Section 8 - Case Study: ALKO

Inputs
Holding cost, H =
TL costs from plants to DCs =
LTL costs from DC to customers =
TL costs from plants to central whse. =
LTL cost from central whse. to cust. =
Reorder Interval, T =
Lead Time, L =
Target cycle service level, CSL =
Correlation Coefficient =

$
$
$
$
$

0.15
0.09
0.10
0.05
0.24
6
5
0.95
0

per unit and day

per unit
per unit
per unit
per unit
days
days

Demand data by part and region

# of partsRegion 1
Region 2
Region 3
Region 4
Region 5
Part 1 Mean, R
10
35.48
22.61
17.66
11.81
3.36
Part 1 SD
6.98
6.48
5.26
3.48
4.49
Part 3 Mean
20
2.48
4.15
6.15
6.16
7.49
Part 3 SD
3.16
6.20
6.39
6.76
3.56
Part 7 Mean
70
0.48
0.73
0.80
1.94
2.54
Part 7 SD
1.98
1.42
2.39
3.76
3.98

All Regions
90.92
NA
26.43
NA
6.49
NA

Coefficient of variation by part and region

Region 1
Region 2
Region 3
Region 4
Region 5
All Regions
Part 1
0.20
0.29
0.30
0.29
1.34
NA
Part 3
1.27
1.49
1.04
1.10
0.48
NA
Part 7
4.13
1.95
2.99
1.94
1.57
NA

Demand during reorder interval and replenishment lead time

Region 1
Region 2
Region 3
Region 4
Region 5
Part 1 Mean
390.28
248.71
194.26
129.91
36.96
Part 1 SD
23.15
21.49
17.45
11.54
14.89
Part 3 Mean
27.28
45.65
67.65
67.76
82.39
Part 3 SD
10.48
20.56
21.19
22.42
11.81
Part 7 Mean
5.28
8.03
8.80
21.34
27.94
Part 7 SD
6.57
4.71
7.93
12.47
13.20

Outputs
Cycle stock and required safety stock by part and region
Region 1
Region 2
Part 1Cycle Inventory
106.44
67.83
Part 1 SS
38.08
35.35
Part 3 Cycle Inventory
7.44
12.45
Part 3 SS
17.24
33.82
Part 7 Cycle Inventory
1.44
2.19
Part 7 SS
10.80
7.75

Region 3
52.98
28.70
18.45
34.86
2.40
13.04

Region 4
35.43
18.98
18.48
36.88
5.82
20.51

All Regions
1000.12
NA
290.73
NA
71.39
NA

Region 5 All Regions

10.08
272.76
24.49
145.60
22.47
79.29
19.42
142.22
7.62
19.47
21.71
73.81

Cycle stock and required safety stock by part and region in days of demand
Region 1 Region 2 Region 3 Region 4 Region 5 All Regions
Part 1Cycle Inventory 3.00
3.00
3.00
3.00
3.00
3.00
Part 1 SS
1.07
1.56
1.62
1.61
7.29
1.60
Part 3 Cycle Inventory 3.00
3.00
3.00
3.00
3.00
3.00
Part 3 SS
6.95
8.15
5.67
5.99
2.59
5.38
Part 7 Cycle Inventory 3.00
3.00
3.00
3.00
3.00
3.00
Part 7 SS
22.50
10.61
16.30
10.57
8.55
11.37

Costs per unit by region and part

Inventory cost
Transportation cost
Total cost part 1
Inventory cost
Transportation cost
Total cost part 3
Inventory cost
Transportation cost
Total cost part 7

$
$
$
$
$
$
$
$
$

Region 1
0.61
0.19
0.80
1.49
0.19
1.68
3.83
0.19
4.02

Total Annual Inventory and Distribution Cost

# of parts Region 1
Part 1
10
$103,729
Part 3
20
$30,463
Part 7
70
$49,246
All Parts
$183,439

CR - 1/11/2014 12:45 AM

$
$
$
$
$
$
$
$
$

Region 2
0.68
0.19
0.87
1.67
0.19
1.86
2.04
0.19
2.23

Region 2
$72,171
$56,425
$41,626
$170,223

$
$
$
$
$
$
$
$
$

Region 3
0.69
0.19
0.88
1.30
0.19
1.49
2.89
0.19
3.08

Region 3
$56,964
$66,904
$63,051
$186,920

$
$
$
$
$
$
$
$
$

Region 4
0.69
0.19
0.88
1.35
0.19
1.54
2.04
0.19
2.23

Region 4
$37,982
$69,161
$110,336
$217,479

$
$
$
$
$
$
$
$
$

Region 5
1.54
0.19
1.73
0.84
0.19
1.03
1.73
0.19
1.92

All Regions
$
0.69
$
0.19
$
0.88
$
1.26
$
0.19
$
1.45
$
2.16
$
0.19
$
2.35

Region 5
All Regions
$21,260
$292,107
$56,259
$279,213
$124,747
$389,005
$202,266
$960,326

Page 1

202984403.xls.ms_office - Demand & Costs

Section 8 - Case Study: ALKO

Inputs
Holding cost, H =
TL costs from plants to DCs =
LTL costs from DC to customers =
TL costs from plants to central whse. =
LTL cost from central whse. to cust. =
Reorder Interval, T =
Lead Time, L =
Target cycle service level, CSL =
Correlation Coefficient =

$
$
$
$
$
$
$
$
$

0.15
0.09
0.10
0.05
0.24
6.00
5.00
0.95
-

per unit and day

per unit
per unit
per unit
per unit
days
days

Demand data by part and region

# of parts Region 1
Region 2
Region 3
Region 4
Region 5
Part 1 Mean
10
35.48
22.61
17.66
11.81
3.36
Part 1 SD
6.98
6.48
5.26
3.48
4.49
Part 3 Mean
20
2.48
4.15
6.15
6.16
7.49
Part 3 SD
3.16
6.20
6.39
6.76
3.56
Part 7 Mean
70
0.48
0.73
0.80
1.94
2.54
Part 7 SD
1.98
1.42
2.39
3.76
3.98

All Regions
90.92
NA
26.43
NA
6.49
NA

Central
90.92
12.27
26.43
12.15
6.49
6.45

Demand during reorder interval and replenishment lead time

Region 1
Region 2
Region 3
Region 4
Region 5
Part 1 Mean
390.28
248.71
194.26
129.91
36.96
Part 1 SD
23.15
21.49
17.45
11.54
14.89
Part 3 Mean
27.28
45.65
67.65
67.76
82.39
Part 3 SD
10.48
20.56
21.19
22.42
11.81
Part 7 Mean
5.28
8.03
8.80
21.34
27.94
Part 7 SD
6.57
4.71
7.93
12.47
13.20

All Regions
1000.12
NA
290.73
NA
71.39
NA

Central
1000.12
40.71
290.73
40.30
71.39
21.40

Outputs
Cycle stock and required safety stock by part and region
Region 1
Region 2
Region 3
Region 4
Region 5
All Regions
Part 1Cycle Inventory
106.44
67.83
52.98
35.43
10.08
272.76
Part 1 SS
38.08
35.35
28.70
18.98
24.49
145.60
Part 3 Cycle Inventory
7.44
12.45
18.45
18.48
22.47
79.29
Part 3 SS
17.24
33.82
34.86
36.88
19.42
142.22
Part 7 Cycle Inventory
1.44
2.19
2.40
5.82
7.62
19.47
Part 7 SS
10.80
7.75
13.04
20.51
21.71
73.81

Central
272.76
66.96
79.29
66.28
19.47
35.20

Costs per unit by region and part

Inventory cost
Transportation cost
Total cost part 1
Inventory cost
Transportation cost
Total cost part 3
Inventory cost
Transportation cost
Total cost part 7

$
$
$
$
$
$
$
$
$

Region 1
0.61
0.19
0.80
1.49
0.19
1.68
3.83
0.19
4.02

Total Annual Inventory and Distribution Cost

# of parts Region 1
Part 1
10
$103,729
Part 3
20
$30,463
Part 7
70
$49,246
All Parts
$183,439

$
$
$
$
$
$
$
$
$

Region 2
0.68
0.19
0.87
1.67
0.19
1.86
2.04
0.19
2.23

Region 2
$72,171
$56,425
$41,626
$170,223

$
$
$
$
$
$
$
$
$

Region 3
0.69
0.19
0.88
1.30
0.19
1.49
2.89
0.19
3.08

Region 3
$56,964
$66,904
$63,051
$186,920

$
$
$
$
$
$
$
$
$

Region 4
0.69
0.19
0.88
1.35
0.19
1.54
2.04
0.19
2.23

Region 4
$37,982
$69,161
$110,336
$217,479

$
$
$
$
$
$
$
$
$

Region 5
1.54
0.19
1.73
0.84
0.19
1.03
1.73
0.19
1.92

Region 5
$21,260
$56,259
$124,747
$202,266

$
$
$
$
$
$
$
$
$

All Regions
0.69
0.19
0.88
1.26
0.19
1.45
2.16
0.19
2.35

All Regions
$292,107
$279,213
$389,005
$960,326
Savings:

$
$
$
$
$
$
$
$
$

Central
0.56
0.29
0.85
0.83
0.29
1.12
1.26
0.29
1.55

Central
Savings
$282,235
$9,872
$215,356
$63,857
$257,600 $131,405
$755,191
$205,135

Cost Savings from Centralization as a function of the correlation coefficient and target cycle service level
All parts

Target Cycle Service Level

0.00
$362
$1,912
$3,595
$5,447
$7,514
$9,872
$12,643
$16,049
$20,576
$27,712

Correlation Cofficient
0.25
0.50
0.75
-$10,778
-$19,415
-$26,728
-$9,743
-$18,779
-$26,430
-$8,618
-$18,088
-$26,106
-$7,382
-$17,328
-$25,749
-$6,001
-$16,480
-$25,351
-$4,426
-$15,512
-$24,898
-$2,575
-$14,375
-$24,364
-$300
-$12,977
-$23,709
$2,724
-$11,118
-$22,837
$7,490
-$8,189
-$21,464

1.00
-$33,186
-$33,186
-$33,186
-$33,186
-$33,186
-$33,186
-$33,186
-$33,186
-$33,186
-$33,186

$63,857
0.9
0.91
0.92
0.93
0.94
0.95
0.96
0.97
0.98
0.99

0.00
$45,492
$48,484
$51,736
$55,311
$59,304
$63,857
$69,207
$75,785
$84,528
$98,308

Correlation Cofficient
0.25
0.50
0.75
$24,074
$7,384
-$6,776
$26,077
$8,616
-$6,197
$28,254
$9,955
-$5,569
$30,647
$11,427
-$4,878
$33,319
$13,071
-$4,107
$36,368
$14,947
-$3,227
$39,949
$17,150
-$2,193
$44,352
$19,858
-$922
$50,205
$23,458
$767
$59,429
$29,133
$3,430

1.00
-$19,294
-$19,294
-$19,294
-$19,294
-$19,294
-$19,294
-$19,294
-$19,294
-$19,294
-$19,294

$131,405
0.9
0.91
0.92
0.93
0.94
0.95
0.96
0.97
0.98
0.99

0.00
$98,719
$104,045
$109,832
$116,194
$123,300
$131,405
$140,927
$152,632
$168,193
$192,719

Correlation Cofficient
0.25
0.50
0.75
$60,890
$31,159
$5,844
$64,469
$33,365
$6,880
$68,357
$35,761
$8,006
$72,632
$38,395
$9,243
$77,407
$41,338
$10,626
$82,852
$44,693
$12,202
$89,250
$48,636
$14,054
$97,115
$53,483
$16,331
$107,571
$59,926
$19,357
$124,050
$70,081
$24,128

1.00
-$16,582
-$16,582
-$16,582
-$16,582
-$16,582
-$16,582
-$16,582
-$16,582
-$16,582
-$16,582

Type 3 only

Type 7 only

$74,186
$80,803
$87,992
$95,897
$104,725
$114,794
$126,624
$141,167
$160,499
$190,969

$19,128
$23,202
$27,628
$32,494
$37,929
$44,128
$51,411
$60,364
$72,266
$91,025

1.00

$9,872
0.9
0.91
0.92
0.93
0.94
0.95
0.96
0.97
0.98
0.99

Type 1 only

CR - 1/11/2014 12:45 AM

Correlation Cofficiant
0.50
0.75

Target Cycle Service Level

$144,572
$154,441
$165,163
$176,952
$190,118
$205,135
$222,777
$244,466
$273,297
$318,739

0.25

Target Cycle Service Level

0.00

0.9
0.91
0.92
0.93
0.94
0.95
0.96
0.97
0.98
0.99

Target Cycle Service Level

$205,135

-$27,660
-$25,747
-$23,669
-$21,384
-$18,833
-$15,923
-$12,504
-$8,300
-$2,713
$6,094

-$69,062
-$69,062
-$69,062
-$69,062
-$69,062
-$69,062
-$69,062
-$69,062
-$69,062
-$69,062

Page 2

202984403.xls.ms_office - Central vs. Local

Section 8 - Case Study: ALKO (Part 1 is decentralized with all others centralized)
Inputs
Holding cost =
TL costs from plants to DCs =
LTL costs from DC to customers =
TL costs from plants to central whse. =
LTL cost from central whse. to cust. =
Reorder Interval =
Lead Time =
Target cycle service level =
Correlation Coefficient =

$
$
$
$
$

0.15
0.09
0.10
0.05
0.24
6
5
0.95
0

per unit and day

per unit
per unit
per unit
per unit
days
days

Demand data by part and region

# of partsRegion 1
Region 2
Region 3
Region 4
Region 5
Part 1 Mean
10
35.48
22.61
17.66
11.81
3.36
Part 1 SD
6.98
6.48
5.26
3.48
4.49
Part 3 Mean
20
2.48
4.15
6.15
6.16
7.49
Part 3 SD
3.16
6.20
6.39
6.76
3.56
Part 7 Mean
70
0.48
0.73
0.80
1.94
2.54
Part 7 SD
1.98
1.42
2.39
3.76
3.98

All Regions
90.92
NA
26.43
NA
6.49
NA

Coefficient of variation by part and region

Region 1
Region 2
Region 3
Region 4
Region 5
All Regions
Part 1
0.20
0.29
0.30
0.29
1.34
NA
Part 3
1.27
1.49
1.04
1.10
0.48
NA
Part 7
4.13
1.95
2.99
1.94
1.57
NA

Demand during reorder interval and replenishment lead time

Region 1
Region 2
Region 3
Region 4
Region 5
Part 1 Mean
390.28
248.71
194.26
129.91
36.96
Part 1 SD
23.15
21.49
17.45
11.54
14.89
Part 3 Mean
Part 3 SD
Part 7 Mean
Part 7 SD

Outputs
Cycle stock and required safety stock by part and region
Region 1
Region 2
Part 1Cycle Stock
106.44
67.83
Part 1 SS
38.08
35.35
Part 3 Cycle Stock
Part 3 SS
Part 7 Cycle Stock
Part 7 SS
Costs per unit by region and part
Region 1
Inventory cost
$
0.61
Transportation cost
$
0.19
Total cost part 1
$
0.80
Inventory cost
Transportation cost
Total cost part 3
Inventory cost
Transportation cost
Total cost part 7

$
$
$

Region 2
0.68
0.19
0.87

All parts in the field:

All partscentralized:

Costs
$960,326
$755,191

$765,064
0.9
0.91
0.92
0.93
0.94
0.95
0.96
0.97
0.98
0.99

0.00
$701,631
$711,968
$723,197
$735,545
$749,335
$765,064
$783,542
$806,259
$836,457
$884,053

Target Cycle Service Level

CR - 1/11/2014 12:45 AM

Region 4
35.43
18.98

290.73
40.30
71.39
21.40

Region 5 Central
10.08
24.49
79.29
66.28
19.47
35.20

$
$
$

Region 3
0.69
0.19
0.88

$
$
$

Region 4
0.69
0.19
0.88

$
$
$

Region 5
1.54
0.19
1.73

Central

$
$
$
$
$
$

Total Annual Inventory and Distribution Cost

# of parts Region 1
Region 2
Part 1
10
$103,729
$72,171
Part 3
20
Part 7
70
All Parts
$103,729
$72,171

Benchmark:

Region 3
52.98
28.70

Central

Region 3
$56,964

Region 4
$37,982

Region 5
$21,260

0.83
0.29
1.12
1.26
0.29
1.55

Central

$37,982
$21,260
Total logistic system:

$0
$215,356
$257,600
$472,956
$765,064

Correlation Cofficient
0.25
0.50
0.75
$760,877
$807,298
$846,772
$773,951
$822,516
$863,814
$788,154
$839,049
$882,328
$803,771
$857,228
$902,685
$821,213
$877,530
$925,421
$841,106
$900,686
$951,351
$864,477
$927,890
$981,815
$893,209
$961,335 $1,019,267
$931,403 $1,005,794 $1,069,054
$991,601 $1,075,866 $1,147,523

1.00
$881,717
$900,373
$920,641
$942,926
$967,815
$996,202
$1,029,552
$1,070,552
$1,125,054
$1,210,956

$56,964

$292,107

Savings
$195,262
-$9,872

Page 3

202984403.xls.ms_office - option1.0

Section 8 - Case Study: ALKO (Part 1 is decentralized with all others centralized except part3 in region5)
Inputs
Holding cost, H =
TL costs from plants to DCs =
LTL costs from DC to customers =
TL costs from plants to central whse. =
LTL cost from central whse. to cust. =
Reorder Interval, T =
Lead Time, L =
Target cycle service level, CSL =
Correlation Coefficient =

$
$
$
$
$

0.15
0.09
0.10
0.05
0.24
6
5
0.95
0

per unit and day

per unit
per unit
per unit
per unit
days
days

Demand data by part and region

# of partsRegion 1
Region 2
Region 3
Region 4
Region 5
Part 1 Mean
10
35.48
22.61
17.66
11.81
3.36
Part 1 SD
6.98
6.48
5.26
3.48
4.49
Part 3 Mean
20
2.48
4.15
6.15
6.16
7.49
Part 3 SD
3.16
6.20
6.39
6.76
3.56
Part 7 Mean
70
0.48
0.73
0.80
1.94
2.54
Part 7 SD
1.98
1.42
2.39
3.76
3.98

All Regions
90.92
NA
26.43
NA
6.49
NA

Coefficient of variation by part and region

Region 1
Region 2
Region 3
Region 4
Region 5
All Regions
Part 1
0.20
0.29
0.30
0.29
1.34
NA
Part 3
1.27
1.49
1.04
1.10
0.48
NA
Part 7
4.13
1.95
2.99
1.94
1.57
NA

Demand during reorder interval and replenishment lead time

Region 1
Region 2
Region 3
Region 4
Region 5
Part 1 Mean
390.28
248.71
194.26
129.91
36.96
Part 1 SD
23.15
21.49
17.45
11.54
14.89
Part 3 Mean
82.39
Part 3 SD
11.81
Part 7 Mean
Part 7 SD

Outputs
Cycle stock and required safety stock by part and region
Region 1
Region 2
Part 1Batch Stock
106.44
67.83
Part 1 SS
38.08
35.35
Part 3 Batch Stock
Part 3 SS
Part 7 Batch Stock
Part 7 SS
Costs per unit by region and part
Region 1
Inventory cost
$
0.61
Transportation cost
$
0.19
Total cost part 1
$
0.80
Inventory cost
Transportation cost
Total cost part 3
Inventory cost
Transportation cost
Total cost part 7

$
$
$

Region 2
0.68
0.19
0.87

Total Annual Inventory and Distribution Cost

# of parts Region 1
Region 2
Part 1
10
$103,729
$72,171
Part 3
20
Part 7
70
All Parts
$103,729
$72,171

CR - 1/11/2014 12:45 AM

$
$
$

Region 3
0.69
0.19
0.88

Region 3
$56,964

$56,964

Region 4
35.43
18.98

$
$
$

Region 4
0.69
0.19
0.88

Region 4
$37,982

208.34
38.53
71.39
21.40

Region 5 Central
10.08
24.49
22.47
56.82
19.42
63.38
19.47
35.20

$
$
$
$
$
$

Region 5
1.54
0.19
1.73
0.84
0.19
1.03

Region 5
$21,260
$56,259

Central

$
$
$
$
$
$

0.68
0.29
0.97
1.26
0.29
1.55

Central

$37,982
$77,519
Total logistic system:

$0
$187,566
$257,600
$445,166
$793,533

1.00
$892,105
$910,762
$931,029
$953,315
$978,204
$1,006,590
$1,039,940
$1,080,940
$1,135,442
$1,221,345

All parts in the field:

All partscentralized:

Costs
$960,326
$755,191

Savings
$166,793
-$38,342

$793,533
0.9
0.91
0.92
0.93
0.94
0.95
0.96
0.97
0.98
0.99

0.00
$726,106
$737,094
$749,031
$762,156
$776,815
$793,533
$813,175
$837,322
$869,421
$920,014

Correlation Cofficient
0.25
0.50
0.75
$780,127
$822,962
$859,585
$793,611
$838,425
$876,739
$808,259
$855,222
$895,375
$824,365
$873,692
$915,865
$842,353
$894,320
$938,750
$862,868
$917,846
$964,851
$886,971
$945,486
$995,515
$916,602
$979,467 $1,033,214
$955,992 $1,024,637 $1,083,327
$1,018,076 $1,095,832 $1,162,312

Target Cycle Service Level

Benchmark:

Region 3
52.98
28.70

Central

Page 4

202984403.xls.ms_office - option1.1

Section 8 - Case Study: ALKO (Part 1,3 is decentralized with part 7 centralized)
Inputs
Holding cost, H =
TL costs from plants to DCs =
LTL costs from DC to customers =
TL costs from plants to central whse. =
LTL cost from central whse. to cust. =
Reorder Interval, T =
Lead Time, L =
Target cycle service level, CSL =
Correlation Coefficient =

$
$
$
$
$

0.15
0.09
0.10
0.05
0.24
6
5
0.95
0

per unit and day

per unit
per unit
per unit
per unit
days
days

Demand data by part and region

# of partsRegion 1
Region 2
Region 3
Region 4
Region 5
Part 1 Mean
10
35.48
22.61
17.66
11.81
3.36
Part 1 SD
6.98
6.48
5.26
3.48
4.49
Part 3 Mean
20
2.48
4.15
6.15
6.16
7.49
Part 3 SD
3.16
6.20
6.39
6.76
3.56
Part 7 Mean
70
0.48
0.73
0.80
1.94
2.54
Part 7 SD
1.98
1.42
2.39
3.76
3.98

All Regions
90.92
NA
26.43
NA
6.49
NA

Coefficient of variation by part and region

Region 1
Region 2
Region 3
Region 4
Region 5
All Regions
Part 1
0.20
0.29
0.30
0.29
1.34
NA
Part 3
1.27
1.49
1.04
1.10
0.48
NA
Part 7
4.13
1.95
2.99
1.94
1.57
NA

Demand during reorder interval and replenishment lead time

Region 1
Region 2
Region 3
Region 4
Region 5
Part 1 Mean
390.28
248.71
194.26
129.91
36.96
Part 1 SD
23.15
21.49
17.45
11.54
14.89
Part 3 Mean
27.28
45.65
67.65
67.76
82.39
Part 3 SD
10.48
20.56
21.19
22.42
11.81
Part 7 Mean
Part 7 SD

Outputs
Cycle stock and required safety stock by part and region
Region 1
Region 2
Part 1Batch Stock
106.44
67.83
Part 1 SS
38.08
35.35
Part 3 Batch Stock
7.44
12.45
Part 3 SS
17.24
33.82
Part 7 Batch Stock
Part 7 SS
Costs per unit by region and part
Region 1
Inventory cost
$
0.61
Transportation cost
$
0.19
Total cost part 1
$
0.80
Inventory cost
$
1.49
Transportation cost
$
0.19
Total cost part 3
$
1.68
Inventory cost
Transportation cost
Total cost part 7

$
$
$
$
$
$

Region 2
0.68
0.19
0.87
1.67
0.19
1.86

Region 5 Central
10.08
24.49
22.47
19.42
19.47
35.20

$
$
$
$
$
$

Region 3
0.69
0.19
0.88
1.30
0.19
1.49

$
$
$
$
$
$

Region 4
0.69
0.19
0.88
1.35
0.19
1.54

$
$
$
$
$
$

Region 5
1.54
0.19
1.73
0.84
0.19
1.03

Region 3
$56,964
$66,904
$123,869

Region 4
$37,982
$69,161

Region 5
$21,260
$56,259

Central

1.26
0.29
1.55

Central

$107,143
$77,519
Total logistic system:

$0
$0
$257,600
$257,600
$828,921

1.00
$862,423
$881,079
$901,347
$923,632
$948,521
$976,908
$1,010,258
$1,051,258
$1,105,760
$1,191,662

All parts in the field:

All partscentralized:

Costs
$960,326
$755,191

Savings
$131,405
-$73,730

$828,921
0.9
0.91
0.92
0.93
0.94
0.95
0.96
0.97
0.98
0.99

0.00
$747,122
$760,452
$774,933
$790,856
$808,639
$828,921
$852,749
$882,044
$920,985
$982,362

Correlation Cofficient
0.25
0.50
0.75
$784,951
$814,681
$839,997
$800,028
$831,132
$857,617
$816,408
$849,004
$876,759
$834,418
$868,655
$897,807
$854,533
$890,602
$921,314
$877,474
$915,632
$948,124
$904,426
$945,040
$979,622
$937,561
$981,193 $1,018,345
$981,607 $1,029,252 $1,069,821
$1,051,031 $1,104,999 $1,150,953

Target Cycle Service Level

CR - 1/11/2014 12:45 AM

Region 4
35.43
18.98
18.48
36.88

71.39
21.40

$
$
$

Total Annual Inventory and Distribution Cost

# of parts Region 1
Region 2
Part 1
10
$103,729
$72,171
Part 3
20
$30,463
$56,425
Part 7
70
All Parts
$134,192
$128,597

Benchmark:

Region 3
52.98
28.70
18.45
34.86

Central

Page 5

$279,213

202984403.xls.ms_office - option1.0a

Section 8 - Case Study: ALKO (region 5 served from region 4)

Inputs
Holding cost, H =
TL costs from plants to DCs =
LTL costs from DC to customers =
TL costs from plants to central whse. =
LTL cost from central whse. to cust. =
Reorder Interval, T =
Lead Time, L =
Target cycle service level, CSL =
Correlation Coefficient =

$
$
$
$
$

0.15
0.09
0.10
0.05
0.24
6
5
0.95
0

per unit and day

per unit
per unit
per unit
per unit
days
days

Demand data by part and region

# of parts Region 1
Region 2
Region 3
Region 4
Region 5
Part 1 Mean
10
35.48
22.61
17.66
11.81
3.36
Part 1 SD
6.98
6.48
5.26
3.48
4.49
Part 3 Mean
20
2.48
4.15
6.15
6.16
7.49
Part 3 SD
3.16
6.20
6.39
6.76
3.56
Part 7 Mean
70
0.48
0.73
0.80
1.94
2.54
Part 7 SD
1.98
1.42
2.39
3.76
3.98

All Regions
90.92
NA
26.43
NA
6.49
NA

Coefficient of variation by part and region

Region 1
Region 2
Region 3
Region 4
Region 5
All Regions
Part 1
0.20
0.29
0.30
0.29
1.34
NA
Part 3
1.27
1.49
1.04
1.10
0.48
NA
Part 7
4.13
1.95
2.99
1.94
1.57
NA

Demand during reorder interval and replenishment lead time

Region 1
Region 2
Region 3
Region 4
Region 5
Part 1 Mean
390.28
248.71
194.26
166.87
Part 1 SD
23.15
21.49
17.45
18.84
Part 3 Mean
Part 3 SD
Part 7 Mean
Part 7 SD

Outputs
Cycle stock and required safety stock by part and region
Region 1
Region 2
Part 1Batch Stock
106.44
67.83
Part 1 SS
38.08
35.35
Part 3 Batch Stock
Part 3 SS
Part 7 Batch Stock
Part 7 SS
Costs per unit by region and part
Region 1
Inventory cost
$
0.61
Transportation cost
$
0.19
Total cost part 1
$
0.80
Inventory cost
Transportation cost
Total cost part 3
Inventory cost
Transportation cost
Total cost part 7

$
$
$

Region 2
0.68
0.19
0.87

CR - 1/11/2014 12:45 AM

All parts in the field:

All partscentralized:

Region 4
35.43
30.99

Region 5

50
290.73
40.30
71.39
21.40

Central

79.29
66.28
19.47
35.20

$
$
$

Region 3
0.69
0.19
0.88

$
$
$

Region 4
0.84
0.22
1.06

Region 5

Central

$
$
$
$
$
$

Total Annual Inventory and Distribution Cost

# of parts Region 1
Region 2
Part 1
10
$103,729
$72,171
Part 3
20
Part 7
70
All Parts
$103,729
$72,171

Benchmark:

Region 3
52.98
28.70

Central

Costs
$960,326
$755,191

Region 3
$56,964

$56,964

Region 4
$45,892

Region 5
$0

$45,892
$0
Total logistic system:

0.83
0.29
1.12
1.26
0.29
1.55

Central
$215,356
$257,600
$472,956
$751,714

Savings
$208,612
$3,478
Page 6

202984403.xls.ms_office - Option 2

Section 8 - Case Study: ALKO

Inputs
Holding cost =
TL costs from plants to DCs =
LTL costs from DC to customers =
TL costs from plants to central whse. =
LTL cost from central whse. to cust. =
Reorder Interval =
Lead Time =
Target cycle service level =
Correlation Coefficient =

$
$
$
$
$

0.15
0.09
0.10
0.05
0.24
6
5
0.95
0

per unit and day

per unit
per unit
per unit
per unit
days
days

Demand data by part and region

# of parts Region 1
Region 2
Region 3
Region 4
Region 5
Part 1 Mean
10
35.48
22.61
17.66
11.81
3.36
Part 1 SD
6.98
6.48
5.26
3.48
4.49
Part 3 Mean
20
2.48
4.15
6.15
6.16
7.49
Part 3 SD
3.16
6.20
6.39
6.76
3.56
Part 7 Mean
70
0.48
0.73
0.80
1.94
2.54
Part 7 SD
1.98
1.42
2.39
3.76
3.98

All Regions
90.92
NA
26.43
NA
6.49
NA

Coefficient of variation by part and region

Region 1
Region 2
Region 3
Region 4
Region 5
All Regions
Part 1
0.20
0.29
0.30
0.29
1.34
NA
Part 3
1.27
1.49
1.04
1.10
0.48
NA
Part 7
4.13
1.95
2.99
1.94
1.57
NA

Demand during reorder interval and replenishment lead time

Region 1
Region 2
Region 3
Region 4
Region 5
Part 1 Mean
427.24
248.71
194.26
129.91
Part 1 SD
27.53
21.49
17.45
11.54
Part 3 Mean
27.28
45.65
67.65
67.76
82.39
Part 3 SD
Part 7 Mean
Part 7 SD

Outputs
Cycle stock and required safety stock by part and region
Region 1
Region 2
Part 1Batch Stock
106.44
67.83
Part 1 SS
45.28
35.35
Part 3 Batch Stock
7.44
12.45
Part 3 SS
Part 7 Batch Stock
Part 7 SS
Costs per unit by region and part
Region 1
Inventory cost
$
0.64
Transportation cost
$
0.19
Total cost part 1
$
0.83
Inventory cost
$
0.45
Transportation cost
$
0.19
Total cost part 3
$
0.64
Inventory cost
Transportation cost
Total cost part 7

$
$
$
$
$
$

Region 2
0.68
0.19
0.87
0.45
0.19
0.64

Total Annual Inventory and Distribution Cost

# of parts Region 1
Region 2
Part 1
10
$107,670
$72,171
Part 3
20
$11,587
$19,389
Part 7
70
All Parts
$119,257
$91,560

Benchmark:

CR - 1/11/2014 12:45 AM

All parts in the field:

All partscentralized:

Costs
$960,326
$755,191

Region 3
52.98
28.70
18.45

Region 4
35.43
18.98
18.48

Region 5

Central

40.30
71.39
21.40

Central

22.47
66.28
19.47
35.20

$
$
$
$
$
$

Region 3
0.69
0.19
0.88
0.45
0.19
0.64

Region 3
$56,964
$28,733
$85,697

$
$
$
$
$
$

Region 4
0.69
0.19
0.88
0.45
0.19
0.64

Region 4
$37,982
$28,780

Region 5

$
$
$

0.45
0.19
0.64

Region 5
$34,993

$66,762
$34,993
Total logistic system:

Central

$
$
$
$
$
$

0.38
0.29
0.67
1.26
0.29
1.55

Central
$81,468
$257,600
$339,068
$737,337

Savings
$222,988
$17,854
Page 7

202984403.xls.ms_office - Option 3

Summary of investment and annual cost for various options

Option
Decentralize all parts in five warehouses
Centralize all parts at NDC
Centralize parts 3, 7, decentralize part 1
Centralize part 7, decentralize part3 1, 3
Centralize parts 3, 7, decentralize part 1
serve region 5 part 1 from region 4

Investment
Annual Cost Savings from Base Case
Base Case
$
960,326
$
850,000 $
755,191 $
205,135
$
650,000 $
765,064 $
195,262
$
300,000 $
828,921 $
131,405
$

600,000

751,714

208,612

Rate of return

NPV(10%)

24.1% $ 1,406,480
30.0% $ 1,497,884
43.8% $ 1,145,453
34.8% $ 1,694,734