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Running Head: MICHAEL’S HARDWARE
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Case on Designing the Distribution Network for Michael’s Hardware By: Date
MICHAEL’S HARDWARE
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Introduction The study improvises supply chain improvements by critical analysis of transportation and inventory cost management. Michael’s hardware had 32 stores each in Arizona and Illinois where they source products from various suppliers in Midwest. At Illinois, it was the first location of company and 8 suppliers are provided products. It has strong sales structure with 50,000 units/suppliers/annually and 400,000 units/store/annually. On the other hand, Arizona operations were started five years ago that plays a dominant growth in company success. Every store of Arizona sold 10,000 unit/year and 80,000 units/store/annually. Transportation modes The truck transportation mode is available containing less than truckload (LTL) and full truckload (TL). Moreover, there are various options are available for transportation such as direct shipping networks. In direct shipping network, one or two suppliers ship goods to multiple buyer locations. Secondly, direct shipping with milk runs where each source of supplier ships goods to multiple buyer location. Lastly, cross-docking is a practice of logistics of unloading material from truck to outbound truck with no storage in between. Cross-docking reduces cost of inventory and safety stocks [ CITATION Ind12 \l 1033 ]. Alternatives to Illinois and Arizona First of all, Illinois can make a direct shipment model with trucks. However, the available alternatives include run milk with both large and small trucks. In addition, the direct shipping model can be taken with larger trucks. On the other hand, Arizona can make less than truckload (LTL). For Arizona State, the available alternatives include cross-docking facility, run milk with small trucks, and direct shipping model with small trucks [ CITATION Mar181 \l 1033 ].
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Annual distribution cost Item numbers Number of Units Sold per Supplier Number of Units Sold per Store Total number of units Annually Modes of Transportation Capacity of transportation Cost per truck
Illinois 50,000 400,000 (32*400,000)12800000 Direct Shipping Model 10,000
Arizona 10,000 80,000 (32*80,000)2560000 LTL shipping 500
$450.00 Cost per unit
$0.50
Holding cost per unit $1.00
$1.00
$576,000.00
$1,280,000.00
$5,000.00
$250.00
$581,000.00
$1,280,250.00
Cost of transportation Cost of Inventory Total Cost
Structuring distribution from suppliers in Illinois and saving expectations Item numbers
Initial
1st Alternative
Number of Units Sold per Supplier Number of Units Sold per Store Total number of units Annually Modes of Transportation
50,000
50,000
2nd Alternative 50,000
400,000
400,000
400,000
(32*400,000)128000 00 Direct Ship with small trucks
(32*400,000)128000 00 Direct ship with a large truck
(32*400,000)12800000
Capacity of transportation Cost per truck Cost per unit Holding cost of per unit Delivery Cost Inventory cost
10,000
40,000
Run milk with large trucks 40,000
Run milk with small trucks 10,000
$450
$1,150
$1,000
$400
$1
$1
$1
$1
$5,000
$20,000
$150 $20,000
$50 $5,000
MICHAEL’S HARDWARE Transportation cost Total Cost Expected Saving
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$576,000
$368,000
$321,200
$512,400
$581,000 -
$388,000 $193,000
$341,200 $239,800
$517,400 $63,600
Structuring distribution from suppliers in Arizona and saving expectations Item numbers
Initial
1st Alternative
2nd Alternative
3rd Alternative
Number of Units Sold per Supplier Number of Units Sold per Store Total units sold annually Modes of available transportation
10,000
10,000
10,000
10,000
10,000
80,000
80,000
80,000
80,000
80,000
2,560,000
2,560,000
2,560,000
2,560,000
2,560,000
LTL shipping
Direct ship with a small truck
Run milk with a small truck
Crossdocking from suppliers
Crossdocking from stores
Capacity of Transportation Cost per truck Per unit cost Cost of holding Delivery cost Transportation cost
500
10,000
10,000
40,000
10,000
$2,050
$2,000
$1
$4,150 $0.1 $1
$250 $0.1 $1
$265,600
$64,000
Inventory cost Total cost Expected Savings
$0.5 $1 $1,280,00 0 $250
$524,800
$1 $50 $512,400
$5000
$5,000
$1,280,25 0 -
$529,800
$517,400
$750,450
$762,850
$20,000 $5,000 $285,600 $69,000 $354,600 $925,650
Required Changes in the distribution network By considering Tables 2 and 3, the best option for Michael’s hardware is to continue with direct shipping to manage cost-effectively but they should introduce milk runs to grow markets
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promptly. The centralized option is not feasible for the company due to number of suppliers and stores which may create delays in deliveries to reach point of destination [ CITATION Sun13 \l 1033 ].
Conclusion Thus, to sum all discussions regarding distribution network analysis of Michael’s analysis, the best option for both states is to continue with the direct shipping model of small and large trucks. By considering transportation and inventory the annual distribution cost of current distribution network for Illinois is $581,000.00 and Arizona is $1,280,250. The detailed analysis has been constructed to understand and select best choice of distribution network.
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References Chopra, S., & Meindl, P. (2013). Supply Chain Management. Pearson. Marion, G. (2018). Introduction to Supply Chain Management. Retrieved from https://www.thebalancesmb.com/logistics-4161402 Sukati, I., Hamid, A. B., Baharun, R., & Yusoff, R. M. (2012). The Study of Supply Chain Management Strategy and Practices on Supply Chain Performance. Procedia - Social and Behavioral Sciences, 40, 225-233.
