Warehouse & Storage Planning Worksheet

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Answering the following questions based on the chapter readings. Upload your solutions by clicking the heading of this assignment. Please note you may want to use Excel to solve these problems and upload your Excel file. Also, the questions file is attached in Word if you prefer to do your work out by hand.

1. Super Performance Parts (SPP) produces braking devices exclusively for the Ace Motor Company, an automotive manufacturer. SPP has been leasing warehouse space at a public facility 20 miles for the company’s plant. SPP has been approached by a group of four other Ace suppliers with the idea of building a consolidated warehouse to gain transportation and materials handling economies. An investment of $200,000 would be required by each of the five companies to acquire the warehouse. Payment of the initial investment secures 10 years of participating on the agreement. Annual operating expenses are anticipated to be $48,000 for each party. SPP is currently charged $6,000 per month for use of the public warehouse facilities. SPP’s outbound transportation from the public warehouse often consists of LTL quantities. Its annual outbound transportation bill is currently $300,000. SPP expects consolidated warehousing to more fully utilize truckload quantities with the transportation expenses shared among the supplier pool. SPP’s annual outbound bill would be reduced by 25% in the consolidated plan. Differences in inbound transportation costs are assumed negligible in this case.
   1. Compare the storage and shipping costs associated with the consolidated warehousing as opposed to SPP’s current, direct shipping plan. Are any efficiencies apparent through consolidation?
   2. Aside from potentially reducing costs, how else might SPP benefit by participating in the consolidated warehouse?
   3. What disadvantages might exist in a consolidated warehouse as opposed to a direct-shipping situation?
2. Essen Beer Company has a brewery in Michigan’s Upper Peninsula and is setting up distribution at Jackson, Michigan, in the state’s Lower Peninsula. Essen packages its beverages in barrels and in 24-Can cases. Barrels must be maintained at temperatures below 60 degrees Fahrenheit until retail delivery. The company’s logistics department must determine whether to operate individual private warehoused for barrels and cases or to utilize a single warehouse with barrels placed in a carefully controlled environment separate from cases. Assume that cases are not to be stored or transported in refrigerated environments.

   Essen experiences a weekly demand of 300 barrels and 5,000 cases. The company has arranged truckload transportation with Stipe Trucking Service. Stipe operates refrigerated and nonrefrigerated trailers, as well as multicompartmented trailers that are half refrigerated and half not. A refrigerated truckload can hold 72 barrels, while a nonrefrigerated truckload holds 400 cases. The multicompartmented trailer can hold 36 barrels and 200 cases. The costs for these services and other related expenses are detailed below:

1. 1. Considering demand and all costs depicted above, does the single, consolidated warehouse or the two individual warehouses represent the least-total-cost alternative?
   2. Now assume that Stipe Trucking Services will provide only the multicompartmented trailers to serve the proposed consolidated warehouse. Which plan is the least-cost alternative in this scenario?

1. Comfy Mattresses, Inc., is opening a new plant in Orlando, Florida. Ron Lane, distribution manager, has been asked to find the lowest cost outbound logistics system. Given an annual sales volume of 24,000 mattresses, determine the costs associated with each option below.
   1. Build a private warehouse near the plant for $300,000. The variable cost, including warehouse maintenance and labor, is estimated at $5 per unit. Contract carrier transportation costs $12,50 per unit on average. No external transportation services are necessary for shipment of mattresses from the plant to the warehouse in this scenario. The fixed warehouse investment can be depreciated evenly over 10 years.
   2. Rent space in the public warehouse 10 miles from the plant. The public warehouse requires no fixed investment but has variable costs of $8 per unit. Outbound contract carrier transportation would cost $12.50 per unit on average. The carrier also charges $5 per unit to deliver the mattresses to the warehouse from the plant.
   3. Contract the warehousing and transportation services to the Freeflow Logistics Company, an integrated logistics firm with a warehouse location 25 miles from the plant. Freeflow requires a fixed investment of $150,000 and charges $20 per unit for all services originating at the plant. The fixed investment covers a 10-year agreement.
   4. Name a few advantages aside from cost that the low-cost alternative above may have over the other alternatives.
2. Ms. Sara Ritter is a distribution manager for the Fiesta Soft Drink Company. She is considering full automation of the plant’s warehouse. At present, the warehouse utilizes a mechanized system of materials handling. The current system employs 20 laborers at an average wage rate of $13/hour. Laborers work an average of 2,000 hours per year. The mechanization costs $18,000 annually to maintain. The equipment was purchased two years ago with uniform payments of $25,000 made annually. In year 9, the mechanical equipment will be replaced by new machinery with fixed annual costs of $35,000. In addition, it will cost Fiesta $12,000 per year to maintain the new equipment with the same 20 laborers.

   The automated equipment would cost $1.2 million upfront for the implementation. Only eight laborers and an automation specialist would be required to maintain operations in the new system. The laborers would earn $16/hour over 2,000 hours each year. The automation specialist would earn a salary of $56,000 per year, increasing 2% annually after the first year. Much of the old mechanized equipment could be sold immediately for a total of $125,000. Maintenance of the automated system is estimated at $60,000 each year with this cost growing by 3% annually after the first year. The automated system is expected to serve Fiesta for 15 years.

   1. Examine the cash flow under each system. What is the payback period for automation?
   2. What advantages aside from long-term cost savings might an automated warehouse have over more labor-intensive systems?
3. Dandy Collectibles is opening a new warehouse. Bob Lee, the warehouse manager, is trying to determine the labor compensation package that most productively utilizes resources. The typical compensation plan offers an hourly wage rate of $13. Mr. Lee is also considering an incentive plan. The incentive plan rewards solely on performance with order pickers earning $0.40/unit prepared for shipping. A typical week shows the number of ordered units that must be prepared for shipping.

   Errors sometimes happen in Dandy’s order picking. Product mishandling occurs in 1% of the orders under the incentive plan and in 0.5% of the orders under the hourly wage plan. Errored orders are scrapped and result in lost revenue of $60 per occurrence. Hourly workers pick 20 units per hour. Incentive workers pick 28 units per hour. Regardless of the plan designation, employees work 40-hour weeks. Union restriction prevent Dandy from operating on Saturday and Sunday. The labor union also restricts Dandy from hiring part-time workers. Orders need not be filled daily, but all orders must be shipped by week’s end (Friday). Assume that hiring and training costs are negligible.

   1. How many workers are needed under each plan for the typical week’s demand?
   2. Which plan meets the typical week’s demand at the lowest cost, including lost sales resulting from errors?