1) Refer to the SportsStuff.com case study (attached below) and answer the following questions, assuming a piecewise linear cost equation with three pieces (please model the network for demand after 3 years of growth): a) What is the cost SportsStuff.com incurs if all warehouses leased are in St. Louis? b) What supply chain network configuration do you recommend for SportsStuff.com? For each warehouse size (2M and 4M), use four points for the three pieces. These points will be at (0,2M/3,2*2M/3,2M) for the 2M warehouse and likewise for the 4M warehouse.

CASE STUDY Managing Growth at SportStuff.com In December 2008, Sanjay Gupta and his management jackets from families and any surplus equipment from team were busy evaluating the performance at manufacturers and retailers and sell these over the Internet. SportStuff.com over the previous year. Demand had The idea was well received in the marketplace, demand grown by 80 percent. This growth, however, was a grew rapidly, and by the end of 2004 , the company had mixed blessing. The venture capitalists supporting the sales of $0.8 million. By this time, a variety of new company were very pleased with the growth in sales and and used products were being sold, and the company the resulting increase in revenue. Sanjay and his team, received significant venture capital support. however, could clearly see that costs would grow faster In June 2004, Sanjay leased part of a warehouse than revenues if demand continued to grow and the in the outskirts of St. Louis to manage the large supply chain network was not redesigned. They decided amount of product being sold. Suppliers sent their to analyze the performance of the current network to see product to the warehouse. Customer orders were how it could be redesigned to best cope with the rapid packed and shipped by UPS from there. As demand growth anticipated over the next three years. grew, SportStuff.com leased more space within the warehouse. By 2007, SportStuff.com leased the entire SportStuff.com warehouse and orders were being shipped to pta founded SportStuff.com in 2004 with a mis- divided the United States into six customer zones for having to for their chililren. Parents complained about in 2007 was as shown in Table 5-15. Sanjay estimated plan was for the company to purchase used equipment and level off. (continaed ) The Network Options aggregating throughput through a few facilities reduces the Sanjay and his management team could see that they inventory held as compared with disaggregating throughneeded more warehouse space to cope with the antici- put through many facilities. Thus, a warehouse handling 1 pated growth. One option was to lease more warehouse million units per year incurred an inventory holding cost of $600,000 in the course of the year. If your version of Excel warehouses all over the country. Leasing a warehouse has problems solving the nonlinear objective function, use involved fixed costs based on the size of the warehouse and variable costs that depended on the quantity shipped through the warehouse. Four potential locations for warehouses were identified in Denver, Seattle, Atlanta, and Philadelphia. Warehouses leased could be either small (about 100,000 sq. ft.) or large (200,000 sq. ft.). Small warehouses could handle a flow of up to 2 million units per year, whereas large warehouses could handle a flow of up to 4 million units per year. The current warehouse in St. Louis was small. The fixed and variable costs of small and large warehouses in different loca- If you can handle only a single linear inventory tions are shown in Table 5-16. cost, you should use $475.000Y+0.165F. For each Sanjay estimated that the inventory holding costs at facility, Y=1 if the facility is used, 0 otherwise. a warehouse (excluding warehouse expense) was about SportStuff.com charged a flat fee of $3 per shipment $600F, where F is the number of units flowing through sent to a customer. An average customer order contained the warehouse per year. This relationship is based on the four units. SporiStuff.com in turn contracted with UPS to theoretical observation that the inventory held at a facility handle all its outbound shipments. UPS charges were (not across the network) is proportional to the square based on both the origin and the destination of the root of the throughput through the facility. As a result, shipment and are shown in Table 5-17. Management estimated that inbound transportation costs for shipments 2. What supply chain network configuration do you recomfrom suppliers were likely to remain unchanged, no matter mend for SportStuff.com? Why? what warchouse configuration was selected. 3. How would your recommendation change if transportation costs were twice those shown in Table 5-17? Questions 1. What is the cost SportStuff.com incurs if all warehouses leased are in St. Louis