Analytics Exercise: Distribution Center

LocationGrainger: Reengineering the China$/$U$.$S$.$ Supply Chain

W$.$ W$.$ Grainger, Inc., is a leading supplier of maintenance, repair, and operating $($MRO$)$ products to businesses and institutions in the United States, Canada, and Mexico, with an expanding presence in Europe, Japan, India, China, and Panama. The company works with more than $4,500$ suppliers and runs an extensive website $($www$.$grainger.com$)$ where Grainger offers nearly $26$ million products. The products range from industrial adhesives used in manufacturing to hand tools, janitorial supplies, lighting equipment, and power tools. When something is needed by one of its customers, it is often needed quickly, so quick service and product availability are key drivers to Grainger$$s success. Your assignment involves studying U$.$S$.$ distribution in Grainger$$s supply chain. Grainger works with over $250$ suppliers in the China and Taiwan region. These suppliers produce products to Grainger$$s specifications and ship to the United States using ocean freight carriers from four major ports in China and Taiwan. From these ports, product is shipped to U$.$S$.$ entry ports in either Seattle, Washington, or Los Angeles, California. After passing through customs, the $20-$ and $40-$foot containers are shipped by rail to Grainger$$s central distribution center in Kansas City, Kansas. The containers are unloaded and quality is checked in Kansas City. From there, individual items are sent to regional warehouses in nine U$.$S$.$ locations, a Canadian site, and Mexico. In the United States, approximately $40$ percent of the containers enter Seattle, Washington, and $60$ percent at the Los Angeles, California, port. Containers on arrival at the port cities are inspected by federal agents and then loaded onto rail cars for movement to the Kansas City distribution center. Variable costs for processing at the port are $$5\mathrm{.}00$ per cubic meter $($CBM$)$ in both Los Angeles and Seattle. The rate for shipping the containers to Kansas City is $$0\mathrm{.}0018$ per CBM per mile.In Kansas City, the containers are unloaded and processed a quality assurance check. This costs $$3\mathrm{.}00$ per CMB processed. A very small percentage of the material is actually sent back to the supplier, but errors in quantity and package size are often found that require accounting adjustments. Items are stored in the Kansas City distribution center, which serves nine warehouses in the United States. Items are also sent to warehouses in Canada and Mexico, but for the purposes of this study, we focus on the United States.

Each of the nine warehouses places orders at the distribution center that contains all the items to be replenished. Kansas City picks each item on the order, consolidates the items onto pallets, and ships the items on $53-$foot trucks destined to each warehouse. Truck freight costs $$0\mathrm{.}0220$ per CBM per mile. The demand forecasts for the items purchased from China$/$Taiwan for next year in cubic meters, as well as the shipping distances, are given in the following table: