CASE: BRANT FREEZER COMPANY Question 1: When comparing performance during the first five months of 2004 with performance in 2003, which warehouse shows the most improvement? St. Louis is the only one showing any improvement, using cost per unit shipped as the performance criterion. The cost for the first five months of 2003 was $9. 97 and for the first five months of 2004, it fell to $9. 07. Question 2: When comparing performance during the first five months of 2004 with performance in 2003, which warehouse shows the poorest change in performance?
The worst change is the company’s own warehouse (located in Fargo), where costs per unit shipped increased 31%. Among the public warehouses used, Denver was the worst in terms of cost per unit handled. It is also the most expensive public warehouse that Brant uses. Question 3: When comparisons are made among all eight warehouses, which one do you think does the best job for the Brant Company? What criteria did you use? Why? Using the cost per unit handled criterion, St.
Louis does the best job, closely followed by Chicago. Question 4: J. Q. is aggressive and is going to recommend that his father cancel the contract with one of the warehouses and give that business to a competing warehouse in the same city. J. Q. feels that when word of this gets around, the other warehouses they use will “shape up. ” Which of the seven should J. Q. recommend be dropped? Why? Denver has the lowest volume and highest unit costs among all the public warehouses used.
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In addition, it had been closed by a strike which must have inconvenienced the Brant Company. It may be that the warehouse workers’ unions are strong in the Denver area. J. Q. should probably check out rates and productivity measures of other Denver warehouses before deciding to drop its current warehouse there. Question 5: The year 2004 is nearly half over. J. Q. is told to determine how much the firm is likely to spend for warehousing at each of the eight warehouses for the last six months of 2004.
Do his work for him. There is not enough information to do a very precise forecast. J. Q. assumes that the proportion of costs occurring during the first five months of 2003 should be in the same proportion in 2004. (1) (2) (3) (4) Warehouse location| % 2003 costs occurring in first five months| Actual costs for first five months of 2004 ($)| Projected total costs in 2004 ($)| Projected costs in the last six months of 2004 ($)| Atlanta| 22. 88| 40,228| 175,822| 116,204|
Boston| 44. 00| 29,416| 66,885| 32,085| Chicago| 53. 43| 141,222| 264,312| 105,556| Denver| 35. 00| 14,900| 42,571| 23,714| Fargo| 54. 00| 9,605| 17,787| 7,012| Los Angeles| 72. 20| 93,280| 129,197| 30,781| Portland| 49. 30| 42,616| 86,442| 37,559| St. Louis| 44. 80| 19,191| 42,837| 20,265| The projected costs in 2004 (column 3) are calculated by dividing the actual costs for the first five months of 2004 (column 2) by the percent of 2003 costs that occurred in the first five months (column 1).
For example, Atlanta’s actual 2004 costs of $40,228 divided by 2003’s 22. 88% yields projected 2004 costs of approximately $175,822. The projected costs in the last six months of 2004 (column 4) are calculated by subtracting the actual costs for the first five months of 2004 (column 2) from 2004’s projected total costs (column 3). This gives us the projected costs for the last seven months of 2004. However, we are only interested in the last six months of 2004, so this number is multiplied by 6/7, or . 857.
Continuing with Atlanta, 2004’s projected total costs of $175,822 minus the first five months’ actual costs of $40,228 equals $135,394. Multiplying this by 6/7 yields projected six months’ costs of approximately $116,204. Question 6: When comparing 2003 figures with the 2004 figures shown in Exhibit 13-A, the amount budgeted for each warehouse in 2004 was greater than actual 2003 costs. How much of the increase is caused by increased volume of business (units shipped) and how much by inflation? There are several ways to approach this question.
One involves calculating the volume difference and inflation difference for each warehouse, as follows: Volume difference = 2003 unit costs x (2004 units shipped – 2003 units shipped) Inflation difference = 2004 units shipped x (2004 unit costs – 2003 unit costs) For example, Atlanta’s volume and inflation differences are: Volume difference: $8. 99 x (18,000 – 17,431) = $8. 99 x 569 = $5,115 Inflation difference: 18,000 x ($9. 97 - $8. 99) = 18,000 x $. 98 = $17,640 Question 7: Prepare the firm’s 2005 warehousing budget, showing for each warehouse the anticipated number of units to be shipped and the costs.
Again, this can be done in several ways. One is to assume that the 2004 to 2005 increases will be exactly the same amount as the 2003 to 2004 increases (with units shipped rounded to the nearest hundred, and costs rounded to the nearest $500). This would yield the following results: Warehouse location| Differences in units shipped b/w 2003 and 2004| Units shipped in 2004| Projected units shipped in 2005| Difference in warehouse costs b/w 2003 and 2004 ($)| Warehouse costs in 2004 ($)| Projected warehouse costs in 2005 ($)| Atlanta| 600| 18,000| 18,600| 21,000| 178,000| 199,000| Boston| 300| 7,200| 7,500| 9,500| 73,000| 82,500|
Chicago| 1,900| 30,000| 31,900| 38,500| 285,000| 323,500| Denver| 100| 3,100| 3,200| 3,000| 31,000| 34,000| Fargo| 0| 2,000| 2,000| 500| 17,000| 17,500| Los Angeles| 500| 17,000| 17,500| 24,000| 176,000| 200,000| Portland| 700| 9,000| 9,700| 12,000| 85,000| 97,000| St. Louis| 2,100| 8,000| 10,100| 4,000| 56,000| 60,000| Another method would use percentage changes. Question 8: While attending classes at the university, J.
Q. had learned of logistics partnerships. Should Brant Freezer Company attempt to enter into a partnership relationship with these warehouses? If so, what approach should it use? Assuming that a partnership approach was to be used, Brant would have to think of some sort of sharing of potential risks and profits. Offhand, the case does not provide much information to go on, other than cost containment or reduction is an issue.
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