporting the products from Airlog to Alwex or from Alwex to

retailer/customer and also the variable cost of keeping products at Alwex have not been


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included in the study. This would create a more accurate total cost for Mionix. However, the

authors focused on cost reduction that could be made by choosing air or boat as transportation

mode. Therefore the authors assumed that the non-included costs would not heavily affect the

overall total cost relationship between choosing boat or air, but only provide a higher and

more accurate total cost.

5.4 Future research

The authors believe that the study have been interesting during the whole process. Starting

with a situation analysis create an overview of the current distribution to lastly use material

planning methods to show how Mionix‟s inventory management can be improved. However,

since the study have chosen to delimit different factors there are still room for further studies.

Firstly, in order for the calculations to be more reliable the authors believe that a forecasting

model should be used in order to generate a more accurate demand instead of making

assumptions. Secondly, to receive a total cost picture for Mionix‟s whole distribution system

it is necessary to include Hecny and the manufacturing process. The authors recommend that

Mionix use the created Inventory management tool and change different parameters in order

to make this possible. To calculate total costs for Hecny it is required to know the related

parameters and use them in the tool to receive total cost. The authors also believe that it is

possible to alter the Inventory management tool in order to calculate costs in the

manufacturing process by changing the required parameters. For example it is possible to use

EPQ instead of EOQ, which instead of EOQ provides the optimal production quantity based

on different parameters. The authors also believe that it is possible to improve the created

Inventory management tool by adding more factors and more detailed data to make the

provided results more reliable. The authors therefore recommend Mionix to include the costs

of transporting the products from Airlog to Växjö, the costs of shipping the products out to the

retailers and e-commerce customers and also the variable costs at Alwex. This in order to

receive a more accurate total cost picture of the retailer/e-commerce channel.

If an altered version of the Inventory management tool is to be used in the manufacturing

process Mionix would be able find out the total costs for this function. By adding the non-

included costs in the current tool Mionix would also receive a more accurate total cost for

each of their products in the retailer/e-commerce channel. When accurate costs for both the

manufacturing function and the retailer/e-commerce channel have been calculated it would be

possible to sum these costs in order to receive an accurate total cost for every product. When


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this have been done it is possible to subtract the costs of the revenue provided by each product

in order to find the profit margin of each product depending on the chosen parameters.

5.5 Reliability and validity of the study

This study fulfills the criterions of reliability and validity described by (Easterby-Smith et al.

2008) and (Saunders, Lewis & Thornhill, 2009) due to the use of several empirical sources.

This is evidenced further as the authors have chosen to interview persons within the company

who possesses expertise knowledge within their work field. The study has been continuously

reviewed by the supervisor, opponents and the examiner which reinforces that the information

provided in the study is correct and unbiased. The procedure of the study is well documented

in purpose of to make the study replicable. This has been done so the same assumptions will

yield the same results if other researchers would conduct the study.

5.6 Ethical considerations

Ghari & Grönhaug (2005) lists 10 principles that researchers should follow when conducting

a scientific study which the authors have followed closely. All of the interviewed persons

have been informed of the purpose of the study and has been given the option of anonymity

before responding to questions. Further, the authors have taken ethical consideration into

account as sensitive information about the company has not been published. Mionix have

been clear about what is regarded as sensitive information and the authors have followed the

confidentially requirements agreed upon. . Given this, the authors have chosen to manipulate

and code certain numbers. However, the correlations between costs etc. are still correct.

Mionix will be provided with the unencrypted findings of the study.


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6. References

6.1 Books

Aronsson, H., Ekdahl, B. & Oskarsson, B. (2003) Modern Logistik (fjärde upplagan). Lund:

Liber AB.

Bentz, B. A. (2003). Integrated transportation management in Gower Handbook of

Supply Chain Management, 5th Edition, edited by Gattorna J. L., Hants, UK:

Gower

Publishing.

Björklund, M. & Paulsson, U. (2012) ”Seminarieboken : att skriva, presentera och opponera”,

Studentlitteratur AB

Björnland, D. & Persson, G (2003), Logistik för konkurrenskraft, Liber Ekonomi, Malmö

Bryman, A. and Bell, E (2011). ”Företagsekonomiska forskningsmetoder”, Liber AB,

Malmö

Ghauri, P. & Grönhaug, K. (2005)” Research methods in business studies” Pearson

Educational, United Kingdom

Hair, J., Babin, B., Money, A., & Samouel, P. (2003) “Essentials of business research

methods” Leyh Publishing, Unites States of America

Jonsson, P. (2008) “Logistics and supply chain management” Mcgraw-Hill

Jonsson, P. & Mattsson, S-A. (2012) “Logistik : läran om effektiva materialflöden”.

Studentlitteratur AB, Lund

Grant, D. Lambert, D. Stock, J. & Ellram, L. (2005), Fundamentals of Logistics Management:

European edition, Singapore: McGraw-Hill International editions.

Lindstedt, U. & Bjerre, L. (2009) ”E-handlarens handbok: vägen till framgångsrik e-handel”

Miguru Media AB, Stockholm

Lumsden, K. (2012) “Logistikens grunder” Studentlitteratur AB, Lund

Lysons K. & Farrington, B. (2006) ” Purchasing and supply chain management” Harlow :

Financial Times Prentice Hall

Mattsson, S-A (1999) “Effektivisering av materialflöden i supply chains” Växjö: Institutet för


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transportekonomi och logistik

Mattsson, S-A. (2012) ”Logistik i försörjningskedjor” Studentlitteratur AB, Lund

Nahmias, S. (2009) “Production and Operations Analysis” McGraw Hill

Rosenbloom M, B. 2004. Marketing channels: a management view, Mason, Ohio, Thomson.

Saunders, M., Lewis, P. & Thornhill, A. (2009) “Research methods for business students”

Pearson Educational, United Kingdom

Storhagen, N. G. (2003), Logistik – grunder och möjligheter, Liber Ekonomi, Malmö

Sürie, C., Wagner, M. (2002). Supply Chain Analysis in Supply Chain Management and

Advanced Planning, Second Edition, edited by Stadtler, H., Kilger, C., Berlin,

Germany: Springer-Verlag.

Taylor, David H. (1997), Global Cases in Logistics and Supply Chain Management,

International Thomson Business, London

Yin, R. K. (2007). ”Fallstudier: Design och genomförande”, Liber AB, Malmö

Waters, D. (2003)” Logistics: an introduction to Supply Chain Management” Palgrave

Macmillan

6.2 Scientific articles

Abrahamsson, M. & Aronsson, H. (1999), Measuring Logistics Structure, International

Journal of Logistics: Research and Applications, Vol. 2, No. 3, 1999

Berman, B. & Thelen, S. 2004. “A guide to developing and managing a well-integrated

multi-channel retail strategy”, International Journal of Retail & Distribution -

Management, vol. 32, nr. 3, s. 147-157.

Brettel, M., Engelen A., Müller, T., Schilke, O. (2010), Distribution Channel Choice of New

Entrepreneurial Ventures, Entreprenuership Theory and Practice

Bretthauer, K, Mahar, S, & Venakataramanan, M 2010, 'Inventory and distribution strategies

for retail/e-tail organizations', Computers & Industrial Engineering, 58, 1, pp.

119-132


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Capó-Vicedo, J., Mula, J. & Capó, J. (2011),"A social network-based organizational model

for improving knowledge management in supply chains", Supply Chain

Management: An International Journal, Vol. 16 Iss 4 pp. 284 - 293

Cho, J, Ozment, J, & Sink, H, (2008),"Logistics capability, logistics outsourcing and firm

performance in an e-commerce market", International Journal of Physical

Distribution & Logistics Management, Vol. 38 Iss 5 pp. 336 – 359

Goetschalckx, M., Vidal, C. & Dogan, K. ”Modeling and design of global logistics systems:

A review of integrated strategic and tactical models and design algorithms”.

European Journal of Operational Research. 11/16/2002, Vol. 143 Issue 1, p1-18.

Frąckiewicz, E, & Grzesiuk, A 2013, “Model of the SME's internationalization through e

commerce. Preliminary verification and development of the model”,

International Journal Of Management Cases, 15, 2, pp. 59-76

Gunasekaran, A, Ngai, E, & Cheng, T 2007, 'Developing an e-logistics system: a case study',

International Journal Of Logistics: Research & Applications, 10, 4, pp. 333-349

Jiang, Z., Xuanyuan, S., Li, L., & Li, Z. ” Inventory-shortage driven optimisation for product

configuration variation.” International Journal of Production Research. Feb2011,

Vol. 49 Issue 4, p1045-1060. 16p.

Jonsson P. & Mattsson, S-A. (2006) “Inventory management practices and their implications

on perceivedplanning performance” International Journal of Production

Research,Vol. 46, No. 7, 1 April 2008, 1787–1812

Lefrancois, P. & Cherkez, C. “Adaptive limits for pc-based inventory control.” International

Journal of Production Research. Sep87, Vol. 25 Issue 9, p1325.

Ryu, K, Son, Y, & Jung, M 2003, 'Framework for fractal-based supply chain management of

e-Biz companies', Production Planning & Control, 14, 8, pp. 720-733

Thirumalai, S. & Sinha, K. “Customer satisfaction with order fulfillment in retail supply

chains: implications of product type in electronic B2C transactions”. Journal of

Operations Management. Apr2005, Vol. 23 Issue 3/4, p291-303.


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Xu, K.., Wilkinson, T. & Brouthers, L. “THE DARK SIDE OF INTERNATIONAL

ECOMMERCE: LOGISTICS”. Marketing Management Journal. Fall2002, Vol.

12 Issue 2, p123-134

6.3 Electronic sources

Mattsson, 2010 “En jämförelse av kanbansystem och beställningspunktssystem med

avseende på kapitalbindning” http://lagerstyrningsakademin.se/Rapporter/LS06.pdf

Airlog.se (2015-04-17)

6.4 Interviewed persons

Jörgen Blixt, CFO of Mionix

Peter Nygren, Founder and VP of product development, Mionix

Lars Pålsson, Logistics manager, Mionix

Niklas Olofsson, Market and business devolpment, Alwex

7. Appendix

7.1 Interviews

Peter Nygren Founder

E-mail questions 2015-03-30

Vilka 3PLs samarbetar ni med?

o Vilka tjänster utför de olika 3PL?

Hur transporteras produkterna i resp. flöde (E-handel vs till återförsäljare)?

o Var sker lagerhållning av dessa produkter?

Vilka ledtidskrav finns det?

Vilka volymer fraktas i resp. flöde? (E-handel vs till återförsäljare)

Storlek, antal och lokation på lager hos 3PL?

Marknadstillväxt? Var förväntas det växa?

http://lagerstyrningsakademin.se/Rapporter/LS06.pdf


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Efterfrågan och variation för varje produkt

Vad har ni för inköpspris för era produkter?

Använder ni er av säkerhetslager? Om ja, vilka nivåer finns?

Vilket nuvarande planeringsmetod för orderläggning använder ni?

Med vilken frekvens görs beställningar i dagsläget?

Använder ni er utav beställningspunkter?

Vilka är ledtiderna och variation i ledtider från produktion?

Peter Nygren, Founder

E-mail questions 2015-04-10

Hur ser distributionskanalen ut i "specialavtalet" med Komplett AB?

Vilka problem har ni identifierat med att sälja direkt till återförsäljare?

Hur beräknas era säkerhetslager på Alwex och Hecny?

Hur hanteras kundservice i de fyra faserna: Före leverans, order till leverans, under

leverans, efter leverans?

Niklas Olofsson, Market and business development

Semi-structural interview 2015-04-15

Vilken roll fyller Alwex som 3PL i Mionix distributionskedja?

Vilka tjänster/aktiviter utför ni åt Mionix?

Vilka leveranstider har ni ut mot kund? E-handel vs Återförsäljare?

Hur jobbar ni med kundservice? Före, under och efter order?

o Vilken fas anser ni är viktigast?

Vilka mått på leveransservice använder ni? Ex ledtider, leveranspålitlighet, flexibilitet

(möjligthet att ändra order efter lagd order) etc..

Utvärderar ni kundtillfredställelsen hos Mionix kunder? Isåfall hur genomförs detta?

Vilka lagerhållnings- och hanteringskostnader finns det för Mionix?

Hur skiljer sig priset för att skicka till e-handelskunder vs återförsäljare?

Vilka transportsätt använder ni för att skicka ut Mionix varor?


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o Händer det att ni utför expressleveranser (Sista minuten transporter) åt

Mionix? I så fall, vad beror detta på enligt dig?

Var är Mionix kunder lokaliserade? (E-handel vs Återförsäljare)

(Har ni fått några direktiv från Mionix angående önskade servicenivåer gentemot

kund?)

(Hur sker inleverans av Mionix varor till lagret i Växjö?)

Lars Pålsson, Logistics Manager

Telephone interview 2015-04-16

Använder ni er av några material planeringsmetod idag? Om ja, vilka?

o Om ja, vad ser du för fördelar och nackdelar med era material

planeringsmetoder

Hur bestäms orderkvantiteter?

Vad triggar igång en order?

Hur ofta lägger ni en order?

Hur tror du ett beställningspunktsystem kan gynna Mionix?

Vilken faktor tror du är viktigast för kund, pris, kvalitet, leveranstid,

produktegenskaper?

Peter Nygren Founder

Semi-structured interview 2015-05-15

Vilken roll fyller Airlog/Gandalf som 3PL i Mionix distributionskedja?

Vilka tjänster/aktiviter utför ni åt Mionix?

Hur fraktas Mionix varor?

Hur lång är ledtiden från Airlog i Göteborg till Alwex i Växjö

Hur ser informationsflödet ut mellan Airlog/Gandalf och Mionix?

Kan du beskriva den aggressiva markandsföringsstrategin som Mionix genomför/ska

genomföra?

Vilka logistiska utmaningar kommer den aggressiva marknadsföringsstrategin att

generera enligt dig?

Vad är kostar det att skicka med flyg ?


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Vad kostar det att skicka med båt?

Vilka lagerhållnings- och hanteringskostnader finns det för Mionix

-Hecny?

-Alwex

Finns det några övriga kostnad

7.2 Sensitivity analysis


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108


109


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7.3 Plausibility analysis – Total cost allocation Air & Boat


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