# Final Exam

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FINAL EXAM: Case Study
Alko Inc.

Esaam M. Quazi
MKTG 3130
Spring 2010
M,W | 5:45 PM - 7:00 PM
Consider the case, ALKO Inc., described on page 322 and 323 in the text and answer the following questions (do not consider the questions described on page 323). 1. What is the annual inventory and distribution cost of current distribution system? Total Annual Inventory and Distribution Cost | | | | | | | | # of parts | Region 1 | Region 2 | Region 3 | Region 4 | Region 5 | All Regions | | Central | Part 1 | 10 | \$103,729 | \$72,171 | \$56,964 | \$37,982 | \$21,260 | \$292,107 | | \$282,235 | Part 3 | 20 | \$30,463 | \$56,425 | \$66,904 | \$69,161 | \$56,259 | \$279,213 | | \$215,356 | Part
What are the savings that would result from following the task force recommendation and setting up a National Distribution Center? Assume that the demands from various regions for any item are independent of each other.
Make any other assumptions you need. However, clearly state
An annual savings of nearly \$2500 can be realized because: 17,117.49 Current Estimated Total Cost -14,693.94 New Total Cost 2,423.55 Annual Savings

The current distribution system has 100 products in line with production occurring at three firms nearby Cleveland, OH and there are company owned distribution centers in each region. The following is a flowchart of the current system:

As one can likely deduct, the current system is inefficient simply because, if there is a stockout at 1 or more of the plants, the regional DCs must wait for their producers in Cleveland, OH to finish making the products and ship them (a cost) back to the regional DC before the regional DC can stock it into inventory (a cost) or ship (a cost) it to fulfill the customer's order (a bottleneck like effect). CALCULATIONS

If construction of a National Distribution Center costs \$400,000 for a 200,000 unit facility, it would take almost 60 years of savings to pay off the cost of the NDC. The cost of the NDC can be offset by \$250,000 recovered from closing each of the regional

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