Scribd Logo
Upload

Welcome to Scribd!

  • 585 views

    Case 7 W-G-P Chemical Company: Objectives

    Uploaded by

    mohamed mohamedgalal
    W-G-P Chemical Company distributes agricultural chemicals from 25 warehouses located near major transportation routes in agricultural areas. The total annual distribution costs are $33.2 million, with inventory carrying costs alone accounting for almost half of the total. W-G-P should consider consolidating some warehouses, such as those in Illinois and the Midwest, to potentially reduce inventory levels and carrying costs while maintaining customer service. The early order program and customer pickup policies help improve planning and reduce inventory levels by shifting responsibilities to dealers. Public warehouses allow W-G-P to avoid fixed costs of private facilities given the seasonal demand cycles.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Case 7 W-G-P Chemical Company: Objectives

    Uploaded by

    mohamed mohamedgalal
    585 views3 pages
    W-G-P Chemical Company distributes agricultural chemicals from 25 warehouses located near major transportation routes in agricultural areas. The total annual distribution costs are $33.2 million, with inventory carrying costs alone accounting for almost half of the total. W-G-P should consider consolidating some warehouses, such as those in Illinois and the Midwest, to potentially reduce inventory levels and carrying costs while maintaining customer service. The early order program and customer pickup policies help improve planning and reduce inventory levels by shifting responsibilities to dealers. Public warehouses allow W-G-P to avoid fixed costs of private facilities given the seasonal demand cycles.

    Original Description:

    logistics management

    Original Title

    Case 7 - W-G-P

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    W-G-P Chemical Company distributes agricultural chemicals from 25 warehouses located near major transportation routes in agricultural areas. The total annual distribution costs are $33.2 million, with inventory carrying costs alone accounting for almost half of the total. W-G-P should consider consolidating some warehouses, such as those in Illinois and the Midwest, to potentially reduce inventory levels and carrying costs while maintaining customer service. The early order program and customer pickup policies help improve planning and reduce inventory levels by shifting responsibilities to dealers. Public warehouses allow W-G-P to avoid fixed costs of private facilities given the seasonal demand cycles.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    585 views3 pages

    Case 7 W-G-P Chemical Company: Objectives

    Uploaded by

    mohamed mohamedgalal
    W-G-P Chemical Company distributes agricultural chemicals from 25 warehouses located near major transportation routes in agricultural areas. The total annual distribution costs are $33.2 million, with inventory carrying costs alone accounting for almost half of the total. W-G-P should consider consolidating some warehouses, such as those in Illinois and the Midwest, to potentially reduce inventory levels and carrying costs while maintaining customer service. The early order program and customer pickup policies help improve planning and reduce inventory levels by shifting responsibilities to dealers. Public warehouses allow W-G-P to avoid fixed costs of private facilities given the seasonal demand cycles.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    Case 7

    W-G-P Chemical Company

    OBJECTIVES

    1. To allow students to use various analytical tools when making distribution structure
    decisions.
    2. To demonstrate that a firm can reduce total costs while actually improving customer
    service performance.

    SOLUTION QUESTIONS

    1. What is the total distribution cost for W-G-P Chemical Company? What is the cost
    per pound, cubic foot, case, line, and order? How can these measures contribute to
    the distribution review process?
    Table 4 data include average inventory of $90 million. Applying the 18%
    carrying cost, annual inventory carrying cost is $16.2 million. When
    added to the remaining costs in Table 4, total distribution costs are $33.2
    million or slightly over 6.3% of sales.

    It is interesting to note that total transportation cost in the system is $9.1


    million. Thus inventory carrying cost in W-G-P’s system is far greater
    than transportation cost and accounts for almost half of W-G-P’s total
    distribution cost (as the text discusses, in aggregate for the U. S.,
    transportation is more than half of total distribution cost).

    Using data from Table 1, other cost measures are:


    Cost/pound = $33,200,000/242,717,768 = 13.68 cents/pound
    Cost/cuFt = $33,200,000/26,887,513 = $1.235/cubic foot
    Cost/case = $33,200,000/2,912,753 = $11.40/case
    Cost/line = $33,200,000/25,392 = $1307.68/line
    Cost/order = $33,200,000/19139 = $1734.68/order

    It is possible to also calculate unit costs for each of the individual


    functions. For example, transportation to customers cost
    $5.6,000,000/19,919 orders or $292.60 per order. Storage cost
    $3,100,000/2,912,753 cases or $1.06 per case. Similar calculation can be
    made for other functions.
    To be most useful these metrics should be compared against previous
    years’ performance and/or against industry benchmarks. While such data
    is not available in the case itself, the abnormally high inventory carrying
    cost can be used as one example. This might also indicate that W-G-P’s
    storage costs are most likely high due to the large inventory being held.
    2. On a map, plot the distribution facilities and network for W-G-P Chemical Company.
    What product and market characteristics can help explain this distribution structure?
    - In plotting the distribution facilities and network for W-G-P Chemical
    Company it can be easily seen that the locations center in agricultural
    areas along major highways, waterways and railways. Since the product is
    sold in bulk to farmers, who buy during a relatively short time period
    during the year (which is difficult to forecast, the distribution structure
    must be structured to respond quickly with short lead times when demand
    occurs.
    3. What alternative methods of distribution should W-G-P consider for Prevention and
    Support?
    - Open this question up for class discussion to generate alternative
    distribution structures.
    - One clear area for discussion concerns the number of warehouse locations.
    To some extent the large number of warehouses may be justified due to
    the nature of the market and the customer service requirements of short
    lead times. A drastic reduction in number of warehouses, which would
    most likely reduce inventory levels and carrying costs significantly, would
    probably be difficult to justify given the service requirements.

    Nevertheless, from the plotting of locations, there are some clear


    candidates for consolidation. Decatur and Rockville, Illinois provide one
    example. The Indiana, Michigan, and Ohio warehouses (a total of four)
    could probably be consolidated in to two facilities and maintain customer
    service levels. Of course, the impact on transportation cost would also
    have to be investigated.

    4. Discuss the rationale for: (a) the early order program, (b) customer pickup policies,
    and (c) use of public versus private warehouse facilities.
    - The rational behind the early order program is to better plan and distribute
    the products to meet demand. If distribution is planned in advance, more
    cost efficient methods can be used. In addition, the program reduces W-G-
    P’s inventory by shifting some of the burden on to dealers. The customer
    pickup policy is most likely considered a service to dealers who want to
    utilize their own equipment as fully as possible. It also relieves W-G-P of
    the need to schedule common carriers for pickup at the warehouse and
    delivery to dealers. Public warehouses seem to make sense in this
    structure given the highly seasonal demand. W-G-P avoids considerable
    fixed costs associated with private warehousing and the need to maintain
    fulltime labor and supervision which a private facility would require

    You might also like