Essen Beer Company has a brewery in Michigan’s Upper Peninsula and is setting up distribution at Jackson, Michigan, in the state’s Lower Peninsula. Essen packages its beverages in barrels and in 24-can cases. Barrels must be maintained at temperatures below 60 degrees Fahrenheit until retail delivery. The company’s logistics department must determine whether to operate individual private warehouses for barrels and cases or to utilize a single warehouse with barrels placed in a carefully controlled environment separate from cases. Assume that cases are not to be stored or transported in refrigerated environments.
Essen experiences a weekly demand of 300 barrels and 5,000 cases. The company has arranged truckload transportation with Stipe Trucking Service. Stipe operates refrigerated and non-refrigerated trailers, as well as multi-compartmented trailers that are half refrigerated and half not. A refrigerated truckload can hold 72 barrels, while a non-refrigerated truckload holds 400 cases. The multi-compartmented trailer can hold 36 barrels and 200 cases. The costs for these services and other related expenses are detailed below:
Truckload costs
Refrigerated $550
Non-refrigerated $400
Multi-compartmented $500
Warehouse expenses
Individual warehouses
For case storage only:
Capital $1,250/week
Labor $2,500/week
For barrel storage:
Capital $2,500/week
Labor $1,600/week
Single, consolidated warehouse
Capital $3,500/week
Labor $3,200/week
a. Considering demand and all costs depicted above, does the single, consolidated warehouse or the two individual warehouses represent the least-total-cost alternative?
b. Now assume that Stipe Trucking Service will provide only the multi-compartmented trailers to serve the proposed consolidated warehouse. Which plan is the least-cost alternative in this scenario?
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