Cutting logistics costs with a centralized distribution
model for ABB’s distribution of LV products in Asia Pacific

Abstract: As the world’s largest automation supplier, ABB has built a value chain
geared to the singular goal of achieving results for the customer. Every
day ABB ships more than 1,000,000 automation products. Hence, logistics
plays an important part for ABB to gain a substantial competitive edge in
the global market place. The company must be able to deliver their products
at shortest time possible to meet customer demands. If ABB wants to
increase their market share and enhance its performance they must determine
their competitive priorities. Both pricing and availability of the products
are closely linked with the distribution channel. If the distribution
channel is efficient then the products will be available in right
quantities at the right time to customers. If the distribution channel is
also cost efficient then the price of the products can be lowered.

The objective of this study is to understand how the different logistics
costs affect ABB’s distribution model and to find the most optimum model
to support the Asia Pacific region in order to prevent a sub optimization.
Today ABB have a decentralized distribution and the sales units keep their
own stock to support local requirements. The total logistics costs
constitute of 17.5 percent of the transfer price. A centralized
distribution model will create a saving of X MUSD and lower the total
logistics cost to 12.6 percent of the transfer price.

In order to fulfil the purpose the author has done a broad literature
review about distribution and cost models. The evaluation of today’s
distribution model is based on information from a survey sent to concerned
production and sales units during October 2005. The simulations for the
regional distribution centre are based on parameters from the situation
today.

The conclusion of the thesis is that ABB will benefit from a centralized
distribution model. Using a model with a regional distribution centre will
not just save costs, it will also increase the service level by providing
the customers with higher product availability. However, local stocking
have its benefits since ABB will be close to customer location and can, if
the right products are available, offer a faster delivery than a regional
distribution centre. The disadvantage with a longer lead time can be
avoided by using investing in new IT infrastructure or use existing
technologies for order handling and use direct distribution to large end
customers.