network of regional warehouses with Transit-points?

Should Merloni replace its network of regional warehouses with Transit-points? In order to be able to answer to this question, we first have to calculate the costs of operating, inventory and transportation from both alternatives (the current system and the transit point) and then compare them. However, as the case doesn’t have complete information to compute these costs, we have to do some assumptions. First, we have to separate the 17 regions in two groups: the Urban regions and the Rural ones. To former this groups we used the criteria of the average daily demand.

So, if the region has a daily demand bigger than the average of the 17 regions (99,21= 1686,6/17), it will be included in the Urban regions. Otherwise, it will incorporate the Rural group. After doing this, we will assume that the operating, inventory and Short-Haul Transportation Costs per piece and per month will be the same for each group and will be equal to the ones of the exhibit 10 of the case. Second, in order to calculate the transportation costs between the central warehouse and the retailers, we have to assume that the transit point will be near the location of the Region Warehouses.

If so, the costs of transportation until the Transit point will be the same of the long-haul transportation and the costs between the transit point and the retailers would be the same of the Short-Haul transportation Costs. We also have to determine the distances between Fabriano and the Regional Warehouses. In order to do this, we use the map of the exhibit 7 from the case. We know that this distances can not be exactly the real ones (because the roads are not in a straight line), but as we don’t have more information about this on the case, we decide to use the map.

Analyzing the exhibits 1, 2 and 3 and assuming that the goal of Merloni is just maximize his value (minimizing its costs) we conclude that there is not only one good system. So, Merloni should use a combination of the two systems. The current system should be used for 6 regions: Bari, Bolzano, Cagliari, Catanzaro, Genova and Udine. In fact, although the operating and inventory costs decrease a lot in the Transit-Point system, the transportation costs increase much more in these regions. This happens because in the Trial-Point system the products should be transported to the regions every day, and sometimes with the trucks almost empty.

The Transit Point should be used on the other 11 regions: Angona, Bologna, Catania, Firenze, Milano, Napoli, Padova, Palermo, Pescara, Roma and Torino where the elimination of inventory compensates the increase on the transportation costs. In conclusion, pursuing the goal of minimizing the costs, Merloni should use a mixed distribution system. We will have to consider that the distances between Fabriano – Rome and Fabriano – Catanzano are, respectively, 210 and 710 km (according to the map’s scale – it is not a real life situation given that roads are not in a straight line).