Spector&Litt Co. is a third party logistics provider for fast moving consumer goods manufacturers. The firm has just signed a long-term contract with a major FMCG manufacturer to deliver its products to the manufacturer's local warehouses dispersed over the country via its distribution center. The directory board is worried that the current management, particularly the CEO - Harvey, is not well-qualified to handle such prestigious customers due to previous failures and high costs. They insist that Harvey gets help from a consultancy firm about re-arrangement of the current logistics system. After long meetings, Spector&Litt Co. decided to hire Zane Consultancy to analyze the company's current operations. Initial analyses by the consultants from the company, Samantha and Robert, revealed that the idle capacity of the current distribution center will not be sufficient to satisfy the needs of the new customer and opening new facilities should be considered. They also suggested that the logistics requirements of the new contracts should be handled separately from the firm's existing business. According to the contract signed, Spector&Litt Co. has the right to determine the distribution center(s) (DC) to serve local warehouses. The corresponding required supply to the DC(s) is under the responsibility of the manufacturer. Table 1 provides information about the locations of the local warehouses to be served. The customer (FMCG manufacturer) provided three scenarios about the corresponding demands, which are also provided in Table 1. Spector&Litt Co. has to satisfy the needs of the customer regardless of which scenario is realized. After a careful analysis, the consultants observed that the current distribution center, which is located in Ankara, has a capacity of 30,000 m per year that can be dedicated for the new customer. The yearly additional cost as a result of this is estimated to be 400,000 TL. Furthermore, the consultants argue that it is possible to open new facilities in the cities where the local warehouses of the customer are located. The new facilities can handle a flow of 80,000 m per year at a cost of 500,000 TL. Harvey, the CEO, thinks that the company should not open more than two new distribution centers at this point, and each warehouse should be assigned to a single DC. 1 Table 1. Warehouse locations and demand information Demand (m per year) Scenario 1 Scenario 2 Scenario 3 W/H Location (p=0.3) (p=0.5) (p=0.2) Ankara 12,000 22,000 17,000 Adana 9,000 7,000 12,000 Afyon 6,000 12,000 8,000 Bursa 9,000 20,000 20,000 stanbul 18,000 15,000 30,000 Kayseri 5,500 2,000 8,000 Samsun 5,500 9,000 13,000 Trabzon 3,000 11,000 9,000 Erzurum 9,500 8,000 12,000 Diyarbakr 5,000 12,500 12,500 Antalya 6,500 12,000 15,000 zmir 7,000 10,000 13,000 Konya 6,000 9,000 8,000 Sivas 4,000 9,000 5,500 *p: probability of occurrence of the scenario The company handles its transportation business by leasing trucks at the start of each year at a cost of 40,000 TL per year (and 0.2 TL per kilometer per m). Each truck can carry 40 m of load at a time. All shipments are considered to be full truckloads and each vehicle can make 200 shipments per year on the average. Harvey insists that trucks are leased and assigned to the distribution centers before the exact demand is revealed. If current truck capacity is not sufficient to cover the demand at a DC, an outside logistics provider will make the shipments at a cost of 0.4 TL per m per kilometer. Assume that if a DC is located in a city, the demand of that city cannot be satisfied by the outside logistics provider. 2 Samantha and Robert asked you to prepare a report on the following issues: 1. Propose a solution alternative that honors the constraints set by the CEO. Discuss the solution in terms of the decisions made and the resulting cost. 2. How does your solution change when single sourcing assumption is relaxed? (in this case, a warehouse can be supplied from more than one DC) 3. Samantha and Robert think that it would enhance the system performance significantly if it were possible to lease the trucks and assign them to the distribution centers after the demand information is received. Is their intuition correct? Discuss your results. 4. Samantha and Robert would also like to see the improvement in the system performance if perfect demand information were available even before DC location(s) are set. Discuss the solution in such a setting and comment on the value of demand information. 3