2 - Logistics Module Case Description

IN CLASS CASE #2 – LOGISTICS MANAGEMENT Lance, with the help of the SCM 309 classes, has achieved unparalleled success with “Feels Like 98.” Dramatically improved planning has enabled sales increases resulting from reduced out of stocks and far less waste in ordering raw materials, cutting COGS and operating expenses. This improvement has led to a significant increase in cash flow (greater revenues, lower costs = higher profit margins; less profit spent on inventory to achieve higher sales) that have been invested in growing markets and product lines, as well as a new canning line in the brewery. The canning operation plus business development efforts have enabled 98 to begin selling canned beers to local grocery and convenience store chains in Knoxville city and Knox County. To help reduce costs and improve service, the brewery is evaluating renting out space as a forward staging facility to deliver product to retail customers. If it did this, then it could distribute cases to a small number of customers from the current brewery and use the new facility to distribute the bulk of product to retail locations. The brewery is evaluating a facility in West Knoxville on Middlebrook Pike. It has also broken its retail customers down into five areas: Downtown, Bearden, Far West (Farragut and Hardin Valley), South Knoxville (SoKno), and Powell (North Knox areas). The estimated average cost per delivery from the brewery and staging location to customers along with associated capacities and the forecasted number of deliveries to each retail area was also estimated. The following will also be required in the distribution network: • Customer demand is based on a forecast that must be met but cannot be exceeded • Outgoing shipments from the brewery may not exceed its manufacturing capacity of 28,100 cases per year • Outbound shipments from the staging facility must be equal to inbound shipments • Storage space at the brewery will limit the volume of cases that can be direct shipped from the brewing facility directly to retail locations to 7,000 cases Use the data below to answer the following questions about what design would provide the minimum cost logistics network.

Cost per Delivery To/From Staging Facility Downtown Bearden Far West SoKno Powell Brewery $5 $1 $2 $5 $2.5 $5.5 Staging Facility $4.25 $2 $3 $6 $3 Forecasted Demand Retail Area Downtown Bearden Far West SoKno Powell # of Deliveries 6,100 7,200 3,500 5,500 2,200 1. What is the estimated cost of the minimum cost logistics network? 2. How many deliveries would you make from the brewery to the downtown area in this network? 3. How many deliveries would you make from the staging facility to the downtown area in this network? 4. How much would the cost to deliver a product from the staging facility to downtown need to increase before your optimal solution would change? 5. How much would adding 1 case of storage capacity at the brewery decrease cost? 6. What retail area is the least expensive to serve in the optimal network?

OUTBOUND FULL CANS FROM THE NEW STAGING FACILITY Dest. City Case Count Ship Date Deliver by date Hardin Valley 15 4/13 4/15 Bearden 25 4/14 4/16 East Knox 10 4/12 4/14 Farragut 30 4/14 4/16 Bearden 50 4/12 4/14 Gay St 10 4/13 4/15 Karns 80 4/13 4/15 Bearden 80 4/12 4/14 Powell 16 4/14 416 The Strip 20 4/13 4/15 INBOUND EMPTY CANS BACK TO THE NEW STAGING FACILITY Origin City Case count Available PickUpDate Downtown 12 4/14 Karns 13 4/12 Hardin Valley 19 4/13 The Strip 25 4/13 Farragut 10 4/12 Powell 8 4/14 Gay St 20 4/12 Bearden 40 4/14 East Knox 15 4/13 Bearden 6 4/14 10. Let’s also think about operations in the new Staging Facility. Describe some characteristics of how we would operate this facility, including: a) Who should own and operate the facility (98 or a 3 rd party) b) Should the facility be a large storage facility, or more like a cross dock? Explain your answer. c) Briefly describe some thoughts about how you would store product in the facility and pick it to fill customer orders.