MERLONI

Case
Submitted By: Study
Group 13

ELETTRODOMESTI
RAMYA CHANDRASEKARAN
PALAK BACHANI
FT202059
FT203056

CI
RITWICK BHANDARI FT203065
SIDDHARTH SHARMA FT203076
SUBODH MISHRA FT204084

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1. What are the costs and benefits of Merloni’s current

distribution system? Of a transit point distribution system?
Assume that the total costs consist of operating, inventory,
short- and long-haul transportation costs. How does the
proposal impact each of these costs?

Current Distribution system consist of three strata: plant warehouses, a central

warehouse, and regional warehouses. Where as transit point distribution system
aims to replace traditional regional warehouses with an inventory less transit
points.

Cost & Benefits of Merloni’s current distribution system:

 Cost:
 Overall cost associated with the current distribution system is significantly
high.
 The operating cost incurred in this system significantly impacts the overall
cost.
 Current distribution system suffers high operating cost of 931.5 lire.
 Due to regional warehouses, the inventory cost is 267.45 lire which is
significantly high.
 Short haul transportation from regional ware house to retail is 4300 lire per
piece.
 Long haul transportation cost is 3333 lire
 Benefits:
 Easy handling of products from central warehouse to regional warehouse
 Promotes ‘After Sale service’ which results in higher customer satisfaction
 High Inter dependency between regional warehouses in case of stock out

Cost & Benefits of Merloni’s Transit Point distribution system:

 Cost:
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 Overall cost associated with the transit point distribution system is low
when compared to current system.
 Operating cost is reduced to 20 % of current system which is 186 Lire.
 Due to removal of regional warehouses, the inventory cost is negligible in
transit system.
 Short haul transportation from transit point is same as current system i.e.
4300 lire per piece.
 Long haul transportation cost is 3324 lire which is almost same as current
system
 Increase in capacity of central houses will result in additional cost
 Benefits:
 Less Infrastructure and maintenance cost due to removal of regional
warehouses
 Substantial reduction in operating and inventory cost.
 Reduction in lead time from central warehouse to customer.
 Better control on scheduling the product shipment
 Decrease in inventory level
 Less Labor requirements
 Better Efficiency

Overall Impact on each of the costs:

 Implementing transit point distribution system results in 12% (approx.)

reduction in total cost.
 Operation cost is reduced by 80%.
 Inventory cost is negligible due to removal of regional warehouses.
 Transportation cost remains approximately same in both the system.
 At Central Warehouse: Increase in Inventory
 At Regional Warehouse/Transit Point: Reduced cost and flexibility
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Calculation for costs associated with Current distribution system:

Sno. Costs Current distribution system

a Average Demand (from Exhibit 8) 154.8 units

b Average Monthly (Assuming 24*7 shift) - a *30 days 4644 units

c Total Operating cost per Month    

Lire/Piece/Mont
  i> Operating Cost - Exhibit 10: 3605 h
  ii> Average inventory levels at RDC (from Exhibit 8a) 1200 Pieces
  iii> Total 4326000 Lire
d Operating Cost per piece [c(iii)/b] 931.52 Lire

e Total Inventory cost per Month    

Lire/Piece/Mont
  i> Inventory Cost - Exhibit 10: 1035 h
ii> Average inventory levels at RDC (from Exhibit
  8a) 1200 Pieces
  iii> Total 1242000 Lire
267.441860
f Inventory Cost per piece [e(iii)/b] 5  
g Short Haul Transportation Cost 4300 Lire/Piece
h Long Haul Transportation Cost    
  i> Capacity of one trailer truck 120 Pieces
  ii> Number of Trailers required [b/h(i)] 38.7 trucks
iii> Cost of trailer truck for transport for 200 KM
(Exhibit 11) Assumption: distance between Roma and
  Fabrino is approx. 200 KM 0.4 Million Lire
  iv> Total [h(iii)*h(ii)] 15480000 Lire
3333.33333
i Long Transportation cost per piece [h(iv)/b] 3 Lire
8832.29974
j Total Cost 2 Lire
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Calculation for costs associated with Transit Point distribution system:

Transit Point distribution

Sno. Costs system

a Operating Cost per piece: 20 % of original Total Operating Cost 186.3049096 Lire
b Inventory Cost per piece: zero inventory is maintained 0 Lire
Short Haul Transportation Cost: Same for Regional WH and
c Transit points to retailers 4300 Lire/Piece
d Long Haul Transportation Cost:    
  i> Average Demand (from Exhibit 8) 154.8 units
  ii> Average Monthly (Assuming 24*7 shift) - a *30 days 4644 units
  iii> Capacity of one trailer truck 120 Pieces
iv> Number of Trailers required per month (ii/iii) *30
Since average daily demand is 154.8 pieces, a minimum
  of one trailer truck will be used each day 30 trucks
  v> Volume of goods carried by trailer trucks/month 3600 Pieces
vi> Volume of goods carried by small trucks/month (ii
  -v) 1044 Pieces
  vii> Capacity of one small truck 45 units
  viii> Number of small trucks required per month (vi/vii) 23.2 trucks
  ix> Trailer Cost 360000 Lire
  x> Smaller Truck Cost 200000 Lire
  xi> Total 15440000 Lire
e Total Transportation cost per piece 3324.720069 Lire/piece

f Total Cost 7811.024978 lire

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2. Should Merloni replace its network of regional

warehouses with transit points? If so, what contingency
plans and support systems are necessary to support the
new logistics network? If not, what changes, if any, would
you recommend Merloni make to its distribution system?

Yes, Merloni should replace its network of regional warehouses with transit points.

Contingency Plans:

 Expansion to other regions:

 When new system will be implemented to other regions, it might
increase the transportation cost.
 We should setup few warehouses in each region of Italy i.e. Northern,
Central & Southern parts to minimize overall service distance to all the
locations.
 We need to consider Weather Constraints while setting up new
facilities.
 Transport System:
 Since the new distribution will rely on good connectivity, centralized
and connected transportation system should be implemented to
support seaming less flow of products.

 Customer Relationship System:

 Earlier, warehouse managers were responsible for customer relations.
 Since regional warehouse will be removed, Customer relationship
manager should be hired to maintain client relations.

 Demand variability:
 Most difficult task in any supply chain is to predict the demand
 On board highly skilled staff for intensive planning
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