supply chain Ass

Case Study: Michael's Hardware

While looking at the financial results of last quarter Ellen the vice president of supply chain for Michael’s hardware realized that the company could significantly improve its distribution costs given the recent expansion into Arizona. Transportation costs or significantly high and Ellen believes that if she moves away from LTL shipping in Arizona, she could save on transportation without major inventory increases. Nichols has 32 stores in both Illinois’s and Arizona, and they source their products from 8 suppliers located in the Midwest.

Ellen asked her staff to propose different distribution alternatives for both states, they propose 2 alternatives for Illinois’s one being the use of direct shipping with larger capacity trucks of 40,000 units that have $1000 charge per shipment an additional charge of $150 per delivery. The second alternative was small trucks with 10,000-unit capacities which would charge $400 per shipment and charge $50 per delivery.

For Arizona, the staff came up with three alternatives, one being the use of small trucks of 10,000 units capacity as is currently being used. Each truck has a $202,050 charge per shipment of 10,000 units. This option has significantly lower transportation costs.

A second option was the use of milk runs with small truck capacities of 10,000 units which would deliver it to multiple stores in Arizona, the carrier charged $2000 per shipment and $50 per delivery these milk runs would incur higher transportation costs then direct shipment but would keep inventory costs lower.

The last alternative was to use a third-party crossdocking facility in Arizona which charged $0.10 per unit for this crossdocking service. This option allowed suppliers to ship to any of the 32 Arizona stores using a large truck to cross stock at a facility and send smaller trucks from all eight suppliers. The large trucks charge $4150 per supplier to cross stock and the small trucks charge $250 per across stuck facility to each store in Arizona

Based on the information supplied of their current network structure their current total annual distribution which was calculated by number of suppliers x number of stores x batch size x the per piece shipping cost giving a total of $1,280,000 plus the cost of total inventory holding cost that was calculated by (batch /2) x number of suppliers x number of stores give a total of $64,000, when totaled it amounts to $1,344,000 annual cost.

Restructure of Illinois

Restructure of Illinois Arizona

Recommendations are …...........

Cross doc in az with large truck to hub and then small trucks to induvial stores