Forest Green Products provides private label vegetables for grocery chains throughout the Midwest. They currently have distribution centers in Columbus, Ohio; St. Louis, Missouri; and Minneapolis, Minnesota. The typical annual capacity requirements for Forest Green are 5 million cases with a case split of 35 percent, 40 percent, and 25 percent for Columbus, St. Louis, and Minneapolis, respectively. The company is reassessing its materials handling and storage capability in each facility. The technology alternatives being considered are mechanized, semi-automated, and information-directed systems. Table 3 summarizes the acquisition, annual fixed cost, per case variable cost, and life span of each system alternative. The acquisition and annual fixed cost are quoted in terms of dollars per million units of capacity. In other words, a DC requiring two million units of capacity would double the specified cost. The annual fixed cost does not include depreciation for the acquisition cost. Assume that the total square footage of the three DCs is the same.

a. What system alternative should be used for each DC based on annual cost? How does this decision change if net present value (NPV) is considered over the life of the system? Assume a 10 percent discount rate. b. Assume that, for simplicitys sake, Forest Green wants to use only one system alternative for all three DCs. What is the system with the lowest NPV for the life of the system for the combination of DCs? c. What other qualitative factors should be considered?

TABLE 3:

Materials Handling Alternative	One-Time Acquisition Cost	Annual Fixed Cost	Per Case Variable Cost	Usage Life Span (Years)
Mechanized	$1,000,000	$50,000	$0.30	10
Semi-automated	$3,000,000	$200,000	$0.08	5
Information directed	$1,500,000	$150,000	$0.15	7