Case study SportStuff.com The Network Options Management divided the United States into six customer zones for planning purposes. Demand from each customer zone in 2007 was as shown in Table 5-15. TABLE 5-15 Regional Demand at SportStuff.com for 2007 Zone Demand in 2007 Zone Demand in 2007 Northwest 320,000 Lower Midwest 220,000 Southwest 200,000 Northeast 350,000 Upper Midwest 160,000 Southeast 175,000 Sanjay estimated that the next three years would see a growth rate of about 80 percent per year, after which demand would level off. For this assignment, you need just to consider year 2007. Sanjay and his management team could see that they needed more warehouse space to cope with the anticipated growth. One option was to lease more warehouse space in St. Louis itself. Other options included leasing warehouses all over the country. Leasing a warehouse involved fixed costs based on the size of the warehouse and variable costs that depended on the quantity shipped through the warehouse. Four potential locations for warehouses were identified in Denver, Seattle, Atlanta, and Philadelphia. Leased warehouses could be either small (about 100,000 sq. ft.) or large (200,000 sq. ft.). Small warehouses could handle a flow of up to 2 million units per year, whereas large warehouses could handle a flow of up to 4 million units per year. The current warehouse in St. Louis was small. The fixed and variable costs of small and large warehouses in different locations are shown in Table 5-16. TABLE 5-16 Fixed and Variable Costs of Potential Warehouses Small Warehouse Location Seattle Denver St. Louis Atlanta Philadelphia Fixed Cost (s/year) 300,000 250,000 220,000 220,000 240,000 Variable Cost (S/Unit Flow) 0.20 0.20 0.20 0.20 0.20 Large Warehouse Fixed Cost Variable Cost (S/year) (S/Unit Flow) 500,000 0.20 420,000 0.20 375,000 0.20 375,000 0.20 400,000 0.20 Sanjay estimated that the inventory holding costs at a warehouse (excluding warehouse expense) can be estimated only a single linear inventory cost, $475,000Y + 0.165F; where F is the number of units flowing through the warehouse per year and for each facility, Y = 1 if the facility is used, 0 otherwise. SportStuff.com charged a flat fee of $3 per shipment sent to a customer. An average customer order contained four units. SportStuff.com, in turn, contracted with UPS to handle all its outbound shipments. UPS charges were based on both the origin and the destination of the shipment and are shown in Table 5-17. TABLE 5-17 UPS Charges per Shipment (Four Units) Northwest Southwest Upper Midwest Lower Midwest Seattle 52.00 $2.50 $3.50 $4.00 Denver $2.50 $2.50 $2.50 $3.00 St. Louis $3.50 $3.50 $2.50 $2.50 Atlanta $4.00 54.00 $3.00 $2.50 Philadelphia $4.50 $5.00 $3.00 $3.50 Northeast 55.00 $4.00 $3.00 $3.00 $2.50 Southeast $5.50 $4.50 $3.50 $2.50 $4.00 What supply chain network configuration do you recommend for SportStuff.com? (20 points)