Proposed Distribution System

The task force the CEO put together came with the following recommendation: Build a centralized distribution center (CDC) near Chicago, close all regional distribution centers, and supply all products to all demand regions from the new CDC.

Given that Chicago is close to Cleveland, the inbound transportation cost from the plants to the CDC would go down to $0.05 per unit, and the transportation lead time for shipments between the plants and the CDC would be exactly 1 day. The CDC would continue to follow a periodic review policy with a reorder interval of six days, and a CSL of 95% for safety stock. Given the increased average distance, however, the outbound transportation cost to customers from the CDC would increase to $0.40 per unit.

The new CDC would need an upfront investment of $2 million. However, centralization to a single distribution center would result in efficiencies in operations, maintenance, and other overhead, leading to annual savings of $120,000.

question)What is the total annual inventory and distribution cost of the proposed distribution system?

Product H Region 1 35.48 6.98 2.48 3.16 Mean Std.Dev, Mean Std.Dev Mean Std.Dev, Region 2 Region 3 Region 4 Region 5 22.61 17.66 11.81 10.36 6.48 5.26 3.48 4.49 4.15 6.15 6.16 7.49 6.20 6.39 6.76 3.56 0.73 0.80 1.94 2.54 1.42 2.39 3.76 3.98 Product M Product L 0.48 1.98