Usemore Soap Company

A Warehouse Location Case Study

Prepared By:
Abhinandan Singh (MP15003)
Manjesh Jha (MP15022)
Sabas Fernando (MP15036)
Sushant Kumar (MP15047)
 Case Facts
• Produces a line of Cleaning Compounds mainly for Industrial and institutional use
• Product lines – composed of more than 200 products and 800 product items
• Sales situated all across US (major sales in Hawaii, Atlanta and Peurto Rico)
• Sales of $160 million (150 million pound served through warehouses, 75 million
pound through plants directly)
• Company is concerned about cost of production as well as distribution cost and
plants to optimize both
• High service level is to be maintained i.e. a delivery time of 24-48 hours which
comes out to be a distance of 300-600 miles
• Sales ae distributed across 6 territories(Northeast, Southeast, Midwest, Northwest,
Southwest, west) aggregated into 191 demand centers.
Present Production and Distribution Network
Covington New york Arlington Long Beach
595k cwt 391k cwt 250k cwt 241k cwt

TL
TL TL

1 2 3 22

18 Warehouses situated all across US

LTL LTL LTL

LTL

191 Demand Centres situated all across US

 Expansion (New Plants and Warehouses)

• Two additional Plants – Chicago and Memphis (keeping in mind future demand
projections)
• 22 Public Warehouse Locations (Based on Sales personnel’s suggestions with
factors as favorable rates, service availability, proximity to demand concentration)

Questions to be answered??
 No of Warehouses to be operated
 Location of warehouses
 Demand centers to be associated with each warehouse
 Should we go for new plants and warehouses
 What level of customer service should be provided
 Important Case Info
Sales Five year Growth Plant Variable Production Cost
Territory Factor per cwt
Northeast 1.30 Covington, KY $21.0
Southeast 1.45 New York, NY $19.9
Midwest 1.25 Airlington, TX $21.6
Northwest 1.20 Long Beach, CA $21.1
Southwest 1.15 Chicago€ $21.0
West 1.35 Memphis€ $20.6

• Construction of new plant would cost a minimum of $4 million

• This would result in an increase in throughout of 1 million cwt per year in
foreseeable future
 Important Case Info Continued….
Plant Current Current Percent of Stocking Limits
Capacity Production Capacity
Covington, KY 620,000 cwt 595,102 cwt 96% 450,000 cwt
New York, NY 430,000 cwt 390,876 cwt 91% 380,000 cwt
Airlington, TX 300,000 cwt 249,662 cwt 83% 140,000 cwt
Long Beach, CA 280,000 cwt 241,386 cwt 87% 180,000 cwt
Total 1,630,000 cwt 1,477,026 cwt 91% -

• Minimum throughput needed to open a warehouse is 10,400 cwt per year

 Costs Involved
• Warehousing Cost:
• Storage Cost: Quoted as $/cwt/month basis of average inventory held
• Handling Cost: Incurred during IN/OUT movement of product on $/cwt basis
• Stock Order Processing Cost: Order processing charge when receiving material from plant
• Customer Order Processing Cost: Order processing charge when supplying material to customer
• Local Delivery Rate: Outbound transport Charges when customer is situated less than 30 miles
from warehouse
• Transportation Costs:
• Truckload/Inbound rate(between plant and warehouse): Linear function given by P-W rate($/cwt)
= 0.92 + 0.0034 d (miles) where d is distance between plant and warehouse in miles
• W-C/outbound Rate($/cwt): Linear function given by W-C rate($/cwt) = 5.45 + 0.0037 d (miles)
where d is distance between plant and warehouse in miles

• Inventory Costs: Depends on average inventory held and inventory rate factors such as cost of
capital, personal property taxes and insurance costs.
Ici =( 0.12) (0.26) (11.3 Di^0.58) or 35.3 Di^0.58 where,
Ici – annual average carrying cost at warehouse
Di – annual demand throughput at warehouse i
 Costs Involved
• Warehouse Operating Cost: Combination of Storage and Handling Cost.

Storage Cost:
SCi = SRi (26) (11.3 Di^0.58) where,
SCi – annual cost of stock storage at warehouse I ($)
SRi – storage rate at warehouse
Di – annual demand throughput at warehouse i

Handling Cost:
HCi = (HRi ) Di where,
HCi – annual handling cost at warehouse I ($)
HRi – handling rate at warehouse i

Order Processing Cost : It refers to the charges incurred in handling the paperwork associated with
stock replenishment and customer orders.
Order processing cost = (Order processing rate * annual demand on warehouse/order size)
 Present Cost Structure and Service Level

Production Cost $30,761,250

Warehouse operations 1,578,379
Order Processing 369,027
Inventory Carrying 457,290
Transportation: Inbound to 2,050,367
warehouse
Outbound from warehouse 6,895,880
Total Cost $ 42,112,463

• At present Usemore Soap is able to place 93 percent of its demand within 300 miles of
warehouse for a total cost of $ 42,112,463