i need help with this assignment esp qsn 1 Charles Lau Page 1 of2 CASE STUDY FOR THE QUANTITATIVE ASSIGNMENT MANAGING GROWTH ATSPORTSTUFF.COM (Source: Adapted from Chopra & Meindl (2016),pp. 151-152) In January 2017, Sanjay Gupta and his management teamwere busy evaluating the performance at SportStuff.com over theprevious year. Total demand had grown by over 2200 percent sincebusiness began in 2007. This growth, however, was a mixed blessing.The venture capitalists supporting the company were very pleasedwith the growth in sales and the resulting increase in revenue.Sanjay and his team, however, could clearly see that costs wouldgrow faster than revenues if demand continued to grow and thesupply chain network was not redesigned. They decided to analyzethe performance of the current network to see how it could beredesigned to best cope with the rapid growth anticipated over thenext four years up to 2020. SPORTSTUFF.COM Sanjay Gupta foundedSportStuff.com in 2007 with a mission of supplying parents withmore affordable sports equipment for their children. Parentscomplained about having to discard expensive skates, skis, jackets,and shoes because children outgrew them rapidly. Sanjayâs initialplan was for the company to purchase used equipment and jacketsfrom families and any surplus equipment from manufacturers andretailers and sell these over the Internet. The idea was very wellreceived in the marketplace, demand grew rapidly, and by the end of2007, the company had sales of $0.8 million. By this time a varietyof new and used products were being sold and the company receivedsignificant venture capital support. In June 2007, Sanjay leasedpart of a warehouse in the outskirts of St. Louis to manage thelarge amount of product being sold. Suppliers sent their product tothe warehouse. Customer orders were packed and shipped by UPS fromthere. As demand grew, SportStuff.com leased more space within thewarehouse. By 2016, SportStuff.com leased the entire warehouse andorders were being shipped to customers all over the United States.Management divided the United States into six customer zones forplanning purposes. As the demand grew, management is thinking ofrenting more warehouses in St. Louis and/or other cities. Puttingall the warehouses in St. Louis â a centralized distribution designâ might be more efficient and easier for coordination while placingthe warehouses in different cities â a decentralized distributiondesign â might provide more responsive customer services. The totaldemand from 2007 to 2016 is shown in Table 1 whereas Table 2 showsthe demand from each customer zone in 2016. Sanjay expected thatthe current growth in total demand would continue up to 2010, afterwhich demand would level off. The growth rates are estimated to be70%, 50% 30% and 10% in 2017, 2018, 2019 and 2020 respectively. Healso believed that the distribution of the total demand across thesix customer zones would be similar to that of 2016. Table 1: TotalCustomer Demand from 2007 to 2016 Year Total Demand 2007 64,0002008 72,000 2009 105,000 2010 126,000 2011 170,000 2012 239,0002013 358,000 2014 537,000 2015 859,000 2016 1,460,000 Table 2:Regional Demand at Sportstuff.com for 2016 Zone Demand in 2016Northwest 350,000 Southwest 210,000 Upper Midwest 150,000 LowerMidwest 250,000 Northeast 320,000 Southeast 180,000 THE NETWORKOPTIONS Sanjay and his management team could see that they neededmore warehouse space to cope with the anticipated growth. Oneoption was to lease more warehouse space in St. Louis itself. Otheroptions included Charles Lau Page 2 of 2 leasing warehouses allover the country. Leasing a warehouse involved fixed costs based onthe size of the warehouse and variable costs that varied with thequantity shipped through the warehouse. Four potential locationsfor warehouses were identified in Denver, Seattle, Atlanta, andPhiladelphia. Warehouses leased could be either small (about100,000 sq. ft.) or large (200,000 sq. ft.). Small warehouses couldhandle a flow of up to 2 million units per year, whereas largewarehouses could handle a flow of up to 4 million units per year.The current warehouse in St. Louis is a small one. The fixed andvariable costs of small and large warehouses in different locationsare shown in Table 3. Table 3: Fixed and Variable Costs ofPotential Warehouses Location Small Warehouse Large Warehouse FixedCost ($ / year) Variable Cost ($ / year) Fixed Cost ($ / year)Variable Cost ($ / year) Seattle 300,000 0.20 500,000 0.20 Denver250,000 0.25 420,000 0.25 St. Louis 220,000 0.15 375,000 0.15Atlanta 220,000 0.10 375,000 0.10 Philadelphia 240,000 0.30 400,0000.30 Sanjay estimated that the inventory holding costs at awarehouse (or all the warehouses in a city) was about $475,000Y +0.165F, where F is the number of units flowing through thewarehouse (or all the warehouses in the city) per year. Y = 1 ifthe facility is used, 0 otherwise. Thus, a warehouse handling1,000,000 units per year incurred an inventory holding cost of$640,000 in the course of the year. SportStuff.com charged a flatfee of $3 per shipment sent to a customer. An average customerorder contained four units. SportStuff.com in turn contracted withUPS to handle all its outbound shipments. UPS charges were based onboth the origin and the destination of the shipment and are shownin Table 4. Management estimated that inbound transportation costsfor shipments from suppliers were likely to remain unchanged, nomatter what warehouse configuration was selected. Table 4: UPSCharges per Shipment (Four Units) Northwest Southwest Upper MidwestLower Midwest Northeast Southeast Seattle $2.00 $2.50 $3.50 $4.00$5.00 $5.50 Denver $2.50 $2.50 $2.50 $3.00 $4.00 $4.50 St. Louis$3.50 $3.50 $2.50 $2.50 $3.00 $3.50 Atlanta $4.00 $4.00 $3.00 $2.50$3.00 $2.50 Philadelphia $4.50 $5.00 $3.00 $3.50 $2.50 $4.00 CASEQUESTIONS 1. What is the cost SportStuff.com incurs under thefollowing scenarios? (a) Keeping the existing small warehouse inSt. Louis with additional warehouse(s) all rented in St. Louis aswell; (b) Keeping the existing small warehouse in St. Louis withadditional warehouse(s) all rented in other cities, i.e., in St.Louis there is only one small warehouse; and (c) Not keeping anywarehouse in St. Louis with new warehouses all rented in othercities; and 2. What supply chain network configurations do yourecommend for SportStuff.com for the next few years from 2017 up to2020 entirely from a cost saving perspective? 3. Apart from cost,what other qualitative factors the management of SportStuff.com mayneed to consider in deciding on the network configurations? 4. Ifthe management of SportStuff.com decides that there is no need toadopt the lowest cost option every year until 2020, what will yourrecommendation be which can provide a smooth transition ofconfiguration from 2017 to 2020 and does not incur significantadditional cost? Why?
i need help with this assignment esp qsn 1 Charles Lau Page 1 of2 CASE STUDY FOR THE QUANTITATIVE ASSIGNMENT MANAGING GROWTH ATSPORTSTUFF.COM (Source: Adapted from Chopra & Meindl (2016),pp. 151-152) In January 2017, Sanjay Gupta and his management teamwere busy evaluating the performance at SportStuff.com over theprevious year. Total demand had grown by over 2200 percent sincebusiness began in 2007. This growth, however, was a mixed blessing.The venture capitalists supporting the company were very pleasedwith the growth in sales and the resulting increase in revenue.Sanjay and his team, however, could clearly see that costs wouldgrow faster than revenues if demand continued to grow and thesupply chain network was not redesigned. They decided to analyzethe performance of the current network to see how it could beredesigned to best cope with the rapid growth anticipated over thenext four years up to 2020. SPORTSTUFF.COM Sanjay Gupta foundedSportStuff.com in 2007 with a mission of supplying parents withmore affordable sports equipment for their children. Parentscomplained about having to discard expensive skates, skis, jackets,and shoes because children outgrew them rapidly. Sanjayâs initialplan was for the company to purchase used equipment and jacketsfrom families and any surplus equipment from manufacturers andretailers and sell these over the Internet. The idea was very wellreceived in the marketplace, demand grew rapidly, and by the end of2007, the company had sales of $0.8 million. By this time a varietyof new and used products were being sold and the company receivedsignificant venture capital support. In June 2007, Sanjay leasedpart of a warehouse in the outskirts of St. Louis to manage thelarge amount of product being sold. Suppliers sent their product tothe warehouse. Customer orders were packed and shipped by UPS fromthere. As demand grew, SportStuff.com leased more space within thewarehouse. By 2016, SportStuff.com leased the entire warehouse andorders were being shipped to customers all over the United States.Management divided the United States into six customer zones forplanning purposes. As the demand grew, management is thinking ofrenting more warehouses in St. Louis and/or other cities. Puttingall the warehouses in St. Louis â a centralized distribution designâ might be more efficient and easier for coordination while placingthe warehouses in different cities â a decentralized distributiondesign â might provide more responsive customer services. The totaldemand from 2007 to 2016 is shown in Table 1 whereas Table 2 showsthe demand from each customer zone in 2016. Sanjay expected thatthe current growth in total demand would continue up to 2010, afterwhich demand would level off. The growth rates are estimated to be70%, 50% 30% and 10% in 2017, 2018, 2019 and 2020 respectively. Healso believed that the distribution of the total demand across thesix customer zones would be similar to that of 2016. Table 1: TotalCustomer Demand from 2007 to 2016 Year Total Demand 2007 64,0002008 72,000 2009 105,000 2010 126,000 2011 170,000 2012 239,0002013 358,000 2014 537,000 2015 859,000 2016 1,460,000 Table 2:Regional Demand at Sportstuff.com for 2016 Zone Demand in 2016Northwest 350,000 Southwest 210,000 Upper Midwest 150,000 LowerMidwest 250,000 Northeast 320,000 Southeast 180,000 THE NETWORKOPTIONS Sanjay and his management team could see that they neededmore warehouse space to cope with the anticipated growth. Oneoption was to lease more warehouse space in St. Louis itself. Otheroptions included Charles Lau Page 2 of 2 leasing warehouses allover the country. Leasing a warehouse involved fixed costs based onthe size of the warehouse and variable costs that varied with thequantity shipped through the warehouse. Four potential locationsfor warehouses were identified in Denver, Seattle, Atlanta, andPhiladelphia. Warehouses leased could be either small (about100,000 sq. ft.) or large (200,000 sq. ft.). Small warehouses couldhandle a flow of up to 2 million units per year, whereas largewarehouses could handle a flow of up to 4 million units per year.The current warehouse in St. Louis is a small one. The fixed andvariable costs of small and large warehouses in different locationsare shown in Table 3. Table 3: Fixed and Variable Costs ofPotential Warehouses Location Small Warehouse Large Warehouse FixedCost ($ / year) Variable Cost ($ / year) Fixed Cost ($ / year)Variable Cost ($ / year) Seattle 300,000 0.20 500,000 0.20 Denver250,000 0.25 420,000 0.25 St. Louis 220,000 0.15 375,000 0.15Atlanta 220,000 0.10 375,000 0.10 Philadelphia 240,000 0.30 400,0000.30 Sanjay estimated that the inventory holding costs at awarehouse (or all the warehouses in a city) was about $475,000Y +0.165F, where F is the number of units flowing through thewarehouse (or all the warehouses in the city) per year. Y = 1 ifthe facility is used, 0 otherwise. Thus, a warehouse handling1,000,000 units per year incurred an inventory holding cost of$640,000 in the course of the year. SportStuff.com charged a flatfee of $3 per shipment sent to a customer. An average customerorder contained four units. SportStuff.com in turn contracted withUPS to handle all its outbound shipments. UPS charges were based onboth the origin and the destination of the shipment and are shownin Table 4. Management estimated that inbound transportation costsfor shipments from suppliers were likely to remain unchanged, nomatter what warehouse configuration was selected. Table 4: UPSCharges per Shipment (Four Units) Northwest Southwest Upper MidwestLower Midwest Northeast Southeast Seattle $2.00 $2.50 $3.50 $4.00$5.00 $5.50 Denver $2.50 $2.50 $2.50 $3.00 $4.00 $4.50 St. Louis$3.50 $3.50 $2.50 $2.50 $3.00 $3.50 Atlanta $4.00 $4.00 $3.00 $2.50$3.00 $2.50 Philadelphia $4.50 $5.00 $3.00 $3.50 $2.50 $4.00 CASEQUESTIONS 1. What is the cost SportStuff.com incurs under thefollowing scenarios? (a) Keeping the existing small warehouse inSt. Louis with additional warehouse(s) all rented in St. Louis aswell; (b) Keeping the existing small warehouse in St. Louis withadditional warehouse(s) all rented in other cities, i.e., in St.Louis there is only one small warehouse; and (c) Not keeping anywarehouse in St. Louis with new warehouses all rented in othercities; and 2. What supply chain network configurations do yourecommend for SportStuff.com for the next few years from 2017 up to2020 entirely from a cost saving perspective? 3. Apart from cost,what other qualitative factors the management of SportStuff.com mayneed to consider in deciding on the network configurations? 4. Ifthe management of SportStuff.com decides that there is no need toadopt the lowest cost option every year until 2020, what will yourrecommendation be which can provide a smooth transition ofconfiguration from 2017 to 2020 and does not incur significantadditional cost? Why?
