A company has received a distribution offer from an external warehouse. The manager must decide if the new offer is more effective. In televisions, the company currently moves 12,000 per month. Weight is 80lbs / TV.
Currently each truck moves 1000 tel per month. The operational cost is $ 15,000 / month per truck.
Income is $ 75 / cwt. The new distribution chain uses buses to move 450 televisions per month and an operating cost of $ 6500 per bus per month. Which proves to be the cheapest alternative.
In today’s competitive business landscape, companies are constantly seeking ways to optimize their operations and reduce costs. One critical aspect of this optimization process is the evaluation of distribution methods. In this essay, we will analyze a distribution offer from an external warehouse and compare it to the current distribution method used by a television company, aiming to determine which option proves to be the most cost-effective.
Currently, the television company moves 12,000 televisions per month, with each TV weighing 80 pounds. This is done using trucks that have a capacity of 1,000 televisions each, resulting in the utilization of 12 trucks. The operational cost for these trucks amounts to $15,000 per month per truck.
Revenue is generated by the company at a rate of $75 per hundredweight (cwt).
The external warehouse is proposing a new distribution chain that utilizes buses to transport 450 televisions per month. The operational cost associated with each bus is $6,500 per month.
To determine which distribution method is more cost-effective, we must compare the costs and revenues associated with each option.
Current Distribution Method Cost:
Truck operational cost per month = 12 trucks * $15,000 = $180,000
Total weight transported per month = 12,000 TVs * 80 lbs = 960,000 lbs
Revenue generated per month = (960,000 lbs / 100) * $75/cwt = $720,000
Bus operational cost per month = $6,500
Total weight transported per month = 450 TVs * 80 lbs = 36,000 lbs
Revenue generated per month = (36,000 lbs / 100) * $75/cwt = $27,000
Now, let’s compare the costs and revenues of the two distribution methods:
Current Distribution Method:
Total Cost = $180,000
Total Revenue = $720,000
Profit = Total Revenue – Total Cost = $720,000 – $180,000 = $540,000
New Distribution Chain:
Total Cost = $6,500
Total Revenue = $27,000
Profit = Total Revenue – Total Cost = $27,000 – $6,500 = $20,500
From the analysis, it is evident that the current distribution method generates significantly higher profits ($540,000) compared to the new distribution chain ($20,500).
In conclusion, the current distribution method using trucks is the more cost-effective option for the television company. While the new distribution chain using buses may have lower operational costs per vehicle, the significantly reduced capacity and revenue generated make it financially inferior to the existing system. Businesses should always consider cost, revenue, and profit when evaluating distribution alternatives to make informed decisions that benefit their bottom line.
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