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Use More Soaps

Usemore Soap Company produces cleaning products across the US and is looking to optimize production and distribution costs while maintaining a high service level of delivering orders within 24-48 hours. They currently operate 4 plants and 18 warehouses to serve 191 demand centers, but are considering expanding with 2 new plants and 22 warehouses. The document provides details on current and proposed production capacities, costs, transportation rates, and service levels to help determine the optimal warehouse network.

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Abhinandan Singh
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376 views9 pages

Use More Soaps

Usemore Soap Company produces cleaning products across the US and is looking to optimize production and distribution costs while maintaining a high service level of delivering orders within 24-48 hours. They currently operate 4 plants and 18 warehouses to serve 191 demand centers, but are considering expanding with 2 new plants and 22 warehouses. The document provides details on current and proposed production capacities, costs, transportation rates, and service levels to help determine the optimal warehouse network.

Uploaded by

Abhinandan Singh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Usemore Soap Company

A Warehouse Location Case Study

Prepared By:
Abhinandan Singh (MP15003)
Manjesh Jha (MP15022)
Sabas Fernando (MP15036)
Sushant Kumar (MP15047)
Case Facts
• Produces a line of Cleaning Compounds mainly for Industrial and institutional use
• Product lines – composed of more than 200 products and 800 product items
• Sales situated all across US (major sales in Hawaii, Atlanta and Peurto Rico)
• Sales of $160 million (150 million pound served through warehouses, 75 million
pound through plants directly)
• Company is concerned about cost of production as well as distribution cost and
plants to optimize both
• High service level is to be maintained i.e. a delivery time of 24-48 hours which
comes out to be a distance of 300-600 miles
• Sales ae distributed across 6 territories(Northeast, Southeast, Midwest, Northwest,
Southwest, west) aggregated into 191 demand centers.
Present Production and Distribution Network
Covington New york Arlington Long Beach
595k cwt 391k cwt 250k cwt 241k cwt

TL
TL TL

1 2 3 22

18 Warehouses situated all across US

LTL LTL LTL


LTL

191 Demand Centres situated all across US


Expansion (New Plants and Warehouses)

• Two additional Plants – Chicago and Memphis (keeping in mind future demand
projections)
• 22 Public Warehouse Locations (Based on Sales personnel’s suggestions with
factors as favorable rates, service availability, proximity to demand concentration)

Questions to be answered??
 No of Warehouses to be operated
 Location of warehouses
 Demand centers to be associated with each warehouse
 Should we go for new plants and warehouses
 What level of customer service should be provided
Important Case Info
Sales Five year Growth Plant Variable Production Cost
Territory Factor per cwt
Northeast 1.30 Covington, KY $21.0
Southeast 1.45 New York, NY $19.9
Midwest 1.25 Airlington, TX $21.6
Northwest 1.20 Long Beach, CA $21.1
Southwest 1.15 Chicago€ $21.0
West 1.35 Memphis€ $20.6

• Construction of new plant would cost a minimum of $4 million


• This would result in an increase in throughout of 1 million cwt per year in
foreseeable future
Important Case Info Continued….
Plant Current Current Percent of Stocking Limits
Capacity Production Capacity
Covington, KY 620,000 cwt 595,102 cwt 96% 450,000 cwt
New York, NY 430,000 cwt 390,876 cwt 91% 380,000 cwt
Airlington, TX 300,000 cwt 249,662 cwt 83% 140,000 cwt
Long Beach, CA 280,000 cwt 241,386 cwt 87% 180,000 cwt
Total 1,630,000 cwt 1,477,026 cwt 91% -

• Minimum throughput needed to open a warehouse is 10,400 cwt per year


Costs Involved
• Warehousing Cost:
• Storage Cost: Quoted as $/cwt/month basis of average inventory held
• Handling Cost: Incurred during IN/OUT movement of product on $/cwt basis
• Stock Order Processing Cost: Order processing charge when receiving material from plant
• Customer Order Processing Cost: Order processing charge when supplying material to customer
• Local Delivery Rate: Outbound transport Charges when customer is situated less than 30 miles
from warehouse
• Transportation Costs:
• Truckload/Inbound rate(between plant and warehouse): Linear function given by P-W rate($/cwt)
= 0.92 + 0.0034 d (miles) where d is distance between plant and warehouse in miles
• W-C/outbound Rate($/cwt): Linear function given by W-C rate($/cwt) = 5.45 + 0.0037 d (miles)
where d is distance between plant and warehouse in miles

• Inventory Costs: Depends on average inventory held and inventory rate factors such as cost of
capital, personal property taxes and insurance costs.
Ici =( 0.12) (0.26) (11.3 Di^0.58) or 35.3 Di^0.58 where,
Ici – annual average carrying cost at warehouse
Di – annual demand throughput at warehouse i
Costs Involved
• Warehouse Operating Cost: Combination of Storage and Handling Cost.

Storage Cost:
SCi = SRi (26) (11.3 Di^0.58) where,
SCi – annual cost of stock storage at warehouse I ($)
SRi – storage rate at warehouse
Di – annual demand throughput at warehouse i

Handling Cost:
HCi = (HRi ) Di where,
HCi – annual handling cost at warehouse I ($)
HRi – handling rate at warehouse i

Order Processing Cost : It refers to the charges incurred in handling the paperwork associated with
stock replenishment and customer orders.
Order processing cost = (Order processing rate * annual demand on warehouse/order size)
Present Cost Structure and Service Level

Production Cost $30,761,250


Warehouse operations 1,578,379
Order Processing 369,027
Inventory Carrying 457,290
Transportation: Inbound to 2,050,367
warehouse
Outbound from warehouse 6,895,880
Total Cost $ 42,112,463

• At present Usemore Soap is able to place 93 percent of its demand within 300 miles of
warehouse for a total cost of $ 42,112,463

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