Anita Bailey is the newly appointed traffic man- ager for Orion Foods, a packer of a wide variety of fruits and vegetables sold throughout the United States. The first project given her by her boss, the director of operations, is to "clean up the distribution mess in the West." Compared with product distribution in other parts of the United States, the cost to distribute the product in the West Coast area is considered excessively high. Surely costs can be reduced, she thought. CURRENT DISTRIBUTION Orion packs throughout the United States its line of fruits and vegetables and even imports some of its product line from regions such as South America and Canada. In the western United States, as shown in Figure 1, Orion has established regional distribution centers at Fresno, California and Burns, Oregon. From these master warehouses, field, or local, ware- California; (2) Phoenix, Arizona; (3) Salt Lake City, Utah; (4) San Francisco, California; (5) Portland, Oregon; (6) Butte, Montana; and (7) Seattle, Washington. Currently, the Burns regional distribution center serves Portland, Seattle, and Butte field warehouses. The Fresno distribution center supplies the remaining field warehouses. The capacities for the regional dis- tribution centers are 50,000 cwt. of inventory for Fresno and 15,000 cwt. of inventory for Burns. Each has a turnover ratio of eight. The field warehouses have average annual through- put volumes as given in Table 1. Additional location data are given in Appendix A. Orion contracts with trucking companies to move its products between regional and field warehouses. Its contract reads that it will pay its carriers $1.30 per mile for truckload quantities that average 30,000 lb, the typical shipment size. Anita understands that her predecessor had left the choice of the specific routes to travel to the Figure 1 Road Network for Orion's West Coast Distribution Area with Approximate Distances in Miles Y-coordinates 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 Newport o Coos Bay $ 1 A Eureka Astoria Grants Pass Redding E 9 133 Sentu Obispo 2 SEATTLE Eupen 31 115 106 Klamath Falls 269 PORTLAND 102 E 6, SAN FRANCISCO OE 3 133 Sacramento Ellensburg Bend B B Valy O Fresno Bakersfeld 4 LOS ANGELESO Blogs Lakeview Bishop@ 136 Bend Winnemuca N San Diego Burs 175 245 56 Pendleton 317 Barstow 172 787 3 225 3 144 175 Las Vegas o 271 Needle Blyth Yuma Spokane Boise e Twin Fall Wells -21 2 O Ev 178 222 Missoula 164 178 284 William Y 161 Jay SALT LAKE CIT 225 239 237 O Cadar City 125 275 Grand Canyon Grand Canyon Nat'l Park) 216 PHOENIX Bytte 193 idaho Fells 33 Mt. Carmel Jet 150 2 2 S Spanish Fork Safina Page Flagstaff Tueso 7 8 9 1011 12 13 14 X-coordinates Chapter 7 Transport Decisions 287 Copyrighted material Table 1 Current-Year Average Throughput Volumes for the Field Warehouses with Transportation Costs FIELD WAREHOUSE Los Angeles, CA Phoenix, AZ Salt Lake City, UT San Francisco, CA Portland, OR Butte, MT Seattle, WA Totals Fresno, CA Fresno, CA Fresno, CA Fresno, CA Burns, OR the roads to use. She does not know the routes that were currently being used by the carriers. The Burns regional warehouse is currently operating near its capacity limit. If it were to be expanded, additional space in minimal incre- ments of 10,000 cwt. of inventory could be acquired for $300,000 per increment. Anita had seen the growth projections for the region and was surprised at the expected increases. The marketing department had developed sales projections for five years from Table 2 Five-Year Projections of Warehouse Throughput Burns, OR Burns, OR QUESTIONS 1. Can Anita improve upon the current distri- bution operations? SERVED FROM 2. Is there any benefit to expanding the ware- house at Burns, OR? FIELD WAREHOUSE Los Angeles, CA Phoenix, AZ Salt Lake City, UT San Francisco, CA Portland, OR Butte, MT Seattle, WA Total ANNUAL THROUGHOUT VOLUME, CWT. 110,000 60,000 35,000 84,000 43,000 5,000 56,000 393,000 ANNUAL TRANSPORTATION COSTS, $ 104,485 163,280 131,871 66,612 54,470 15,846 115,710 652,274 now, as shown in Table 2. She had also heard. that top management has been considering the possibility of consolidating the Fresno and Burns warehouses into a single warehouse located at Reno, NV. Although this would result in a net one-time cost of $2,000,000, total inven- tory could be reduced as much as 40 percent through this consolidation. Inventory-carrying costs are estimated to be 35 percent per year before taxes, and the standard cost for 100 lb of average product mix is $60. 3. Is there any merit to consolidating the regional warehousing operation at Reno, NV? ANNUAL THROUGHPUT VOLUME, CWT. 132,000 84,000 56,000 105,000 57,000 15,000 79,000 528,000