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Dollar Tree Case Analysis

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William Wynn

on 10 December 2016

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Transcript of Dollar Tree Case Analysis

Basic Facts
Distribution Center Expansion Analysis
Dollar Tree
Supporting my diagnosis and opinions with reasons and evidence, I was able to develop an appropriate action plan and a recommendation.[5]

The most cost effective decision would be to expand the Briar Creek distribution center by 400,000 sq/ft and not to build the Hartford, CT distribution center at a cost of $40 million dollars.
Housewares, toys, seasonal items, food, health and beauty aids, gifts and books - all priced at $1
"Department/Specialty Retail Stores Industry"
Dollar General
Dollarama, Inc.
Burlington Stores, Inc.
Using critical thinking to solve the problem of expansion or new construction
Major Case Analysis - Dollar Tree Expansion
William B. Wynn
Saint Leo University
Integrated Perspectives on Business (GBA398)
Dr. Helen MacLennan, PhD
December 10, 2016
Roots go back more than 60 years
Founded by K.R. Perry, Macon Brock, Doug Perry and Ray Crompton
1986-Opened five Only $1 stores; expansion of dollar stores continued alongside K&K Toys
Sold K&K Toys in 1991 and applied assets to dollar stores
Renamed to Dollar Tree in 1993; listed public on NASDAQ in 1995 for $15 per share
1996-Starts acquisition of many similar stores
Earned Fortune 500 status in 2008; only number-one performing stock that year
2010-Purchased 86 Canadian Dollar Giant Stores; 1st retail locations outside the U.s.
2015-Family Dollar acquired [1]
"Critical thinking is an approach to reading, thinking, and learning that involves asking questions, examing our assumptions, and weighing the validity of arguments."[3]
Over the past 63 years Dollar Tree has experienced tremendous growth. To remain competitive with other discount stores, the difficult decision to expand its current Briar Creek, PA distribution center an additional 400,000 sq/ft Center (Option 1) or build a new 600,000 sq/ft in Hartford, CT (Option 2).
This analysis is divided into three cost categories:
Outbound Transportation
Distribution Center Operations
Land & Construction and Labor & General/Administrative
Option 1 would require the addition of 75 workers; most of which would be transferred from other area distribution centers

Option 2 would require the the hiring of 125 additional workers; resulting in increased labor costs from recruitment and training expenses
Labor & General/Administrative Costs
Primary factors in considering either option is land and construction costs.

Option 1: Briar Creek DC was built to allow further expansion; no land purchase required, only upgrade construction required to add 400,000 sq/ft

Option 2: Hartford, CT DC would incur significant costs related to land purchase and construction of new facility; additional time and effort to acquire land would cost the company millions of dollars and would require the the hiring of 125 additional workers; resulting in increased labor costs from recruitment and training expenses
Land & Construction Cost
Outbound Transportation Costs
Calculating exact transportation cost (based on criteria listed below) was essential in determining the most cost effective solution to make the final decision to expand or build.
Total number of serviced stores by DC
Average deliveries to each store per year for current DC and proposed DC
Average stores maintained per truck by both DCs
Average distance to adjacent stores
Average cost of trailer (dollar per mile)
Total trucking cost per DC
Distance from Briar Creek DC
Distance from proposed Hartford DC
Exhibit 1
Dollar Tree Logistics
Outbound Trucking Costs
Exhibit 2
Dollar Tree Logistics
Distribution Centers at End of 2004
Using data from Exhibits 1, 2, and 3[4]:
total deliveries per year = 65
total # stores serviced per year = 536; avg. stores serviced per trip = 3.6
trailer cost = $1.66 per mile
total route round-trip miles driven = 424.8 (2*189 DC miles*46.8 adjct. miles)
per store mileage = 27,612 (65*424.8) round-trip miles
total miles driven per year = 4,111,120 ((27,612*536)/3.6))
Exhibit 3
Dollar Tree Logistics
Distribution Center Service Data
Distribution Center Operations Costs
To determine which option would result in the lowest operating costs, the amounts for fixed and variable costs must be determined. Using information from Exhibit 2, the estimated fixed costs for Briar Creek's expansion can be calculated as shown in the table below.
1. Dollar Tree History. (n.d.). Retrieved from http://www.dollartreeinfo.com/about-us/history/

2. Competitors: Industry Peers. (n.d.). Retrieved from http://financials.morningstar.com/competitors/industry-peer.action?t=DLTR

3. Dyer, L. (2011). Critical thinking for business students (2nd ed). Ontario, Canada. Captus Press.

4. Wu, Y., & Huang, A. (2013). Dollar Tree Logistics (Rev. ed.). Charlottesville, VA: Darden School Foundation.

5. Gold, A. (2016). Integrated perspectives. New York City, NY: McGraw-Hill Education.
Outbound Transportation Costs
for each project option (3yr period)
Full transcript