Senco Electronics Company currently operates three warehouses to store and process both online and retail orders. As the demand will continue to increase, Jack Kaminski, logistics manager of the company, is considering a more cost-effective but effect way to change their current warehouse options. Option 1 is reducing to a single mega warehouse to be able to consolidate the orders for both online and retail channels. Option 2 is adding two more warehouses to be located closer to customer and retailer locations. The company conducted an analysis to evaluate the total cost impact of their current warehouse operations and these two new options. The current level of annual demand is 100,000 units.

Cost centersCurrent: three warehousesNew option: one mega warehouseWarehouse costs Fixed cost$80,000 $55,000 Storage and handling$165,000 $150,000 Inventory carrying$70,000 $65,000 Administrative$55,000 $45,000 Transportation costs$72,000 $115,000 Total cost$442,000 $430,000

1. Based on the static analysis, which alternative would you advise Jack Kaminski and why?
2. Now based on the information in the table, conduct a dynamic analysis. If the demand is expected to increase from the current level, at what level of demand per year would current and new warehouse options become equal?
3. Graphically represent the costs of the current system and new warehouse option (You can insert a graph here or submit it as an attachment.)
4. If the demand drops in the future from the current demand level, which option will be better and why? What can be potential disadvantage(s) of the option you chose?