Sport Stuff.pptx
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CASE OVERVIEW • In 2004 Sanjay Gupta founded sportstuff.com • Mission: to supply parents with more affordable sports equipment for their children. • Sportstuff.com purchase used equipment and jackets from families and any surplus from manufactures and retailers and sold these on the sportstuff.com website. • Demand sales exploited to $0.8 million (one year)
ISSUES • Sanjay team clearly saw that cost would grow faster than revenues if the demand continued to grow and the supply chain network is not redesigned. • The company needed more warehouse space to cope with the anticipated demand growth. • Overall goal is to find an optimal model solution that lowers total transportation and warehousing costs.
Two Options
• St. Louis Warehouse. • Different Cities Warehouses.
Variable given in the Case • UPS transportation cost per every 4 units • Customer flat fee charge of $3.00 per 4 units. • Inventory cost = 475,000 Y+0.65F • Regional Demands • Fixed and variable warehousing costs
Question to be Answered 1. What is the cost Sportstuff.com incurs if all warehouses leased are in St. Louis? 2. What supply chain network configuration do you recommend for sportstuff.com? Why? 3. How would your recommendation change if transportation cost were twice those that are given?
Q.1What is the cost Sportstuff.com incurs if all warehouses leased are in St. Louis? Demand in 2007 is as shown in Table 5-15
Demand 2007
Northwest
320,000
Southwest
200,000
Upper Midwest
160,000
Lower Midwest
220,000
Northeast
350,000
Southeast
175,000
Total Demand
1,425,000
The capacity of the current warehouse in St. Louis is 2,000,000 units per year, more than enough to accommodate 2007’s demand. Costs are calculated as: • Fixed Warehouse Cost = $220,000 • Variable Warehouse Cost = ($0.20/unit)(1,425,000 units) = $285,000 • Holding Cost = $475,000+0.165*1,425,000 = $710,125 • Shipping Cost = $1,068,750 • Shipping Recouped from Customer = (1,425,000/4)*$3 = $1,068,750 • Total Network Costs = $1,254,500 Note that the spreadsheet used for these calculations employed the linear holding cost function of $475,000+0.165F, which results in a holding cost of $710,125 and a total plan cost of $1,254,500. Subsequent holding costs will use the single linear function to determine holding costs.
If demand increases by 80% per year for 2008, 2009, and 2010 and SportStuff.com wishes to use St. Louis as their only warehouse center, the following demands and costs are realized. The optimal solution for 2008 calls for one large warehouse rather than two small ones.
Demand 2008
Northwest
576000
Southwest
360000
Upper Midwest
288000
Lower Midwest
396000
Northeast
630000
Southeast
315000
Total Demand
2,565,000
Total Shipping Cost
$1,994,625
Total Holding Cost
$898,225
Warehouse Cost
$888,000
Total Shipping Recoup TOTAL COST
$1,923,750 $1,857,100
For 2009, one small and one large warehouse is optimal.
Demand 2009
Northwest
1036800
Southwest
648000
Upper Midwest
518400
Lower Midwest
712800
Northeast
1134000
Southeast
567000
Total Demand
4,617,000
Total Shipping Cost
$3,590,325
Total Holding Cost
$2,473,610
Warehouse Cost
$1,518,400
Total Shipping Recoup
$3,462,750
TOTAL COST
$4,119,585
For 2010, one small and two large warehouses are optimal
Demand 2010
Northwest
1866240
Southwest
1166400
Upper Midwest
933120
Lower Midwest
1283040
Northeast
2041200
Southeast
1020600
Total Demand
8,310,600
Total Shipping Cost
$6,462,585
Total Holding Cost
$5,538,747
Warehouse Cost
$2,632,120
Total Shipping Recoup
$6,232,950
TOTAL COST
$8,400,502
Q2.What supply chain network configuration do you recommend for SportStuff.com? For 2008: Small warehouses in Seattle and St. Louis
Northwest
Southwest
Upper Midwest
Lower Midwest
Northeast
Southeast
Total Supply
Seattle
576,000
360,000
0
0
0
0
936,000
Denver
0
0
0
0
0
0
0
St. Louis
0
0
288,000
396,000
630,000
315,000
1,629,000
Atlanta
0
0
0
0
0
0
0
Philadelphia
0
0
0
0
0
0
0
576,000
360,000
288,000
396,000
630,000
315,000
Total Demand
Total Shipping Cost
$1,688,625
Total Holding Cost
$1,373,225
Warehouse Cost
$1,033,000
Total Shipping Chg
$1,923,750
TOTAL COST
$2,171,100
A lower total system cost is achievable if SportStuff abandons their small St. Louis warehouse and opts for a single large warehouse in Atlanta. Total Shipping Cost
$2,068,875
Total Holding Cost
$898,225
Warehouse Cost
$888,000
Total Shipping Chg TOTAL COST
$1,923,750 $1,931,350
For 2009: Small warehouses in Seattle and St. Louis plus a small warehouse in Atlanta
Northwest
Southwest
Upper Midwest
Lower Midwest
Northeast
Southeast
Total Supply
Seattle
1,036,800
648,000
0
0
0
0
1,684,80 0
Denver
0
0
0
0
0
0
0
St. Louis
0
0
518,400
497,096
984,504
0
2,000,00 0
Atlanta
0
0
0
215,704
149,496
567,000
932,200
Philadelphia
0
0
0
0
0
0
0
1,036,800
648,000
518,400
712,800
1,134,000
567,000
Total Demand
Total Shipping Cost
$2,897,775
Total Holding Cost
$2,186,805
Warehouse Cost
$1,663,400
Total Shipping Chg
$3,462,750
TOTAL COST
$3,285,230
For 2010, Small warehouses in all cities results in Total Shipping Cost
$4,965,995
Total Holding Cost
$3,746,249
Warehouse Cost
$2,892,120
Total Shipping Chg
$6,232,950
TOTAL COST
$5,371,414
A lower cost solution of small warehouses in Seattle and Atlanta and large warehouses in Denver and Philadelphia results in a savings of $248,018.
Northwest
Southwest
Upper Midwest
Lower Midwest
Northeast
Southeast
Total Supply
Seattle
1,866,240
116,640
0
0
0
0
1,982,880
Denver
0
1,049,760
933,120
0
0
0
1,982,880
St. Louis
0
0
0
1,283,040
41,200
0
1,324,240
Atlanta
0
0
0
0
0
1,020,600
1,020,600
Philadelphia
0
0
0
0
2,000,000
0
2,000,000
1,866,240
1,166,400
933,120
1,283,040
2,041,200
1,020,600
Total Demand
Total Shipping Cost
$5,082,976
Total Holding Cost
$3,271,249
Warehouse Cost
$3,002,120
Total Shipping Chg
$6,232,950
TOTAL COST
$5,123,395
Q3.Recommendation
• It is better for Sportstuff.com to spread their network across varies cities. • We recommend management to use the non linear method in solver because its provide the lowest total cost for Sportstuff.com
ISSUES • Sanjay team clearly saw that cost would grow faster than revenues if the demand continued to grow and the supply chain network is not redesigned. • The company needed more warehouse space to cope with the anticipated demand growth. • Overall goal is to find an optimal model solution that lowers total transportation and warehousing costs.
Two Options
• St. Louis Warehouse. • Different Cities Warehouses.
Variable given in the Case • UPS transportation cost per every 4 units • Customer flat fee charge of $3.00 per 4 units. • Inventory cost = 475,000 Y+0.65F • Regional Demands • Fixed and variable warehousing costs
Question to be Answered 1. What is the cost Sportstuff.com incurs if all warehouses leased are in St. Louis? 2. What supply chain network configuration do you recommend for sportstuff.com? Why? 3. How would your recommendation change if transportation cost were twice those that are given?
Q.1What is the cost Sportstuff.com incurs if all warehouses leased are in St. Louis? Demand in 2007 is as shown in Table 5-15
Demand 2007
Northwest
320,000
Southwest
200,000
Upper Midwest
160,000
Lower Midwest
220,000
Northeast
350,000
Southeast
175,000
Total Demand
1,425,000
The capacity of the current warehouse in St. Louis is 2,000,000 units per year, more than enough to accommodate 2007’s demand. Costs are calculated as: • Fixed Warehouse Cost = $220,000 • Variable Warehouse Cost = ($0.20/unit)(1,425,000 units) = $285,000 • Holding Cost = $475,000+0.165*1,425,000 = $710,125 • Shipping Cost = $1,068,750 • Shipping Recouped from Customer = (1,425,000/4)*$3 = $1,068,750 • Total Network Costs = $1,254,500 Note that the spreadsheet used for these calculations employed the linear holding cost function of $475,000+0.165F, which results in a holding cost of $710,125 and a total plan cost of $1,254,500. Subsequent holding costs will use the single linear function to determine holding costs.
If demand increases by 80% per year for 2008, 2009, and 2010 and SportStuff.com wishes to use St. Louis as their only warehouse center, the following demands and costs are realized. The optimal solution for 2008 calls for one large warehouse rather than two small ones.
Demand 2008
Northwest
576000
Southwest
360000
Upper Midwest
288000
Lower Midwest
396000
Northeast
630000
Southeast
315000
Total Demand
2,565,000
Total Shipping Cost
$1,994,625
Total Holding Cost
$898,225
Warehouse Cost
$888,000
Total Shipping Recoup TOTAL COST
$1,923,750 $1,857,100
For 2009, one small and one large warehouse is optimal.
Demand 2009
Northwest
1036800
Southwest
648000
Upper Midwest
518400
Lower Midwest
712800
Northeast
1134000
Southeast
567000
Total Demand
4,617,000
Total Shipping Cost
$3,590,325
Total Holding Cost
$2,473,610
Warehouse Cost
$1,518,400
Total Shipping Recoup
$3,462,750
TOTAL COST
$4,119,585
For 2010, one small and two large warehouses are optimal
Demand 2010
Northwest
1866240
Southwest
1166400
Upper Midwest
933120
Lower Midwest
1283040
Northeast
2041200
Southeast
1020600
Total Demand
8,310,600
Total Shipping Cost
$6,462,585
Total Holding Cost
$5,538,747
Warehouse Cost
$2,632,120
Total Shipping Recoup
$6,232,950
TOTAL COST
$8,400,502
Q2.What supply chain network configuration do you recommend for SportStuff.com? For 2008: Small warehouses in Seattle and St. Louis
Northwest
Southwest
Upper Midwest
Lower Midwest
Northeast
Southeast
Total Supply
Seattle
576,000
360,000
0
0
0
0
936,000
Denver
0
0
0
0
0
0
0
St. Louis
0
0
288,000
396,000
630,000
315,000
1,629,000
Atlanta
0
0
0
0
0
0
0
Philadelphia
0
0
0
0
0
0
0
576,000
360,000
288,000
396,000
630,000
315,000
Total Demand
Total Shipping Cost
$1,688,625
Total Holding Cost
$1,373,225
Warehouse Cost
$1,033,000
Total Shipping Chg
$1,923,750
TOTAL COST
$2,171,100
A lower total system cost is achievable if SportStuff abandons their small St. Louis warehouse and opts for a single large warehouse in Atlanta. Total Shipping Cost
$2,068,875
Total Holding Cost
$898,225
Warehouse Cost
$888,000
Total Shipping Chg TOTAL COST
$1,923,750 $1,931,350
For 2009: Small warehouses in Seattle and St. Louis plus a small warehouse in Atlanta
Northwest
Southwest
Upper Midwest
Lower Midwest
Northeast
Southeast
Total Supply
Seattle
1,036,800
648,000
0
0
0
0
1,684,80 0
Denver
0
0
0
0
0
0
0
St. Louis
0
0
518,400
497,096
984,504
0
2,000,00 0
Atlanta
0
0
0
215,704
149,496
567,000
932,200
Philadelphia
0
0
0
0
0
0
0
1,036,800
648,000
518,400
712,800
1,134,000
567,000
Total Demand
Total Shipping Cost
$2,897,775
Total Holding Cost
$2,186,805
Warehouse Cost
$1,663,400
Total Shipping Chg
$3,462,750
TOTAL COST
$3,285,230
For 2010, Small warehouses in all cities results in Total Shipping Cost
$4,965,995
Total Holding Cost
$3,746,249
Warehouse Cost
$2,892,120
Total Shipping Chg
$6,232,950
TOTAL COST
$5,371,414
A lower cost solution of small warehouses in Seattle and Atlanta and large warehouses in Denver and Philadelphia results in a savings of $248,018.
Northwest
Southwest
Upper Midwest
Lower Midwest
Northeast
Southeast
Total Supply
Seattle
1,866,240
116,640
0
0
0
0
1,982,880
Denver
0
1,049,760
933,120
0
0
0
1,982,880
St. Louis
0
0
0
1,283,040
41,200
0
1,324,240
Atlanta
0
0
0
0
0
1,020,600
1,020,600
Philadelphia
0
0
0
0
2,000,000
0
2,000,000
1,866,240
1,166,400
933,120
1,283,040
2,041,200
1,020,600
Total Demand
Total Shipping Cost
$5,082,976
Total Holding Cost
$3,271,249
Warehouse Cost
$3,002,120
Total Shipping Chg
$6,232,950
TOTAL COST
$5,123,395
Q3.Recommendation
• It is better for Sportstuff.com to spread their network across varies cities. • We recommend management to use the non linear method in solver because its provide the lowest total cost for Sportstuff.com
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