Merloni case analysis
Shelly Rungta
Supply chain Management srungta@umich.edu Should Merloni replace its network of regional warehouses with transit points? To focus your thoughts, consider the RDCs at Roma and Catanzaro. Which (or both) of these RDCs would you replace this with a transit-point system (assume that Roma is 175 km and Catanzaro is 600 km from the CDC)? Why?
In the current case the company ran a pilot project for cross docking at Milano warehousing loading area. Before considering whether the company should replace the current RDS’s with the transit point system I analysed the pro’s and con’s.
Inventory reduction by 75% ; Lead time was reduced ; Production planning reduced
The current system has high inventory costs – regional warehouses, 5 plant warehouses and central warehouse. The infrastructure and carrying costs are very high
Delivery time is not very high because of the centralized system
After doing a cost comparison taking into account operating costs, transportation costs and short haul costs. The total cost for Roma is 4153 Liras but for transit model the cost is 3725 liras. We have 4 cycles this month so this would result in savings of ~2 million. For Catanzaro based on the cost data on exhibits from 9,10,11 the cost with warehouse comes out to be 10,990 Liras and the cost without warehouse with a transit point model would be double at around 20,090. Hence two costs have been affected adopting the transit point model – operating costs and transportation cost. Roma is relatively nearer to the central warehouse so here the decrease in the operating costs was not offset by the increase in the transportation costs, but for Cantanzaro, which is about 600 kms away from the central warehouse this model would not be successful. Further the location, the greater the lead time. Milan was close to the central warehouse and the delivery time was 11-12 hours but as we move further away this lead time would increase and that would affect customer service.
Supply chain Management srungta@umich.edu Should Merloni replace its network of regional warehouses with transit points? To focus your thoughts, consider the RDCs at Roma and Catanzaro. Which (or both) of these RDCs would you replace this with a transit-point system (assume that Roma is 175 km and Catanzaro is 600 km from the CDC)? Why?
In the current case the company ran a pilot project for cross docking at Milano warehousing loading area. Before considering whether the company should replace the current RDS’s with the transit point system I analysed the pro’s and con’s.
Inventory reduction by 75% ; Lead time was reduced ; Production planning reduced
The current system has high inventory costs – regional warehouses, 5 plant warehouses and central warehouse. The infrastructure and carrying costs are very high
Delivery time is not very high because of the centralized system
After doing a cost comparison taking into account operating costs, transportation costs and short haul costs. The total cost for Roma is 4153 Liras but for transit model the cost is 3725 liras. We have 4 cycles this month so this would result in savings of ~2 million. For Catanzaro based on the cost data on exhibits from 9,10,11 the cost with warehouse comes out to be 10,990 Liras and the cost without warehouse with a transit point model would be double at around 20,090. Hence two costs have been affected adopting the transit point model – operating costs and transportation cost. Roma is relatively nearer to the central warehouse so here the decrease in the operating costs was not offset by the increase in the transportation costs, but for Cantanzaro, which is about 600 kms away from the central warehouse this model would not be successful. Further the location, the greater the lead time. Milan was close to the central warehouse and the delivery time was 11-12 hours but as we move further away this lead time would increase and that would affect customer service.