Distribution network for michael s hardware case study
1. Distribution
Network for
Michael’s
Hardware
GROUP 14
ANKITMITTAL 1402016
ARPIT SINGH 1402025
DIPRONIL MONDAL 1402052
DIVYANSHU JOIYA 1402054
2. Brief about the Case
Current Scenario:
32 stores each in Illinios & Arizona.
Illinios’ store sells an average of 50,000 units a year and
Arizona’s store sell 10,000 units from each supplier.
Direct Shipping model used in Illinois and LTL shipping in Arizona
to keep inventory low.
Suggested Alternatives for Illinois by Staff
Direct shipping with larger trucks.
Use milk run for transportation.
Suggested Alternatives for Arizona by Staff
Direct shipping with small trucks.
Use milk run with small trucks for transportation.
Third party cross docking facility.
3. What is the annual distribution
cost of the current distribution
network.
Direct Shipping Using Small Trucks in Illinois(Full)
Batch size = 10,000
Average inventory at store = 50,000
Number of shipments / year = 5
Truck cost / retail store / supplier = $ 2,250
Total truck cost = $ 576,000
Holding cost / retail store / supplier = $
50,000
Total holding cost = $ 1,28,00,000
Total holding and truck cost = $ 1,33,76,000
4. The cost of the current network for Arizona is
obtained as follows:
Total transportation cost = 8×32×10,000×0.5 =
$1,280,000
If batches of 500 are used for each store, holding
cost = (500/2)×8×32 = $64,000.
The total annual cost thus is $ 1,344,000.
5. How should Ellen structure distribution from
suppliers to the stores in Illinois. What annual
savings can she expect?
Milk Run Using Small Trucks (Full)
Number of stops / truck 4 Batch size / product / store
= 2,500
Average inventory at store / product = 1,250
Number of shipments / store / year = 20
Truck cost / retail store / supplier /year = $ 3,000
Total truck cost / year = $ 768,000
Holding cost / retail store / supplier = $ 1,250
Total holding cost / year= $ 320,000
Total holding and truck cost = $ 1,088,000
Savings = $ 768,000
6. How should Ellen structure distribution
from suppliers to the stores in Illinois.
What annual savings can she expect?
Milk Run Using Small Trucks (Full)
Number of stops / truck 10 Batch size / product /
store = 1,000
Average inventory at store / product= 500
Number of shipments / store / year = 10
Truck cost / retail store / supplier /year = $ 2,500
Total truck cost / year = $ 640,000
Holding cost / retail store / supplier = $ 500
Total holding cost / year= $ 128,000
Total holding and truck cost = $ 768,000
Savings = $576,000
7. What changes in the distribution network
(if any) would you suggest as both
markets grow?
As Illinois grows, one would expect to see the
number of stores aggregated on to a single truck
to decrease. If demand quadruples from current
levels, the optimal number of stores per milk run
decreases from 4 to 2.
As Arizona grows, one would first expect the need
for intermediate facilities to diminish. This may
require a significant increase in demand given
the high transportation cost from suppliers to
Arizona. According to our understanding of the
case the intermediate facility stays optimal until
the demand at Arizona increases by a factor of 4
relative to current levels.