alko case study answers.xls

CR - 04/08/2023 05:20:47 document.xls - Demand & Costs

Section 8 - Case Study: ALKO

Inputs $ 0.15 per unit and day

TL costs from plants to DCs = $ 0.09 per unitLTL costs from DC to customers = $ 0.10 per unitTL costs from plants to central whse. = $ 0.05 per unitLTL cost from central whse. to cust. = $ 0.24 per unit

6 days5 days

0.95Correlation Coefficient = 0

Demand data by part and region # of partsRegion 1 Region 2 Region 3 Region 4 Region 5 All Regions

10 35.48 22.61 17.66 11.81 3.36 90.92Part 1 SD 6.98 6.48 5.26 3.48 4.49 NAPart 3 Mean 20 2.48 4.15 6.15 6.16 7.49 26.43Part 3 SD 3.16 6.20 6.39 6.76 3.56 NAPart 7 Mean 70 0.48 0.73 0.80 1.94 2.54 6.49Part 7 SD 1.98 1.42 2.39 3.76 3.98 NA

Coefficient of variation by part and regionRegion 1 Region 2 Region 3 Region 4 Region 5 All Regions

Part 1 0.20 0.29 0.30 0.29 1.34 NAPart 3 1.27 1.49 1.04 1.10 0.48 NAPart 7 4.13 1.95 2.99 1.94 1.57 NA

Demand during reorder interval and replenishment lead timeRegion 1 Region 2 Region 3 Region 4 Region 5 All Regions

Part 1 Mean 390.28 248.71 194.26 129.91 36.96 1000.12Part 1 SD 23.15 21.49 17.45 11.54 14.89 NAPart 3 Mean 27.28 45.65 67.65 67.76 82.39 290.73Part 3 SD 10.48 20.56 21.19 22.42 11.81 NAPart 7 Mean 5.28 8.03 8.80 21.34 27.94 71.39Part 7 SD 6.57 4.71 7.93 12.47 13.20 NA

OutputsCycle stock and required safety stock by part and region Cycle stock and required safety stock by part and region in days of demand

Region 1 Region 2 Region 3 Region 4 Region 5 All Regions Region 1 Region 2 Region 3 Region 4 Region 5 All RegionsPart 1Cycle Inventory 106.44 67.83 52.98 35.43 10.08 272.76 Part 1Cycle Invento 3.00 3.00 3.00 3.00 3.00 3.00Part 1 SS 38.08 35.35 28.70 18.98 24.49 145.60 Part 1 SS 1.07 1.56 1.62 1.61 7.29 1.60Part 3 Cycle Inventory 7.44 12.45 18.45 18.48 22.47 79.29 Part 3 Cycle Invent 3.00 3.00 3.00 3.00 3.00 3.00Part 3 SS 17.24 33.82 34.86 36.88 19.42 142.22 Part 3 SS 6.95 8.15 5.67 5.99 2.59 5.38Part 7 Cycle Inventory 1.44 2.19 2.40 5.82 7.62 19.47 Part 7 Cycle Invent 3.00 3.00 3.00 3.00 3.00 3.00

Part 7 SS 10.80 7.75 13.04 20.51 21.71 73.81 Part 7 SS 22.50 10.61 16.30 10.57 8.55 11.37

Costs per unit by region and partRegion 1 Region 2 Region 3 Region 4 Region 5 All Regions

Inventory cost $ 0.61 $ 0.68 $ 0.69 $ 0.69 $ 1.54 $ 0.69 Transportation cost $ 0.19 $ 0.19 $ 0.19 $ 0.19 $ 0.19 $ 0.19 Total cost part 1 $ 0.80 $ 0.87 $ 0.88 $ 0.88 $ 1.73 $ 0.88 Inventory cost $ 1.49 $ 1.67 $ 1.30 $ 1.35 $ 0.84 $ 1.26 Transportation cost $ 0.19 $ 0.19 $ 0.19 $ 0.19 $ 0.19 $ 0.19 Total cost part 3 $ 1.68 $ 1.86 $ 1.49 $ 1.54 $ 1.03 $ 1.45 Inventory cost $ 3.83 $ 2.04 $ 2.89 $ 2.04 $ 1.73 $ 2.16 Transportation cost $ 0.19 $ 0.19 $ 0.19 $ 0.19 $ 0.19 $ 0.19 Total cost part 7 $ 4.02 $ 2.23 $ 3.08 $ 2.23 $ 1.92 $ 2.35

Total Annual Inventory and Distribution Cost # of parts Region 1 Region 2 Region 3 Region 4 Region 5 All Regions

Part 1 10 $103,729 $72,171 $56,964 $37,982 $21,260 $292,107Part 3 20 $30,463 $56,425 $66,904 $69,161 $56,259 $279,213Part 7 70 $49,246 $41,626 $63,051 $110,336 $124,747 $389,005All Parts $183,439 $170,223 $186,920 $217,479 $202,266 $960,326

Holding cost, H =

Reorder Interval, T =Lead Time, L =Target cycle service level, CSL =

Part 1 Mean, R

A32

(L+T)*mean demand

A33

sqrt(L+T)*SD of demand

A43

RT/2

J43

RT/2

A44

NORMSINV(CSL)*SQRT(L+T)*SD of demand

J44


CR - 04/08/2023 05:20:48 document.xls - Central vs. Local


InputsHolding cost, H = $ 0.15 per unit and dayTL costs from plants to DCs = $ 0.09 per unitLTL costs from DC to customers = $ 0.10 per unitTL costs from plants to central whse. = $ 0.05 per unitLTL cost from central whse. to cust. = $ 0.24 per unitReorder Interval, T = $ 6.00 daysLead Time, L = $ 5.00 daysTarget cycle service level, CSL = $ 0.95 Correlation Coefficient = $ -

Demand data by part and region # of partsRegion 1 Region 2 Region 3 Region 4 Region 5 All Regions Central

Part 1 Mean 10 35.48 22.61 17.66 11.81 3.36 90.92 90.91Part 1 SD 6.98 6.48 5.26 3.48 4.49 NA 12.27Part 3 Mean 20 2.48 4.15 6.15 6.16 7.49 26.43 26.43Part 3 SD 3.16 6.20 6.39 6.76 3.56 NA 12.15Part 7 Mean 70 0.48 0.73 0.80 1.94 2.54 6.49 6.49Part 7 SD 1.98 1.42 2.39 3.76 3.98 NA 6.45

Demand during reorder interval and replenishment lead timeRegion 1 Region 2 Region 3 Region 4 Region 5 All Regions Central

Part 1 Mean 390.28 248.71 194.26 129.91 36.96 1000.12 1000.01Part 1 SD 23.15 21.49 17.45 11.54 14.89 NA 40.71Part 3 Mean 27.28 45.65 67.65 67.76 82.39 290.73 290.73Part 3 SD 10.48 20.56 21.19 22.42 11.81 NA 40.30Part 7 Mean 5.28 8.03 8.80 21.34 27.94 71.39 71.39Part 7 SD 6.57 4.71 7.93 12.47 13.20 NA 21.40

OutputsCycle stock and required safety stock by part and region

Region 1 Region 2 Region 3 Region 4 Region 5 All Regions CentralPart 1Cycle Inventory 106.44 67.83 52.98 35.43 10.08 272.76 272.73Part 1 SS 38.08 35.35 28.70 18.98 24.49 145.60 66.96Part 3 Cycle Inventory 7.44 12.45 18.45 18.48 22.47 79.29 79.29Part 3 SS 17.24 33.82 34.86 36.88 19.42 142.22 66.28Part 7 Cycle Inventory 1.44 2.19 2.40 5.82 7.62 19.47 19.47

Part 7 SS 10.80 7.75 13.04 20.51 21.71 73.81 35.20

Costs per unit by region and partRegion 1 Region 2 Region 3 Region 4 Region 5 All Regions Central

Inventory cost $ 0.61 $ 0.68 $ 0.69 $ 0.69 $ 1.54 $ 0.69 $ 0.56 Transportation cost $ 0.19 $ 0.19 $ 0.19 $ 0.19 $ 0.19 $ 0.19 $ 0.29 Total cost part 1 $ 0.80 $ 0.87 $ 0.88 $ 0.88 $ 1.73 $ 0.88 $ 0.85 Inventory cost $ 1.49 $ 1.67 $ 1.30 $ 1.35 $ 0.84 $ 1.26 $ 0.83 Transportation cost $ 0.19 $ 0.19 $ 0.19 $ 0.19 $ 0.19 $ 0.19 $ 0.29 Total cost part 3 $ 1.68 $ 1.86 $ 1.49 $ 1.54 $ 1.03 $ 1.45 $ 1.12 Inventory cost $ 3.83 $ 2.04 $ 2.89 $ 2.04 $ 1.73 $ 2.16 $ 1.26 Transportation cost $ 0.19 $ 0.19 $ 0.19 $ 0.19 $ 0.19 $ 0.19 $ 0.29

Total cost part 7 $ 4.02 $ 2.23 $ 3.08 $ 2.23 $ 1.92 $ 2.35 $ 1.55

Total Annual Inventory and Distribution Cost # of parts Region 1 Region 2 Region 3 Region 4 Region 5 All Regions Central Savings

Part 1 10 $103,729 $72,171 $56,964 $37,982 $21,260 $292,107 $282,208 $9,899Part 3 20 $30,463 $56,425 $66,904 $69,161 $56,259 $279,213 $215,356 $63,857Part 7 70 $49,246 $41,626 $63,051 $110,336 $124,747 $389,005 $257,600 $131,405

All Parts $183,439 $170,223 $186,920 $217,479 $202,266 $960,326 $755,164

Savings: $205,162

Cost Savings from Centralization as a function of the correlation coefficient and target cycle service level

All parts Correlation Cofficiant

$205,162 0.00 0.25 0.50 0.75 1.00

Tar

get

Cyc

le S

ervi

ce L

eve

l

0.9 $144,599 $74,213 $19,155 -$27,633 -$69,035

0.91 $154,468 $80,830 $23,229 -$25,720 -$69,035

0.92 $165,190 $88,019 $27,655 -$23,642 -$69,035

0.93 $176,979 $95,924 $32,521 -$21,357 -$69,035

0.94 $190,145 $104,752 $37,956 -$18,806 -$69,035

0.95 $205,162 $114,821 $44,155 -$15,896 -$69,035

0.96 $222,804 $126,651 $51,438 -$12,477 -$69,035

0.97 $244,493 $141,194 $60,391 -$8,273 -$69,035

0.98 $273,324 $160,526 $72,293 -$2,686 -$69,035

0.99 $318,766 $190,996 $91,052 $6,121 -$69,035

Type 1 only Correlation Cofficient$9,899 0.00 0.25 0.50 0.75 1.00

Tar

get

Cyc

le S

ervi

ce L

eve

l 0.9 $389 -$10,751 -$19,388 -$26,701 -$33,1590.91 $1,939 -$9,716 -$18,752 -$26,403 -$33,1590.92 $3,622 -$8,591 -$18,061 -$26,079 -$33,1590.93 $5,474 -$7,355 -$17,301 -$25,722 -$33,1590.94 $7,541 -$5,974 -$16,453 -$25,324 -$33,1590.95 $9,899 -$4,399 -$15,485 -$24,871 -$33,1590.96 $12,670 -$2,548 -$14,348 -$24,337 -$33,1590.97 $16,076 -$273 -$12,950 -$23,682 -$33,1590.98 $20,603 $2,751 -$11,091 -$22,810 -$33,159

0.99 $27,739 $7,517 -$8,162 -$21,437 -$33,159


Tar

get

Cyc

le S

ervi

ce L

eve

l 0.9 $45,492 $24,074 $7,384 -$6,776 -$19,2940.91 $48,484 $26,077 $8,616 -$6,197 -$19,2940.92 $51,736 $28,254 $9,955 -$5,569 -$19,2940.93 $55,311 $30,647 $11,427 -$4,878 -$19,2940.94 $59,304 $33,319 $13,071 -$4,107 -$19,2940.95 $63,857 $36,368 $14,947 -$3,227 -$19,2940.96 $69,207 $39,949 $17,150 -$2,193 -$19,2940.97 $75,785 $44,352 $19,858 -$922 -$19,2940.98 $84,528 $50,205 $23,458 $767 -$19,294

0.99 $98,308 $59,429 $29,133 $3,430 -$19,294


Tar

get

Cyc

le S

ervi

ce L

eve

l 0.9 $98,719 $60,890 $31,159 $5,844 -$16,5820.91 $104,045 $64,469 $33,365 $6,880 -$16,5820.92 $109,832 $68,357 $35,761 $8,006 -$16,5820.93 $116,194 $72,632 $38,395 $9,243 -$16,5820.94 $123,300 $77,407 $41,338 $10,626 -$16,5820.95 $131,405 $82,852 $44,693 $12,202 -$16,5820.96 $140,927 $89,250 $48,636 $14,054 -$16,5820.97 $152,632 $97,115 $53,483 $16,331 -$16,5820.98 $168,193 $107,571 $59,926 $19,357 -$16,582

0.99 $192,719 $124,050 $70,081 $24,128 -$16,582

A35

RT/2

A36


J60

Relative to decentralized network

CR - 04/08/2023 05:20:48 document.xls - option1.0

Section 8 - Case Study: ALKO (Part 1 is decentralized with all others centralized)

InputsHolding cost = $ 0.15 per unit and dayTL costs from plants to DCs = $ 0.09 per unitLTL costs from DC to customers = $ 0.10 per unitTL costs from plants to central whse. = $ 0.05 per unitLTL cost from central whse. to cust. = $ 0.24 per unitReorder Interval = 6 daysLead Time = 5 daysTarget cycle service level = 0.95Correlation Coefficient = 0


Part 1 Mean 10 35.48 22.61 17.66 11.81 3.36 90.92Part 1 SD 6.98 6.48 5.26 3.48 4.49 NAPart 3 Mean 20 2.48 4.15 6.15 6.16 7.49 26.43Part 3 SD 3.16 6.20 6.39 6.76 3.56 NAPart 7 Mean 70 0.48 0.73 0.80 1.94 2.54 6.49Part 7 SD 1.98 1.42 2.39 3.76 3.98 NA



Demand during reorder interval and replenishment lead timeRegion 1 Region 2 Region 3 Region 4 Region 5 Central

Part 1 Mean 390.28 248.71 194.26 129.91 36.96Part 1 SD 23.15 21.49 17.45 11.54 14.89Part 3 Mean 290.73Part 3 SD 40.30Part 7 Mean 71.39Part 7 SD 21.40


Region 1 Region 2 Region 3 Region 4 Region 5 CentralPart 1Cycle Stock 106.44 67.83 52.98 35.43 10.08Part 1 SS 38.08 35.35 28.70 18.98 24.49Part 3 Cycle Stock 79.29Part 3 SS 66.28Part 7 Cycle Stock 19.47

Part 7 SS 35.20

Costs per unit by region and partRegion 1 Region 2 Region 3 Region 4 Region 5 Central

Inventory cost $ 0.61 $ 0.68 $ 0.69 $ 0.69 $ 1.54 Transportation cost $ 0.19 $ 0.19 $ 0.19 $ 0.19 $ 0.19 Total cost part 1 $ 0.80 $ 0.87 $ 0.88 $ 0.88 $ 1.73 Inventory cost $ 0.83 Transportation cost $ 0.29 Total cost part 3 $ 1.12 Inventory cost $ 1.26 Transportation cost $ 0.29 Total cost part 7 $ 1.55

Total Annual Inventory and Distribution Cost # of parts Region 1 Region 2 Region 3 Region 4 Region 5 Central

Part 1 10 $103,729 $72,171 $56,964 $37,982 $21,260 $0 $292,107Part 3 20 $215,356Part 7 70 $257,600

All Parts $103,729 $72,171 $56,964 $37,982 $21,260 $472,956

Total logistic system: $765,064Costs Savings

Benchmark: All parts in the field: $960,326 $195,262All partscentralized: $755,164 -$9,899

Correlation Cofficient$765,064 0.00 0.25 0.50 0.75 1.00

Ta

rge

t C

yc

le S

erv

ice

Le

ve

l

0.9 $701,631 $760,877 $807,298 $846,772 $881,7170.91 $711,968 $773,951 $822,516 $863,814 $900,3730.92 $723,197 $788,154 $839,049 $882,328 $920,6410.93 $735,545 $803,771 $857,228 $902,685 $942,9260.94 $749,335 $821,213 $877,530 $925,421 $967,8150.95 $765,064 $841,106 $900,686 $951,351 $996,2020.96 $783,542 $864,477 $927,890 $981,815 $1,029,5520.97 $806,259 $893,209 $961,335 $1,019,267 $1,070,5520.98 $836,457 $931,403 $1,005,794 $1,069,054 $1,125,0540.99 $884,053 $991,601 $1,075,866 $1,147,523 $1,210,956

CR - 04/08/2023 05:20:48 document.xls - option1.1

Section 8 - Case Study: ALKO (Part 1 is decentralized with all others centralized except part3 in region5)

InputsHolding cost, H = $ 0.15 per unit and dayTL costs from plants to DCs = $ 0.09 per unitLTL costs from DC to customers = $ 0.10 per unitTL costs from plants to central whse. = $ 0.05 per unitLTL cost from central whse. to cust. = $ 0.24 per unitReorder Interval, T = 6 daysLead Time, L = 5 daysTarget cycle service level, CSL = 0.95Correlation Coefficient = 0






Part 1 Mean 390.28 248.71 194.26 129.91 36.96Part 1 SD 23.15 21.49 17.45 11.54 14.89Part 3 Mean 82.39 208.34Part 3 SD 11.81 38.53Part 7 Mean 71.39Part 7 SD 21.40


Region 1 Region 2 Region 3 Region 4 Region 5 CentralPart 1Batch Stock 106.44 67.83 52.98 35.43 10.08Part 1 SS 38.08 35.35 28.70 18.98 24.49Part 3 Batch Stock 22.47 56.82Part 3 SS 19.42 63.38Part 7 Batch Stock 19.47

Part 7 SS 35.20


Inventory cost $ 0.61 $ 0.68 $ 0.69 $ 0.69 $ 1.54 Transportation cost $ 0.19 $ 0.19 $ 0.19 $ 0.19 $ 0.19 Total cost part 1 $ 0.80 $ 0.87 $ 0.88 $ 0.88 $ 1.73 Inventory cost $ 0.84 $ 0.68 Transportation cost $ 0.19 $ 0.29 Total cost part 3 $ 1.03 $ 0.97 Inventory cost $ 1.26 Transportation cost $ 0.29 Total cost part 7 $ 1.55


Part 1 10 $103,729 $72,171 $56,964 $37,982 $21,260 $0Part 3 20 $56,259 $187,566Part 7 70 $257,600

All Parts $103,729 $72,171 $56,964 $37,982 $77,519 $445,166




Ta

rge

t C

yc

le S

erv

ice

Le

ve

l

0.9 $726,106 $780,127 $822,962 $859,585 $892,1050.91 $737,094 $793,611 $838,425 $876,739 $910,7620.92 $749,031 $808,259 $855,222 $895,375 $931,0290.93 $762,156 $824,365 $873,692 $915,865 $953,3150.94 $776,815 $842,353 $894,320 $938,750 $978,2040.95 $793,533 $862,868 $917,846 $964,851 $1,006,5900.96 $813,175 $886,971 $945,486 $995,515 $1,039,9400.97 $837,322 $916,602 $979,467 $1,033,214 $1,080,9400.98 $869,421 $955,992 $1,024,637 $1,083,327 $1,135,4420.99 $920,014 $1,018,076 $1,095,832 $1,162,312 $1,221,345

CR - 04/08/2023 05:20:48 document.xls - option1.0a

Section 8 - Case Study: ALKO (Part 1,3 is decentralized with part 7 centralized)







Part 1 Mean 390.28 248.71 194.26 129.91 36.96Part 1 SD 23.15 21.49 17.45 11.54 14.89Part 3 Mean 27.28 45.65 67.65 67.76 82.39Part 3 SD 10.48 20.56 21.19 22.42 11.81Part 7 Mean 71.39Part 7 SD 21.40


Region 1 Region 2 Region 3 Region 4 Region 5 CentralPart 1Batch Stock 106.44 67.83 52.98 35.43 10.08Part 1 SS 38.08 35.35 28.70 18.98 24.49Part 3 Batch Stock 7.44 12.45 18.45 18.48 22.47Part 3 SS 17.24 33.82 34.86 36.88 19.42Part 7 Batch Stock 19.47

Part 7 SS 35.20


Inventory cost $ 0.61 $ 0.68 $ 0.69 $ 0.69 $ 1.54 Transportation cost $ 0.19 $ 0.19 $ 0.19 $ 0.19 $ 0.19 Total cost part 1 $ 0.80 $ 0.87 $ 0.88 $ 0.88 $ 1.73 Inventory cost $ 1.49 $ 1.67 $ 1.30 $ 1.35 $ 0.84 Transportation cost $ 0.19 $ 0.19 $ 0.19 $ 0.19 $ 0.19 Total cost part 3 $ 1.68 $ 1.86 $ 1.49 $ 1.54 $ 1.03 Inventory cost $ 1.26 Transportation cost $ 0.29 Total cost part 7 $ 1.55


Part 1 10 $103,729 $72,171 $56,964 $37,982 $21,260 $0Part 3 20 $30,463 $56,425 $66,904 $69,161 $56,259 $0 $279,213Part 7 70 $257,600

All Parts $134,192 $128,597 $123,869 $107,143 $77,519 $257,600




Ta

rge

t C

yc

le S

erv

ice

Le

ve

l

0.9 $747,122 $784,951 $814,681 $839,997 $862,4230.91 $760,452 $800,028 $831,132 $857,617 $881,0790.92 $774,933 $816,408 $849,004 $876,759 $901,3470.93 $790,856 $834,418 $868,655 $897,807 $923,6320.94 $808,639 $854,533 $890,602 $921,314 $948,5210.95 $828,921 $877,474 $915,632 $948,124 $976,9080.96 $852,749 $904,426 $945,040 $979,622 $1,010,2580.97 $882,044 $937,561 $981,193 $1,018,345 $1,051,2580.98 $920,985 $981,607 $1,029,252 $1,069,821 $1,105,7600.99 $982,362 $1,051,031 $1,104,999 $1,150,953 $1,191,662

CR - 04/08/2023 05:20:48 document.xls - Option 2

Section 8 - Case Study: ALKO (region 5 served from region 4)







Part 1 Mean 390.28 248.71 194.26 166.87 50Part 1 SD 23.15 21.49 17.45 18.84Part 3 Mean 290.73Part 3 SD 40.30Part 7 Mean 71.39Part 7 SD 21.40


Region 1 Region 2 Region 3 Region 4 Region 5 CentralPart 1Batch Stock 106.44 67.83 52.98 35.43Part 1 SS 38.08 35.35 28.70 30.99Part 3 Batch Stock 79.29Part 3 SS 66.28Part 7 Batch Stock 19.47

Part 7 SS 35.20


Inventory cost $ 0.61 $ 0.68 $ 0.69 $ 0.84 Transportation cost $ 0.19 $ 0.19 $ 0.19 $ 0.22 Total cost part 1 $ 0.80 $ 0.87 $ 0.88 $ 1.06 Inventory cost $ 0.83 Transportation cost $ 0.29 Total cost part 3 $ 1.12 Inventory cost $ 1.26 Transportation cost $ 0.29 Total cost part 7 $ 1.55


Part 1 10 $103,729 $72,171 $56,964 $45,892 $0Part 3 20 $215,356Part 7 70 $257,600

All Parts $103,729 $72,171 $56,964 $45,892 $0 $472,956


Benchmark: All parts in the field: $960,326 $208,612All partscentralized: $755,164 $3,451

CR - 04/08/2023 05:20:48 document.xls - Option 3


InputsHolding cost = $ 0.15 per unit and dayTL costs from plants to DCs = $ 0.09 per unitLTL costs from DC to customers = $ 0.10 per unitTL costs from plants to central whse. = $ 0.05 per unitLTL cost from central whse. to cust. = $ 0.24 per unitReorder Interval = 6 daysLead Time = 5 daysTarget cycle service level = 0.95Correlation Coefficient = 0






Part 1 Mean 427.24 248.71 194.26 129.91Part 1 SD 27.53 21.49 17.45 11.54Part 3 Mean 27.28 45.65 67.65 67.76 82.39Part 3 SD 40.30Part 7 Mean 71.39Part 7 SD 21.40


Region 1 Region 2 Region 3 Region 4 Region 5 CentralPart 1Batch Stock 106.44 67.83 52.98 35.43Part 1 SS 45.28 35.35 28.70 18.98Part 3 Batch Stock 7.44 12.45 18.45 18.48 22.47Part 3 SS 66.28Part 7 Batch Stock 19.47

Part 7 SS 35.20


Inventory cost $ 0.64 $ 0.68 $ 0.69 $ 0.69 Transportation cost $ 0.19 $ 0.19 $ 0.19 $ 0.19 Total cost part 1 $ 0.83 $ 0.87 $ 0.88 $ 0.88 Inventory cost $ 0.45 $ 0.45 $ 0.45 $ 0.45 $ 0.45 $ 0.38 Transportation cost $ 0.19 $ 0.19 $ 0.19 $ 0.19 $ 0.19 $ 0.29 Total cost part 3 $ 0.64 $ 0.64 $ 0.64 $ 0.64 $ 0.64 $ 0.67 Inventory cost $ 1.26 Transportation cost $ 0.29 Total cost part 7 $ 1.55


Part 1 10 $107,670 $72,171 $56,964 $37,982Part 3 20 $11,587 $19,389 $28,733 $28,780 $34,993 $81,468Part 7 70 $257,600

All Parts $119,257 $91,560 $85,697 $66,762 $34,993 $339,068


Benchmark: All parts in the field: $960,326 $222,988All partscentralized: $755,164 $17,827

Summary of investment and annual cost for various options

Option Investment Annual Cost Savings from Base CaseDecentralize all parts in five warehouses Base Case $ 960,326 Centralize all parts at NDC $ 850,000 $ 755,164 $ 205,162 Centralize parts 3, 7, decentralize part 1 $ 650,000 $ 765,064 $ 195,262 Centralize part 7, decentralize part3 1, 3 $ 300,000 $ 828,921 $ 131,405 Centralize parts 3, 7, decentralize part 1

serve region 5 part 1 from region 4 $ 600,000 $ 751,714 $ 208,612

Rate of return NPV(10%)

24.1% $1,406,777 30.0% $1,497,884 43.8% $1,145,453

34.8% $1,694,734

alko case study answers.xls

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