Case study solution of Supply Chain Management by Sunil Chopra

1. Distribution
Network for
Michael’s
Hardware
Presented by
Md. Rezwan, Raisul Haque
Department of MPE,AUST
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2. Open Hardware association
NorthAmerica's largest provider of arts, crafts, framing, wall décor
Sells a variety of arts and crafts products, including beading, knitting, rubber stamping, home
decor items
Michael’s Hardware
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3. 3
1973
Micahel J. Dupey found
Michaels in Dallas
1982
MJ Designs is founded
1984
The Michaels Companies
formed, with 16 stores
1994
The company bought several
arts & crafts stores
Acquires Aaron Brothers Holdings
Inc., an art supplier store
1995
2008
The company unveiled its
1000th store
2018
The company had 1251 stores in 49
out of 50 states in USA
Overview
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4. The Company
64 Stores
• First Location
• 8 Suppliers
• Strong Sales
• 50,000 units/
Supplier/Year
• 400000
units/Store/Ye
ar
Illinois
• 5 years in the
Market
• 8 Suppliers
• Growing
Every day
• 10,000
units/Supplier
/Year
• 80000
units/Store/Y
ear
Arizona
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5. Transportation Mode
Truck
• TL
• LTL
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6. Transportation Network
Direct Shipment
S B
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7. High
Transportation
Cost
High Inventory
Cost
Less Efficient
Problems in Present SCM
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8. Distribution Alternatives
Milk Run
Cross Docking
S BS B
DC
Illinois
• Direct Shipping With Large Truck
• Milk Run with Both Small & Large Truck
Arizona
• Direct Shipping With small Truck
• Milk Run with Small Truck
• Cross Docking
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9. Questions answer-1
What is the annual distribution cost of the current distribution network? Include transportation and
inventory costs.
Direct Shipping Using Small Tuck Illinois(TL) Arizona(LTL)
Unit Sold 50000 10000
Transportation Capacity 10000 500
Shipment 50000/10000=5 ……….
Cost Per Truck $450 ……….
Cost Per Unit ……. $.5/unit
Total Transportation cost 5×450×8×32=$5,76,000 8×32×10000×.5=$12,80,000
Holding cost/Unit $1 $1
Total Holding cost (10000/2)×8×32=$12,80,000 (500/2) ×8×32=$64,000
Total Annual Cost $576000+$1280000=$18,56,000 $1280000+$64000=$13,44,000
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10. Questions answer-2
How should Ellen structure distribution from suppliers to the stores in Arizona? What annual savings can she
expect?
Illinois
Initial With Larger Truck Milk Run 1 Milk Run 2
Unit Sold 50000 50000 50000 50000
Transportation Capacity 10000 40000 40000 10000
Shipment 5 50000/40000=1.25 50000/10000=5 50000/2500=20
Cost Per Truck $450 $1150 1000 400
Total Transportation cost $5,76,000 1.25×1150×8×32
=$3,68,000
5×8×32×((1000/4)+150)
=$5,12,000
$12,80,000
Holding cost/Unit $1 $1 $1 $1
Total Holding cost $12,80,000 20000×8×32=51,20,000 (10000/2)×8×32=12,80,000 $320000
Total Annual Cost $18,56,000 $54,88,000 $17,92,000 $16,00000
Savings ………. $64,000 $2,56,000
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Batch Size ………. ………. 40000/4=10000 10000/4=2500
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11. Questions answer-3
How should Ellen structure distribution from suppliers to the stores in Illinois? What annual savings can
she expect?
Arizona
Initial With smaller Truck Milk Run Cross Docking
Unit Sold 10000 10000 10000 10000
Transportation Capacity 500 10000 10000 10000
Shipment ………. 10000/10000=1 10000/2500=4 1
Cost Per Truck ………. $2050 2000 $250
Cost Per Unit $.5/unit …….. …………. 0.10
Total Transportation cost $12,80,000 1×2050×8×32 =$5,24,800 4×8×32×((2000/4)+50)
=$5,63,200
1×8×4150+250×32+
10000×0.10=$42200
Holding cost/Unit $1 $1 $1 $1
Total Holding cost $64,000 5000×8×32=$12,80,000 (2500/2) ×8×32=3,20,000 (10000/2)×8×32=
12,80,000
Total Annual Cost $13,44,000 $18,04,800 $8,83,200 $1322200
Savings ……… $4,60,800 $21,800
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Batch Size …… ………. 10000/4=2500 ……
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12. The best options for Michael’s Hardware is continuing Direct shipment with Both Milk Run and Cross
Docking
Questions answer-4
What changes in the distribution network (if any) would you suggest as both markets grow?
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Conclusion
Its neighboring competitors are Michael’s competitors include Hobby Lobby, Ben Franklin, Jo-Ann Stores.
For capturing the market share it should be
 Responsive and
 Bring cost efficient product
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