Question: Essen Beer Company has a brewery in Michigans U...

Essen Beer Company has a brewery in Michigans Upper Peninsula and is setting up distribution

at Jackson, Michigan, in the states Lower Peninsula. Essen packages its beverages in barrels and

in 24-can cases. Barrels must be maintained at temperatures below 60 degrees Fahrenheit until

retail delivery. The companys logistics department must determine whether to operate

individual private warehouses for barrels and cases or to utilize a single warehouse with barrels

placed in a carefully controlled environment separate from cases. Assume that cases are not to be

stored or transported in refrigerated environments.

Essen experiences a weekly demand of 300 barrels and 5,000 cases. The company has arranged

truckload transportation with Stipe Trucking Service. Stipe operates refrigerated and non-

refrigerated trailers, as well as multi-compartmented trailers that are half refrigerated and half

not. A refrigerated truckload can hold 72 barrels, while a non-refrigerated truckload holds 400

cases. The multi-compartmented trailer can hold 36 barrels and 200 cases. The costs for these

services and other related expenses are detailed below:

Truckload costs

Refrigerated $550

Non-refrigerated $400

Multi-compartmented $500

Warehouse expenses

Individual warehouses

For case storage only:

Capital $1,250/week

Labor $2,500/week

For barrel storage:

Capital $2,500/week

Labor $1,600/week

Single, consolidated warehouse

Capital $3,500/week

Labor $3,200/week

a.

Considering demand and all costs depicted above, does the single, consolidated

warehouse or the two individual warehouses represent the least-total-cost alternative?

b.

Now assume that Stipe Trucking Service will provide

only

the multi-compartmented

trailers to serve the proposed consolidated warehouse. Which plan is the least-cost

alternative in this scenario?

Please also explain where you go the numbers from and how you got to the answer step by step.