Question
Warehouse 1 has 1,400,000 kg of storage capacity. Warehouse 2 has 1,600,000 kg of storage capacity. Current turnover ratio at both sites is 10. Average
Warehouse 1 has 1,400,000 kg of storage capacity.
Warehouse 2 has 1,600,000 kg of storage capacity.
Current turnover ratio at both sites is 10.
Average truck load is 15,000 kg.
Inventory cost per unit is $0.60
3rd party provider charges $20/km to transport each load.
| Table 1: Distribution Costs and Throughputs | ||||
| Retailer | Serving Distribution Centre | Recent Annual Throughput (kg) | Recent Secondary Transport Costs | Projected Annual Throughput (kg) |
| Kel | Warehouse 1 | 5,000,000.00 | $1,180,000.00 | 6,000,000.00 |
| Sal | Warehouse 1 | 2,500,000.00 | $367,450.00 | 3,250,000.00 |
| Merr | Warehouse 1 | 2,000,000.00 | $241,300.00 | 2,500,000.00 |
| Will | Warehouse 1 | 1,000,000.00 | $388,750.00 | 1,500,000.00 |
| Lang | Warehouse 2 | 6,200,000.00 | $295,500.00 | 7,500,000.00 |
| Rich | Warehouse 2 | 5,000,000.00 | $541,000.00 | 5,500,000.00 |
| Miss | Warehouse 2 | 3,500,000.00 | $70,250.00 | 4,000,000.00 |
| Hope | Warehouse 2 | 250,000.00 | $29,000.00 | 3,000,000.00 |
| Total = | 25,450,000.00 | $ 3,113,250.00 | ||
| Table 2: Acceptable Distances and Coordinates | ||||
| Acceptable Distances (km) | Coordinates (Refer to Map) | |||
| Retail Locations | Warehouse 1 | Warehouse 2 | X-coordinate | Y-coordinate |
| Kel | 170 | 325 | 128.00 | 80.00 |
| Sal | 110 | 395 | 130.00 | 128.00 |
| Merr | 90 | 205 | 98.00 | 95.00 |
| Will | 290 | 480 | 72.00 | 190.00 |
| Lang | 320 | 35 | 70.00 | 40.00 |
| Rich | 370 | 80 | 65.00 | 50.00 |
| Miss | 290 | 15 | 75.00 | 43.00 |
| Hope | 205 | 85 | 90.00 | 60.00 |
| Warehouse 1 | 0 | 290 | 105.00 | 125.00 |
| Warehouse 2 | 290 | 0 | 75.00 | 41.00 |
Annual throughput projections for all of the retailers reveals good growth. Capacity may become an issue for the warehouses.
Warehouse 1 can increase capacity by 500,000kg of storage for $500,000 and it would be good for 5 years or $100,000/year.
Warehouse 2 can increase capacity by 500,000kg of storage for $800,000 and it will be good for 5 years or $160,000/year.
Management may decide to increase the turnover ratio at either or both of the warehouses. This will allow management to turn over product to the retailers faster and release space in the warehouse but will of course reduce the truckload size and increase the number of trips.
How do I calculate the optimal turnover ratio at both warehouses if the decision is to increase the turnover ratio?
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1st Edition
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