Monsanto RT3 Distribution

1
Monsanto RT3 Distribution

• Team Members
• Kevin Long, Monsanto
• Jim Most, Monsanto
• David Vail, US Transportation Command

2
RT3 Distribution The Project

• Purpose
• Evaluate Terminal Distribution effectiveness
• Delivery costs, inventory carrying costs
• Evaluate rail transload vs fixed storage
• Evaluate stock positioning requirements to meet
  peak seasonal demands
• Evaluate distribution nodes and propose revisions
  (if needed)
• Utility
• Reduce distribution costs without corresponding
  increase in inventory carrying costs while
  ensuring customer delivery timeline targets are
  met

3
RT3 Distribution The Product

• What is RT3?
• Glyphosate-based agricultural herbicide
• Used to control annual and perennial weeds
• Manufactured at one plant in Muscatine, IA
• Customers
• Sold primarily in Central Plains and Mountain
  states
• CO, ID, KS, MN, MT, NE, ND, OK, OR, SD, TX, UT,
  WA, WY

4
RT3 Manufactured in Muscatine, IA
5
RT3 Optimal Distribution Using 4 Terminals
6
RT3 Distribution Muscatine, IA
7
RT3 Distribution Harrold, SD
8
RT3 Distribution McCook, NE
9
RT3 Distribution Billings, MT
10
RT3 Distribution Pasco, WA
11
RT3 Non-Optimal Deliveriesover 1,021K Gallons

• Non-optimal customer deliveries
• 424,000 gallons from Muscatine, IA
• 139,000 gallons from Harrold, SD
• 107,000 gallons from McCook, NE
• 49,000 gallons from Billings, MT
• 13,000 gallons from Pasco, WA
• Non-Optimal Truck to Terminals (vice rail)
• 288,000 gallons (Muscatine to terminals, and
  terminal to terminal)

12
RT3 Distribution Focused Goals

• The goals of this project became more specific
• 1) reduce non-optimal 1st leg deliveries by
  determining required lead times and safety stock.
  This would enable the use of railcars from the
  Muscatine plant to all regional storage
  locations and
• 2) reduce the miles for 2nd leg truck deliveries
  by identifying appropriate regional storage
  locations needed to satisfy expected customer
  demand within desired delivery time standards.

13
RT3 Distribution Error Analysis

• FMEA / Error Analysis
• 4 areas evaluated
• Forecast
• Pricing
• Terminal Locations
• Inventory / Safety Stock
• Standard Error of the Estimate
• The basic equation.
• Where AActuals, EEstimate and N observations.

14
RT3 Model Inputs
NOTE COGS and GP entered into model, but not
shown here
15
RT3 Distribution Forecast Variability
16
RT3 Distribution Error Analysis - Findings

• Forecast Error 82
• Under-forecasting bias of 70
• Low pricing was contributing factor
• Fixed Storage and Rail Terminal Locations
• No forecasts by regional terminal
• North Dakota had highest sales, but no
  prepositioned stock
• No Safety Stock, Inadequate Inventory

17
RT3 Distribution Recommendations

• Inventory / Safety Stock
• Should be 1.5 times forecast
• Need 30 railcar equivalents
• Terminal Locations
• Position rail storage in North Dakota vice
  continued support from Harrold, SD
• Rail storage is cheaper than fixed storage and
  more flexible
• Lease 15 railcars
• Cycle times and transit times factored into 30
  railcar equivalents

18
US Railway Network
Add Rail Terminal at Bismarck, ND
19
RT3 Distribution Bismarck Savings
20
RT3 Distribution Projected Recurring Savings

• Elimination of non-optimal BMT deliveries to
  customers 250,000
• Elimination of non-optimal BMT deliveries to
  terminals 100,000
• Addition of Bismarck rail terminal for ND
  deliveries 250,000
• Lease cost of additional 15 railcars (105,000)
  
• Total Net Annual Savings 495,000

21
RT3 Distribution Team Validation

• The RT3 project recommendations have been
  presented and accepted by a Monsanto Executive
  Team. Additional safety stock is being added per
  the future RT3 future forecasts and Bismarck, ND
  is being added as the delivery terminal for North
  Dakota.