Matt O'Grady, vice president of supply chain at CoolWipes, thought that his current production and distribution network was not appropriate, given the significant increase in transportation costs over the past few years. Compared to when the company had set up its production facility in Chicago, transportation costs had increased by a factor of more than four and were expected to continue growing in the next few years. A quick decision on building one or more new plants could save the company significant amounts in transportation expense in the future.

Table 5-18 Regional Demand at CoolWipes (in thousands)

Zone	Wipes Demand	Ointment Demand	Zone	Wipes Demand	Ointment Demand
Northwest	550	80	Lower Midwest	600	50
Southwest	600	50	Northeast	1,150	110
Upper Midwest	900	130	Southeast	500	75

CoolWipes

CoolWipes was founded in the late 1980s and produced baby wipes and diaper ointment. Demand for the two products was as shown in Table 5-18. The company currently had one factory in Chicago that produced both products for the entire country. The wipes line in the Chicago facility had a capacity of 5 million units, an annualized fixed cost of $5 million a year, and a variable cost of $10 per unit. The ointment line in the Chicago facility had a capacity of 1 million units, an annualized fixed cost of $1.5 million a year, and a variable cost of $20 per unit. The current transportation costs per unit (for both wipes and ointment) are shown in Table 5-19.

New Network Options

Matt had identified Princeton, New Jersey; Atlanta; and Los Angeles as potential sites for new plants. Each new plant could have a wipes line, an ointment line, or both. A new wipes line had a capacity of 2 million units, an annual fixed cost of $2.2 million, and a variable production cost of $10 per unit. A new ointment line had a capacity of 1 million units, an annual fixed cost of $1.6 million, and a variable cost of $25 per unit. The current transportation costs per unit are shown in Table 5-19. Matt had to decide whether to build a new plant and if so, which production lines to put into the new plant.

Table 5-19 Transportation Costs per Unit

	Northwest	Southwest	Upper Midwest	Lower Midwest	Northeast	Southeast
Chicago	$7.32	$8.32	$4.68	$4.84	$5.76	$5.96
Princeton	$6.88	$6.60	$5.76	$5.92	$3.68	$4.08
Atlanta	$6.72	$6.48	$5.92	$4.08	$4.04	$3.64
Los Angeles	$4.36	$3.68	$6.32	$6.32	$6.72	$6.60

d) Explain factors influencing the distribution network design you develop for CoolWipes.