Running head: SUPPLY CHAIN MANAGEMENT

Supply Chain Management

Name of Student
Institutional Affiliation

SUPPLY CHAIN MANAGEMENT

Supply Chain Management

Question 2: Annual Cost Associated with the Upgraded System
Total CBM through Los Angeles = 114,000 CBM
Total Cost through Los Angeles = (0.6 190,000 $5) = $570,000
Total Cost through Seattle = (0.4 190,000 $5) = 380,000
Total port cost = ($570,000 + $380,000) = $950,000
Total shipping cost from Los Angeles to Kansas
Total shipping cost
0.84 114,000

Miles from LA to K
X

Shipping cost per CBM per mile

$0.0018

1,620 miles

Total CBM at LA
=

$279,236

Total Shipping cost from Seattle to Kansas

Total shipping cost
76,000

From Kansas to
1.
2.
3.
4.
5.
6.
7.
8.

Cleveland
New Jersey
Jacksonville
Chicago
Greenville
Memphis
Dallas
Los Angeles

Miles from LA to K
X

Shipping cost per CBM per mile

$0.0018

Miles
CBM
800
1200
1150
520
940
510
500
1620

$0.0220

$0.0220
$0.0220
$0.0220
$0.0220
$0.0220
$0.0220
$0.0220
$0.0220

1,870 miles

X
17100
24700
15200
22800
15200
17100
22800
34200

Total CBM at LA
=

$255,816

=
300960
652080
384560
260832
314336
191862
250800
1218888

SUPPLY CHAIN MANAGEMENT

Total annual cost associated with running the upgraded systems

Total Cost = $3,574,318 + $950,000 + $279,236 + $255,816 = $5,059,370
Question 3
Part a: US Supply and Distribution Network
The US supply and distribution network is a three-tier distribution system where the
goods are received at two major ports; Los Angeles and Seattle Ports. The goods are then
transferred to Kansas as the distraction. From the distraction center, the products are distributed
to the warehouses from where the suppliers distribute them to the customers. The network is
relatively longer considering that the company has to deliver the products fast as required by the
customers when an order is made
Part b: Supply Chain Management Strategies to Optimize Network Costs
Optimizing the network costs require that ABC adopt specific strategies that will ensure
that costs are minimized in the distribution process. The first strategy of optimizing costs is to
eliminate some of the warehouses. According to the computation of the annual costs, a greater
percentage of total costs is incurred during the distribution from Kansa to each of the warehouse.
Therefore, merging or eliminating some of the warehouses, the annual distribution costs are
minimized. Secondly, the company can adopt a direct or shorter distribution channel as one of
the strategies of minimizing the costs. Direct distribution implies that the products are sold
directly to the customers or by involving a few middlemen in the distribution channel. Finally,
the network and distribution costs can also be minimized by retaining a higher percentage of the
products at Los Angeles. Currently, 18% is retained in Los Angeles as the remaining is

SUPPLY CHAIN MANAGEMENT

transported to Kansas. By increasing the amount of units retained at Kansas, there is optimizing
of the network costs.
Part c: Distribution and Network Design Methods and Costs
Optimum location for the warehouses and distribution centres
Y=bx+c
In the above model, the optimum location for the warehouse is given by the linear
equation model (Y = b x + c). Y in the model represents the optimum number of distribution
centers as x represents the costs and c is a constant representing other factors that affect the
distribution network (Traor et al., 2013). Adding the new Los Angeles distribution center to the
network will increase the cost of distribution to the company. Therefore, it should not be added
in the network. In strategically to the new SC configuration, ABC Company need to consider
other factors than the costs. First, it should consider the availability of labor for the distribution
(Traor et al., 2013). Secondly, there is need to consider the profitability and the sustainability
into the future. It should also consider the order size and frequency in the distribution center
(Traor et al., 2013). Finally, the location of customers is important in determining the costs
involved in the distribution network.

SUPPLY CHAIN MANAGEMENT

5
Reference

Traor, S., Allouche, D., Andr, I., De Givry, S., Katsirelos, G., Schiex, T., & Barbe, S. (2013). A
new framework for computational protein design through cost function network
optimization. Bioinformatics, 29(17), 2129-2136.