UNIT-3

LOGISTICS IN SUPPLY CHAIN

CASE STUDY
 Managing Growth at SportStuff.com

• In December 2008, Sanjay Gupta and his management team were

busy evaluating the performance at SportStuff.com over the
previous year.
• Demand had grown by 80 percent.
• The venture capitalists supporting the company were very pleased
with the growth in sales and the resulting increase in revenue.
• Sanjay and his team, however, could clearly see that costs would
grow faster than revenues if demand continued to grow and the
supply chain network was not redesigned.
• They decided to analyze the performance of the current network to
see how it could be redesigned to best cope with the rapid growth
anticipated over the next three years.
 SportStuff.com
• In 2004 Sanjay Gupta founded sportstuff.com
• Mission: to supply parents with more affordable
sports equipment for their children.
• Sportstuff.com purchase used equipment and
jackets from families and any surplus from
manufactures and retailers and sold these on the
sportstuff.com website.
• Demand sales exploited to $0.8 million (one
year)
 ISSUES
• Sanjay team clearly saw that cost would grow
faster than revenues if the demand continued
to grow and the supply chain network is not
redesigned.
• The company needed more warehouse space to
cope with the anticipated demand growth.
• Overall goal is to find an optimal model
solution that lowers total transportation and
warehousing costs.
 Two Options

• St. Louis Warehouse.

• Different Cities Warehouses.
 Variable given in the Case
• UPS transportation cost per every 4 units
• Customer flat fee charge of $3.00 per 4 units.
• Inventory cost = 475,000 Y+0.65F
(100 U.S. Dollar = 10,605.9000 Japanese Yen)
• Regional Demands
• Fixed and variable warehousing costs
 Question to be Answered
1. What is the cost Sportstuff.com incurs if all
warehouses leased are in St. Louis?
2. What supply chain network configuration do
you recommend for sportstuff.com? Why?
3. How would your recommendation change if
transportation cost were twice those that are
given?
Q.1What is the cost Sportstuff.com incurs if all
warehouses leased are in St. Louis?

Demand in 2007 is as shown in Table 5-15

 
Demand 2007

Northwest 320,000

Southwest 200,000

Upper Midwest 160,000

Lower Midwest 220,000

Northeast 350,000

Southeast 175,000

Total Demand 1,425,000

The capacity of the current warehouse in St. Louis is 2,000,000 units per
year, more than enough to accommodate 2007’s demand.
Costs are calculated as:
• Fixed Warehouse Cost = $220,000
• Variable Warehouse Cost = ($0.20/unit)(1,425,000 units) = $285,000
• Holding Cost = $475,000+0.165*1,425,000 = $710,125
• Shipping Cost = $1,068,750
• Shipping Recouped from Customer = (1,425,000/4)*$3 = $1,068,750
• Total Network Costs = $1,254,500
 
Note that the spreadsheet used for these calculations employed the
linear holding cost function of $475,000+0.165F, which results in a
holding cost of $710,125 and a total plan cost of $1,254,500.

Subsequent holding costs will use the single linear function to determine
holding costs.
If demand increases by 80% per year for 2008, 2009, and 2010 and
SportStuff.com wishes to use St. Louis as their only warehouse center, the
following demands and costs are realized. The optimal solution for 2008 calls
for one large warehouse rather than two small ones.
 
Demand 2008
Northwest 576000
Southwest 360000
Upper Midwest 288000
Lower Midwest 396000
Northeast 630000
Southeast 315000
Total Demand 2,565,000

Total Shipping Cost $1,994,625

Total Holding Cost $898,225

Warehouse Cost $888,000

Total Shipping Recoup $1,923,750

   

TOTAL COST $1,857,100

For 2009, one small and one large warehouse is optimal.
  Demand 2009

Northwest 1036800

Southwest 648000

Upper Midwest 518400

Lower Midwest 712800

Northeast 1134000

Southeast 567000

Total Demand 4,617,000

Total Shipping Cost $3,590,325

Total Holding Cost $2,473,610

Warehouse Cost $1,518,400

Total Shipping Recoup $3,462,750

   

TOTAL COST $4,119,585

For 2010, one small and two large warehouses are optimal
  Demand 2010
Northwest 1866240
Southwest 1166400
Upper Midwest 933120
Lower Midwest 1283040
Northeast 2041200
Southeast 1020600
Total Demand 8,310,600

Total Shipping Cost $6,462,585

Total Holding Cost $5,538,747
Warehouse Cost $2,632,120

Total Shipping Recoup $6,232,950

   
TOTAL COST $8,400,502
 Q2.What supply chain network configuration do you
recommend for SportStuff.com?

For 2008: Small warehouses in Seattle and St. Louis

  Northwest Southwest Upper Lower Northeast Southeast Total Supply
Midwest Midwest

Seattle 576,000 360,000 0 0 0 0 936,000

Denver 0 0 0 0 0 0 0
St. Louis 0 0 288,000 396,000 630,000 315,000 1,629,000
Atlanta 0 0 0 0 0 0 0
Philadelphia 0 0 0 0 0 0 0
Total Demand 576,000 360,000 288,000 396,000 630,000 315,000  

Total Shipping Cost $1,688,625

Total Holding Cost $1,373,225

Warehouse Cost $1,033,000

Total Shipping Chg $1,923,750

   

TOTAL COST $2,171,100

A lower total system cost is achievable if SportStuff abandons their small St. Louis
warehouse and opts for a single large warehouse in Atlanta.
Total Shipping Cost $2,068,875

Total Holding Cost $898,225

Warehouse Cost $888,000

Total Shipping Chg $1,923,750

   

TOTAL COST $1,931,350

 For 2009: Small warehouses in Seattle and St. Louis plus a small warehouse in Atlanta

  Northwest Southwest Upper Lower Northeast Southeast Total Supply

Midwest Midwest

Seattle 1,036,800 648,000 0 0 0 0 1,684,800

Denver 0 0 0 0 0 0 0
St. Louis 0 0 518,400 497,096 984,504 0 2,000,000

Atlanta 0 0 0 215,704 149,496 567,000 932,200

Philadelphia 0 0 0 0 0 0 0
Total Demand 1,036,800 648,000 518,400 712,800 1,134,000 567,000  

Total Shipping Cost $2,897,775

Total Holding Cost $2,186,805
Warehouse Cost $1,663,400
Total Shipping Chg $3,462,750
   
TOTAL COST $3,285,230
For 2010, Small warehouses in all cities results in

Total Shipping Cost $4,965,995

Total Holding Cost $3,746,249

Warehouse Cost $2,892,120

Total Shipping Chg $6,232,950

   

TOTAL COST $5,371,414

 A lower cost solution of small warehouses in Seattle and Atlanta and
large warehouses in Denver and Philadelphia results in a savings of
$248,018.
  Northwest Southwest Upper Lower Northeast Southeast Total Supply
Midwest Midwest

Seattle 1,866,240 116,640 0 0 0 0 1,982,880

Denver 0 1,049,760 933,120 0 0 0 1,982,880
St. Louis 0 0 0 1,283,040 41,200 0 1,324,240

Atlanta 0 0 0 0 0 1,020,600 1,020,600

Philadelphia 0 0 0 0 2,000,000 0 2,000,000

Total Demand 1,866,240 1,166,400 933,120 1,283,040 2,041,200 1,020,600  

Total Shipping Cost $5,082,976

Total Holding Cost $3,271,249

Warehouse Cost $3,002,120

Total Shipping Chg $6,232,950

   

TOTAL COST $5,123,395

 Q3.Recommendation

• It is better for Sportstuff.com to spread their network across

varies cities.
• We recommend management to use the non linear method
in solver because it provides the lowest total cost for
Sportstuff.com

Note:
• Nonlinearity is a term used in statistics to describe a
situation where there is not a straight-line or direct
relationship between an independent variable and a
dependent variable.
• In a nonlinear relationship, the output does not change in
direct proportion to a change in any of the inputs