Anita Bailey is the newly appointed traffic man- California; (2) Phoenix, Arizona; (3) Salt Lake ager for Orion Foods, a packer of a wide variety City, Utah; (4) San Francisco, California; (5) of fruits and vegetables sold throughout the Portland, Oregon; (6) Butte, Montana; and (7) United States. The first project given her by her Seattle, Washington. Currently, the Burns boss, the director of operations, is to "clean up regional distribution center serves Portland, the distribution mess in the West." Compared Seattle, and Butte field warehouses. The Fresno with product distribution in other parts of the distribution center supplies the remaining field United States, the cost to distribute the product warehouses. The capacities for the regional dis- in the West Coast area is considered excessively 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 high. Surely costs can be reduced, she thought. CURRENT DISTRIBUTION Orion packs throughout the United States its location data are given in Appendix A. line of fruits and vegetables and even imports some of its product line from regions such as move its products between regional and field Orion contracts with trucking companies to South America and Canada. In the western warehouses. Its contract reads that it will pay its United States, as shown in Figure 1, Orion has carriers $1.30 per mile for truckload quantities established regional distribution centers at Fresno, California and Burns, Oregon. From these master warehouses, field, or local, ware- 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 21 SEATTE 20 19 18 ortLAND" 17 16 15 Gearg P 14 13 12 11 SALTLAE O 10 S 9 SAN FRANCISCO 6 4 3. 2 San D 2 3 4 16 1011 12 13 14 X-coordinates Y-coordinates Table 1 ANNUAL ANNUAL Current-Year SERVED FROM TRANSIORTATION Average Throughput Volumes for the Field Warehouses with Transportation Costs FIELD WAREHOUSE VOLUME, CWE COTS, S Los Angeles, CA Phoenix, AZ Salt Lake City, UT San Francisco, CA Fresno, CA 110,000 104,485 Fresno, CA 60.000 163,280 Fresno, CA 35,000 131,871 Fresno, CA 84,000 66,612 Portland, OR Butte, MT Seattle, WA Totals Burns, OR 43,000 54,470 Burns, OR 5,000 15,846 Burms, OR 56,000 115,710 393,000 652,274 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 $2,000,000,3 total inven- the roads to use. She does not know the routes that were currently being used by the carriers. The Burms 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 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. QUESTIONS 1. Can Anita improve upon the current distri- bution operations? 2. Is there any benefit to expanding the ware- house at Burns, OR? 3. Is there any merit to consolidating the regional warehousing operation at Reno, NV? Table 2 Five-Year Projections of Warehouse Throughput FIELD WARRHOUSE ANNUAL THROUGHPUT VOLUME, CWT. Los Angeles, CA 132,000 Phoenix, AZ 84,000 Salt Lake City, UT San Francisco, CA 56,000 105,000 57,000 15.000 Portland, OR Butte, MT Seattle, WA 79.000 Total 528,000