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Analytics Exercise: Distribution Center Location Grainger: Reengineering the China/U.S. Supply Chain W. W. Grainger, Inc., is a leading supplier of mainte- Your assignment involves studying U.S. distribution nance, repair, and operating (MRO) products to busi- in Grainger's supply chain. Grainger works with over 250 nesses and institutions in the United States, Canada, and suppliers in the China and Taiwan region. These suppliers Mexico, with an expanding presence in Japan, India, produce products to Grainger's specifications and ship to the China, and Panama. The company works with more than United States using ocean freight carriers from four major 3,000 suppliers and runs an extensive Website (www ports in China and Taiwan. From these ports, product is .grainger.com) where Grainger offers nearly 900,000 shipped to U.S. entry ports in either Seattle, Washington, or products. The products range from industrial adhesives Los Angeles, California. After passing through customs, the used in manufacturing, to hand tools, janitorial supplies, 20- and 40-foot containers are shipped by rail to Grainger's lighting equipment, and power tools. When something central distribution center in Kansas City, Kansas. The con- is needed by one of its 1.8 million customers, it is often tainers are unloaded and quality is checked in Kansas City. needed quickly, so quick service and product availability From there, individual items are sent to regional warehouses are key drivers to Grainger's success. in nine U.S. locations, a Canadian site, and Mexico. Grainger: U.S. Distribution In the United States, approximately 40 percent of the containers enter in Seattle, Washington, and 60 per- cent at the Los Angeles, California, port. Containers on arrival at the port cities are inspected by federal agents and then loaded onto rail cars for movement to the Kansas City distribution center. Variable costs for processing at the port are $5.00 per cubic meter (CBM) in both Los Angeles and Seattle. The rate for shipping the containers to Kansas City is $0.0018 per CBM per mile. In Kansas City, the containers are unloaded and processed through a quality assurance check. This costs $3.00 per CMB processed. A very small percentage of the material is actually sent back to the supplier, but errors in quantity and package size are often found that require accounting adjustments. Items are stored in the Kansas City distribution cen- ter, which serves nine warehouses in the United States. Items are also sent to warehouses in Canada and Mex- ico, but for the purposes of this study we focus on the United States. The nine warehouses each place orders at the distribution center that contains all the items to be replenished. Kansas City picks each item on the order, consolidates the items onto pallets, and ships the items on 53-foot trucks destined to each warehouse. Truck freight costs $0.0220 per CBM per mile. The demand forecasts for the items purchased from China/Taiwan for next year in cubic meters, as well as the shipping distances, are given in the following table. Distances Demand (CBM) Warehouse Average Miles from Kansas City % of Demand Miles from Los Angeles Miles from Seattle Kansas City Cleveland New Jersey Jacksonville Chicago Greenville 20 900 11100 24.700 15,200 22,800 15.200 90 139 184 800 1200 30 520 940 1.6.20 21350 2.780 2.420 2.020 2.320 1.870 2410 2.890 2.990 2060 2.950 890 Do you want This is the question no. 12: What is the annual savings in terms of operational costs when we switch to the proposed system (upgrading LA facility)? (The difference of the two total costs computed earlier) Analytics Exercise: Distribution Center Location Grainger: Reengineering the China/U.S. Supply Chain W. W. Grainger, Inc., is a leading supplier of mainte- Your assignment involves studying U.S. distribution nance, repair, and operating (MRO) products to busi- in Grainger's supply chain. Grainger works with over 250 nesses and institutions in the United States, Canada, and suppliers in the China and Taiwan region. These suppliers Mexico, with an expanding presence in Japan, India, produce products to Grainger's specifications and ship to the China, and Panama. The company works with more than United States using ocean freight carriers from four major 3,000 suppliers and runs an extensive Website (www ports in China and Taiwan. From these ports, product is .grainger.com) where Grainger offers nearly 900,000 shipped to U.S. entry ports in either Seattle, Washington, or products. The products range from industrial adhesives Los Angeles, California. After passing through customs, the used in manufacturing, to hand tools, janitorial supplies, 20- and 40-foot containers are shipped by rail to Grainger's lighting equipment, and power tools. When something central distribution center in Kansas City, Kansas. The con- is needed by one of its 1.8 million customers, it is often tainers are unloaded and quality is checked in Kansas City. needed quickly, so quick service and product availability From there, individual items are sent to regional warehouses are key drivers to Grainger's success. in nine U.S. locations, a Canadian site, and Mexico. Grainger: U.S. Distribution In the United States, approximately 40 percent of the containers enter in Seattle, Washington, and 60 per- cent at the Los Angeles, California, port. Containers on arrival at the port cities are inspected by federal agents and then loaded onto rail cars for movement to the Kansas City distribution center. Variable costs for processing at the port are $5.00 per cubic meter (CBM) in both Los Angeles and Seattle. The rate for shipping the containers to Kansas City is $0.0018 per CBM per mile. In Kansas City, the containers are unloaded and processed through a quality assurance check. This costs $3.00 per CMB processed. A very small percentage of the material is actually sent back to the supplier, but errors in quantity and package size are often found that require accounting adjustments. Items are stored in the Kansas City distribution cen- ter, which serves nine warehouses in the United States. Items are also sent to warehouses in Canada and Mex- ico, but for the purposes of this study we focus on the United States. The nine warehouses each place orders at the distribution center that contains all the items to be replenished. Kansas City picks each item on the order, consolidates the items onto pallets, and ships the items on 53-foot trucks destined to each warehouse. Truck freight costs $0.0220 per CBM per mile. The demand forecasts for the items purchased from China/Taiwan for next year in cubic meters, as well as the shipping distances, are given in the following table. Distances Demand (CBM) Warehouse Average Miles from Kansas City % of Demand Miles from Los Angeles Miles from Seattle Kansas City Cleveland New Jersey Jacksonville Chicago Greenville 20 900 11100 24.700 15,200 22,800 15.200 90 139 184 800 1200 30 520 940 1.6.20 21350 2.780 2.420 2.020 2.320 1.870 2410 2.890 2.990 2060 2.950 890 Do you want This is the question no. 12: What is the annual savings in terms of operational costs when we switch to the proposed system (upgrading LA facility)? (The difference of the two total costs computed earlier)