Alko Case

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Activity 12
Case: Managing Inventories at ALKO Inc.
ALKO began in 1943 in a workshop established by John Williams in Cleveland. • In 1948 obtained a patent for one of his designs of bright accessories. He decided to producing and selling them in Cleveland. • The product is sold very well and in 1957 grew by 3 million; and luminous figures were well known for their outstanding quality. • In 1963, John took the company public and has since been very successful, he began to distribute its products throughout the nation. • ALKO began in 1980 with the introduction of new designs of bright accessories, but the profitability of the company started losing even though it ALKO had been careful in ensuring the quality of the product.

The problem was that the margins began to contract the intensifying competition in the market. Gary Fisher established a task force to review the distribution system. Aso noted that ALKO had 100 products in its line 1 in 1990, the products were in three facilities located in Cleveland. • For the purpose of its sales in the mainland United States was divided into five regions. • An Independent Distribution Center (DC) operate in each region, trying to provide samples of products in inventory. The agenda for the production of the plant was based on orders from DC, which were transported from plants to distribution centers in trucks, because they tended to be long. • The shipment of the DC to customers was in trucks, the cost of loading time of the plants to distribution centers was approximately $ 0.90 per unit of time and costs of shipment of customer distribution centers were $ 0.10 per unit. 14 days were necessary since the order was given to DC until the time it was delivered from the plant. • There were three basic categories of products in the volume of sales: high, medium and low.

An Alternative Distribution System recommended that ALKO build a National Distribution Center (NDC) outside of Chicago and closed its 5 distribution centers and move its entire inventory. Thus the capacity of the warehouse would be measured in terms of the number of units handled per year. That ALKO hope to recover $ 50,000 for each store closing. The level of service would be 95%, and transportation costs from the NDC would be reduced to $ 0.05 per unit. But the cost of transportation from the NDC customer would increase to $ 0.24 per unit. Questions.

What is the annual inventory and the cost of a distribution system? Plant - DC 0.09 per unit per day
DC - Client 0.10 per unit per day
C. overall.
Distribution 0.19 per unit per day
C. Storage 0.15 per unit per day.
Distribution of the 100 products demand
Region 1
Region 2
Region 3
Region 4
Region 5

Part 1, mean (10 prod)
354.8
226.1
176.6
118.1
33.6

Part 1 SD (10 prod)
69.8
64.8
52.6
34.8
44.9

Part 3 mean (20 prod)
49.6
83
123
123.2
149.8

Part 3 SD (20 prod)
63.2
124
127.8
135.2
71.2

Part 7 mean (70 prod)
33.6
51.1
56
135.8
177.8

Part 7 SD (70 prod)
138.6
99.4
205.1
263.2
278.6

Overall
438
360.2
355.6
377.1
361.2

Inventory costs (100 products)
64.7
53.03
52.34
55,565
53.18

If the demand is stable throughout the year and a financial year of 360 days, the cost of annual inventory and the total cost of daily and annual distribution would be:
Region 1
Region 2
Region 3
Region 4
Region 5

Annual cost Inventory
23,292
19090.8
18842.4
20003.4
19144.8

Total cost of distribution everyday
83.22
68,438
67,564
71,649
68,628

Cost of annual distribution
29959.2
24637.68
24323.04
25792.64
24706.08

What are the savings that would result from continuing with the recommendation that establishes a National Distribution Center? Evaluate savings with the correlation...
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