KKC Computers distribution network optimization and logistics costs

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