Merloni

According to the results of 2-month Transit Point Trial, Merloni’s total operating costs were estimated to decrease by 80% if it would replace all of its regional warehouses to cross-dock style transit points. But as a matter of fact, the trial did not reveal the potential impact from some other factors. Two main such factors that can be pointed out are demand fluctuation and exact transportation costs determined by distance.

From the first perspective, we can estimate that the trial was implemented in the first 2 months of 1985 when the demand curve was downward for built-in products and upward for freestanding product. In general the curve is flat. Since we do not have Merloni’s historical data regarding stock out situation for central warehouse and regional warehouse, it would be appropriate to speculate that in a way the optimal results of the trial were on the basis of stable demand in these 2 months. If the trial had happened in peak season, it would be very likely that product shortages happen at the central warehouse and the cross-dock may amplify the shortages because there would be no buffer stock that should have been stored in the regional warehouses. In addition, some situations that Merloni did not experience during the trial such as a production problem at a plant, a new product introduction, transportation equipment failure and adverse weather conditions may create supply shortage as well. Once any of above situations occur, the outcome would be supply disaster because the supply would be broken off for nearly all regional customers due to no safety stock. As a result, Merloni should have more data and think twice to support its decision on replacing all regional warehouses.

From the perspective of costs that are determined by distance, we need to calculate the costs differences for Roma and Catanzaro.

For Roma, which is 175KM away from CDC, average daily demand is 154.8 units/day, it needs 1.3 large trucks or 3.44 small trucks daily. For Catanzaro, which is 600KM away from CDC, average daily demand is 58.7 units/day, it needs 0.49 large trucks or 1.30 small trucks daily. We can get saving by calculation on spreadsheet as below. As a result, Merloni can save more costs (9%) by implementing transit points policy in Catanzaro area. In Roma, the saving amount is 3%, which is not large enough to offset the impact brought by factors mentioned above.