KKC Computers distribution network optimization and logistics costs
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KC Computers
KKC Computers - Alternative Distribution System Strategies
KKC Computers produces two types of high vale and high technology computers (a and B) within two facilities located in San Francisco (SFO) and Los Angeles (LAX) to distribute them to seven U.S. markets: Denver (DEN), Houston (HOU), Minneapolis (MSP), Little Rock (LIT), Terre Haute (HUF), Detroit (DTW) and Atlanta (ATL). Since the company is in charge of all transportations and adherent costs, and also the timely delivery is a major objective, it is imperative for them to have an efficient logistics system. The best alternative strategy is given by the lowest total daily, a cost derived form the sum of the consolidation costs, air transports, truck transport and the cost of lost sales.
Alternative
Looking at the map for the locations of the plants and the markets, it can easily be observed that the distances between them are large, state which imposes the need to air transport. The map also shows how Little Rock is somewhat at the center of the markets. This settlement offers the first logistics alternative: air transport from Los Angeles to San Francisco and then from San Francisco to Little Rock, from where the computers will be loaded into five trucks and then sent to the destinations: Denver, Minneapolis, Terre Haute and Detroit, Atlanta, and finally, Huston, as revealed in the map below:
The air transportation is necessary between LAX and SFO as a sole shipment will supply all markets; therefore half of the entire demand (228 total, 114 half) will come from LAX and the other half will come from SFO.
Air transit time: 2 (LAX to SFO and SFO to LIT)
Consolidation: 1 day for all
Transit time:
LIT to LIT: 0 days transit truck, total of 3 days
LIT to HUF: 1 day transit truck, total of 4 day
LIT to DTW: 2 days transit truck, total of 5 days
LIT to ATL: 1 day transit truck, total of 4 days
LIT to HOU: 1 day transit truck, total of 4 days
LIT to DEN: 2 days transit truck, total of 5 days
LIT to MSP: 3 days transit truck, total of 6 days
1. Air freight costs = $6,840 + $570 = $7,410
LAX to SFO = 114 computers * 100 lbs = 11,400 lbs => 5 * 114 computers = $570
SFO to LIT = 228 computers * 100 lbs = 22,800 lbs => 30 * 228 = $6,840
2. Truck Freight Costs = $3,693
LIT to LIT = 20 units * $6/100lbs = 120
LIT to DEN = 40 * 6 + 40 * 12 = 720
LIT to MSP = 20 * 6 + 20 * 13 = 380
LIT to HUF = 15 * 6 + 15 * 9 = 225
LIT to DTW = 55* 6 + 55 * 13 = 1045
LIT to ATL = 45 * 6 + 45 * 9 = 675
LIT to HOU = 33 *6 + 33 * 10 = 528
3. Consolidation Costs = $228
4. Lost Sales = $978
Third day: LIT = 20 units * $100/unit * 0.005 = 10
Fourth day: HUF + HOU + ATL = 93 * 100 * 0.01 = $93
Fifth day: DEN + DTW = 95 * 100 * 0.05 = $475
Sixth day: MSP = 20 * 100 * 0.2 = $400
Total costs = $7,410 + $3,693 + $228 + $978 = 12,309
Total costs for second alternative = $6,706 + $6,780 = 13,486
Comparing the two costs resulted from the usage of the first and second alternatives, it becomes obvious that the single flight cargo is less expensive but delivers products with greater delays; whereas the option with two flights is more efficient in terms of timely delivery, it implies increased costs.
References: Cook, R.L., Central Michigan University, Case 8: KKC Computer Consolidation
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