Case 2 Managing Growth at SportStuff

Managing Growth at SportStuff.
com
Deepender Deswal and Carol Williams
MBA 5385 Supply Chain Management
Case Study Ch-5 Pg.139
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Table of Contents
Study Question
 Cost incurred –All Warehouses in St. Louis 1.

 Supply Chain Configuration- SportsStuff.com 2.
 If Transportation Cost doubled – what recommendation change? 3.
Cost incurred –All Warehouses in St. Louis
Q-1.
What 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
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.
Northwest
Southwest
Upper Midwest
Lower Midwest
Northeast
Southeast
Total Demand
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 Holding Cost $2,473,610
Warehouse Cost $1,518,400
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

Supply Chain Configuration- SportsStuff.com
Q- 2.
What supply chain network configuration do you recommend for SportStuff.com? Why?
We recommend the following supply chain network configuration. We would continue with the
process that we did for the first problem, except increase the demand by 80% which would make
the new demand 2,565,000. The optimal solution for 2008 would deem that a large warehouse
makes more sense than two small one. The total cost would be $1,857,000.
In 2009 the demand would rise to 4,617,000. This would make the total cost 3.616.036.
In 2010 we would follow the same process and the demand would be 8,310,600 and the cost
would be $8,400,502.
The overall recommendation would be the following:
In 2008 we recommend one large warehouse I Atlanta
In 2009 a large warehouse and a small
In 2010 we recommend a small warehouse in Seattle and Atlanta and a large warehouse in
Denver and Philadelphia.
Northwest Southwest Upper Lower Northeast Southeast Total
Midwest Midwest Supply

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 1,629,00
0
Atlanta 0 0 0 0 0 0 0
Philadelphia 0 0 0 0 0 0 0
Total 576,000 360,000 288,000 396,000 630,000 315,000
Demand

Total Shipping Chg $1,923,750
A lower total system cost is achievable if SportStuff abandons their small St. Louis warehouse
and opts for a single large warehouse in Atlanta.
5
Total Holding Cost $898,225
Warehouse Cost $888,000
For 2009: Small warehouses in Seattle and St. Louis plus a small warehouse in Atlanta
Northwest Southwest Upper Lower Northeast Southeast Total
Midwest Midwest Supply
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

For 2010, Small warehouses in all cities results in

Northwes Southwes Upper Lower Northeast Southeast Total
t t Midwest Midwest Supply

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 1,283,04 41,200 0 1,324,240
0
Atlanta 0 0 0 0 0 1,020,600 1,020,600
Philadelphi 0 0 0 0 2,000,00 0 2,000,000
a 0
Total 1,866,240 1,166,400 933,120 1,283,04 2,041,20 1,020,600
Demand 0 0
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
If Transportation Cost doubled – what recommendation change?
Q-3.
How would your recommendation change if transportation costs were twice those shown in
Table 5-17?
Assuming that there would be several different routes to take. The first would be to raise the
price of shipping or have a system similar to amazon (where you can pay a certain price and get
your product in a day or two) in order to have the customer incur more of the shipping cost.
There may be some resistance, so we would have to bring it about in a way that is more palatable
to customers, i.e. you pay flat rate shipping only when you spend a certain amount of money.
Another option would be to only keep warehouses in the cities where shipping was at the lowest
price since in most cases we’re incurring the price of shipping.
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Managing Growth at SportStuff.

 Cost incurred –All Warehouses in St. Louis 1.

Cost incurred –All Warehouses in St. Louis

Demand in 2007 is as shown in Table 5-15

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

Total Shipping Cost $1,994,625

TOTAL COST $1,857,100

For 2009: one small and one large warehouse is optimal

Total Shipping Cost $3,590,325

TOTAL COST $4,119,585

Total Shipping Cost $6,462,585

TOTAL COST $8,400,502

Supply Chain Configuration- SportsStuff.com

The overall recommendation would be the following:

In 2008 we recommend one large warehouse I Atlanta

In 2009 a large warehouse and a small

Denver and Philadelphia.

Northwest Southwest Upper Lower Northeast Southeast Total

Midwest Midwest Supply

Total Shipping Cost $1,688,625

TOTAL COST $2,171,100

and opts for a single large warehouse in Atlanta.

Total Shipping Cost $2,068,87

TOTAL COST $1,931,35

Northwest Southwest Upper Lower Northeast Southeast Total

Midwest Midwest Supply

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

Total Shipping Cost $2,897,775

TOTAL COST $3,285,230

For 2010, Small warehouses in all cities results in

Total Shipping Cost $4,965,995

TOTAL COST $5,371,414

Northwes Southwes Upper Lower Northeast Southeast Total

t t Midwest Midwest Supply

and Philadelphia results in a savings of $248,018

TOTAL COST $5,123,395

If Transportation Cost doubled – what recommendation change?

price since in most cases we’re incurring the price of shipping.

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