UWP KLF Electronics American Manufacturer of Electronic Equipment Case Study
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- Regional distributors are currently using continuous review inventory policy. Compute and describe their inventory management policy and associated cost. Ignore inbound and outbound transportation cost. Provide answers and calculations for order quantity, demand during lead time, safety stock, average inventory level, inventory holding cost per week, ordering cost per week, and total cost per week.
- Suppose five regional warehouses are replaced by single, centralized warehouse as shown in figure 1b.
- Assuming that warehouse is using continuous review inventory policy, compute and describe its inventory management policy and associated cost. Ignore inbound and outbound transportation cost. Provide answers and calculations for order quantity, demand during lead time, safety stock, average inventory level, inventory holding cost per week, ordering cost per week, and total cost per week.
- Compare ordering, holding, and total cost of maintaining a single, centralized warehouse versus maintaining five regional warehouses. Has cost increased or decreased? Will you always observe similar results? Explain.
- KLF Electronics is evaluating the potential for implementing periodic review inventory policy; however, their primary concern is lowering costs without compromising service quality.
- Assuming that the time between orders (review period r) remains the same for each regional warehouse, compute and describe its inventory management policy and associated cost using the current distribution system (Figure 1a). Ignore inbound and outbound transportation cost. Provide answers and calculations for Base stock, safety stock, average inventory level, inventory holding cost per week, ordering cost per week, and total cost per week. Compare with your answers to question 1, and report percentage change in inventory holding cost per week, ordering cost per week, and total cost per week for maintaining all the five regional warehouses. Comment on your findings.
- Redo similar analysis for the case of a single, centralized warehouse. Compare with your answers to question 2, and report on percentage change in inventory holding cost per week, ordering cost per week, and total cost per week. Comment on your findings.
- Suppose a new, centralized warehouse is added to serve Atlanta, Boston, Chicago, and Dallas as shown in Figure 1c. The manufacturing facility will continue to serve the Los Angles warehouse given its proximity and newly added centralized warehouse. Assuming that all warehouses are following the continuous review inventory policy, compute and describe its inventory management policy and associated cost. Keep in mind that the centralized warehouse is one echelon above regional warehouses. Ignore inbound and outbound transportation cost. Provide answers and calculations for order quantity, demand during lead time, safety stock, average inventory level, inventory holding cost per week, ordering cost per week, and total cost per week. Compare ordering, holding, and total cost of this distribution system with your answers to questions 1 and 2. Which distribution system has the lowest cost out of all three described? Comment on your findings.
- Now consider transportation cost associated with each distribution strategy.
- For the distribution system given in figure 1a, compute inbound and outbound transportation cost. Add these costs to total cost obtained in response to Question 1.
- For the distribution system given in figure 1b, determine which regional warehouse, if made the central warehouse, will have the lowest transportation cost. Add these costs to total cost obtained in response to Question 2.
- For the distribution system given in figure 1c, compute inbound, intermediate (inbound to Atlanta, Boston, Chicago, & Dallas warehouses,) and outbound transportation cost. Add these costs to total cost obtained in response to Question 4.
- Which distribution system has the lowest total cost out of all the three options described? Comment on your findings.
- KLF Electronics is looking into finding new, centralized warehouse that would serve Atlanta, Boston, Chicago, and Dallas warehouses as shown in Figure 1c. Perform internet search and find coordinates for Atlanta, Boston, Chicago, and Dallas. Apply the centroid method to determine the location of a new, centralized warehouse. Where does this fall on U.S. map? Is this location feasible? What recommendation(s) do you have for the new warehouse? Keep in mind that a slight departure from the actual solution obtained from using the centroid methods does not affect overall results.
- What other factors apart from cost should be taken into consideration while selecting a new facility location? Comment on the feasibility of the possible location(s) based on other factors.
- Consider all modes of transportation to regional warehouses from a new, centralized warehouse.
- 3PL Company has quoted an equivalent price for outbound transportation to all regional warehouses. Is the recommended warehouse equidistant from four cities by highway?
- Considering the recommended location, what other modes of transportation apart from highway are possible for shipping products to regional warehouses? Comment on the feasibility of each possible mode of transportation.
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