10.12 Discussion and Practice

  1. When designing a network of distribution centers to serve a large market, like the U.S., it is common to debate the number of facilities to use. Discuss the following.

    1. What arguments would you use to support having many facilities?  What assumptions did you make to support your analysis?

    2. What arguments would you use to support having fewer facilities? What assumptions did you make?

    3. Which business functions (departments) are likely to support each of these positions (i.e., having more or fewer facilities)?

    4. Imagine you are planning on a network of private warehouse facilities. How does the availability of land and labor affect your decision?

    5. How does the availability of third-party providers influence your decision?

  2. BuckBack Industries produces a wide range of lawn care products at its plant in Memphis, Tennessee. The company distributes these products throughout the United States. The company must maintain a low order-quantity policy in order to stay competitive. A typical order is 5,000 pounds. These orders are delivered via less-than-truckload (LTL) shipping from the plant warehouse in Memphis.

    One frequent customer is located in Fort Wayne, Indiana. LTL shipments from Memphis to Fort Wayne costs $1,000 for a 5,000-pound shipment. A new employee at BuckBack suggests that the company consider establishing a breakbulk facility in Cincinnati, Ohio to serve customers in the Midwest region, including the Fort Wayne customer. The cost of breaking bulk in Cincinnati is estimated to be $1800 per truckload shipment received. A truckload shipment of BuckBack products has capacity for up to 45,000 pounds (9 typical orders). The truckload carrier charges by the mile. The distance between Memphis and Cincinnati is 475 miles. The carrier charges a rate of $1.75 per mile, with an additional fuel surcharge of $0.21 per mile. An LTL shipment of 5,000 pounds from Cincinnati to Fort Wayne is $550.

    1. Using the Fort Wayne customer as a trial calculation, would adding the breakbulk operation make sense from a cost standpoint?

    2. How might the decision change if a different city was selected for the breakbulk location?

    3. How sensitive is the decision to changes in transportation rates among the LTL and truckload carriers?

    4. What other considerations (besides cost) might you factor into the decision?

  3. A common “rule of thumb” in the assignment of warehouse product putaway is to position the fast-moving (high-sales) items near the outbound (shipping) docks. While this is often a good arrangement, under what conditions would you suggest that this common “rule” not be followed?

  4. How does cross docking differ from conventional warehousing in terms of material handling? Be sure to specifically discuss the following activities.

    • Receiving and putaway

    • Order picking, staging, and shipping

    • Facility layout—i.e., cross-docking vs. conventional warehousing

  5. Suppose you are in a meeting with a cross-functional group of managers from your company. Someone asks, “Does the company’s distribution network provide sufficient coverage to achieve high levels of service in a selective distribution strategy?” A sales manager notes, “Rivals have recently been adding distribution facilities to their networks.” The financial manager suggests, “Capital would be employed better by expanding existing facilities.”

    • How would you frame the problem to assure that the “right” number of warehouse locations is achieved when accounting and economic costs are fully considered?

    • What analysis would you perform to answer the question, “Where should the warehouses be located?”

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