Strategic Supply Chain Management: Case Study of ABC

This case study analyzes the existing and proposed distribution structure of ABC, the supply chain management strategy, and recommendations for better streamlining of supply chain operations. The proposed arrangement of a single port of entry at Los Angeles is found to be financially gainful and advantageous for ABC.

Strategic Supply Chain Management: Case Study of ABC
ANSWER – 01:
The Existing Distribution Structure of ABC
Figure – 1: The Existing Structure of Distribution for ABC
Under the existing arrangement, ABC manages distribution of its 900,000 products,
imported from China, to its 1.8 million customers through 250 suppliers is done form
Kansas City as per demand of various warehouses shown in Table-E: 01. The
consignments, upon reaching USA, are unloaded by ABC at Seattle and Los Angeles.
The company follows the schedule of unloading 40% of the 190,000 CBM merchandise
at Seattle and 60% at Los Angeles, as explained by Chopra & Meindl, (2015). A
Processing Cost of $5 per CBM is incurred by ABC on all the inward merchandise
unloaded at Seattle and Los Angeles. The unloaded merchandise, after getting cleared
from the Customs at Seattle and Los Angeles is transported by rail to company’s Central
Distribution Centre (CDC) at Kansas City. The company incurs rail freight of $0.0018
per CBM. After evaluating the transportation, handling and processing charges, the
merchandise is distributed to various distribution centres of the company as shown in
Table – E: 02.
The imported merchandise is transported by road to the company’s 9 different
distribution centres, which are located in the different cities of USA as per their demand
detailed in Table – E: 01. The cost of transporting the merchandise by road is detailed in
Table – E: 03. Conclusion from the above noted tables is available that ABC incurs net
Dock Yard
Supplier
Storage Yard Transport Yard
Distribution
Centre
Retailer

expenses of $5,682,558 on procuring, handling and distributing the merchandise
imported from China and Taiwan, as detailed by Jacobs & Chase, (2012).
ANSWER – 02:
The Proposed Distribution Structure of ABC
Figure – 2: The Proposed Structure of Distribution for ABC
The company wants to maintain Los Angeles as the only port of entry for all of the
merchandise imported. Management proposes to expand the warehousing capacity at
Los Angeles by incurring a one-time expense of $1,500,000. The expanded Los Angeles
facility will need $350,000 annually for maintenance. The inspection and processing
cost at the new CDC will be $5 per CBM. Management proposes to retain 18% of the
190,000 CBM imported merchandise for distribution in Los Angeles and transport 82%
by road to CDC at Kansas City, explain Coyle et al, (2013). The other 8 distribution
warehouses will keep on getting merchandise from the Kansas City CDC. Costing
details have been shown in Table – P: 01 and despatch details in Table – P: 02. In Table
– P: 03 have been shown the costs related to distribution of the merchandise from
Kansas City CDC to the 8 distribution centres across the country, assert Chopra &
Meindl, (2015).
The results show that there will be total cost of $4,329,742 towards procuring, handling
and distributing of merchandise after the proposed strategy of having a single port of
entry at Los Angeles and the CDC at Kansas City. After adding the annual maintenance
Dock Yard
Supplier
Storage Yard Distribution
Centre Retailer

cost of $350,000 of the new Los Angeles CDC is also added to this figure, ABC will be
incurring an annual expenditure of $4,679,742 under the proposed arrangement, as
detailed by Jacobs & Chase, (2012).
ANSWER – 03:
Supply Chain Management of ABC
A successful supply chain management strategy is defined as an integrated process
through which ABC can maintain a regular forward flow of its merchandise combined
with a backward flow of performance information, assert Coyle et al, (2013).
Discussion
From the results shown in the tables, it is evident that the following factors make the
proposed arrangement as a better alternative –
1. ABC can save on the transportation distance.
Seattle is 1,870 miles from Kansas City whereas Los Angeles is 1,620 miles and this
difference of 250 miles can save huge expenditure. 76,000 CBM of merchandise costs
$34,200 for 250 miles at $0.0018 per CBM per mile, as per Jacobs & Chase, (2012).
2. ABC can save on the double transportation of merchandise if it is unloaded at the
Los Angeles CDC.
Here, double distance means 250x2=500 miles and the cost involved at $0.0220 per
CBM is –
(34,200 x $0.0018 x 1,620) + (34,200 x $0.0220 x 1,620)
= $99,727 + $1,218,888
= $1,318,615
Conclusion
From the above shown calculations, it becomes evident that the existing arrangement of
ABC of maintaining two ports of entry, one at Seattle and the other at Los Angeles is
not proving to be financially gainful. Results show that ABC will be saving an overall

amount of $1,002,816 if the alternative proposal of making Los Angeles as the single
port of entry is implemented, explain Chopra & Meindl, (2015).
Recommendation
Hence, after taking into consideration all the above factors, it will be advantageous for
ABC to implement its new arrangement of a single port of entry at Los Angeles. This
arrangement will help ABC in not only increasing its profits, it will also help the
company in better streamlining of its supply chain operations across whole of USA.
LIST OF REFERENCES
Chopra, S. and Meindl, P. 2015, Supply Chain Management: Strategy, Planning and
Operation, 6th ed. Pearson, New York.
Coyle, J.J., Langley, C.J., Novack, R.A. and Gibson, B.J. 2013, Supply Chain
Management: A Logistics Perspective, 9th ed. South-Western Cengage Learning,
Milton, QLD.
Jacobs, F.R. and Chase, R. 2012, Operations and Supply Chain Management: The
Core, 3rd ed. McGraw Hill, London.