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Dollar Tree Logistics

Solution Id Length Case Author Case Publisher
2703 1536 Words (7 Pages) Timothy M. Laseter, Yu Wu Darden School of Business : UVA-OM-1180
This solution includes: A Word File A Word File

Dollar tree is a company that is known for selling products at a price of one dollar. The company operates in the discounted retail industry. For dollar tree, its logistics are extremely important. To make the deliveries fast and to meet the customer demand, it's important for dollar tree to make continuous improvements in its logistics. Dollar tree has 9 distribution centers, and out of 9, seven of the distribution centers are fully automated. Automation has helped the company to make its operations smooth. For the company to ensure further growth and profitability in the company in future, Dollar tree should continue investing in technology as technological advancement will help the company to make its operations smooth and fast and to lower its cost. The company needs to take an important decision regarding two of its distribution center, and the company needs to decide on the expansion of its distribution center. The decision is critical for the profitability of the company.

Following questions are answered in this case study solution:

  1. What are the components of the cost structure of the Dollar Tree logistics system?

  2. How important is economy of scale for the DCs?

  3. What other operations strategy opportunities should Dollar Tree consider to further decrease total supply chain costs?

  4. Which of the two options for DC capacity expansion do you recommend, why?

Case Study Questions Answers

1. What are the components of the cost structure of the Dollar Tree logistics system?

There are three components of cost structure for the Dollar Tree logistics system; these components are fixed cost, variable cost and unit cost according to per carton handled. According to the case study, the highest fixed cost among the DCs was for Ridgefield, WA, calculated at 0.49, and the lowest was for Briar Creek, PA, calculated at 0.20. The cost breakdown for the dollar tree logistics is divided into 4 categories, including 10% cost for the inventory carrying, 28% of the total cost for distribution centers, the total inbound cost is around 37%, and the outbound is around 25%. The company has focused a lot on its logistic systems because the business model is to turn things around fast and at a low cost. To stick to its business model, the company has designed a well-managed logistic system. The company is aware of the fact that to improve the productivity of the company and to increase the productivity of the system, and the company must avoid two things; not allowing the logistics system to become a bottleneck for the growth of the company and also overcapitalizing logistics. By the end of 2004, the company had nine distribution centers, and out of nine, seven distribution centers were automated. Automation has worked well for the company; the company built its first automated DC in 1998. Another important aspect for Dollar Tree was cost control and lowering the cost. The most important factors are continuous improvement in operations and scale utilization. The company imports more than 40% of its goods, and 80% of the import have been done from China. Most Dollar tree stores receive delivery from their responsible distribution center. For Dollar Tree, logistics plays a significant role in the company's efficiency. Though the logistic system is already doing well, the company should always look for opportunities to improve its logistic network. 

2. How important is the economy of scale for the DCs?

According to the case study, there are some key factors behind the success of Dollar Trees, like their low-cost strategy, well-managed logistic system and economies of scale. To ensure the success of the company, Dollar tree has acquired other companies also and has focused on its expansion. The company had 2600 stores by the end of 2004, and they operate in all 48 states of the United States. Expansion and selling products from different categories are key to making their stores one-stop shops for their customers.

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