Mapping of Existing Supply Chain and Calculation of Costs - Assignment Example

Name: Student Number: Unit Title: Instructor: Date of submission: Question One: Mapping of existing supply chain and calculation of costs Key Port Distribution Centre Warehouse Transportation from port to distribution Centre (0.0018 per CBM per Mile) Transportation from distribution Centre to warehouse (0.022 per CBM per Mile) Cost of Distribution Details CBM Amount Cost per CBM Distance Total Cost % Change Processing Cost 190,000 5 $ 950,000 Quality Assurance Check 190,000 3 $ 570,000 Total Fixed Cost       $ 1,520,000 27% To distribution Centre CBM Amount Cost/CBM/mile Distance Total Cost LA to Kansas 123500 $ 0.0018 1620 $ 360,126 Seattle to Kansas 66500 $ 0.0018 1870 $ 223,839 Total       $ 583,965 10% To Warehouse Kansas 20900 $ 0.022 0 $ - Kansas to Cleveland 17100 $ 0.022 800 $ 300,960 Kansas to New Jersey 24700 $ 0.022 1200 $ 652,080 Kansas to Jacksonville 15200 $ 0.022 1150 $ 384,560 Kansas to Chicago 22800 $ 0.022 520 $ 260,832 Kansas to Greenville 15200 $ 0.022 940 $ 314,336 Kansas to Memphis 17100 $ 0.022 510 $ 191,862 Kansas to Dallas 22800 $ 0.022 500 $ 250,800 Kansas to LA 34200 $ 0.022 1620 $ 1,218,888 Total       $ 3,574,318 63% Grand Total       $ 5,678,283 Explanation The costs are divided into fixed, distribution from port to distribution Centre then to warehouse (Bisen & Srivastava, 2009). The fixed cost is further categorized as processing and quality assurance cost with the cost of $5 and $3 per CBM respectively. Therefore; Total fixed cost = Amount of CBM * Cost per CBM The results are as shown in the table above where the cost of processing is $950,000 and $570,000 for quality assurance check. The total fixed cost is estimated at $1,520,000 as a sum of both costs. It represents 27% of the total cost. The second cost for consideration is moving the consignment from port to distribution Centre in Kansas and Seattle. The cost arrived at in the table above is calculate by the formula below; Cost to distribution Centre = CBM amount * Cost per CBM per mile * Distance NB: The Cost per CBM per mile is fixed at 0.0018. The transportation cost associated with movement of the consignment from port to distribution Centre are two that is Seattle to Kansas and LA to Kansas which amounted to $360,126 and $223,839. The total cost for this component amounting to $583,965. It represents 10% of the total cost incurred. Third cost component arises from moving the consignment from distribution Centre to the warehouse. The company has nine warehouses in major US cities. The cost represents the highest proportion of the total incurred (63%). The cost to each warehouse above is calculated as follows; Cost to warehouse = CBM amount * Cost per CBM per mile * Distance NB: The Cost per CBM per mile is fixed at 0.022. The total cost incurred by the company in transportation amounts to $5,678,283 as the sum of the three cost components. Question two: Mapping of upgraded supply system and calculation of annual costs Key Port Distribution Centre Warehouse New Distribution Centre Transportation from port to distribution Centre (0.0018 per CBM per Mile) Transportation from distribution Centre to warehouse (0.022 per CBM per Mile) Annual Cost calculation Details CBM Amount Cost per CBM Distance Total Cost % Change Processing Cost 190,000 5 $ 950,000 Quality Assurance Check 190,000 5 $ 950,000 Total Fixed Cost       $ 1,900,000 28% To distribution Centre CBM Amount Cost/CBM/mile Distance Total Cost LA to Kansas 123500 $ 0.0018 1620 $ 360,126 Seattle to Kansas 66500 $ 0.0018 1870 $ 223,839 Total       $ 583,965 9% To Warehouse Kansas 20900 $ 0.022 0 $ - Kansas to Cleveland 17100 $ 0.022 800 $ 300,960 Kansas to New Jersey 24700 $ 0.022 1200 $ 652,080 Kansas to Jacksonville 15200 $ 0.022 1150 $ 384,560 Kansas to Chicago 22800 $ 0.022 520 $ 260,832 Kansas to Greenville 15200 $ 0.022 940 $ 314,336 Kansas to Memphis 17100 $ 0.022 510 $ 191,862 Kansas to Dallas 22800 $ 0.022 500 $ 250,800 Kansas to LA 34200 $ 0.022 0 $ - Operation Cost 350000 Total       $ 2,705,430 40% One Time cost $ 1,500,000 22% Grand Total       $ 6,689,395 The additional cost components for the new system is introduction of operation and one-time cost. The sum results to $6,689,295. Question Three: The graphical representation of existing and upgraded system The new system was introduced to minimize the cost incurred as a result of transporting the consignment from LA to Kansas then brought back to LA since the company had demanded in the region. The company established new distribution Centre at Los Angles to reduce double transportation. The graphical representation of the cost for the existing and new system is as shown below; It is evident from the graph that the initial cost incurred during the introduction of the system is a little bit higher compared to the existing system. The difference arises from the one-time cost of $1,500,000. It, therefore, results in higher cost at the first year by $1,011,112. The upgrade curve cuts the Y axis at the cost of $350,000 since operation cost is fixed and incurred whether the new distribution Centre is working or not, but the cost reduces with increase in the CBM quantity (Jacobs, Chase & Aquilano, 2009). Although quality assurance check increased by $380,000, the transportation cost from distribution Centre reduced considerably ($1,218,888 without considering operation cost). The overall saving in the second is at $488,888 after factoring operation cost and increase in fixed cost. The LA region has the highest demand compared to other warehouses, and thus a small reduction in cost would lead to high savings. Also, the graph shows that the higher the amount of consignment, the higher the amount of cost saved for transportation since after intersection the graph move in different directions. The company has an option of using the train instead of trucks to transport consignments from Kansas to LA warehouse. The LA warehouse is located at the train station and takes advantage of low cost of transportation ($0.0018) as compared to the truck (0.022). The company saves $1,119,161 by using the train as compared to upgrading the system. The graph below represents the cost saved using the train as compared to truck and system upgrade. The company saves $1,119,161 by using the train as compared to the existing system. It would save $630,273 if it obtained new upgrade of its system at LA. It is evident from the graph above that the company saves by using the train as compared to the other two (Kruger, 2013; Kruger 2012). It is imperative for the ABC company to adopt train station for the other warehouse since it will save $0.0202 per CBM per Mile. The New Jersey and Greenville cities are not connected to the railway station. The table below shows the annual cost if ABC company opts to use the train for other warehouses. Details CBM Amount Cost per CBM Distance Total Cost % Change Processing Cost 190,000 5 $ 950,000 Quality Assurance Check 190,000 3 $ 570,000 Total Fixed Cost       $ 1,520,000 46% To distribution Centre CBM Amount Cost/CBM/mile Distance Total Cost LA to Kansas 123500 $ 0.0018 1620 $ 360,126 Seattle to Kansas 66500 $ 0.0018 1870 $ 223,839 Total       $ 583,965 18% To Warehouse Kansas 20900 $ 0.022 0 $ - Kansas to Cleveland 17100 $ 0.0018 800 $ 24,624 Kansas to New Jersey 24700 $ 0.022 1200 $ 652,080 Kansas to Jacksonville 15200 $ 0.0018 1150 $ 31,464 Kansas to Chicago 22800 $ 0.0018 520 $ 21,341 Kansas to Greenville 15200 $ 0.022 940 $ 314,336 Kansas to Memphis 17100 $ 0.0018 510 $ 15,698 Kansas to Dallas 22800 $ 0.0018 500 $ 20,520 Kansas to LA 34200 $ 0.0018 1620 $ 99,727 Total       $ 1,179,790 36% Grand Total       $ 3,283,755 The table above shows that the company saves $ 2,394,528 if it adopts the train transportation for the warehouses with stations as shown in the map below; In conclusion, we can note the three options that are upgrading the system, use the train to return goods to LA or use the train for the warehouses that have railway stations. However, the use of train proves to be more cost saving option followed by adopting train for the LA warehouse alone (Kujawa, 2011). The upgrade of the system had a higher cost as a result of the initial one-time cost of $1,500,000. Therefore, ABC company should minimize the use of trucks and substitute with trains since it is much cheaper. The decrease in transportation cost stimulates demand since ABC company has room to reduce prices without affecting their profit margin (Seuring, 2003; Weele, 2015). Reference: Bisen, V. and Srivastava, S. (2009). Production & operation management. Lucknow, India: Word-Press. Jacobs, F., Chase, R. and Aquilano, N. (2009). Operations and supply management. New York: McGraw-Hill/Irwin. Kruger, S. (2012). Journal of Transport and Supply Chain Management. Journal of Transport and Supply Chain Management, 6(1). Kruger, S. (2013). Scientific contributions in the field of Transport and Supply Chain Management. Journal of Transport and Supply Chain Management, 7(1). Kujawa, B. (2011). Journal of Transport and Supply Chain Management. Journal of Transport and Supply Chain Management, 5(1). Seuring, S. (2003). Strategy and organization in supply chains. Heidelberg: Physica-Verlag. Weele, A. (2015). Purchasing & supply chain management. Australia: Cengage Learning. Read More