How Does One Answer This Case Study On 'Managing Growth At Sportstuff.com' ?

1 Answers

Oddman Profile
Oddman answered
The case study can be found here. The referenced questions appear to be these:

1. What is the cost SportStuff.com incurs if all warehouses leased are in St. Louis?
2. What supply chain network configuration do you recommend for SportStuff.com?

The cost of a warehousing solution is a function of the inventory cost,
the transportation cost, and the cost of leasing the space. You are
given tables for all of those things, so it is mainly a matter of doing
the arithmetic.
The problem is somewhat easier because you don't have costs that vary
with the flow through the warehouse--they only vary with warehouse size. As a student of business operations, you know all of that. Unfortunately, there's a lot of arithmetic involved. Presumably, you will be making use of whatever linear programming and/or spreadsheet programs are available to you.

For the baseline year of 1999, the demand from the 6 regions is given as {320, 200, 260, 220, 350, 175} (all numbers in thousands). Thus, the total demand is 1525, less than the 2000 limit of one small warehouse. For one small warehouse in St. Louis, the lease expense is 220+(1525)(.2)=525; the inventory expense is 250+(1525)(.31)=722.75. The shipping expense is (1/4)(320*3.5+200*3.5+260*2.5+220*2.5+350*3.0+175*3.5) = 1170.625. Total revenue from shipping charges is (1/4)(1525*3.0)=1143.75. Total distribution costs are 525+722.75+1170.625-1143.75 = 1274.625.

For the following year, demand goes up to {576, 360, 468, 396, 630, 315} due to the 80% growth. Now total demand is 2745, so a large warehouse is needed if you stay in St. Louis. I compute total distribution costs for that St. Louis warehouse at 1969.03.

In 2001, total demand is 4941. Rather than add a small warehouse in St. Louis, I find it less expensive to lease large warehouses in Denver and Atlanta, for a total cost of 3207.3.

I find in 2002, for a demand of 8893.8, that Philadelphia and Seattle also get involved. The cost of a large and a small warehouse is so much, and the revenue from shipping charges is so attractive, that spreading out the warehouses seems to work better.
thanked the writer.
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Oddman
Oddman commented
The total cost is the (inventory cost)+(transportation cost)+(lease cost). You have to choose a warehouse size and location for each warehouse, and choose a flow from that warehouse. The formulas for costs are given once you make those choices. The total of all warehouse flows has to equal the product demand. You have to make sure that the product that ends up in a given area is equal to the demand in that area. (Transportation costs will be involved.) There's so much arithmetic involved, I don't really want to get into it here.
Anonymous
Anonymous commented
Could you give me your equal ?
Oddman
Oddman commented
I updated the answer to include the work for 1999 and totals for the next 2 years.

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