Distribution

Network for
Michael’s
Hardware
GROUP 14
ANKIT MITTAL 1402016
ARPIT SINGH 1402025
DIPRONIL MONDAL 1402052
DIVYANSHU JOIYA 1402054
 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.
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
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.
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
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
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.
THANK YOU