Case analysis of Supply Chain Management

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Case analysis of a Supply Chain Management

Problem identification

ACME is faced with the increase in logistical costs at an unprecedented rate. With specific reference to transportation costs which have been estimated at 5% of the selling price of the pumps. This is quite significant. If a single cost, that is transportation, is taking up a significant part of the profits then there is need for evaluation of the total costs.

Analysis

Out bound from Scranton, A

Delivery of finished products

From

Destination

Mileage

Truckload rate ($4 per mile)Fuel surcharge-20%

Discount (45%)

TOTAL COSTS

Scranton, PA to Columbia, SC636$2544$508.8*$3052.8

Scranton, PA

Charlotte, NC595$2380$470*$2850

Greensboro,

Scranton,

PA

510$2040$408*$2448Richmond, Scranton,

PA

342$1368$273.6*$1641.6Greenville,SC Scranton,

PA

690$2760$552*$3312

Total costs for freight=$13,303.6

Delivery costs=$5,902.8

Carriage inwards costs per order=$ 7,401.6

Weight of the commodities with respect to costs

From

Destination

Weight in pounds and cost

Discount of 45%

Scranton,PA

Charlotte, NC

1,345,136 lbs @ $30.85 =

$41,497,445.6

$ 18,673,850.52

York

Columbus, SC

1,638,000 lbs @ $30.85=$50,532,300

$ 22,739,535

The total costs for goods delivered to the destinations were

Charlotte = $22,823,595.08

Columbus = $27,792,765

Freight costs for the total annual deliveries = $50,616,360.08

The costs of delivery are quite significant for the firm.

Inbound freight for Mostraw Pump castings from Richmond, VA:

Delivery by road

Average shipment cost

Distance

Class cost

Discount rate @ 45%

weight

$17,000342 miles$40.25$18.121835 lbsAnnual costs=

$6,188,000 p.a

$15,214.5Annual discount prices=$2,784,600Annual purchase weight=693,630 lbs

Cost of delivery =total cost less discounted price of delivery.

Discount=$6,188,000*0.45= $2,784,600

Cost of delivery=$(6188000-2784600) =$3,403,400

Delivery by air (twice a week)

weekly shipmentsWeight per flightAir freight per pound Total costs 2100 lbs$3.50$700

Annual costs for delivery =12 weeks p.a. * $700= $8,400

Suppliers/ Inbound Freight:

Greenville, SC: Purchase of amalgamated Castings

5000 lbs @ $35,000 at class 60

weight

cost

Freight class cost

Annual costs less 45% discount

5000 lbs

$35000

$27.20

$12.24

Annual consumption=

1,890,000 lbs

Annual cost =

$13,230,000

Annual freight costs=

$10,281.6

Annual discounts=

$4,626.7

Greensboro suppliers represent the most significant supplier due to the high supply of the raw materials.

Supplier/ Inbound freight

Greensboro, NC

Each Shipment costs=$400 for1000 lbs daily

Shipment costShipment weightCost of freight @class 60Discount @ 45%$ 4001000 lbs$33.40$15.03Annual shipment cost= $151,200Annual weight=

378,000 lbs

Annual freight costs= $ 12,625.2Annual discount costs=

ACME is operating on a just-in-time-based approach for easy delivery of goods. This is a sure way of controlling costs associated with storage of goods. However, the costs are on the increase and the company needs to change tact and strategize keenly to reduce the predominant costs of carriage inwards and carriage outwards of the goods. There needs to be sufficient stock to avoid the weekly purchase of goods, which does not satisfy the demand for the stock needed to produce the goods. ACME needs to purchase goods in bulk and take advantage of the economies of scale associated with bulk purchases, and it might even qualify the company to be getting their purchases at lower costs than the prevailing market prices. When making purchases at class 60 there is a significant cost difference of $14.50 between the lowest cost and the highest cost. For every a thousand pounds ordered at the highest order level the company would save $1000, thus for all the orders amounting to

Richmond, VA=693,630

Greensboro, NC=378,000

Greenville, SC=890,000

By air, Richmond, VA=10,800

1,972,430 lbs if purchased at the lowest cost in comparison to the average cost at class 60 of $23.75=$46,845,212 in comparison to the average cost of $33.40=65,879,162. The firm would be able to save $19, 033, 950, on costs of transportation of the purchases, which is quite significant. To ensure that the company keeps it costs the lowest level they should formulate policies that ensure purchases are only made in bulk. However, this would mean that the company would have to allocate more resources for the delivery of the goods in bulk and more resources for the storage of the goods before the onset of the production process. They would have to forego the Just-In Time delivery approach that is increasing the costs of the goods .There were no storage costs before the recommendations. To check the performance of the company with regard to the recommendations made the costs of the transportation should be calculated by ration in proportion to the sales or purchases to find the actual percentage that the costs of transport have taken. The company should also evaluate the revenues received after implementation of the recommendations and compare them with previous periods before the recommendations were made. This would enable to view the change in a more clear perspective.

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