Alko

Alko Distribution Possibilities

To: Gary Fisher

From: Group (5)

To ensure that Alko is operating as efficient as possible we have conducted a cost/benefit study on our current distribution program compared to other possible logistic options. We currently manufacture all of our products in Cleveland Ohio, with five distribution centers located in five different regions. Our main focus was determining if we should build one central distribution center or continue using the system that we already have in place, or a possible mixture of the two possibilities. All of the possibilities are as follows:

1. Continue with current system.

2. Centralize all of our distribution in one distribution center.

3. Distribute parts 3 and 7 from central distribution, while leaving part 1 decentralized.

4. Centralize part 7, while keeping part 1 and 3 decentralized.

5. Distribute parts 3 and 7 from central distribution, while leaving part 1 decentralized, and serve region 5 part 1 from region 4.

First off we need to realize the cost associated with the addition of a centralized warehouse. The cost for creating a centralized warehouse depend directly on the amount of units that we will handle annually. The reason for that is warehouse capacity. We do not want to construct a warehouse that has double the capacity we need, but we also do not want to construct a warehouse that does not have the capacity we need either. So the following is the investment needed for the above 5 options, along with annual cost, savings, rate of return, and net present value.

Option | Investment | Annual Cost | Savings from base case | Rate of Return | NPV(10%) |

Decentralize all parts in five warehouses | Base Case | $960,326 |   |   |   |

Centralize all parts at NDC | $ 850,000.00 | $ 755,164.00 | $ 205,162.00 | 24.10% | $1,406,777.00 |

Centralize parts 3 and 7, decentralize part 1 | $ 650,000.00 | $ 765,064.00 | $ 195,262.00 | 30.0% |...