Demand from each customer zone in 2019 was as shown in Table 1. Mini
estimated that the demand will continue to grow in the next three years before it stabilises. The expected
annual growth rates are 80% 50% and 20% for 2020, 2021 and 2022 respectively. It can be assumed that the
growth rate applies to all customer zones consistently. From 2023 onward, the demand would remain basically
unchanged.
Table 1: Demand at MiniToys.com for 2019

New South Wales (NSW)	5670
Queensland (QLD)	3440
Northern Territories (NT)	176
Western Australia (WA)	1863
South Australia (SA)	1216
Victoria (VIC)	4583
Tasmania (TAS)	370
Australian Capital Territory (ACT)	282

THE NETWORK OPTIONS
Mini could see that she needed more warehouse space to cope with the anticipated growth. One option was to
lease more warehouse space in Melbourne 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
varied with the orders handled at the warehouse. Four potential locations for warehouses were identified in
Sydney, Brisbane, Adelaide, and Perth. Warehouses leased could be either small (about 5,000 sq. ft.) or large
(10,000 sq. ft.). Small warehouses could handle a flow of up to 10,000 orders per year, whereas large
warehouses could handle a flow of up to 20,000 orders per year. The warehouse in St. Kilda being leased was
a large one. The fixed and variable costs of small and large warehouses in different locations are shown inTable 2. They are related to shelving the inventory items coming into the warehouse and retrieving them for fulfilling customer orders.

Location	Small Warehouse		Large Warehouse
	Fixed Cost ($ / year)	Variable Cost ($ / Order)	Fixed Cost ($ / year)	Variable Cost ($ / Order)
Melbourne	30,000	2.0	50,000	2.0
Sydney	25,000	3.0	42,000	3.0
Brisbane	22,000	2.5	37,500	2.5
Adelaide	22,000	1.5	37,500	1.5
Perth	24,000	1.0	40,000	1.0

Mini estimated that the annual processing cost at a city where the warehouses were leased was about $50,000Y + 6.5F where Y is the number of warehouses leased in the city and F is the total number of orders progressed in those warehouse(s) in a year. The annual processing cost includes the wages of the temporary staff, the superannuation, and other associated expenses.

MiniToys.com charged a flat fee of $15 per shipment sent to a customer. The company in turn contracted with Australian Post to handle all its outbound shipments. Australian Post charges were based on both the origin and the destination of the shipment and are shown in Table 3. There is no inbound transportation cost for shipments from sellers as they arranged their own transports. Therefore, it has no impact on the warehouse configuration.

	NSW	QLD	NT	WA	SA	VIC	TAS	ACT
Melbourne	11	28	35	37	18	4	6	7
Sydney	4	25	37	43	22	11	14	4
Brisbane	11	19	34	46	25	20	25	15
Adelaide	17	24	27	27	9	9	15	14
Perth	49	44	32	11	29	41	44	46

1. What is the total cost MiniToys.com incurs in 2019 with the current warehouse arrangement?
2. What is the cost MiniToys.com incurs under the following scenarios in 2020, 2021 and 2022?
   1. Keeping the existing large warehouse in St. Kilda with additional warehouses rented all in Melbourne;
   2. Keeping the existing large warehouse in St. Kilda with additional warehouses rented in different cities (Note: some of the additional warehouses can be in Melbourne if necessary); and
   3. Not keeping the existing large warehouse or using any warehouse in Melbourne but renting new warehouses in other cities.
3. What supply chain network configuration would you recommend for MiniToys.com in the long run based entirely on cost consideration? A year-by-year action plan should be recommended.
4. How would your recommendation change if instead of charging a flat fee of $15 per shipment from the customer, the Australia Post shipment charge is to be borne by the customer? Again, a year-by-year action plan should be recommended.
5. Based on the findings from Questions 3 and 4, do you think MiniToys.com should change the current shipping arrangement to the one being considered? Why?

Answer rating: 100% (QA)

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