The annual distribution cost of current distribution network

Assignment Help Supply Chain Management
Reference no: EM13683202

Designing the Distribution network for Michael's hardware.

Ellen Lin . Vice president of supply chain at micheal's hardware was looking at the financial result from the past quarter and thought the company could significantly improve its distribution cost , especially given the recent expansion into Arizona .Transportation costs had been very high and Ellen believed that moving away from LTL

shipping to Arizona would help lower transportation costs without significantly raising inventories. Michael's had 32 stores each in Illinois and Arizona and sourced its products from eight suppliers located in the Midwest. The company began in Illinois and its stores in the state enjoyed strong sales. Each Illinois store sold on average 50,000 units a year of product from each supplier (for annual sales of 400,000 units per store). The

Arizona operation was started about five years ago and still had plenty of room to grow. Each Arizona store sold 10,000 units a year from each supplier (for annual sales of 80,000 units per store). Given large sales at its Illinois stores, Michael's followed a direct ship model and shipped small truckloads (with a capacity of 10,000 units) from each supplier to each of its Illinois stores.Each small truck cost $450 per delivery from a supplier toan Illinois store and could carry up to 10,000 units . In Arizona, however the company wanted to keep inventories low and used LTL shipping that required a minimum shipment of only 500 unit per store but cost $0.50 per unit . Holding costs for Micheal's were $1 per unit per year

Ellen asked her staff to propose different distribution alternatives for both Illinois and Arizona.

Distribution Alternatives for Illinois

Ellen staffs propose two alternative distribution strategies for the store in Illinois.

1. Use direct shipping with even larger trucks that had a capacity of 40,000 units. These trucks charged only $1,150 per delivery to an Illinois store. Using larger trucks would lower transportation cost but increase inventories because of the larger batch sizes.

2. Run milk runs from each supplier to multiple stores in Illinois to lower inventory cost even if the cost of transportation increased. Large trucks (capacity of 40,000 units) would charge $1,000 per shipment and a charge of $150 per delivery. Small trucks (capacity of 10,000 units) would charge $400 per shipment and a charge of $50 per delivery.

Distribution Alternatives for Arizona

Ellen's staff had three alternatives for the stores in Arizona;

1. Use direct shipping with small trucks (capacity of 10,000 units) as was currently being done in Illinois. Each small truck charged $2,050 for a shipment of up to 10,000 unit from a supplier to a store in Arizona. This was a significantly lower transportation cost than was currently being charged by the LTL carrier. This alternative, however would increase inventory costs in Arizona given the larger batch sizes.

2. Run milk runs using small trucks (capacity of 10,000 units) from each supplier to multiple stores in Arizona. The small truck carrier charged $2,000 per shipment and $50 per delivery. Thus, a milk run from a supplier to four stores would cost $2,200. Milk runs would incur higher transportation costs than direct shipping but would keep inventory costs lower.

3. Use a third - party cross -docking facility in Arizona that charged $0.10 per unit for this cross -docking service . This would allow all supplier to ship product ( destined for all 32 Arizona store ) using a large truck to the cross- dock facility ,where it would be cross docked and sent to stores in smaller trucks ( each smaller truck would now contain product from all eight suppliers). Large trucks (capacity of 40,000 units) charged $4,150from each supplier to the cross - dock facility . Small trucks (capacity of 10,000 units) charged $250 from the cross-dock facility to each retain store in Arizona.

Ellen wondered how best to structure the distribution network and whether the saving would be worth the effort. If she used milk runs in either region,she also had to decide on how many stores to include in each milk run.

Questions

1. What is the annual distribution cost of the current distribution network? Include transportation and inventory costs

2. How should Ellen structure distribution from suppliers to the stores in Illinois? What annual saving can she expect?

3. How should Ellen structure distribution from suppliers to the store in Arizona? What annual savings can she expect?

4. What changes in the distribution network (if any) would you suggest as both markets grow?

Reference no: EM13683202

Provide an holistic analysis of your organisation

Analyse the Supply and Demand aspect of the organisation's supply chain and critically evaluate the benefits of a well-managed supply chain system, considering the dynamics o

Map and draw the existing supply network

Map and draw the existing supply network, as well as calculate the annual cost associated with running the existing system - Map and draw the new supply network as a result o

What supply chain would be suitable for a functional product

Supply chains are generally of two types: physically efficient supply chains, and market responsive supply chains.  What type of supply chain would be suitable for a functiona

Describe the company supply chain

Identify a company with which you are familiar. This could be your place of employment, a car wash, a yard service company, and so forth. Describe the company's supply chain

Describe three relevant performance measure you might employ

Describe at least 3 relevant performance measures you might employ to ensure that you satisfy your final project assignment for next week on time, with quality, and complete

What is the economic justification for the rapid growth

Compare and contrast the transportation principles of economy of scale and economy of distance. Illustrate how they combine to create efficient transportation - What is the

Create a purchasing and supply chain plan for chilly willy

Use the business scenario provided to create a purchasing and supply chain plan for Chilly Willy - OEM manufacturer of refrigerated cases for grocery stores that sell their p

Give fundamental knowledge of global supply chain management

Give fundamental knowledge of global supply chain management and established understanding of logistics terminology and concepts and thereby able to apply the most important m

Reviews

Write a Review

 
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd