Reference no: EM13221297

Superior Medical Equipment Company supplies electrical equipment that is used as components in the assembly of MRI, CAT scanners, PET scanners, and other medical diagnostic equipment. Superior has production facilities in Phoenix, Arizona, and Monterrey, Mexico. Customers for the components are located in selected locations throughout the United States and Canada. Currently, a warehouse, that receives all components from the plants and redistributed them to customers, is located at Kansas City, Kansas. Superior's management is concerned about location of its warehouse since its sales have declined due to increasing competition and shifting sales levels among the customers. The lease is about to expire on the current warehouse, and management wishes to examine whether it should be renewed or warehouse space at some other location should be leased. The warehouse owner has offered to renew the lease at an attractive rate of $2.75 per sq. ft. per year for the 200,000 sq. ft. facility. It is estimated that any other location would cost $3.25 per q. ft. for a similar-size warehouse. A new or renewed lease will be for five years. Moving the inventory, moving expenses for key personnel, and other location expenses would result in a one-time charge of $3, 00,000. Warehouse operating costs are expected to be similar at any location.

 

In the most recent year, Superior was able to achieve sales of nearly $70 million. Transportation costs from the plants to the Kansa warehouse were $2,162,535, and from the warehouse to customers were $4,819,569. One million dollars was paid annually as warehouse lease expenses. To study the warehouse location question, data shown in Tables 1 and 2 were collected.

 

Although transport costs are not usually expressed on a $/cwt./mile basis, given that the outbound transportation costs for the most recent year were $4,819,569, the weighted average distance of the shipments was 1128 miles, and the annual volume shipped was 182,100 cwt., the estimated average outbound rate from a warehouse is $0.0235/cwt./mile.

 

Table 1 Volume, Rate, Distance, and Coordinate Data for Shipping from Plants to the Kansas City Warehouse in Truckload Quantities (Class 100) for the Most Recent Year.

 

Examination Paper: Logistics Management

 

IIBM Institute of Business Management 4

 

Table 2 Volumes, Rate, Distance, and Coordinate Data for Shipping from Plants to the Kansas City

 

Warehouse in Truck in 5,000 lb Quantities (Class 100) for the Most Recent Year.

 

PLANT LOCATION	ANNUAL VOLUME,	TRANSPORT RATE,S/CWT	DISTANCE,MILES	GRID COORDINATES^a             X	GRID CO-ORD^A     Y
PHOENIX	61500	16.73	1163	3.60	3.90
MONTERREY	120600	9.40	1188	6.90	1.00

 

amiles = 230 X coordianate distance

 

bcwt =100 lb

 

Table 2: Volumes,Rate,Distance and co-ordinate data for shipping from plants to the Kansas city Warehouse in Truck in 5000lb quantities(Class 100) for the most recent year

 

PLANT LOCATION	ANNUAL VOLUME,CWTb	TRANSPORT RATE,S/CWT	DISTANCE,MILES	GRID COORDINATES^a             X	GRID CO-ORD^A     Y
Seattle	17000	33.69	1858	0.90	9.10
Los Angels	32000	30.43	1496	1.92	4.20
Denver	12500	25.75	598	5.6	6.10
Dallas	9500	18.32	560	7.80	3.6
Chicago	29500	25.24	504	10.20	6.90
Atlanta	21000	19.66	855	11.30	3.95
New York	41300	26.52	1340	14.00	6.55
Toronto	8600	26.17	1115	12.70	7.80
Montreal	10700	27.98	1495	14.30	8.25
Total Kansan city	182100			8.20	6.00

 

Questions:

 

1. Based on information for the current years, is Kansas City the best location for a warehouse? If not, what are the coordinates for a better location>? What cost improvement can be expected from the new location?

 

2. If by year 5 increases are expected of 25 percent in warehouse outbound transport rates and 15 percent in warehouse inbound rates, would your decision change about the warehouse location?