Logistics Network Capability Analysis with Llamasoft

Summary

MetalWorks Corporation’s provided current warehouse capacity and demand projections until the year 2018.

Based on analysis, MetalWorks Corporation’s current logistics and distribution network will not be capable of meeting future demand estimates. Detailed analysis of various possible scenarios as well as recommendations is provided below.

Overall

Considering the conservative approach of using only two warehouses for the year 2015, MetalWorks is giving up $4,097,458.06 in annual profits. MetalWorks Corporation needs to increase the warehouses from 2 to 6 over four years.

The primary reason for this is the high shipping cost associated with the conservative approach. The customer shipping cost can be reduced to $15,257,134 from $27,708,529 through the addition of four optimally placed warehouses while profits increased to $457,358,770 from $453,261,312.

Although MetalWorks can open more than 6 warehouses, we found that the relative costs associated with the 7th warehouse and more will outweigh the relative benefits, hence 6 warehouses are optimal to meet future demand until 2018.

Increase to 4 Warehouse

If MetalWorks operates using the conservative approach, our analysis shows that the current warehouse capacity (Iowa and Delaware) would reach 100% in 2016. Hence, we recommend that MetalWorks invest and operate two new warehouses in 2014 immediately.

The warehouses should be located at Phoenix & Sacramento to reduce distances from plant to warehouse as well the warehouse to customer distance. We recommend that MetalWorks operates 500,000 and 400,000 capacity warehouses in Phoenix & Sacramento respectively.

Looking at the demand across 4 years, we concluded that the current manufacturing plants in Des Moines & Dover are not producing enough units to fulfill the demand for 2017 & 2018 and therefore MetalWorks will need to open a new plant in Juarez, Mexico.

We also evaluated the scenario which involved the expansion of the safety box manufacturing capacity at the Iowa plant by 25 percent. The analysis showed that MetalWorks will not be able to fulfill the demand of 838,267.52 units in 2018 under this scenario. Therefore, we recommend that MetalWorks should immediately invest & open the manufacturing plant in Mexico. This will also help reduce distribution costs of finished goods to the Phoenix and Sacramento warehouses.

MetalWorks should invest incrementally by adding two warehouses in 2014 and then two more in 2016. No investment is required in 2015 as the demand will not exceed the total available warehouse capacity in 2014.

​Increase to 6 Warehouse

In 2016 we recommend MetalWorks open two more warehouses because the projected demand increases and would result in a substantial increase in the warehouse to customer shipping cost. The introduction of four new warehouses, two in 2014 & two in 2016, would help tackle the increase in the warehouse to customer shipping costs.

Line Analysis

The Des Moines plant serves the Des Moines (70%) and Dover (30%) warehouses. Dover serves Dover (89%) and Orlando (11%). While the new Juarez plant would serve the warehouses in the west (Houston, Phoenix, and Sacramento) as well as Orlando.

We recommend that MetalWorks should equip the Dover plant with the equipment required to produce safety boxes as well. This expansion would cut down the cost of shipping safety boxes from Des Moines to Dover by $1.45 million and also enable the Dover plant to serve the safety box demand of Orlando, thereby further bring down shipping costs.

In order to find the optimal distance to the customer, we conducted an analysis of costs associated with being closer to the customer. Based on the analysis, we recommend that MetalWorks maintains a distance of 900 miles (Exhibit 11) as profit ($569.29M) is maximized and warehouse to customer shipping cost is the lowest ($13.60M).

Our team also took into consideration the future potential increase in fuel prices and resulting increase in transportation costs. As fuel prices increase, shipping costs increase leading to a decrease in the profit as shown in Exhibit 12. Hence, we recommend that MetalWorks introduces safety box production capability in the Dover manufacturing plant which will reduce shipping costs associated with transporting safety box units from Des Moines to Dover & Juarez to Orlando.

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