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Orion Foods, Inc

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by

Kiah Johnson

on 3 December 2014

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Transcript of Orion Foods, Inc

Orion Foods, Inc
Background: Orion Foods, Inc
Logistics Issues:
Contracted trucking company does not have specified routes
Burns distribution warehouse is almost at full capacity
Expansion is needed
2 Options:
Expand Burns warehouse
$300,000 per 10,000 cwt of inventory
Convert both warehouses into one central distribution center in Reno, NV
one-time net cost of $2 million
would reduce inventory by 40%
3. Is the any merit to consolidating the regional warehousing operation at Reno, NV?
Financial Impact of Anita's Decisions
Katherine Geckler, John Halliburton, Kiah Johnson, Kyle Majerowski

Fruit and vegetable distribution company
Imports products from South America & Canada
Distributes throughout the United States
Fresno
Burns
Los Angeles
Phoenix
Salt Lake City
San Francisco
Portland
Butte
Seattle
Current Distribution:
2 Regional Distribution Centers
Burns, OR
Fresno, CA
7 Field Warehouses
Portland
Butte
Seattle
Los Angeles
San Francisco
Phoenix
Salt Lake City
Cost of distribution has become too high
Newly appointed traffic manager Anita Bailey
Her job?
“clean up the distribution mess in the West.”
Current Situation:
Anita's First Tasks
as traffic manager:
1. Determine whether or not current distribution operations can be improved

2. Determine whether or not to expand the Burns, OR regional warehouse

3. Determine whether or not to consolidate operations to Reno, NV
1. Can the current distribution operations be improved?
Current Distribution Costs:
Question:
Are drivers taking the best routes?
Recalculated Distribution Costs Using the shortest routes:
Answer: No!
After using LOGWARE, and implementing the shortest routes into the distribution operation, Anita can save Orion
$22,216
2. Is there any benefit to expanding the Burns, OR warehouse?
Phoenix
Burn's Warehouse Projected Capacity
Burns Capacity: 15,000 (cwt)
Projected Capacity:18,875 (cwt)
Available Capacity: -3,875 (cwt)
Anita must determine how to absorb this excess capacity!!!
Option 1:
Send excess capacity to Fresno warehouse
Fresno Capacity: 50,000 (cwt)
Projected Capacity: 47,125 (cwt)
Available Capacity: 2,875 (cwt)
Excess Capacity at Burns: -3,875 (cwt)
Available Capacity at Fresno: 2,875 (cwt)
Option 1 Analysis:
Fresno does not have enough available capacity to take over the excess capactiy!
What does this mean?
Option 3:
Expand the Burns Warehouse
Cost: $300,000 for every 10,000 cwt of inventory
Only option left
Transportation Costs
Annual transportation cost without consolidation $867,310.60
Annual transportation cost with consolidation: $521,843.40
Inventory Carrying Costs
Transportation Costs- 5 Years
Inventory Carrying Costs- 5 Years
Total Costs
50,000 cwt
15,000 cwt
Anita's Decision Summary
1. Improved distribution after implementing shorter routes

2. Expanded the Burns, OR warehouse to meet capacity

3. Determined that consolidation would be the best long term decision
1. Improved distribution
$22,216

2. Burns Expansion
$-300,000
3. Reno Consolidation
$3,373,875

Total Savings $3,096,091
Benefit's of Anita's Decisions:
Predetermined optimal transportation routes
Increased capacity to meet demand
Reduced transportation costs
Reduced carrying costs
40% reduction in inventory
Option 2:
Do not expand
Assumes the the 5- Year projection is wrong
Anita would run the risk of not being able to meet capacity
Orion's Transportation
Contract with trucking companies
Pays carriers $1.30 per mile
Average truckload 30,000lb
30,000lb/100= 300cwt
Not going to happen!
Savings$345,467.20
$412,650 Savings
Annual inventory carrying costs without consolidation
Annual inventory carrying costs with consolidation
5 year transportation cost without consolidation
5 year transportation cost with consolidation
Total Savings $478,774
5 year inventory carrying costs without consolidation
5 year inventory carrying costs with consolidation
$554,400 Savings
Total 6 year costs without consolidation: $13,449,039
Total 6 year costs with consolidation: $10,075,164.20
TOTAL SAVINGS WITH CONSOLIDATION:
$3,373,874.80
Full transcript