:KLF Electronics is an American manufacturer of electronic equipment. The company has a single manufacturing facility...
Fantastic news! We've Found the answer you've been seeking!
Transcribed Image Text:
:KLF Electronics is an American manufacturer of electronic equipment. The company has a single manufacturing facility in San Jose, California. KLF Electronics distributes its products through five regional warehouses located in Atlanta, Boston, Chicago, Dallas, and Los Angeles. In the current distribution system, the United States is partitioned into five major markets, each of which is served by a single regional warehouse. Customers, typically retail outlets, receive items directly from the regional warehouse in their market. That is, in the current distribution system, each customer is assigned to a single market and receives deliveries from one regional warehouse. The warehouses receive items from the manufacturing facility. Typically, it takes about two weeks to satisfy an order placed by any of the regional warehouses. Currently, KLF provides their customers with a service level of about 90 percent. In recent years, KLF has seen a significant increase in competition and huge pressure from their customers to improve the service level and reduce costs. To improve the service level and reduce costs, KLF would like to consider an alternative distribution strategy in which the five regional warehouses are replaced with a single, central warehouse that will be in charge of all customer orders. This warehouse should be one of the existing warehouses. The company CEO insists that whatever distribution strategy is used, KLF will design the strategy so that service level is increased to about 97 percent. Answer the following three questions: a. A detailed analysis of customer demand in the five market areas reveals that the demand in the five regions is very similar; that is, it is common that if weekly demand in one region is above average, so is the weekly demand in the other regions. How does this observation affect the attractiveness of the new system? b. To perform a rigorous analysis, you have identified a typical product, Product A. Table 2-11 provides historical data and includes weekly demand for this product for the last 12 weeks in each of the market areas. An order (placed by a warehouse to the factory) costs $5,550 (per order), and holding inventory costs $ 1.25 per unit per week. In the current distribution system, the cost of transporting a product from the manufacturing facility to a warehouse is given in Table 2-12 (see the column "Inbound"). Table 2-12 also provides information about transportation cost per unit from each warehouse to the stores in its market area (see the column "Outbound"). Finally, Table 2-13 provides information about transportation costs per unit product from each existing regional warehouse to all other market areas, assuming this regional warehouse becomes the central warehouse. Suppose you are to compare the two systems for Product A only; what is your recommendation? To answer this question, you should compare costs and average inventory levels for the two strategies assuming demands occur according to the historical data. Also, you should determine which regional warehouse will be used as the centralized warehouse. c. It is proposed that in the centralized distribution strategy, that is, the one with a single warehouse, products will be distributed using UPS Ground Service, which guarantees that products will arrive at the warehouse in three days (0.5 week). Of course, in this case, transportation cost for shipping a unit product from a manufacturing facility to the warehouse increases. In fact, in this case, transportation costs increase by 50 percent. Thus, for instance, shipping one unit from the manufacturing facility to Atlanta will cost $18.Would you recommend using this strategy? Explain your answer. TABLE 2-11 HISTORICAL DATA Week 1 2 3 4 5 6 7 8 9 10 11 12 Atlanta 33 45 37 38 40 55 30 18 58 47 37 23 55 Boston 26 35 41 46 48 55 18 62 44 95 30 45 Chicago Dallas 44 34 22 55 48 72 62 28 27 35 45 27 42 35 40 51 64 70 65 55 43 38 47 Los Angeles 32 43 54 40 46 74 40 35 45 38 48 56 TABLE 2-12 TRANSPORTATION CcOSTS PER UNIT PRODUCT Warehouse Inbound Outbound Atlanta 12 13 Boston 11.50 13 Chicago Dallas Los Angeles 11 13 9 13 7 13 TABLE 2-13 TRANSPORTATION COSTS PER UNIT IN CENTRALIZED SYSTEM Warehouse Atlanta Boston Chicago Dallas Los Angeles Atlanta 13 14 14 15 17 17 Boston 14 13 8 15 Chicago Dallas 14 8 13 15 15 16 8 15 15 13 Los Angeles 17 17 16 13 :KLF Electronics is an American manufacturer of electronic equipment. The company has a single manufacturing facility in San Jose, California. KLF Electronics distributes its products through five regional warehouses located in Atlanta, Boston, Chicago, Dallas, and Los Angeles. In the current distribution system, the United States is partitioned into five major markets, each of which is served by a single regional warehouse. Customers, typically retail outlets, receive items directly from the regional warehouse in their market. That is, in the current distribution system, each customer is assigned to a single market and receives deliveries from one regional warehouse. The warehouses receive items from the manufacturing facility. Typically, it takes about two weeks to satisfy an order placed by any of the regional warehouses. Currently, KLF provides their customers with a service level of about 90 percent. In recent years, KLF has seen a significant increase in competition and huge pressure from their customers to improve the service level and reduce costs. To improve the service level and reduce costs, KLF would like to consider an alternative distribution strategy in which the five regional warehouses are replaced with a single, central warehouse that will be in charge of all customer orders. This warehouse should be one of the existing warehouses. The company CEO insists that whatever distribution strategy is used, KLF will design the strategy so that service level is increased to about 97 percent. Answer the following three questions: a. A detailed analysis of customer demand in the five market areas reveals that the demand in the five regions is very similar; that is, it is common that if weekly demand in one region is above average, so is the weekly demand in the other regions. How does this observation affect the attractiveness of the new system? b. To perform a rigorous analysis, you have identified a typical product, Product A. Table 2-11 provides historical data and includes weekly demand for this product for the last 12 weeks in each of the market areas. An order (placed by a warehouse to the factory) costs $5,550 (per order), and holding inventory costs $ 1.25 per unit per week. In the current distribution system, the cost of transporting a product from the manufacturing facility to a warehouse is given in Table 2-12 (see the column "Inbound"). Table 2-12 also provides information about transportation cost per unit from each warehouse to the stores in its market area (see the column "Outbound"). Finally, Table 2-13 provides information about transportation costs per unit product from each existing regional warehouse to all other market areas, assuming this regional warehouse becomes the central warehouse. Suppose you are to compare the two systems for Product A only; what is your recommendation? To answer this question, you should compare costs and average inventory levels for the two strategies assuming demands occur according to the historical data. Also, you should determine which regional warehouse will be used as the centralized warehouse. c. It is proposed that in the centralized distribution strategy, that is, the one with a single warehouse, products will be distributed using UPS Ground Service, which guarantees that products will arrive at the warehouse in three days (0.5 week). Of course, in this case, transportation cost for shipping a unit product from a manufacturing facility to the warehouse increases. In fact, in this case, transportation costs increase by 50 percent. Thus, for instance, shipping one unit from the manufacturing facility to Atlanta will cost $18.Would you recommend using this strategy? Explain your answer. TABLE 2-11 HISTORICAL DATA Week 1 2 3 4 5 6 7 8 9 10 11 12 Atlanta 33 45 37 38 40 55 30 18 58 47 37 23 55 Boston 26 35 41 46 48 55 18 62 44 95 30 45 Chicago Dallas 44 34 22 55 48 72 62 28 27 35 45 27 42 35 40 51 64 70 65 55 43 38 47 Los Angeles 32 43 54 40 46 74 40 35 45 38 48 56 TABLE 2-12 TRANSPORTATION CcOSTS PER UNIT PRODUCT Warehouse Inbound Outbound Atlanta 12 13 Boston 11.50 13 Chicago Dallas Los Angeles 11 13 9 13 7 13 TABLE 2-13 TRANSPORTATION COSTS PER UNIT IN CENTRALIZED SYSTEM Warehouse Atlanta Boston Chicago Dallas Los Angeles Atlanta 13 14 14 15 17 17 Boston 14 13 8 15 Chicago Dallas 14 8 13 15 15 16 8 15 15 13 Los Angeles 17 17 16 13 :KLF Electronics is an American manufacturer of electronic equipment. The company has a single manufacturing facility in San Jose, California. KLF Electronics distributes its products through five regional warehouses located in Atlanta, Boston, Chicago, Dallas, and Los Angeles. In the current distribution system, the United States is partitioned into five major markets, each of which is served by a single regional warehouse. Customers, typically retail outlets, receive items directly from the regional warehouse in their market. That is, in the current distribution system, each customer is assigned to a single market and receives deliveries from one regional warehouse. The warehouses receive items from the manufacturing facility. Typically, it takes about two weeks to satisfy an order placed by any of the regional warehouses. Currently, KLF provides their customers with a service level of about 90 percent. In recent years, KLF has seen a significant increase in competition and huge pressure from their customers to improve the service level and reduce costs. To improve the service level and reduce costs, KLF would like to consider an alternative distribution strategy in which the five regional warehouses are replaced with a single, central warehouse that will be in charge of all customer orders. This warehouse should be one of the existing warehouses. The company CEO insists that whatever distribution strategy is used, KLF will design the strategy so that service level is increased to about 97 percent. Answer the following three questions: a. A detailed analysis of customer demand in the five market areas reveals that the demand in the five regions is very similar; that is, it is common that if weekly demand in one region is above average, so is the weekly demand in the other regions. How does this observation affect the attractiveness of the new system? b. To perform a rigorous analysis, you have identified a typical product, Product A. Table 2-11 provides historical data and includes weekly demand for this product for the last 12 weeks in each of the market areas. An order (placed by a warehouse to the factory) costs $5,550 (per order), and holding inventory costs $ 1.25 per unit per week. In the current distribution system, the cost of transporting a product from the manufacturing facility to a warehouse is given in Table 2-12 (see the column "Inbound"). Table 2-12 also provides information about transportation cost per unit from each warehouse to the stores in its market area (see the column "Outbound"). Finally, Table 2-13 provides information about transportation costs per unit product from each existing regional warehouse to all other market areas, assuming this regional warehouse becomes the central warehouse. Suppose you are to compare the two systems for Product A only; what is your recommendation? To answer this question, you should compare costs and average inventory levels for the two strategies assuming demands occur according to the historical data. Also, you should determine which regional warehouse will be used as the centralized warehouse. c. It is proposed that in the centralized distribution strategy, that is, the one with a single warehouse, products will be distributed using UPS Ground Service, which guarantees that products will arrive at the warehouse in three days (0.5 week). Of course, in this case, transportation cost for shipping a unit product from a manufacturing facility to the warehouse increases. In fact, in this case, transportation costs increase by 50 percent. Thus, for instance, shipping one unit from the manufacturing facility to Atlanta will cost $18.Would you recommend using this strategy? Explain your answer. TABLE 2-11 HISTORICAL DATA Week 1 2 3 4 5 6 7 8 9 10 11 12 Atlanta 33 45 37 38 40 55 30 18 58 47 37 23 55 Boston 26 35 41 46 48 55 18 62 44 95 30 45 Chicago Dallas 44 34 22 55 48 72 62 28 27 35 45 27 42 35 40 51 64 70 65 55 43 38 47 Los Angeles 32 43 54 40 46 74 40 35 45 38 48 56 TABLE 2-12 TRANSPORTATION CcOSTS PER UNIT PRODUCT Warehouse Inbound Outbound Atlanta 12 13 Boston 11.50 13 Chicago Dallas Los Angeles 11 13 9 13 7 13 TABLE 2-13 TRANSPORTATION COSTS PER UNIT IN CENTRALIZED SYSTEM Warehouse Atlanta Boston Chicago Dallas Los Angeles Atlanta 13 14 14 15 17 17 Boston 14 13 8 15 Chicago Dallas 14 8 13 15 15 16 8 15 15 13 Los Angeles 17 17 16 13 :KLF Electronics is an American manufacturer of electronic equipment. The company has a single manufacturing facility in San Jose, California. KLF Electronics distributes its products through five regional warehouses located in Atlanta, Boston, Chicago, Dallas, and Los Angeles. In the current distribution system, the United States is partitioned into five major markets, each of which is served by a single regional warehouse. Customers, typically retail outlets, receive items directly from the regional warehouse in their market. That is, in the current distribution system, each customer is assigned to a single market and receives deliveries from one regional warehouse. The warehouses receive items from the manufacturing facility. Typically, it takes about two weeks to satisfy an order placed by any of the regional warehouses. Currently, KLF provides their customers with a service level of about 90 percent. In recent years, KLF has seen a significant increase in competition and huge pressure from their customers to improve the service level and reduce costs. To improve the service level and reduce costs, KLF would like to consider an alternative distribution strategy in which the five regional warehouses are replaced with a single, central warehouse that will be in charge of all customer orders. This warehouse should be one of the existing warehouses. The company CEO insists that whatever distribution strategy is used, KLF will design the strategy so that service level is increased to about 97 percent. Answer the following three questions: a. A detailed analysis of customer demand in the five market areas reveals that the demand in the five regions is very similar; that is, it is common that if weekly demand in one region is above average, so is the weekly demand in the other regions. How does this observation affect the attractiveness of the new system? b. To perform a rigorous analysis, you have identified a typical product, Product A. Table 2-11 provides historical data and includes weekly demand for this product for the last 12 weeks in each of the market areas. An order (placed by a warehouse to the factory) costs $5,550 (per order), and holding inventory costs $ 1.25 per unit per week. In the current distribution system, the cost of transporting a product from the manufacturing facility to a warehouse is given in Table 2-12 (see the column "Inbound"). Table 2-12 also provides information about transportation cost per unit from each warehouse to the stores in its market area (see the column "Outbound"). Finally, Table 2-13 provides information about transportation costs per unit product from each existing regional warehouse to all other market areas, assuming this regional warehouse becomes the central warehouse. Suppose you are to compare the two systems for Product A only; what is your recommendation? To answer this question, you should compare costs and average inventory levels for the two strategies assuming demands occur according to the historical data. Also, you should determine which regional warehouse will be used as the centralized warehouse. c. It is proposed that in the centralized distribution strategy, that is, the one with a single warehouse, products will be distributed using UPS Ground Service, which guarantees that products will arrive at the warehouse in three days (0.5 week). Of course, in this case, transportation cost for shipping a unit product from a manufacturing facility to the warehouse increases. In fact, in this case, transportation costs increase by 50 percent. Thus, for instance, shipping one unit from the manufacturing facility to Atlanta will cost $18.Would you recommend using this strategy? Explain your answer. TABLE 2-11 HISTORICAL DATA Week 1 2 3 4 5 6 7 8 9 10 11 12 Atlanta 33 45 37 38 40 55 30 18 58 47 37 23 55 Boston 26 35 41 46 48 55 18 62 44 95 30 45 Chicago Dallas 44 34 22 55 48 72 62 28 27 35 45 27 42 35 40 51 64 70 65 55 43 38 47 Los Angeles 32 43 54 40 46 74 40 35 45 38 48 56 TABLE 2-12 TRANSPORTATION CcOSTS PER UNIT PRODUCT Warehouse Inbound Outbound Atlanta 12 13 Boston 11.50 13 Chicago Dallas Los Angeles 11 13 9 13 7 13 TABLE 2-13 TRANSPORTATION COSTS PER UNIT IN CENTRALIZED SYSTEM Warehouse Atlanta Boston Chicago Dallas Los Angeles Atlanta 13 14 14 15 17 17 Boston 14 13 8 15 Chicago Dallas 14 8 13 15 15 16 8 15 15 13 Los Angeles 17 17 16 13 :KLF Electronics is an American manufacturer of electronic equipment. The company has a single manufacturing facility in San Jose, California. KLF Electronics distributes its products through five regional warehouses located in Atlanta, Boston, Chicago, Dallas, and Los Angeles. In the current distribution system, the United States is partitioned into five major markets, each of which is served by a single regional warehouse. Customers, typically retail outlets, receive items directly from the regional warehouse in their market. That is, in the current distribution system, each customer is assigned to a single market and receives deliveries from one regional warehouse. The warehouses receive items from the manufacturing facility. Typically, it takes about two weeks to satisfy an order placed by any of the regional warehouses. Currently, KLF provides their customers with a service level of about 90 percent. In recent years, KLF has seen a significant increase in competition and huge pressure from their customers to improve the service level and reduce costs. To improve the service level and reduce costs, KLF would like to consider an alternative distribution strategy in which the five regional warehouses are replaced with a single, central warehouse that will be in charge of all customer orders. This warehouse should be one of the existing warehouses. The company CEO insists that whatever distribution strategy is used, KLF will design the strategy so that service level is increased to about 97 percent. Answer the following three questions: a. A detailed analysis of customer demand in the five market areas reveals that the demand in the five regions is very similar; that is, it is common that if weekly demand in one region is above average, so is the weekly demand in the other regions. How does this observation affect the attractiveness of the new system? b. To perform a rigorous analysis, you have identified a typical product, Product A. Table 2-11 provides historical data and includes weekly demand for this product for the last 12 weeks in each of the market areas. An order (placed by a warehouse to the factory) costs $5,550 (per order), and holding inventory costs $ 1.25 per unit per week. In the current distribution system, the cost of transporting a product from the manufacturing facility to a warehouse is given in Table 2-12 (see the column "Inbound"). Table 2-12 also provides information about transportation cost per unit from each warehouse to the stores in its market area (see the column "Outbound"). Finally, Table 2-13 provides information about transportation costs per unit product from each existing regional warehouse to all other market areas, assuming this regional warehouse becomes the central warehouse. Suppose you are to compare the two systems for Product A only; what is your recommendation? To answer this question, you should compare costs and average inventory levels for the two strategies assuming demands occur according to the historical data. Also, you should determine which regional warehouse will be used as the centralized warehouse. c. It is proposed that in the centralized distribution strategy, that is, the one with a single warehouse, products will be distributed using UPS Ground Service, which guarantees that products will arrive at the warehouse in three days (0.5 week). Of course, in this case, transportation cost for shipping a unit product from a manufacturing facility to the warehouse increases. In fact, in this case, transportation costs increase by 50 percent. Thus, for instance, shipping one unit from the manufacturing facility to Atlanta will cost $18.Would you recommend using this strategy? Explain your answer. TABLE 2-11 HISTORICAL DATA Week 1 2 3 4 5 6 7 8 9 10 11 12 Atlanta 33 45 37 38 40 55 30 18 58 47 37 23 55 Boston 26 35 41 46 48 55 18 62 44 95 30 45 Chicago Dallas 44 34 22 55 48 72 62 28 27 35 45 27 42 35 40 51 64 70 65 55 43 38 47 Los Angeles 32 43 54 40 46 74 40 35 45 38 48 56 TABLE 2-12 TRANSPORTATION CcOSTS PER UNIT PRODUCT Warehouse Inbound Outbound Atlanta 12 13 Boston 11.50 13 Chicago Dallas Los Angeles 11 13 9 13 7 13 TABLE 2-13 TRANSPORTATION COSTS PER UNIT IN CENTRALIZED SYSTEM Warehouse Atlanta Boston Chicago Dallas Los Angeles Atlanta 13 14 14 15 17 17 Boston 14 13 8 15 Chicago Dallas 14 8 13 15 15 16 8 15 15 13 Los Angeles 17 17 16 13 :KLF Electronics is an American manufacturer of electronic equipment. The company has a single manufacturing facility in San Jose, California. KLF Electronics distributes its products through five regional warehouses located in Atlanta, Boston, Chicago, Dallas, and Los Angeles. In the current distribution system, the United States is partitioned into five major markets, each of which is served by a single regional warehouse. Customers, typically retail outlets, receive items directly from the regional warehouse in their market. That is, in the current distribution system, each customer is assigned to a single market and receives deliveries from one regional warehouse. The warehouses receive items from the manufacturing facility. Typically, it takes about two weeks to satisfy an order placed by any of the regional warehouses. Currently, KLF provides their customers with a service level of about 90 percent. In recent years, KLF has seen a significant increase in competition and huge pressure from their customers to improve the service level and reduce costs. To improve the service level and reduce costs, KLF would like to consider an alternative distribution strategy in which the five regional warehouses are replaced with a single, central warehouse that will be in charge of all customer orders. This warehouse should be one of the existing warehouses. The company CEO insists that whatever distribution strategy is used, KLF will design the strategy so that service level is increased to about 97 percent. Answer the following three questions: a. A detailed analysis of customer demand in the five market areas reveals that the demand in the five regions is very similar; that is, it is common that if weekly demand in one region is above average, so is the weekly demand in the other regions. How does this observation affect the attractiveness of the new system? b. To perform a rigorous analysis, you have identified a typical product, Product A. Table 2-11 provides historical data and includes weekly demand for this product for the last 12 weeks in each of the market areas. An order (placed by a warehouse to the factory) costs $5,550 (per order), and holding inventory costs $ 1.25 per unit per week. In the current distribution system, the cost of transporting a product from the manufacturing facility to a warehouse is given in Table 2-12 (see the column "Inbound"). Table 2-12 also provides information about transportation cost per unit from each warehouse to the stores in its market area (see the column "Outbound"). Finally, Table 2-13 provides information about transportation costs per unit product from each existing regional warehouse to all other market areas, assuming this regional warehouse becomes the central warehouse. Suppose you are to compare the two systems for Product A only; what is your recommendation? To answer this question, you should compare costs and average inventory levels for the two strategies assuming demands occur according to the historical data. Also, you should determine which regional warehouse will be used as the centralized warehouse. c. It is proposed that in the centralized distribution strategy, that is, the one with a single warehouse, products will be distributed using UPS Ground Service, which guarantees that products will arrive at the warehouse in three days (0.5 week). Of course, in this case, transportation cost for shipping a unit product from a manufacturing facility to the warehouse increases. In fact, in this case, transportation costs increase by 50 percent. Thus, for instance, shipping one unit from the manufacturing facility to Atlanta will cost $18.Would you recommend using this strategy? Explain your answer. TABLE 2-11 HISTORICAL DATA Week 1 2 3 4 5 6 7 8 9 10 11 12 Atlanta 33 45 37 38 40 55 30 18 58 47 37 23 55 Boston 26 35 41 46 48 55 18 62 44 95 30 45 Chicago Dallas 44 34 22 55 48 72 62 28 27 35 45 27 42 35 40 51 64 70 65 55 43 38 47 Los Angeles 32 43 54 40 46 74 40 35 45 38 48 56 TABLE 2-12 TRANSPORTATION CcOSTS PER UNIT PRODUCT Warehouse Inbound Outbound Atlanta 12 13 Boston 11.50 13 Chicago Dallas Los Angeles 11 13 9 13 7 13 TABLE 2-13 TRANSPORTATION COSTS PER UNIT IN CENTRALIZED SYSTEM Warehouse Atlanta Boston Chicago Dallas Los Angeles Atlanta 13 14 14 15 17 17 Boston 14 13 8 15 Chicago Dallas 14 8 13 15 15 16 8 15 15 13 Los Angeles 17 17 16 13 :KLF Electronics is an American manufacturer of electronic equipment. The company has a single manufacturing facility in San Jose, California. KLF Electronics distributes its products through five regional warehouses located in Atlanta, Boston, Chicago, Dallas, and Los Angeles. In the current distribution system, the United States is partitioned into five major markets, each of which is served by a single regional warehouse. Customers, typically retail outlets, receive items directly from the regional warehouse in their market. That is, in the current distribution system, each customer is assigned to a single market and receives deliveries from one regional warehouse. The warehouses receive items from the manufacturing facility. Typically, it takes about two weeks to satisfy an order placed by any of the regional warehouses. Currently, KLF provides their customers with a service level of about 90 percent. In recent years, KLF has seen a significant increase in competition and huge pressure from their customers to improve the service level and reduce costs. To improve the service level and reduce costs, KLF would like to consider an alternative distribution strategy in which the five regional warehouses are replaced with a single, central warehouse that will be in charge of all customer orders. This warehouse should be one of the existing warehouses. The company CEO insists that whatever distribution strategy is used, KLF will design the strategy so that service level is increased to about 97 percent. Answer the following three questions: a. A detailed analysis of customer demand in the five market areas reveals that the demand in the five regions is very similar; that is, it is common that if weekly demand in one region is above average, so is the weekly demand in the other regions. How does this observation affect the attractiveness of the new system? b. To perform a rigorous analysis, you have identified a typical product, Product A. Table 2-11 provides historical data and includes weekly demand for this product for the last 12 weeks in each of the market areas. An order (placed by a warehouse to the factory) costs $5,550 (per order), and holding inventory costs $ 1.25 per unit per week. In the current distribution system, the cost of transporting a product from the manufacturing facility to a warehouse is given in Table 2-12 (see the column "Inbound"). Table 2-12 also provides information about transportation cost per unit from each warehouse to the stores in its market area (see the column "Outbound"). Finally, Table 2-13 provides information about transportation costs per unit product from each existing regional warehouse to all other market areas, assuming this regional warehouse becomes the central warehouse. Suppose you are to compare the two systems for Product A only; what is your recommendation? To answer this question, you should compare costs and average inventory levels for the two strategies assuming demands occur according to the historical data. Also, you should determine which regional warehouse will be used as the centralized warehouse. c. It is proposed that in the centralized distribution strategy, that is, the one with a single warehouse, products will be distributed using UPS Ground Service, which guarantees that products will arrive at the warehouse in three days (0.5 week). Of course, in this case, transportation cost for shipping a unit product from a manufacturing facility to the warehouse increases. In fact, in this case, transportation costs increase by 50 percent. Thus, for instance, shipping one unit from the manufacturing facility to Atlanta will cost $18.Would you recommend using this strategy? Explain your answer. TABLE 2-11 HISTORICAL DATA Week 1 2 3 4 5 6 7 8 9 10 11 12 Atlanta 33 45 37 38 40 55 30 18 58 47 37 23 55 Boston 26 35 41 46 48 55 18 62 44 95 30 45 Chicago Dallas 44 34 22 55 48 72 62 28 27 35 45 27 42 35 40 51 64 70 65 55 43 38 47 Los Angeles 32 43 54 40 46 74 40 35 45 38 48 56 TABLE 2-12 TRANSPORTATION CcOSTS PER UNIT PRODUCT Warehouse Inbound Outbound Atlanta 12 13 Boston 11.50 13 Chicago Dallas Los Angeles 11 13 9 13 7 13 TABLE 2-13 TRANSPORTATION COSTS PER UNIT IN CENTRALIZED SYSTEM Warehouse Atlanta Boston Chicago Dallas Los Angeles Atlanta 13 14 14 15 17 17 Boston 14 13 8 15 Chicago Dallas 14 8 13 15 15 16 8 15 15 13 Los Angeles 17 17 16 13 :KLF Electronics is an American manufacturer of electronic equipment. The company has a single manufacturing facility in San Jose, California. KLF Electronics distributes its products through five regional warehouses located in Atlanta, Boston, Chicago, Dallas, and Los Angeles. In the current distribution system, the United States is partitioned into five major markets, each of which is served by a single regional warehouse. Customers, typically retail outlets, receive items directly from the regional warehouse in their market. That is, in the current distribution system, each customer is assigned to a single market and receives deliveries from one regional warehouse. The warehouses receive items from the manufacturing facility. Typically, it takes about two weeks to satisfy an order placed by any of the regional warehouses. Currently, KLF provides their customers with a service level of about 90 percent. In recent years, KLF has seen a significant increase in competition and huge pressure from their customers to improve the service level and reduce costs. To improve the service level and reduce costs, KLF would like to consider an alternative distribution strategy in which the five regional warehouses are replaced with a single, central warehouse that will be in charge of all customer orders. This warehouse should be one of the existing warehouses. The company CEO insists that whatever distribution strategy is used, KLF will design the strategy so that service level is increased to about 97 percent. Answer the following three questions: a. A detailed analysis of customer demand in the five market areas reveals that the demand in the five regions is very similar; that is, it is common that if weekly demand in one region is above average, so is the weekly demand in the other regions. How does this observation affect the attractiveness of the new system? b. To perform a rigorous analysis, you have identified a typical product, Product A. Table 2-11 provides historical data and includes weekly demand for this product for the last 12 weeks in each of the market areas. An order (placed by a warehouse to the factory) costs $5,550 (per order), and holding inventory costs $ 1.25 per unit per week. In the current distribution system, the cost of transporting a product from the manufacturing facility to a warehouse is given in Table 2-12 (see the column "Inbound"). Table 2-12 also provides information about transportation cost per unit from each warehouse to the stores in its market area (see the column "Outbound"). Finally, Table 2-13 provides information about transportation costs per unit product from each existing regional warehouse to all other market areas, assuming this regional warehouse becomes the central warehouse. Suppose you are to compare the two systems for Product A only; what is your recommendation? To answer this question, you should compare costs and average inventory levels for the two strategies assuming demands occur according to the historical data. Also, you should determine which regional warehouse will be used as the centralized warehouse. c. It is proposed that in the centralized distribution strategy, that is, the one with a single warehouse, products will be distributed using UPS Ground Service, which guarantees that products will arrive at the warehouse in three days (0.5 week). Of course, in this case, transportation cost for shipping a unit product from a manufacturing facility to the warehouse increases. In fact, in this case, transportation costs increase by 50 percent. Thus, for instance, shipping one unit from the manufacturing facility to Atlanta will cost $18.Would you recommend using this strategy? Explain your answer. TABLE 2-11 HISTORICAL DATA Week 1 2 3 4 5 6 7 8 9 10 11 12 Atlanta 33 45 37 38 40 55 30 18 58 47 37 23 55 Boston 26 35 41 46 48 55 18 62 44 95 30 45 Chicago Dallas 44 34 22 55 48 72 62 28 27 35 45 27 42 35 40 51 64 70 65 55 43 38 47 Los Angeles 32 43 54 40 46 74 40 35 45 38 48 56 TABLE 2-12 TRANSPORTATION CcOSTS PER UNIT PRODUCT Warehouse Inbound Outbound Atlanta 12 13 Boston 11.50 13 Chicago Dallas Los Angeles 11 13 9 13 7 13 TABLE 2-13 TRANSPORTATION COSTS PER UNIT IN CENTRALIZED SYSTEM Warehouse Atlanta Boston Chicago Dallas Los Angeles Atlanta 13 14 14 15 17 17 Boston 14 13 8 15 Chicago Dallas 14 8 13 15 15 16 8 15 15 13 Los Angeles 17 17 16 13
Expert Answer:
Answer rating: 100% (QA)
1 When the demand is negatively correlated centralized system work the best Negative correlation means as the values of one of the variables increase ... View the full answer
Related Book For
Auditing a business risk appraoch
ISBN: 978-0324375589
6th Edition
Authors: larry e. rittenberg, bradley j. schwieger, karla m. johnston
Posted Date:
Students also viewed these finance questions
-
This section is essentially a detailed analysis of the marketing mix factors (the 4 Ps) and should be fairly well defined in the previous sections. Subheadings are as follows: Subheading #1 Product...
-
James Johnson has just completed a detailed analysis of a potential new audit client, Rural Railroad and Pipeline, Inc. (RRP). James reports that the name is deceiving. The company is no longer in...
-
You are required to conduct a detailed analysis of all the prime cost and overhead variances. You must create a fictitious company (and a fictitious cost object) which has at least three direct...
-
import java.util.ArrayList; import java.util.Map; import java.util.Set; import java.util.TreeMap; /* * * This class contains a map of string keys, representing professors, to an array list of...
-
What audit procedures are useful for a financial statement audit but not an ICFR audit, and why?
-
Georgina owns three holiday flats, all of which she lets furnished with a view to profit. None of the flats is ever let to the same tenant for more than 31 consecutive days. The number of days for...
-
Use the data in Exercise 21 in Section 13.1 for the following. a. Compute a point estimate of the mean lifespan of butterflies with a wingspan of 30 millimeters. b. Construct a 95% confidence...
-
Take the role of an investment analyst at Merrimack Lowell. It is your job to recommend investments for your client. The only information you have is the following ratio values for two companies in...
-
O. Scheduling for the Short Term Claire Consultants has been entrusted with the task of evaluating a business plan that has been divided into four sections - marketing, finance, operations and human...
-
Joseph and Diane Smith 1580 West Street Chatham, VA 24531 Joseph and Diane are both 35 and have no dependents. If your clients receive a refund, they want the full amount refunded to them. Diane is...
-
Last year Precision Engineering purchased new machinery for 45000 for use in the manufacture of a part used in manufacturing the final product. The current level of output is 100000 items per year...
-
Amazon.com has patented the "one-click" ordering innovation, this is an example of a A.) business methods patent B.) copyright C.) trade secret D.) public domain use 0 answers
-
In the example, the first value for the Principal PMT was 199.10 in cell E18. Answers for the questions must follow the example answer. (1-2 use first picture) 1. Calculate the Principal PMT and...
-
installment note, with semiannual interest payments. 1) Calculate the amount of each payment using the PMT function. 2) Prepare the amortization schedule for the loan. Enter a valid Excel formula or...
-
Solve the equation: (x + 10) (3x-1) = - 7x - 118 x =
-
Loreal-American Corporation purchased several marketable securities during 2024. At December 31, 2024, the company had the investments in bonds listed below. None was held at the last reporting date,...
-
What do you do when someone doesn't answer her well or spends less time talking to you?
-
Assume that a trial balance is prepared with an account balance of $21,360 listed as $21,630 and an account balance of $1,500 listed as $15,000. Identify the transposition and the slide.
-
Explain how a walkthrough would help the auditor understand and document the adequacy of controls in an accounting application.
-
Define the term "internal control over financial reporting." What are the main components of an organization's internal control system? What is the difference between internal control and internal...
-
The SEC plays a significant role in setting accounting and auditing standards. Sometimes the SEC can set precedence through its litigation. Required Go to the SECs web site www.sec.gov . Select a...
-
How does the presence of a whistle-blowing process improve quality control and independence at a public accounting firm?
-
Trish Mulcahy, a new junior in your office, says that she does not understand why she cannot work on the audit of a company that is a client of your firm and that is owned by her uncle. Trish says...
-
How do these standards differ for (1) errors, (2) frauds, (3) direct-effect illegal acts, and (4) far-removed-effect illegal acts?
Study smarter with the SolutionInn App