Merloni

Merloni Eletrodomestici

The decision of whether Merloni should replace its regional warehouses with transit points depends on several factors:

1) Cost of transportation (large trucks): cost of transportation increases rapidly depending on the distance from the central warehouse to the regional warehouse, or transit point.

2) Average inventory on the warehouse: the greater the inventory held in the warehouse, the higher costs such as labor, lease and utilities will be.

3) Average daily demand: demand will directly affect utilization of large trucks. If trucks leave to the regional warehouse with low utilization (few pieces), the cost per piece transported will be higher than if the truck was always at full capacity.

4) Demand of each type of appliance: if Merloni keeps their regional warehouses, large trucks will go from the central warehouse to the regional warehouse with 100% utilization and, preferably, with one variety of appliance only in each trip (to maximize utilization). Depending on the distribution of demand for each type of appliance, more or less trucks would be required, at that will affect cost.

To decide whether Catanzaro and Roma should have transit points instead of regional warehouses, I calculated the monthly cost of running a regional warehouse vs. the monthly cost of transporting appliances daily to the transit point.

| Rome | Catanzaro |

| Warehouse | Transit point | Warehouse | Transit point |

Operating costs | 1,200pieces*$3,605/piece | $0 | 780pieces*$3,324/piece | $0 |

Inventory Costs | 1,200pieces*$1,305/piece | $0 | 780pieces*$1,721/piece | $0 |

Large truck costs | 34trucks*$0.4M/truck | 154.8pieces*22days/(120pieces/truck)*$0.4M/truck | 14trucks*$0.9M | 58.7pieces*22days/(120pieces/truck)*$0.9M/trip |

Total Costs | $19.2M | $11.6M | $16.5M | $9.9M |

From these calculations, we can reach the conclusion that the transit point system saves money in Rome and Catanzaro. However, this scenario described...