Supply Chain Management: Cases answers

Zied BABAI
Kedge Business School
Mohamed-zied.babai@kedgebs.com
Case #1: Distribution Management
for Produlact Company
Central warehouse location

Barycentre method:
Locate on the map, each city of a customer;
Get the correspondent coordinates x and y;
Give a weight to each city of a customer by considering an importance coefficient so that
you get the barycentre of the customer network. The most frequently used weights are
the ton volumes delivered to customers;
The coordinates Xb et Yb of the barycentre are calculated as follows:

X b Qi xi / Qi Yb Qi yi / Qi
i i i i
For a delivery from factories to customers via a central warehouse, the barycentre of the
network is the barycentre of both the barycentres of the customers and the factories;
Although this method is simple to use, it has a major drawback. In fact, the distances
used in this approach are unrealistic distances a vol doiseaux . Thus, the result can
be unrealistic if the cities are in regions surrounded by mountains or costs.

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Central warehouse location: map coordinates

Coordinates of the customers and factories on the map of France:

Distributed
x y tons
Bordeaux 1.6 1.3 3500
Lille 3.1 4.5 2800
Lyon 3.9 1.8 3800
Bziers 3.2 0.2 1500
Nancy 4.2 3.3 1700
Rennes 1.2 3.1 2000
Rungis 2.9 3.3 2700

Cherbourg 1.4 3.9 10000

Auxerre 3.4 2.8 8000

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Central warehouse location: results

Coordinates of the central warehouse on the map of France:

Distributed Weighted tons for Weighted tons
x y tons x for y
Bordeaux 1.6 1.3 3500 5600 4550
Lille 3.1 4.5 2800 8680 12600
Lyon 3.9 1.8 3800 14820 6840
Bziers 3.2 0.2 1500 4800 300
Nancy 4.2 3.3 1700 7140 5610
Rennes 1.2 3.1 2000 2400 6200
Rungis 2.9 3.3 2700 7830 8910
Barycentre of customers 2.85 2.50 18000 51270 45010

Cherbourg 1.4 3.9 10000 14000 39000

Auxerre 3.4 2.8 8000 27200 22400
Barycentre of factories 2.29 3.41 18000 41200 61400

Position of the warehouse 2.57 2.96 36000 92470 106410

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Central warehouse location

Central warehouse located close to Orlans (more than 400 km to

Cherbourg and between 200 and 400 km to Auxerre)
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Scenario 1: Direct delivery from the factories to the customers

Average distance from

factories to
customers 350 km
Average cost 0.35 /t-km

Total cost 2205000

Total cost = Total delivered quantity * average distance * average cost

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Scenario 2: Delivery via regional plate-forms

Average approach cost

(factories to plate-forms) 0.045 /kg
Passage from quays to plate-
form 0.015 /kg
Average delivery (plate-form
to customer) 0.045 /kg

Total cost 1890000

Total cost = Total quantity * (approach cost + Passage from quays cost +
delivered cost)

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Scenario 3: Delivery via a central warehouse

Approach unit cost (for the interval 0-200 km) 0.037 /kg
Approach unit cost (for the interval 200-400 km ) 0.052 /kg
Approach unit cost (for the interval 400 km et plus) 0.06 /kg

Approach cost from Cherbourg (distance more than 400 km) 0.06 /kg
Approach cost from Auxerre (distance between 200 & 400 km) 0.052 /kg

Total approach cost from Cherbourg 600000

Total approach cost from Auxerre 416000
Total (approach cost) 1016000
Stocking and material handling unit cost 0.0075 /kg
Total cost (Stocking and material handling) 135000
Average distance to customers 580 km
Delivery unit cost 0.09 /t-km
Total (delivery cost) 939600
Total cost 2090600
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Scenarios comparison

Scenario 2 is the best one in terms of cost (lower cost)

Question 3:
In scenario 3, it would be interesting to locate the central warehouse closer to the
Auxerres factory to benefit from a lower total approach cost ?

True, obviously this results in savings for the approach cost but this also increases the
average distance to customers which increases the delivery cost.

Question 4:
If one consolidates the production of the company in the same factory site, this
enables to simplify the distribution flows and to increase the delivered volumes to each
customer, thus decreasing the distribution cost, but ..

What is the cost to relocate and move a whole factory?

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 Case #2: Planning with
subcontracting and Overtime for C&C
Company

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Planning with subcontracting and Overtime

Plan 1: Produce exactly the monthly sales by varying the No. of workers
January February March April May June Total
Sales 1800 1500 1100 900 1100 1700
Production 1800 1500 1100 900 1100 1700
Stocks 0 0 0 0 0 0 0

Required working time 9000 7500 5500 4500 5500 8500

Required No. of workers 42 57 47 35 29 35 54
Variation No. of workers 15 -10 -12 -6 6 19
Recruitment cost 15000 0 0 0 6000 19000
Dismissal cost 0 20000 24000 12000 0 0
Material cost 180000 150000 110000 90000 110000 170000
Working cost 136800 112800 84000 69600 84000 129600
Holding inventory cost 0 0 0 0 0 0
Stock-out cost 0 0 0 0 0 0
Sub-contracting cost 0 0 0 0 0 0
TOTAL COST 331800 282800 218000 171600 200000 318600 1522800
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Planning with subcontracting and Overtime
Plan 2: Produce at each month the average sales for six months by
keeping a constant number of workers
January February March April May June Total
Sales 1800 1500 1100 900 1100 1700
Production 1350 1350 1350 1350 1350 1350
Stocks 0 0 0 0 100 350 0
Stock-out 450 600 350 0 0 0

Required working time 6750 6750 6750 6750 6750 6750

Required No. of workers 42 43 43 43 43 43 43
Variation No. of workers 1 0 0 0 0 0
Recruitment cost 1000 0 0 0 0 0
Material cost 135000 135000 135000 135000 135000 135000
Working cost 103200 103200 103200 103200 103200 103200
Holding inventory cost 0 0 0 1000 3500 0
Stock-out cost 22500 30000 17500 0 0 0
TOTAL COST 261700 268200 255700 239200 241700 238200 1504700

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Planning with subcontracting and Overtime
Plan 3: Produce at each month the minimum sales (April) by keeping a
constant No. of workers and by sub-contracting the remaining part
January February March April May June Total
Sales 1800 1500 1100 900 1100 1700
Production 900 900 900 900 900 900
Sub-contracting 900 600 200 0 200 800
Stocks 0 0 0 0 0 0 0

Required working time 4500 4500 4500 4500 4500 4500

Required No. of workers 42 29 29 29 29 29 29
Variation No. of workers -13 0 0 0 0 0

Dismissal cost 26000 0 0 0 0 0

Material cost 180000 150000 110000 90000 110000 170000
Working cost 69600 69600 69600 69600 69600 69600
Sub-contracting cost 90000 60000 20000 0 20000 80000
TOTAL COST 365600 279600 199600 159600 199600 319600 1523600

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Planning with subcontracting and Overtime
Plan 4: Using overtime working instead of subcontracting the production
or dismissing workers
January February March April May June Total
Sales 1800 1500 1100 900 1100 1700
Production 1800 1500 1100 900 1100 1700
Stocks 0 0 0 0 112 356 0

Required working hours 9000 7500 5500 4500 5500 8500

Available No. of workers 42 42 42 42 42 42 42
Available No. of hours 6720 6720 6720 6720 6720 6720
Required overtime
working 2280 780 -1220 -2220 -1220 1780
Overtime working 2280 780 0 560 1220 0
Material cost 180000 150000 110000 90000 110000 170000
Working cost 100800 100800 100800 100800 100800 100800
Holding inventory cost 0 0 0 1120 3560 0
Overtime cost 34200 11700 0 0 0 0
TOTAL COST 315000 262500 210800 191920 214360 270800 1465380
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