CASE STUDY NO:1 Superior Medical Equipment Company supplies electrical equipment that is used as components in the assemny of MR], CAT scanners, PET scanners, and other medical diagnostic equipment. Superior has production facilities in Phoenix, Arizona, and Monterrey, Mexico. Customers for the components are located in selected locations throughout the United States and Canada. Currently, a warehouse, that receives all components from the plants and redistributed them to customers, is located at Kansas City, Kansas. Superior's management is concerned about location of its warehouse since its sales have declined due to increasing competition and shifting sales levels among the customers. The lease is about to expire on the current warehouse, and management wishes to examine whether it should be renewed or warehouse space at some other location should be leased. The warehouse owner has offered to renew the lease at an attractive rate of $2.75 per sq. ft. per year for the 200,000 sq. ft. facility. It is estimated that any other location would cost $3.25 per q. ft. for a similarsize warehouse. A new or renewed lease will be for ve years. Moving the inventory, moving expenses for key personnel, and other location expenses would result in a onetime charge of $3, 00,000. Warehouse operating costs are expected to be similar at any location. In the most recent year, Superior was able to achieve sales of nearly $70 million. Transportation costs from the plants to the Kansa warehouse were $2,162,535, and from the warehouse to customers were $4,819,569. One million dollars was paid annually as warehouse lease expenses. To study the warehouse location question, data shown in Tables 1 and 2 were collected. Although transport costs are not usually expressed on a $fcthmile basis, given that the outbound transportation costs for the most recent year were $4,819,559, the weighted average distance of the shipments was 1128 miles, and the annual volume shipped was 182,100 cwt., the estimated average outbound rate from a warehouse is $0.0235fcthmile. Table 1 1\\f'olume, Rate, Distance, and Coordinate Data for Shipping from Plants to the Kansas City Warehouse in Truckload Quantities (Class 100) for le Most Recent Year. Examination Paper: Logistics Management [IBM Institute of Business Management 4 Table 2 1\\folumes, Rate, Distance, and Coordinate Data for Shipping from Plants to the Kansas City Warehouse In Truck in 5 000 lb I_ antities Class 100 for the Most Recent Year. PLANT ANNUAL TRANSPORT DISTANCE, MILES GRJD LOCATION VOLUME, RATE, SEC'WT COORDINATESa X PHOENIX 51500 16 ?3 1163 MDNTERREY 120500 9.40 1183 5.90 1.00 GMHES :230 X coordianate distance 13"\" Z100 lb Table 2:Volumes,Rate,Distance and co-ordinate data for shipping from plants to the Kansas city Warehouse in Truck in 50001b quantities[C]ass 100) for the most recent year PLANT ANNUAL TRANSPORT DISTANCEMILES GRID GRID co- LOCATION VOLUME, RAIE,SICW1' COORDINMESAa ORDAA b cwt X Y 17000 33. 69 1858 mar 32000 1496 Denver: 12500 25. 75 6.10