Creating Structure in an Ad Hoc Environment - Evaluating a distribution network design within Ericsson BNET

Abstract: Background/Purpose
Global competition, an increased focus on market requirements, advances in information and communication technology as well as in international freight systems, are some factors that have caused global companies to review their distribution networks. Upon assessing Ericsson’s distribution network, a need for transit terminals has been acknowledged by the company. These terminals are intended to exclusively handle externally sourced products that are characterized by a low and volatile demand; products that are currently handled in an ad hoc manner within the organization. The proposed network design is supported by the rationale that it will benefit the company; a hypothesis that this thesis intends to confirm or falsify. An additional aim with the study is to provide Ericsson with a location model that can be used in order to identify appropriate locations for the transit terminals. Upon fulfilling this two‐folded purpose, the thesis reviews previous research on factors that need to be assessed in order to evaluate a distribution network design, which location determinants that are of importance in the current business climate, along with theory connecting different product characteristics with suitable distribution networks.

Design/Methodology/Approach
The study is conducted as a single case study at Ericsson business unit BU Networks. The study is to its major part explanatory in the sense that it aims to bring to light the factors that will be affected upon reconfiguration of a network, as well as the factors that are of relevance when locating the nodes within such a network. These factors were derived from semi‐structured interviews (with internal personnel as well as distribution service providers) and recent research. The quantitative data used in the evaluation of the distribution network design was extracted from the ERP system and a survey distributed to internal personnel. The importance of the location factors were derived by usage of subjective judgments as expressed by personnel within several internal functions within Ericsson.

Findings
Contributions to the company
According to this study the network design is anticipated to be of an unbeneficial nature for the company. This conclusion is in line with contemporary distribution theory, according to which products with low and variable demand should be handled by direct shipping from supplier to customer. The problems that the suggested distribution network was aimed to solve are suggested to be addressed by means of improvement of the ERP system to enable visibility in the distribution system; by a segmentation of the products according to the distribution strategy that their characteristics imply, and by utilization of cross‐functional teams in order to facilitate global optimization.

Industrial contributions
This study presents a procedure that organizations can use when they intend to evaluate a specific distribution network. The procedure allows each company to formulate its own, specific objectives that the network should aim at, and to evaluate the potential of the network on the basis of those evaluative criteria. The study also proposes a method for identifying company specific factors that are of importance when the company locates its distribution facilities. Furthermore it offers a proposal on how such factors can be used to create a structured manner in which suitable facility locations can be identified.

Contributions to the scientific community
Our study proposes that the location determinants trade, legal and tax are not assigned sufficient weight of importance in current location theory.