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Answers

1.-  The annual inventory and distribution cost of the current distributi

2.- e would recommend settin up an *'+ because doin so can bri

-owever, closin all reional '+s and handlin all products at an *

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3.- /f an *'+ is built while eepin all reional '+s open, there are .

Our recommendation would be option 3: To handle High demand produ

ecasue:

Option 2 re3uires the lowest initial investment and its recovery tim

/n both best and worst4case scenarios, annual savins are hiher f

/n the best4case scenario, annual savins are slihtly hiher for op

 The re3uired initial investment and its recovery time are much hi

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n system (Option 1) is: $1,0!,"1#1" %&'

sinicant savins to the company in the lon term

'+ (Option .) is not the best option

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ore options:

ts at regional DCs and build an NDC or !iddle and "ow demand products.

  e is also the lowest -owever, in the lon term after investment recovery, option ! implie

r option ! than for option 2

ion . than for option ! -owever, in middle and worst4case scenarios, annual savins are

er for option . than for option !

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s hiher annual savins

  hiher for option !

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A56O case study

O#T$ON 1: Current distribution s%stem &stoc' each item at e(er%

Dail% Demand or 1 produ

1**#roducts DC 1

#art 1 10 High !ean !72#

+. D. "##art 3 .0 !edium !ean .2#

+. D. !1

#art , 80 "ow !ean 02#

+. D. 1"#

O#T$ON 1: Current distribution s%stem &stoc' each item at e(er%

A**%A5 +O&T (/nventory 9 distribution) of current system with all -;5 p

DC 1 DC2 DC 3

High  $ 1.!,1727. $ #2,77028 $ ,!!.2

!edium  $ !!,18##0 $ 0,""70 $ 8!,!#2"

"ow  $ 71,0#78 $ 22,2.!7" $ ,11"7

TOT" NN

TC &Holding cost o in(entor% in storage)4&Holding co

&(g $n(5Hda%5367)4&&Total units transported in a

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C).

t

DC 2 DC 3 DC 9 DC 7 Total

..1 18 11#1 !!

2# 7. !2# 22"217 17 1 82"

. !" 8 !7

08! 0# 1"2 .72

12. .!" !8 !"#

C).

oducts at '+

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=eriodic review policy > O%5

Transport =u Current NDC

=lant to '+ T5 00" 007

'+ to cust 5T5 01 0.2

"40 0 T " 2 days in production

11 7 days 4444? 1 days in transit

Holding =&u5da%) 017 (transit or storae)

C+" "7@

> 122#7!

rtation cost rom DC to customer)

5D5367)

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14 Total annual cost (inventory 9 distribution) of current system

A**%A5 +O&T (/nventory 9 distribution) of current system with 1 hih product a

TC &Holding cost o in(entor% in storage)4&Holding cost o in(en

&(g $n(5Hda%5367)4&&Total units transported in a %ear)5Hda%

(g $n( >=2 4 ++ Total units transported in a %e

O%5 > 2.#!7#2!

B(l9r) > .!170021

C(l9r) > !"0.#

++ !#08#2." .1.##

in O%5

 This estimated D can be used in O

 T+ > (-oldin cost of inventory in storae)9(-oldin cost of inventor

 T+ > 1.!1727.

A**%A5 +O&T (/nventory 9 distribution) of current syste

E 10 hih products > 1.!1727.

A**%A5 +O&T (/nventory 9 distrib

> @50

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  '+1

or% in transit)4&Transportation cost rom plant to DC)4&Transportation

5&8da%s in transit))4&&T" Trans. Cost)5D5367)4&&"T" Trans. Cost)5D5367)

r &lot si?e)5&8 o orders in a %ear) >5&367=0)

  %5 when its value is not provided

 in transit)9(Transportation cost from plant to '+)9(Transportation cost from '+

with 1 hih product at '+1

ution) of current system with 10 hih products at '+1

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  ost rom DC to customer)

to +ustomer)

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A56O case study

O#T$ON 2: Auild a National Distribution Center &NDC) and close 7 regional DCs

1**#roducts Dail% Demand or 1 product

DC 1 DC 2

#art 1 10 High !ean !72# ..1+. D. "# 2#

#art 3 .0 !edium !ean .2# 217

+. D. !1 .

#art , 80 "ow !ean 02# 08!

+. D. 1"# 12.

NDC ggregation Dail% Demand or 1 product

1** #roducts !ean

10 High "0". 1..8!"11!78

.0 !edium .2! 1.170.!!8.

80 "ow 2" 271#"11"7

B* B*.7

High  $ !!.,01!28 $ !2,!112.

!edium  $ .22,."8" $ .81,8#2!

"ow  $ .#.,28!21 $ !!1,0.08

TOT" NN" CO+T O/ O#T$ON 2 B* B*.7

  0 middle4case scenario: I>07 worst4case sce

+. D. B*

A**%A5 +O&T (/nventory 9 distribution) of areated system with all -;5 products a

or possible B (alues.

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handled per year

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  . High DC 1

DC 1

DC 2

DC 3

DC 3 DC 9 DC 7 DC 9

18 11#1 !! DC 77. !2# 22"

17 1 82" !edium DC 1

!" 8 !7 DC 1

0# 1"2 .72 DC 2

.!" !8 !"# DC 3

DC 9

DC 7

1800"20881. .088.!# "ow DC 1

187.101!08 .0!!#07 DC 1

#8821!.2!78 107"".21 DC 2

DC 3

DC 9

B1 DC 7

 $ !78,!"87

$ ."!,.08. =eriodic revie

$ !",1#2#2 Transport

=lant to '+

B1 '+ to cust

  1;*1;,*.*2

"40

11

  .

>

e scenario

ase scenario TC

se scenario

se scenario

case scenario

ase scenario

  ario: I>1

+. D. B*.7 +. D. B1

  t *'+ for possible I values

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DC 2 DC 3 DC 9 DC 7 High

27.!02 !812# .2."02 !1!20.

!20#2# ..7702 ."0"7. B 0

1#!02# .!182 B 07

17.7. B 1

DC 2 DC 3 DC 9 DC 7 !edium

1"7". .01".2 .1!1 11.2"

!"1# 21"1. ..08. B 0

2!1"2 ..82#2 B 07

.207 B 1

DC 2 DC 3 DC 9 DC 7 "ow

.#11 28!.. 8222# 8##02

!!"!# 7!!". 771 B 0

#"#2 "71.. B 07

12"2# B 1

  policy > O%5

=u Current NDC

 T5 00" 007

5T5 01 0.2

0 T " 2 days in production

7 days 4444? 1 days in transit

Holding =&u5da%) 017 (transit or storae)

122#7! C+" "7@

&Holding cost o in(entor% in storage)4&Holding cost o in(entor% in tran

&(g $n(5Hda%5367)4&&Total units transported in a %ear)5Hda%5&8da%s in

(g $n( >=2 4 ++ Total units transported in a %ear &lot si

in O%5

> @50

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EFG2 JBi K. 9 J (IiLEBiEBL) if i ML

EFG2 JBi K. 9 IiLEJ(BiEBL) if i ML because B

EFG2 17*.695&367=0)

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  is the same or all combinations o regions in this case.

  is the same or all combinations o regions in this case.

  is the same or all combinations o regions in this case.

C to customer)

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A56O case study

O#T$ON 3: se current distribution s%stem or High products and build NDC or

1**#roducts Dail% Demand or 1 product

DC 1 DC 2

#art 1 10 High !ean !72# ..1+. D. "# 2#

#art 3 .0 !edium !ean .2# 217

+. D. !1 .

#art , 80 "ow !ean 02# 08!

+. D. 1"# 12.

NDC ggregation Dail% Demand or 1 product

1** #roducts !ean

10 High "0". 1..8!"11!78

.0 !edium .2! 1.170.!!81

80 "ow 2" 271#"11"7

High  $ !21,##7#0

B* B*.7

!edium  $ .22,."8" $ .81,8#2!

"ow  $ .#.,28!21 $ !!1,0.08

TOT" NN" CO+T O/ O#T$ON 3 B* B*.7

 

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handled per year

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  !iddle and "ow products. High DC 1

DC 1

DC 2

DC 3

DC 3 DC 9 DC 7 DC 9

18 11#1 !! DC 77. !2# 22"

17 1 82" !edium DC 1

!" 8 !7 DC 1

0# 1"2 .72 DC 2

.!" !8 !"# DC 3

DC 9

DC 7

1800"20881. .088.!# "ow DC 1

187.101!08 .0!!#07 DC 1

#8821!.2!78 107"".21 DC 2

DC 3

DC 9

DC 7

B1

 $ ."!,.08. =eriodic revie

$ !",1#2#2 Transport

=lant to '+

B1 '+ to cust

  1;**9;2,

scenario

se scenario TC

e scenario

e scenario

ase scenario

se scenario

rio: I>1

+. D. B*.7 +. D. B1

5 products at *'+ for possible I values

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DC 2 DC 3 DC 9 DC 7 High

27.!02 !812# .2."02 !1!20.

!20#2# ..7702 ."0"7. B 0

1#!02# .!182 B 07

17.7. B 1

DC 2 DC 3 DC 9 DC 7 !edium

1"7". .01".2 .1!1 11.2"

!"1# 21"1. ..08. B 0

2!1"2 ..82#2 B 07

.207 B 1

DC 2 DC 3 DC 9 DC 7 "ow

.#11 28!.. 8222# 8##02

!!"!# 7!!". 771 B 0

#"#2 "71.. B 07

12"2# B 1

  policy > O%5

=u Current NDC

 T5 00" 007

5T5 01 0.2

0 T " 2 days in production

7 days 4444? 1 days in transit

Holding =&u5da%) 017 (transit or storae)

122#7! C+" "7@

&Holding cost o in(entor% in storage)4&Holding cost o in(entor% in tran

&(g $n(5Hda%5367)4&&Total units transported in a %ear)5Hda%5&8da%s in

(g $n( >=2 4 ++ Total units transported in a %ear &lot si

in O%5

> @50

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EFG2 JBi K. 9 J (IiLEBiEBL) if i ML

EFG2 JBi K. 9 IiLEJ(BiEBL) if i ML because B

EFG2 17*.695&367=0)

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  is the same or all combinations o regions in this case.

  is the same or all combinations o regions in this case.

  is the same or all combinations o regions in this case.

C to customer)

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A56O case study

O#T$ON 9: se current distribution s%stem or High and !iddle products and b

1**#roducts Dail% Demand or 1 product

DC 1 DC 2

#art 1 10 High !ean !72# ..1+. D. "# 2#

#art 3 .0 !edium !ean .2# 217

+. D. !1 .

#art , 80 "ow !ean 02# 08!

+. D. 1"# 12.

NDC ggregation Dail% Demand or 1 product

1** #roducts !ean

10 High "0". 1..8!"11!78

.0 !edium .2! 1.170.!!81

80 "ow 2" 271#"11"7

High  $ !21,##7#0

!edium  $ !0#,1721!

B* B*.7

"ow  $ .#.,28!21 $ !!1,0.08

TOT" NN" CO+T O/ O#T$ON 9 B* B*.7

  32;713.39

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handled per year

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ild NDC or "ow products. High DC 1

DC 1

DC 2

DC 3

DC 3 DC 9 DC 7 DC 9

18 11#1 !! DC 77. !2# 22"

17 1 82" !edium DC 1

!" 8 !7 DC 1

0# 1"2 .72 DC 2

.!" !8 !"# DC 3

DC 9

DC 7

1800"20881. .088.!# "ow DC 1

187.101!08 .0!!#07 DC 1

#8821!.2!78 107"".21 DC 2

DC 3

DC 9

DC 7

B1 =eriodic revie

$ !",1#2#2 Transport

=lant to '+

B1 '+ to cust

  1;*1;229.,,

"40

11

  "ow products.

>

scenario

se scenario TC

e scenario

e scenario

ase scenario

se scenario

rio: I>1

+. D. B*.7 +. D. B1

  ducts at *'+ for possible I values

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DC 2 DC 3 DC 9 DC 7 High

27.!02 !812# .2."02 !1!20.

!20#2# ..7702 ."0"7. B 0

1#!02# .!182 B 07

17.7. B 1

DC 2 DC 3 DC 9 DC 7 !edium

1"7". .01".2 .1!1 11.2"

!"1# 21"1. ..08. B 0

2!1"2 ..82#2 B 07

.207 B 1

DC 2 DC 3 DC 9 DC 7 "ow

.#11 28!.. 8222# 8##02

!!"!# 7!!". 771 B 0

#"#2 "71.. B 07

12"2# B 1

  policy > O%5

=u Current NDC

 T5 00" 007

5T5 01 0.2

0 T " 2 days in production

7 days 4444? 1 days in transit

Holding =&u5da%) 017 (transit or storae)

122#7! C+" "7@

&Holding cost o in(entor% in storage)4&Holding cost o in(entor% in tran

&(g $n(5Hda%5367)4&&Total units transported in a %ear)5Hda%5&8da%s in

(g $n( >=2 4 ++ Total units transported in a %ear &lot si

in O%5

> @50

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EFG2 JBi K. 9 J (IiLEBiEBL) if i ML

EFG2 JBi K. 9 IiLEJ(BiEBL) if i ML because B

EFG2 17*.695&367=0)

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  is the same or all combinations o regions in this case.

  is the same or all combinations o regions in this case.

  is the same or all combinations o regions in this case.

C to customer)

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