Chemco case study
ChemCo Distribution Case Study
Developed by Jose J. Hernandez MIT MLOG ’03
Introduction
ChemCo, a specialty chemical manufacturer, is considering how to best redesign its distribution network in Texas. This decision is especially relevant as the due date approaches for renewing their contracts with several of the 3PL warehouses they are currently using. David, the operations manager for the Texas region, has been actively leading the improvement of their Houston plant to remove bottlenecks in both production and distribution of the chemical products.
The Houston plant has always been a busy place and demand has had significant growth in the last 5 years. The Houston plant’s ability to ship to customers was seriously constrained by congestion in its shipping and receiving area. Two years ago it was common to see a long line of trucks waiting to be loaded in the shipping area, and the associated cost of overtime.
But, by the end of 2004, David had “leaned-out” the plant operations to the point that the shipping area had 30% excess capacity. It was then when he started rethinking the current distribution network design. David wondered if it still made sense to have a separate distribution center in Dallas and, if not, how they would be able to serve those customers. To help him make a sound decision, David has asked for some supply chain management help. Unfortunately, there is very limited time and data available for the analysis. Your team has been called into help in making a recommendation to David within the next few days. Fall 2006
ChemCo Case Study
Page 1 of 5
Background
ChemCo manufactures bulk chemicals used in the construction industry. One plant
(Houston) and seven warehouses (Dallas, Port Barre, Jackson, El Paso, Albuquerque,
Denver, and Olathe) support company operations in the southwest region of the US, as shown in Exhibit 1. All products are delivered to customers either from one of the seven warehouses or
Developed by Jose J. Hernandez MIT MLOG ’03
Introduction
ChemCo, a specialty chemical manufacturer, is considering how to best redesign its distribution network in Texas. This decision is especially relevant as the due date approaches for renewing their contracts with several of the 3PL warehouses they are currently using. David, the operations manager for the Texas region, has been actively leading the improvement of their Houston plant to remove bottlenecks in both production and distribution of the chemical products.
The Houston plant has always been a busy place and demand has had significant growth in the last 5 years. The Houston plant’s ability to ship to customers was seriously constrained by congestion in its shipping and receiving area. Two years ago it was common to see a long line of trucks waiting to be loaded in the shipping area, and the associated cost of overtime.
But, by the end of 2004, David had “leaned-out” the plant operations to the point that the shipping area had 30% excess capacity. It was then when he started rethinking the current distribution network design. David wondered if it still made sense to have a separate distribution center in Dallas and, if not, how they would be able to serve those customers. To help him make a sound decision, David has asked for some supply chain management help. Unfortunately, there is very limited time and data available for the analysis. Your team has been called into help in making a recommendation to David within the next few days. Fall 2006
ChemCo Case Study
Page 1 of 5
Background
ChemCo manufactures bulk chemicals used in the construction industry. One plant
(Houston) and seven warehouses (Dallas, Port Barre, Jackson, El Paso, Albuquerque,
Denver, and Olathe) support company operations in the southwest region of the US, as shown in Exhibit 1. All products are delivered to customers either from one of the seven warehouses or
References: Daganzo, Carlos. Logistics Systems Analysis. Third Edition. 1999. Springer-Verlag Daganzo, C.F. and Newell, G.F. (1985) "Physical distribution from a warehouse: vehicle coverage and inventory levels", Trans. Res. B 19B(5), 397-408. Fall 2006 ChemCo Case Study Page 5 of 5