NAME: SAYAK SINHA

REGN. NO: 21PGDM073

OM – II ASSIGNMENT
SUBMITTED TO DR. ROHIT SINGH

Q2) Consider the idea of upgrading the Los Angeles warehouse to include a distribution
centre capable of processing all the volume coming into the United States. Assume that
containers coming into Seattle would be inspected by federal officials (this needs to be
done at all port locations) and then immediately shipped by rail in their original
containers to Los Angeles. All volume would be unloaded and quality checked in Los
Angeles (the quality check costs $5.00 per CBM when done in Los Angeles). Eighteen
percent of the volume would then be kept in Los Angeles for distribution through that
warehouse and the rest transshipped by rail to the Kansas City warehouse. The cost to
transship to Kansas City would be $0.0018 per CBM. The material sent to Kansas City
would not need to go through the unloading and quality check process and would be
stored directly in the Kansas City distribution centre. Assume that the remaining
volume would be transferred by truck to the eight remaining warehouses in the United
States at a cost of $0.0220 per CBM?
Q3) What should be done based on your analytics analysis of the U.S. distribution
system? Should the new Los Angeles distribution centre be added? Is there any obvious
change that Grainger might do to make this option more attractive?

Ans: - According to me, the new distribution center at Los Angeles should be added, to save
or help in cost cutting, a huge amount of unnecessary price can be saved. An amount of
around 4,66,000 approximately can be saved for this purpose and hence is a fruitful decision
to be taken. Grainger can ship the products directly from Taiwan to LA and not Seattle,
which will save the transportation cost. There are certain places which are close enough from
LA and hence the transportation will be easier if Kansas is not involved in between cost as
well as his ease to transport will increase. Economically, this looks attractive. The annual
savings of $ 466,863 outweighs the $ 1,500,000 investment to upgrade Los Angeles in 3.21
years (excluding the temporary value of money). It makes sense to send everything procured
in China or Taiwan to Los Angeles. This eliminates the Seattle to Los Angeles shipping cost
($ 155,952). The total new savings are $ 622,815 and the new payment period is 2.41.

Q4). Is this strategically something that Grainger should do? What has it not considered
that may be important?

Ans: - It makes sense to streamline the network. One of the things that wasn't included in this
analysis was the cost of setting up in Seattle. This does not happen on new systems. If the
system can be sold or the lease ends, the repayment period will be shorter than the above
calculation. Moreover, the damage factor or the rate of returning the products is considered to
be negligible till now, but is eminent that damages would increase and the return rate as well
would increase with the slow increase in demand, which can be an important factor for the
future handing of the products. A potential drawback of the new system is the risk of using
the same inbound port. All issues with the LA port directly affect Granger. Moreover, it is
difficult to predict how economic power will change in the next few years. Rising oil prices
can have a significant impact on shipping costs. In addition, labour costs in China and
Taiwan can rise significantly, making these areas unattractive for product sourcing. Refunds
are very long and it may be appropriate to leave this part of the system unattended.