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Merloni Elettrodomestici SpA The Transit Point Experiment Case Solution
The company Merloni Elettrodomestici SPA was founded by Aristide Merloni in 1930. The company was known as one of the major Italian manufacturing companies of domestic appliances. The company has a distribution system that is based on three levels of warehouses example, plant warehouses, regional warehouses, and central warehouses. Using the network of warehouses, the company delivers its finished products. The ready goods are transferred to the central warehouse from the plants. From the central level, two types of deliveries are made, first directly to customers who order a full truck of products at a discounted rate, secondly, for small orders, the customers get in touch with their regional warehouse, and the delivery is made to that regional warehouse from which the customer gets it. Merloni wants to make a change in the distribution system and change it to the transit system. Cross-docks will be implemented and will be used accordingly. Cross dock is a system of transportation in which products are stored for very less time and are delivered directly from receiving docks to shipping docks, so the case is basically on the benefits that the company will receive from the transit distribution system like reduction in costs and time.
Following questions are answered in this case study solution:
What are the costs and benefits of Merloni's current distribution system? Of a transit point-based system?
Should Merloni replace its network of regional warehouses with transit points? To focus your thoughts, consider the RDCs at Roma and Catanzaro. Which (or both) of these RDCs would you replace this with a transit-point system (assume that Roma is 175 km and Catanzaro is 600 km from the CDC).
If transit-point is to be implemented, what contingency plans and support systems are necessary to support the new logistics network? If not, what changes, if any, would you recommend Merloni to make to its distribution system?
Case Study Questions Answers
1. What are the costs and benefits of Merloni's current distribution system? Of a transit point-based system?
Answer. If we compare the cost and benefits of the current system used in Merloni and the transit point-based system, we need to check changes in inventory costs, transportation costs, and operating costs. While using the current distribution system, they use the A-B-C classification system, which manages the inventory cost and its levels. There are three main warehouse levels (central warehouse, regional warehouses, and plant warehouses). The inventory levels at central and plant warehouses are maintained by aggregate demand prediction and the production of infrastructure and its run times, whereas at the regional warehouse level, it is kept adequality so it can be suitable for serving the project demand (2 weeks for A class products, 4 weeks for B class products and no inventory for C class). If the system is changed to a transit point distribution system, it will help the company by deducting the inventory cost used at the regional level without affecting the inventory level at plant warehouse levels. At the central warehouse level, there will be changes since manufacturing costs and run lead times, which are unaffected by the transit point system, drive the overall inventory of the distribution system, and inventory levels would rise in proportion to regional decreases (to maintain existing service levels). Therefore, the main effect of the new system would be to relocate inventory expenses from the region to the center. The transportation cost will be broken down into two different types of cost (long-haul and short-haul). Long-haul costs are the costs of transportation between the warehouses like from plant to central, central to regional or central to customers premises this all accounts a total of 35% of the total sales. The aggregating order in a day and the planning deliveries decide the best for long-haul costs. Short haul cost consists of the cost used in transferring the goods from the regional warehouse to the customers. If the new distribution system is applied, the short-haul costs won’t change at all as products will still be transported from the transit point to customers each day. The transportation cost used between the central warehouse to customers and the plant won’t be affected by the new system. There will be an increase in the cost of transportation between regional and central warehouses since deliveries would need to be planned at least once every two to three days even if FLTs couldn't always be met, rather than being aggregated to achieve optimum costs and avoid variations in customer service delivery levels. In the current system, the operating cost involves the total cost used to maintain the warehouses and sales facilities and the labor cost associated with each warehouse on both regional and central levels. In the new system, there will be a decrease in the cost used at the regional level as associated costs like rent for facilities, space, and labor will be eliminated to a certain level, but it won’t be fully eliminated as space for overnight storage will still be required.
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