Plaza, the Logistics park of Zaragoza Case Analysis

Supply Chain Network Diagram

 The supply chain ow

ow an! the re
respecti"e
specti"e lea! times
times

# $ption % # $ption & #

 A
 A"
"erage Cycle Time'Days( # )otter!am # Zaragoza #
 A
 A"
"erage Time to rre
each the port # &* # &+ #
 Ti
 Time spent at port# %- # %- #
 T
 Tiime from warehouse to customer # .- # %- #
 T
 To
otal a"erage lea! time'!ays( # /% # &0 #

 The a"erage time to reach the port was a"erage! for

for each option % fr
from
om the !ata
gi"en

Deman!, 1n"entory an! Safety Stock

  # $ption % # $ption & # #
  # )otter!am # Zaragoza # #
 Annual Deman! 'D( 'units( # %..... # %..... # #
 1n"entory )e"iew Perio!' T( '!ays( # /. # /. # #
 1n
 1n"entory per re"iew perio! '2( # 3&%*%03.3& # 3&%*%03.3 # 2
4 D'
D'unit
units
s56
56e
ear
ar(( 7 T 'in
'in year
ars
s( #
 Stan!ar! De"iation '8 !( 'units5year( # %.... # %.... # #
 SD !uring Lea! Time'8 T9L( # +.33.0%-&& # /*-%0:/*: # 8 T9L 4
'S;rt
rt''T9L( 55/
/:- o year( 7 8 ! #
8 ! es %....
 S
 Saafety Stock'SS( 'units5re"iew perio!( #:
:0
0.++/0&*: #:
:+
+3.3*&3*
# SS 4 %:+78 T9L #
8 T9L es lo ;ue calcuas arri<a 'SD !uring Lea! Tim
Time(
e( y %,:+ ;ue es la
!istri<uci=n normal estan!ariza!a para un sercicio !e *->
 A
 A"
"erage 1n
1n"entory per re
re"iew pe
perio!'27( # %.
%.3%+.&:/+ #%
%.
.-*.+3%*
# 27 4 '25&( 9 SS #
 A
 A"
"erage 1n"entory '277('in units( # %.3%+ # %.-*. # 2774 27 7 No
of rre
e"iew pe
perio!s5year #
 Annuall A"e
 Annua A"era
rage
ge 1n"
1n"en
ento
tory
ry ttra
rans
nspo
port
rte!
e! '27
'2777 tl('
tl('in
in ttru
ruck
cklo
loa!
a!s(
s( # &3
&3&
& # &3
&3&
& #
'277tl(
'277tl( 4 '25No
'25No of units per trtruck(
uck(7%&
7%& #
 

3&%* '2( 5 '%0- uni!a!es 7 & T?@ por camion( 7%& ;ue son los pe!i!os por
ao

 The num<er of truckloa!s

truckloa!s transporte! per or
or!er
!er 4 3&%*%05NoB of units in truck
loa! 4&/ per or!er
So Total
Total NoB of truckloa!s5year 4 &/7%& 4 &3&

 T
 Transportation
ransportation Costs
 Trans
ranspo
port
rtat
ation
ion Co
Cost
sts
s # $pti
$ption
on % # $p
$pti
tion
on & # #
  # )otter!am # Zaragoza # #
 Shipping Cost from China to Port5T?@7 # %+- # . # #
 Sh
Ship
ippi
ping
ng Co
Cost
st fr
from
om Ch
Chin
ina
a to Port5
ort5T
Tru
ruck
cklo
loa!
a!77 # 0&-
0&- # . # #
 Port han!ling charges5Truckloa! # //- # /.- # #
 Transportation Cost from Port to arehouse5TL #. # +*- # #
 A
 A"
"erage Distance from house to customer 'km( # -%:% # %&&.0 #
#
 A"era
"erage
ge Co
Cost
st per
per km # %&
%& # %.&
%.& # #
 Tra
 Trans
nspo
port
rtat
atio
ion
n Cos
Costt fr
from ho
hou
use to cu
cust
stom
ome
er5TL
r5TL # :
:%*
%*/
/&
& #%
%&+
&+-
-%%
%%+
+ #
#
 Total
otal Tra
rans
nspo
port
rtat
atio
ion
n Cost
Cost 5T
5TL'
L'T
TrC
C5T
5TL(
L( # %.&:
%.&:3
3&
& # &.
&.+-
+-%
%%+
%+ # #
 T
 To
ota
tall An
Annual
nual Trans
ranspo
port
rta
ati
tio
on Cos
Cost'
t'T
TTr
TrC(7 #&
&3*
3*/-
/-3
3&0
&00*
0* #-
-0:
0:/%
/%/
/*&
*&:
:
# TTr
TTrC 4' TrC5TL(  277tl #

7 All costs in!icate! in the report are euros

Eere we only are calculating the !iFerences <ecause we !i! not i!entify the
shipping cost from China5Ganufacturer
China5Ganufacturer to the Hrst port 'port iin
n Spain(Since it is
!iFerence of cost calculation we assume! it to <e zero
 The transportation cost per
per truckloa! 4 A
A"erage
"erage !istance <etween
<etween war
warehouse
ehouse
an! customer 7 A"erage cost per IG for each option

1n"entory Eol!ing Costs

 1n"entory Eol!ing Cost # $ption % # $ption & # #

  # )otter!am # Zaragoza # #
 @nit Price ' C ( # %.. # %.. # #
 

 Eo
 Eol!ing Cost per unit 'Ec( # &: # %3 # Ec 4 @nit cost7 Percent Eol!ing
cost5%.. #
 A
 Annnual A
A"
"erage 1n"entory Eol!ing C Co
ost ' TEc( # &3%%:+:3+3 #
%*.:&3
%*. :&3:0
:0-- # 'T
'TEc
Ec(( 4 Ec  27
2777 #

Pipeline 1n"entory Costs

 Pip
ipe
eline 1n"entory Cost # $ption
ion % # option & # #
 Jinancial Cost or 1nterest rate # 3> # 3> # #
 Lea! time in pipeline'!ays( # /% # &0 # #
 NoB of units in Transit # 3&%*%03.3& # 3&%*%03.3 # #
 @nit Cost # %.. # %.. # #
 Pi
 Pipeline 1n"entory Cost 'PC( # --3+-/0+/0 # +3:/*-%*: # PC 4
Deman!7@nit C Co
ost71nterest 7L
7Lea! TTiime #
..3 5 /:- 7%.. 7 3&%* 7 /% 4 --3+
Pipeline 1n"entory is the in"entory hel! up in the ow process Since the
customer pays only after han!ing o"er the in"entory The entire ow lea! time
till the in"entory reaches customer was consi!ere!
1n the ow process we assume! there woul! <e no la<or costs an! rents of the
<uil!ing were consi!ere! So we calculate! the interest rate as the sum of
Hnancial cost 9 1nsurance Cost
4 0> 9%> 43>

 T
 Total
otal Costs
 T
 Total
otal costs 4 1n"e
1n"entory
ntory Eol!ing Cost 9 Cost of the 11n"entory
n"entory 9 T
Transportation
ransportation
Cost 9 Pipeline 1n"entory Cost

 Total Cost # $ption % # $ption & #

  # )otter!am # Zaragoza #
 A
 Ann
nnua
uall A"e
A"era
rage
ge 1n"e
1n"ent
ntor
ory
y Eo
Eol!
l!in
ing
gCCos
ostt ' TE
Ec(
c( # &3
&3%%
%%:+
:+0
0 # %
%*.
*.:&
:&3
3:0
:0-
-
#
 T
 To
ota
tall Ann
Annua
uall Trans
ransp
por
orta
tati
tion
on Cos
ostt'TT
'TTrrC(7 #&
&3*
3*/-
/-3
3/
/ # -0
-0:/
:/%/
%/* #
 P
 Piipeline 1n"entory Cost 'PC( # --3+- # +3:+. #
 A
 An
nnual Cost of Pro!ucts # %.3%+.&:/+ # %.-*.+3%* #
 T
 To
otal J
Jin
ina
al Co
Cost #%
%:
:-0-
-0-%.% # %
%3
3/.3-+0 #
 

Eere we nee! to remem<er that the transportation cost consi!ere! was starting
from the respecti"e ports <ut not from the initial point Kmanufacturer
Cost DiFerence
 Jinal
inal Cos
Costt DiF
DiFer
erenc
ence
e # %0
%0//+
//++:
+: #

1n this case 'with % T?@ 4 %0- units( the cost of option & 'Zaragoza( is more than
cost of option % ')otter!am(
')otter!am(
So, for the gi"en T?@, 1 woul! recommen! the )otter!am Port

Cost Analysis an! sensiti"ity controlling factors

Num<er of units5T?@
1n this speciHc case, the cost of Zaragoza might <e higher than the )otter!am
option, howe"er, "arying the num<er of units5T?@ has an impact on this analysis
1f the num<er of units5T?@ increases, the lesser hol!ing cost of Zaragoza
mitigates the higher transportation cost of Zaragoza Also, the transportation
cost of Zaragoza comes !own if the num<er of units5T?@ or num<er of
units5Truckloa! increases
Eence, the num<er of units5 T?@ plays a pi"otal role in consi!ering which option
to go with 'with the assumption rest all parameters remain same(
1n our eMcel mo!el we trie! to !etermine the noB of units5T?@ at which the cost of 
the $ption & 'Zaragoza( is lower than cost of option % ')otter!am(
')otter!am( <y "arying the
num<er of units5T?@ ' %/ cell in eMcel mo!el( an! Hn!ing the inuM point at
which the cost !iFerence <ecomes positi"e '? :* cell in eMcel mo!el(
e foun! out that at the point of %T?@ 4 ++/ units, the !iFerence <ecomes
positi"e ie Zaragoza option <ecomes cheaper from this point onwar!s
 No
 NoB of units5T?@ # Cost !iFerence #

 &-
 &-. # 30&-0* #
 /.
 /.. # -/00*3 #
 /-
 /-. # &*3::3 #
 +.
 +.. # %%*/&% #
 +
 +++. # -%*% #
 ++
 ++& # &: #
 +
 ++
+/ # &-/3 #
 +
 ++
+- # 0:// #
 -.
 -.. # %/%0:: #

 -
 --
-. # &&/.0 #
 

 :
 :.
.. # &**%- #

 KAMis K NoB of @nits

 6 K AMis K Cost !iFerence

 KAMis K NoB of @nits

 6 K AMis K Cost !iFerence

 The cost !iFerence

!iFerence <ecomes positi"e at ++/ units5T?@

@ncertainty in !eman! an! ser"ice life

 The uncertainty in !eman!
!eman! is re
reecte!
ecte! in the rreor!er
eor!er point an! sa
safety
fety stock The
The
more the "aria<ility in !eman! the higher will <e the reor!er point an! the safety
stock A higher !e"iation in !eman! woul! !irectly aFect the safety stock
le"els re;uire! at the warehouses an! hence increase the in"entory carrying
costs This increase woul! then aFect the o"erall costs @sing our eMcel mo!el, 1f
we increase the stan!ar! !e"iation of annual !eman! from %.,... to /&,..., the
o"erall costs for )otter!am <ecome higher than those of Zaragoza Similarly,
"arying the ser"ice life has an impact on the total cost as it
i t controls the safety
stock which in turn controls the in"entory hol!ing cost Eence, as the ser"ice life
increases to a higher "alue the cost of option & 'Zaragoza( will <e lesser than
option %
Cost of the pro!uct
As the cost of the pro!uct increases the in"entory hol!ing cost increases
increasing the total cost So Zaragoza as has a <etter cost a!"antage o"er
)otter!am
)otter!am option 1n our eMcel mo!el, plugging a pro!uct cost of &*- ?uros '? +0
an! J +0 cells(, keepi
keeping
ng all other parameters unchange! makes Zaragoza a
<etter cost option So it is a factor to <e consi!ere!

)ecommen!ations
Oase! on our a<o"e analysis, we recommen! the following to the C?$ of
Zaragoza Logistics Park 'ho shoul! they try to sell their i!ea5option(
  7 Zaragoza shoul! target customers with high num<er of u
units5T?@
nits5T?@
  7 They shoul! target
target customers
customers w
with
ith high pro!uct costs
  7 They shoul! target
target customers
customers w
whose
hose !eman!
!eman! uncertainty
uncertainty is high
7 They shoul! target customers with high annual !eman! rates
  7 They shoul!
shoul! target customers w
who
ho ha"e preference
preference for high se
ser"ice
r"ice rates
 

  7 Plaza is also an e!ucat

e!ucational
ional center for logistics while )otte
)otter!am
r!am is a ust a
logistics park Zaragoza shoul!
shoul! try to e!ucate the cuscustomer
tomer a<out the ssupply
upply
chain <eneHts of associating with a wworl!
orl! class logistics resear
research
ch center
  7 Plaza is a go"ernme
go"ernment
nt <acke!
<acke! Hrm K they s
shoul!
houl! use tthis
his factor to instill more
conH!ence in the customer o"er a pri"ate Hrm like )otter!am
)otter!am option