PLEASE SOLVE THIS CASE STUDY

CASE STUDY DELIVERY STRATEGY AT MOONCHEM John Kresge, Vice President of Supply Chain, was very concerned as he left the meeting at MoonChem, a manu- facturer of specialty chemicals. The year-end meeting Pevaluated financial performance and discussed the fact that the firm was achieving only two inventory turns a year. A more careful look revealed that over half the inventory Moon Chem owned was in consignment with its customers. This was very surprising, given that only 20 percent of its customers carried consignment inventory. John was responsible for inventory as well as transporta- tion costs. He decided to take a careful look at the man- agement of consignment inventory and come up with an appropriate plan Codes that were contiguous, as shown in Figure 10-9. He restricted attention within the Peoria region, which was classified as Zip Code 615. A careful study of the Peoria region revealed two large customers, six medium-sized customers, and 12 small customers. The annual consumption at each type of customer was as shown in Table 10-4. Golden charged $400 for each shipment from Chicago to Peoria, and MoonChem's policy was to send a full truckload to each customer as needed. John checked with Golden to find out what it would take to include shipments for multiple customers on a single load. Golden informed him that they would continue to charge $350 per truck and would then add $50 for each drop-off that Golden was responsible for. Thus, if Golden carried a truck that had to make one delivery, the total charge would be $400. However, if a truck had to make four deliveries, the total charge would be $550. Each pound of chemical in consignment cost MoonChem $1, and MoonChem had a holding cost of 25 percent. John wanted to analyze different options for dis- tribution available in the Peoria region to decide on the optimal distribution policy. The detailed study of the Peoria region would provide the blueprint for the distri- bution strategy that MoonChem planned to roll out nationally. MOONCHEM OPERATIONS MoonChem, a manufacturer of specialty chemicals, had eight manufacturing plants and 40 distribution centers. The plants manufactured the base chemicals and the dis- tribution centers mixed them to produce hundreds of end products that fit customer specifications. In the specialty chemicals market, MoonChem decided to differentiate itself in the Midwest region by providing consignment inventory to its customers. The company wanted to take this strategy national if it proved effective. MoonChem kept the chemicals required by each customer in the Midwest region on consignment at the customers' sites. Customers used the chemicals as needed, and Moon Chem managed replenishment to ensure availability. In most instances, consumption of chemicals by customers was very stable. MoonChem owned the consignment inven- tories and was paid for the chemicals as they were used. QUESTIONS 1. What is the annual cost of MoonChem's strategy of sending full truckloads to each customer in the Peoria region to replenish consignment inventory? 2. Consider different delivery options and evaluate the cost of each. What delivery option do you recom- mend for MoonChem? 3. How does your recommendation impact consign- ment inventory for MoonChem? DISTRIBUTION AT MOONCHEM MoonChem used Golden trucking, a full-truckload car- rier, for all its shipments. Each truck had a capacity of 40,000 pounds, and Golden charged a fixed rate given the origin and destination, regardless of the quantity shipped on the truck. Moon Chem sent full truckloads to each customer to replenish their consignment inven- tory. THE ILLINOIS PILOT STUDY John decided to take a careful look at his distribution operations. He focused on the state of Illinois, which was supplied from the Chicago distribution center. He broke up the state of Illinois into a collection of Zip TABLE 10-4 Profile for MoonChemin Peoria Region Customer Number of Consumption Type Customers (Pounds per Month) Small 12 1,000 Medium 6 5,000 Large 2 12,000 FIGURE 10-9 Illinois Zip Code Map RENDEREN ROCKFORD 1610 A611 PALATINE 600 A602 CAROL STREAM 1601 A603 FOX VALLEY (LA OFFICES) 527 528 ROCK ISLANDI 1612 CHICAGO 607 A606 LA SALLE 613 SOUTH SUBURBAN GALESBURG KANKAKEE 1614 1615 609 PEORIA A616/BLOOMINGTON 617 (MO FFICES) 634 635 QUINCY SPRINGFIELD 625 626 CHAMPAIGN 618 619 627 EFFINGHAM 624 (NORTH) 620 ST. LOUIS, MO 631 (SOUTH) 622 1628 CENTRALIA CARBONDALE 1629