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Hub and Spoke System by 6X6jgQF

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									Hub and Spoke System

     Cameron Stevens
 Brigham Young University
            Things to consider
•   What is it?
•   Processes that can use a hub and spoke model
•   How it works
•   Benefits: Why use hub and spoke?
•   Drawbacks
•   Example: Lowes
•   Application
What is a “Hub and Spoke” model?

•Logistics term used to describe a
transportation network of routes connecting
origins to destinations

•Its name is derived from the hub and spoke
model of a wheel
 What is a “Hub and Spoke” model?

• Companies centralize large distribution
  centers which essentially do three things
  – receive goods/information coming from many
  – consolidate goods/information according to the
    location where they are to be shipped
  – ship them individually to their final destination.
 Processes that use Hub and Spoke

• Manufactured goods:
  –   e.g. Retail

• Services:
  – e.g. Airlines
 Processes that use Hub and Spoke

• Information:
  – e.g. Financial Services

• Technology:
  – e.g. Business Software systems
                  How it Works

•   Pure Hub and Spoke   vs. Hybrid Hub and Spoke
                How it Works
• Hub and Spoke vs. Point to Point

  – One model consists of centralized
    transportation while the other model consists
    of many routes that
    are decentralized
  – Hub and spoke design simplifies the network
    of routes
              How it Works

• Inter-hub (primary routes)

• Spokes (secondary routes)
                How it Works
• Design methods – various models
  –   weighted factor analysis
  –   centroid method
  –   linear models
  –   single and multiple allocation p-hub median
 Benefits: Why use a Hub and Spoke System

• A hub and spoke distribution has several
  advantages that fall under these general
  – efficiency/ effectiveness
  – economies of scale
  – cost reduction
 Benefits: Why us a Hub and Spoke System

• Efficiency and effectiveness

  • ensures that most routes are full or close to full

  • reduces the amount of deliveries lost in transit
 Benefits: Why use a Hub and Spoke System

• Economies of scale
  – By having larger loads, you take advantage of
    lower per unit costs
Benefits: Why use a Hub and Spoke System?

• Transportation cost reduced
  • There is less time spent in transport which directly
    reduces the cost of the activity

• Management costs
  • Management specialists generally focus on one location
    for distribution logistics
• Disruption at the hub

• Bound by hub capacity

• Increased bureaucracy
            Example: Lowes
• How to create competitive advantage in
  distribution logistics
• Goals –
  – gain market share
  – higher profit margins
           Example: Lowes
• Logistics and transportation costs take up a
  large portion of the cost of goods sold

• Implementing the Hub and Spoke reduced
  transportation and distribution costs
            Example: Lowes
• The longer your assets are in transit, the
  higher your acquisition costs

• The key was reducing cycle time so that
  goods were being delivered at a quicker rate
            Example: Lowes
• Idle inventory can create problems with
  turnover and lower return on assets
• The key was decreasing the days in
  inventory by
  – reducing inventory levels
  – saving on holding costs
• Finding an efficient method for designing a
  hub and spoke network
  – You have a situation where you have operation
    around a geographic area and you want to know
    where to locate a hub with respect to two
     • relative distances?
     • importance (load amount) of routes?
• Designing a hub and spoke model is only an
  advantage if designed properly
• To illustrate a design method, we will use
  the centroid method
• This is a method used to find the best
  location for a distribution center
• You are a sporting goods retail chain and
  are seeking to build a distribution center to
  serve your local operations around the
  intermountain west rather than having
  vendors deliver directly to local stores.
• 8 spokes or local branches exist within the
  geographic range you are looking to serve.
• Their respective coordinates are
  – (100,165), (205, 300), (296,267), (371, 400),
    (445, 457), (526, 500), (600, 185), (634, 616)
• Their respective volume loads in tons per
  month are (000,000)
  – 25, 100, 560, 320, 1200, 420, 1520, 690

  – Where do we locate a new distribution center?
• What a Hub and Spoke model is and how it
• Identified benefits and drawbacks to
  implementing the system
• Real world example
• Ideas on how to design one
           Suggested Readings
• Hudson, Scott, “Success with Hub and Spoke
  distribution”, Supply Chain Cooperative – NC State
  University. March 14, 2003.
• Pirkul, “An Efficient Procedure for Designing Single
  Allocation Hub and Spoke Systems”, Management
  Science, 44:12 (1998) -Part-2 pg:S235 -S242
• Elhedhli, Samir . "Hub-And-Spoke Network Design With
  Congestion ." Computers and Operations Research 32.6
  (2005): 1615-1632.
           Suggested Readings
• Yaman, Hande . "Allocation strategies in hub
  networks."European Journal of Operational Research16
  June 2011, Pages 442-451 211.3 (2011): 442-451.
• Horner, Mark W. . "Embedding economies of scale
  concepts for hub network design."Journal of Transport
  Geography 9.4 (2001): 255-265.

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