Final Case III.docx - 1 If SportStuff is constrained to...

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1. If SportStuff is constrained to lease all warehouses in St. Louis there is no need to run a network simulation as there will be no impact/variation arising due to change in shipment costs. In such a case, merely appropriate warehouse size needs to be selected that minimizes the holding and fixed cost and still meets the demand. Based on this, following are the year wise costs for this distribution, Year 2007 Annual capacity of the current warehouse in St. Louis is 2,000,000 units, which is sufficient to meet 2007’s demand. Therefore, costs are- Fixed Warehouse Cost = $220,000 Variable Warehouse Cost = ($0.20 x 1,425,000) = $285,000 Holding Cost = $475,000+0.165*1,425,000 = $710,125 Shipping Cost = $1,108,125 Shipping charged to customer = (1,425,000/4) x $3 = ($1,068,750) Total Costs = $1,254,500 Year 2008 Annual capacity of the current warehouse in St. Louis is 2,000,000 units, which is insufficient to meet 2008’s demand (2,565,000 units). Therefore, it is optimal to go for one large warehouse rather than opening another small one, as it will give the same capacity with reduced fixed costs. On similar lines as above, Fixed Warehouse Cost $375,000 Variable Warehouse Cost $513,000 Holding Cost $898,225 Shipping Cost $1,994,625 Shipping charged to customer ($1,923,750) Total Costs $1,857,100 Year 2009 Annual capacity of the current warehouse in St. Louis is 4,000,000 units, which is insufficient to meet 2009’s demand (4,617,000 units). Therefore, it is optimal to go for one large warehouse (existing) and add another small warehouse. Fixed Warehouse Cost $595,000 Variable Warehouse Cost $923,400 Holding Cost $475000 x 2 warehouses+0.165x4617000 = $1,711,805 Shipping Cost $3,590,325 Shipping charged to customer ($3,462,750) Total Costs $3,357,780
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Year 2010 Annual capacity of the current warehouse in St. Louis is 6,000,000 units, which is insufficient to meet 2010’s demand (8,310,600 units). Therefore, it is optimal to go for two large warehouse and one small warehouse. Fixed Warehouse Cost $970,000 Variable Warehouse Cost $1,662,120 Holding Cost $475000 x 3 warehouses+0.165x8,310,600 = $2,796,249 Shipping Cost $6,462,585 Shipping charged to customer ($6,232,950) Total Costs $5,658,004
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